<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1994
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number 1-9779
NIPSCO Industries, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1719974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5265 Hohman Avenue, Hammond, Indiana 46320-1775
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 853-5200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X
Yes _________ No __________
As of April 30, 1994, 65,349,209 common shares were outstanding.
<PAGE>
NIPSCO Industries, Inc.
Part I. Financial Information
Report Of Independent Public Accountants
To The Board of Directors of
NIPSCO Industries, Inc.:
We have audited the accompanying consolidated balance sheet of NIPSCO
Industries, Inc. (an Indiana corporation) and subsidiaries as of March 31,
1994, and December 31, 1993, and the related consolidated statements of
income, common shareholders' equity and cash flows for the three and twelve
month periods ended March 31, 1994, and 1993. These consolidated financial
statements are the responsibility of Industries' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
NIPSCO Industries, Inc. and subsidiaries as of March 31, 1994, and December
31, 1993, and the results of their operations and their cash flows for the
three and twelve month periods ended March 31, 1994, and 1993, in conformity
with generally accepted accounting principles.
As discussed in Notes 7 and 9 to the consolidated financial
statements, effective January 1, 1993, NIPSCO Industries, Inc. and
subsidiaries changed their methods of accounting for income taxes and
postretirement benefits other than pensions.
Arthur Andersen & Co.
Chicago, Illinois
April 27, 1994
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
March 31, December 31,
ASSETS 1994 1993
============== =============
(Dollars in thousands)
<S> <C> <C>
Utility Plant, at original cost
(including construction work in
progress of $201,006 and $189,634,
respectively) (Notes 2 and 4):
Electric $ 3,807,174 $ 3,778,016
Gas 1,226,845 1,216,178
Common 297,865 289,242
_____________ _____________
5,331,884 5,283,436
Less - Accumulated provision
for depreciation and
amortization 2,095,231 2,052,221
_____________ _____________
Total utility plant 3,236,653 3,231,215
_____________ _____________
Other Property and Investments:
Other property, at cost, less
accumulated provision for
depreciation 125,081 124,184
Investments, at equity (Note 1) 17,332 19,142
Investments, at cost (Note 1) 7,118 6,189
_____________ ____________
Total other property
and investments 149,531 149,515
_____________ ____________
Current Assets:
Cash and cash equivalents 53,850 16,140
Accounts receivable, less reserve of
$6,252 and $4,855, respectively
(Note 2) 151,875 115,129
Fuel adjustment clause (Note 2) 9,277 6,440
Gas cost adjustment clause (Note 2) - 35,659
Materials and supplies, at average
cost 67,482 67,120
Electric production fuel, at average
cost 23,453 21,533
Natural gas in storage, at last-in,
first-out cost (Note 2) 18,129 62,870
Prepayments and other 11,123 11,118
_____________ ____________
Total current assets 335,189 336,009
_____________ ____________
Other Assets:
Regulatory assets (Note 2) 195,720 177,728
Deferred charges and other 18,940 17,857
_____________ _____________
Total other assets 214,660 195,585
_____________ ____________
$ 3,936,033 $ 3,912,324
============= ============
<FN>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
March 31, December 31,
CAPITALIZATION AND LIABILITIES 1994 1993
=========== =============
(Dollars in thousands)
<S> <C> <C>
Capitalization:
Common shareholders' equity
(See accompanying statement) $ 1,122,463 $ 1,094,672
Cumulative preferred stocks (Note 11) -
Northern Indiana Public Service Company:
Series without mandatory redemption
provisions (Note 12) 97,750 97,753
Series with mandatory redemption
provisions (Note 13) 68,462 68,462
NIPSCO Industries Inc.:
Series with mandatory redemption
provisions (Note 13) 35,000 35,000
Long-term debt excluding amounts due
within one year (Note 17) 1,214,568 1,192,500
____________ ___________
Total capitalization 2,538,243 2,488,387
____________ ___________
Current Liabilities:
Obligations due within one year -
Northern Indiana Public Service Company:
Commercial paper - 27,895
Medium-term note -
9.15% - due April 11, 1994 60,000 65,000
Note Payable -
4.05% - due April 4, 1994 50,000 110,000
NIPSCO Capital Markets Inc.:
Commercial paper 32,000 47,000
Elm Energy and Recycling (UK), Ltd.
Term loan facility 3,840 3,766
____________ ___________
145,840 253,661
____________ ___________
Other current liabilities -
Accounts payable 202,077 192,543
Sinking funds due within one year
(Notes 13 and 17) 3,620 3,413
Dividends declared on common and
preferred stocks 26,797 26,165
Customer deposits 9,097 9,471
Taxes accrued 119,368 74,562
Gas cost adjustment clause 2,832 -
Interest accrued 23,384 12,253
Other accruals 56,072 45,296
____________ ___________
443,247 363,703
____________ ___________
Total current liabilities 589,087 617,364
____________ ___________
Other:
Deferred income taxes (Note 7) 574,314 576,071
Deferred investment tax credits, being amortized
over life of related property (Note 7) 128,719 129,681
Deferred credits 35,472 37,767
Regulatory income tax liability (Note 7) 24,713 25,371
Other noncurrent liabilities (Note 7) 45,485 37,683
___________ ____________
Total other 808,703 806,573
___________ ____________
Commitments and Contingencies
(Notes 3, 5, 6, 19 and 20) $ 3,936,033 $ 3,912,324
=========== ============
<FN>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>
<PAGE>
Part I. Financial Information
<TABLE>
<CAPTION>
Consolidated Statement of Income
Three Months Twelve Months
Ended March 31, Ended March 31,
_______________________ _______________________
1994 1993 1994 1993
========== ========== ========== ==========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
(Notes 2, 5 and 22)
Gas $ 318,580 $ 289,634 $ 743,175 $ 706,525
Electric 246,971 232,013 978,601 923,461
__________ __________ __________ __________
565,551 521,647 1,721,776 1,629,986
__________ __________ __________ __________
Cost of Energy: (Note 2)
Gas costs 198,305 177,722 450,228 427,766
Fuel for electric
generation 63,144 59,638 248,058 242,973
Power purchased 9,102 3,261 24,066 10,771
__________ __________ __________ __________
270,551 240,621 722,352 681,510
__________ __________ __________ __________
Operating Margin 295,000 281,026 999,424 948,476
__________ __________ __________ __________
Operating Expenses and
Taxes (except income):
Operation 76,450 71,855 289,001 269,807
Maintenance (Note 2) 20,313 21,265 82,596 79,748
Depreciatiation and
amortization (Note 2) 47,645 46,139 188,506 183,996
Taxes (except income) 20,834 20,230 72,225 70,605
__________ __________ __________ __________
165,242 159,489 632,328 604,156
__________ __________ __________ __________
Operating Income Before
Utility Income Taxes 129,758 121,537 367,096 344,320
__________ __________ __________ __________
Utility Income Taxes
(Note 7) 37,802 34,902 99,730 87,559
__________ __________ __________ __________
Operating Income 91,956 86,635 267,366 256,761
__________ __________ __________ __________
Other Income (Deductions):
Allowance for funds,
other than borrowed
funds, used during
construction (Note 2) - 1 - 29
Other, net (Note 2) (1,066) (865) (2,272) 230
__________ __________ __________ __________
(1,066) (864) (2,272) 259
__________ __________ __________ __________
Income Before Interest
and Other Charges 90,890 85,771 265,094 257,020
__________ __________ __________ __________
Interest and Other Charges:
Interest on long-term
debt 21,149 21,681 81,589 86,414
Other interest 1,966 2,241 8,963 10,279
Allowance for borrowed
funds used during
construction (Note 2) (727) (205) (1,969) (418)
Amortization of premium,
reacquisition premium,
discount and expense
on debt, net 892 878 3,596 3,348
Dividend requirements on
preferred stocks of
subsidiary 2,569 2,618 10,292 10,438
__________ __________ __________ __________
25,849 27,213 102,471 110,061
__________ __________ __________ __________
Net Income 65,041 58,558 162,623 146,959
Dividend requirements on
preferred shares 766 766 3,063 3,063
__________ __________ __________ __________
Balance available for
common shareholders $ 64,275 $ 57,792 $ 159,560 $ 143,896
========== ========== ========== ==========
Average common shares
outstanding 65,621,433 65,685,115 66,120,693 66,426,386
Earnings per average
common share $ 0.97 $ 0.87 $ 2.41 $ 2.16
========== ========== ========== ==========
Dividends declared per
common share $ 0.36 $ 0.33 $ 1.38 $ 1.28
========== ========== ========== ==========
<FN>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Common Shareholders' Equity
Dollars in Thousands
__________________________________________________
Additional
Common Paid-in Retained
Three Months Ended Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1993 $ 1,034,530 $ 870,930 $ 20,775 $ 317,195
Net income 58,558 58,558
Dividends:
Preferred shares (766) (766)
Common shares (21,978) (21,978)
Treasury shares acquired (5,146)
Issued:
Employee stock purchase
plan 164
Long-term incentive plan 2,206
NIFL acquisition 30,172 6,655
Other 1,081 2 (165)
___________ ___________ ___________ ___________
Balance, March 31, 1993 $ 1,098,821 $ 870,930 $ 27,432 $ 352,844
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
_____________________________________ ___________
Currency
Three Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1993 $ (168,990) $ (3,034) $ (2,346) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (5,146)
Issued:
Employee stock purchase
plan 164
Long-term incentive plan 2,206
NIFL acquisition 23,517
Other 773 471
___________ ___________ ___________ ___________
Balance, March 31, 1993 $ (148,249) $ (2,261) $ (1,875) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
___________
Three Months Ended Treasury
(continued) Shares
======================== ===========
<S> <C>
Balance, January 1, 1993 (8,133,759)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (194,246)
Issued:
Employee stock purchase
plan 10,307
Long-term incentive plan 104,800
NIFL acquisition 1,112,862
Other
___________
Balance, March 31, 1993 (7,100,036)
===========
<CAPTION>
Dollars in Thousands
__________________________________________________
Additional
Three Months Ended Common Paid-in Retained
(continued) Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ 1,094,672 $ 870,930 $ 27,631 $ 380,888
Net income 65,041 65,041
Dividends:
Preferred shares (766) (766)
Common shares (23,539) (23,539)
Treasury shares acquired (14,273)
Issued:
Employee stock purchase
plan 305 158
Long-term incentive plan 420 (39)
Other 603 (23)
___________ ___________ ___________ ___________
Balance, March 31, 1994 $ 1,122,463 $ 870,930 $ 27,750 $ 421,601
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
_____________________________________ ___________
Currency
Three Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ (180,212) $ (1,684) $ (2,881) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (14,273)
Issued:
Employee stock purchase
plan 147
Long-term incentive plan 412 47
Other 123 503
___________ ___________ ___________ ___________
Balance, March 31, 1994 $ (193,926) $ (1,514) $ (2,378) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
___________
Three Months Ended Treasury
(concluded) Shares
======================== ===========
<S> <C>
Balance, January 1, 1994 (8,063,271)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (466,344)
Issued:
Employee stock purchase
plan 9,286
Long-term incentive plan 14,289
Other
___________
Balance, March 31, 1994 (8,506,040)
===========
<CAPTION>
Dollars in Thousands
__________________________________________________
Additional
Common Paid-in Retained
Twelve Months Ended Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, April 1, 1992 $ 1,049,452 $ 870,930 $ 22,208 $ 296,406
Net income 146,959 146,959
Dividends:
Preferred shares (3,063) (3,063)
Common shares (86,234) (86,234)
Treasury shares acquired (41,514)
Issued:
Employee stock purchase
plan 330
Long-term incentive plan 5,254 51
NIFL acquisition 30,172 6,655
Other (2,535) (1,482) (1,224)
___________ ___________ ___________ ___________
Balance, March 31, 1993 $ 1,098,821 $ 870,930 $ 27,432 $ 352,844
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
_____________________________________ ___________
Currency
Twelve Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, April 1, 1992 $ (136,234) $ (3,420) $ (438) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (41,514)
Issued:
Employee stock purchase
plan 330
Long-term incentive plan 5,652 (449)
NIFL acquisition 23,517
Other 1,608 (1,437)
___________ ___________ ___________ ___________
Balance, March 31, 1993 $ (148,249) $ (2,261) $ (1,875) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
___________
Twelve Months Ended Treasury
(continued) Shares
======================== ===========
<S> <C>
Balance, April 1, 1992 (6,909,529)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (1,598,612)
Issued:
Employee stock purchase
plan 20,762
Long-term incentive plan 274,525
NIFL acquisition 1,112,862
Other (44)
___________
Balance, March 31, 1993 (7,100,036)
===========
<CAPTION>
Dollars in Thousands
__________________________________________________
Additional
Twelve Months Ended Common Paid-in Retained
(continued) Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Net income $ 162,623 $ $ $ 162,623
Dividends:
Preferred shares (3,063) (3,063)
Common shares (90,945) (90,945)
Treasury shares acquired (49,857)
Issued:
Employee stock purchase
plan 574 296
Long-term incentive plan 3,880 24
Other 430 (2) 142
___________ ___________ ___________ ___________
Balance, March 31, 1994 $ 1,122,463 $ 870,930 $ 27,750 $ 421,601
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
_____________________________________ ___________
Currency
Twelve Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Net income $ $ $
Dividends:
Preferred shares
Common shares
Treasury shares acquired (49,857)
Issued:
Employee stock purchase
plan 278
Long-term incentive plan 3,902 (46)
Other 793 (503)
___________ ___________ ___________ ___________
Balance, March 31, 1994 $ (193,926) $ (1,514) $ (2,378) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
___________
Twelve Months Ended Treasury
(concluded) Shares
======================== ===========
<S> <C>
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (1,597,183)
Issued:
Employee stock purchase
plan 17,540
Long-term incentive plan 173,639
Other
___________
Balance, March 31, 1994 (8,506,040)
===========
<FN>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
Three Months Twelve Months
Ended March 31, Ended March 31,
________________________ _________________________
1994 1993 1994 1993
=========== =========== =========== ===========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income $ 65,041 $ 58,558 $ 162,623 $ 146,959
Adjustments to
reconcile net income
to net cash:
Depreciation and
amortization 47,645 46,139 188,506 183,996
Deferred federal
and state
operating income
taxes, net (15,068) (11,364) (1,582) (42)
Deferred investment
tax credits, net (962) (1,850) (6,558) (7,439)
Change in certain
assets and
liabilities* -
Accounts
receivable,
net (36,746) (27,837) (21,164) (17,902)
Electric
production
fuel (1,920) 1,241 17,251 (8,699)
Materials and
supplies (362) 1,212 5,770 3,033
Natural gas in
storage 44,741 25,865 (5,809) 1,351
Accounts payable 9,534 (7,327) 40,368 17,032
Taxes accrued 44,806 43,705 1,642 30,082
Fuel adjustment
clause (2,837) (626) (4,316) 2,217
Gas cost
adjustment
clause 35,659 26,161 20,139 (18,412)
Other accruals 10,776 21,395 (10,619) 9,284
Other, net 16,669 21,075 7,056 18,895
___________ ___________ ___________ ___________
Net cash
provided by
operating
activities 216,976 196,347 393,307 360,355
___________ ___________ ___________ ___________
Cash flows provided by
(used in) investing
activities:
Utility construction
expenditures (52,822) (34,441) (199,233) (172,406)
Acquisition and
construction
expenditures
related to
Crossroads Pipeline
Company (1,067) - (25,428) -
Purchase of Northern
Indiana Fuel and
Light Company, Inc.,
net of cash acquired - (30,137) - (30,137)
Return of capital to
Harbor Coal
Company - - 32,435 -
Other, net 195 (14,158) (38,708) (45,942)
___________ ___________ ___________ ___________
Net cash used
in
investing
activities (53,694) (78,736) (230,934) (248,485)
___________ ___________ ___________ ___________
Cash flows provided by
(used in) financing
activities:
Issuance of
long-term debt 20,395 - 488,664 50,486
Issuance of
short-term debt 87,401 235,401 1,106,507 1,612,364
Issuance of
preferred shares - - - 43,000
Net change in
commercial paper (42,895) (52,500) 8,000 24,000
Retirement of
long-term debt (5,042) (41) (382,070) (68,017)
Retirement of
short-term debt (147,401) (320,251) (1,215,358) (1,657,163)
Retirement of
preferred stock - (160) (2,010) (30,422)
Issuance of common
shares 685 32,378 4,671 35,748
Acquisition of
treasury shares (14,273) (5,146) (49,857) (41,514)
Cash dividends paid
on common shares (23,676) (21,665) (90,225) (83,810)
Cash dividends paid
on preferred
shares (766) (766) (3,063) (3,063)
Other, net - 1,487 (1,487) 911
___________ ___________ ___________ ___________
Net cash used
in
financing
activities (125,572) (131,263) (136,228) (117,480)
___________ ___________ ___________ ___________
Net increase (decrease)
in cash and cash
equivalents 37,710 (13,652) 26,145 (5,610)
Cash and cash
equivalents at
beginning of period 16,140 41,357 27,705 33,315
___________ ___________ ___________ ___________
Cash and cash
equivalents at end
of period $ 53,850 $ 27,705 $ 53,850 $ 27,705
=========== =========== =========== ===========
*Net of effects from purchase of Northern Indiana Fuel and Light Company, Inc.
<FN>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(1) Holding Company Structure: NIPSCO Industries, Inc. (Industries) was
incorporated in Indiana on September 22, 1987, and became the parent of
Northern Indiana Public Service Company (Northern Indiana) on March 3, 1988,
after the shareholders of Northern Indiana approved a corporate restructuring
pursuant to which Northern Indiana's outstanding common shares were exchanged
on a share-for-share basis with common shares of Industries. The other
securities of Northern Indiana, including its first mortgage bonds, pollution
control notes and bonds, other debt securities and each series of preferred
stock, were not changed by the restructuring and they continue to be
outstanding obligations and securities of Northern Indiana. Northern Indiana
is a public utility operating company supplying electricity and gas to the
public in the northern third of Indiana.
At March 31, 1994, Industries had five direct, wholly-owned
subsidiaries in addition to Northern Indiana, which are all Indiana
corporations: NIPSCO Development Company, Inc. (Development), NIPSCO Energy
Services, Inc. (Services), NIPSCO Capital Markets, Inc. (Capital Markets),
Kokomo Gas and Fuel Company(Kokomo Gas) and Northern Indiana Fuel and Light
Company, Inc. (NIFL).
Kokomo Gas is a public utility operating company incorporated in
Indiana in 1917, engaged in supplying natural gas to the public. It operates
in the city of Kokomo, Indiana and the surrounding area in six counties having
a population of approximately 100,000 and served approximately 31,200
customers at March 31, 1994. The Kokomo Gas service territory is contiguous to
Northern Indiana's gas service territory.
On March 31, 1993, Industries acquired NIFL, a natural gas utility
headquartered in Auburn, Indiana, that served approximately 28,900 customers
at March 31, 1994, in the northeast corner of the state, contiguous to
Northern Indiana's service territory. Industries issued 1,112,862 common
shares and $26,311 cash in exchange for all of the common shares of NIFL.
Development makes various investments, including real estate.
Services coordinates the energy-related diversification ventures and has four
wholly-owned subsidiaries: NIPSCO Fuel Company, Inc. (Fuel) which makes
investments in gas and oil exploration and development ventures; NIPSCO Energy
Trading Corp.(NETCO) which is engaged in gas and other energy brokering
businesses; NI-TEX, Inc. (NI-TEX) which is an intrastate natural gas
transmission and supply company; and Crossroads Pipeline Company (Crossroads),
a natural gas transmission company. Capital Markets handles financing for the
ventures of Industries other than Northern Indiana.
In December 1993, Services entered into a Letter of Intent with Eastex
Energy Inc. (Eastex) to sell its entire ownership interest in NETCO and its
51% ownership interest in Triumph Natural Gas, Inc. (Triumph), in exchange
for a combination of Eastex common and preferred stock, representing an equity
ownership of approximately 25%. On March 31, 1994, the definitive agreement
of Services and Eastex expired with no further obligations on either party.
Development is a 95% shareholder in Elm Energy and Recycling (UK)
Ltd.(Elm Energy), which was formed to develop, own, and operate a
waste-to-energy generating plant in Wolverhampton, England. The 30 megawatt,
tire-fueled generating station is expected to use about 8-10 million
automobile and truck tires a year and began operations in late 1993.
Northern Indiana has two subsidiaries: Shore Line Shops, Inc. (Shore
Line) and NIPSCO Exploration Company, Inc. (Exploration). Shore Line
undertakes the purchase and sale of transferred employees' residences on
behalf of Northern Indiana. Exploration has investment interests, which are
subject to Indiana Utility Regulatory Commission (Commission) rate treatment,
in off-shore Gulf of Mexico oil and gas leases.
<PAGE>
(2) Summary of Significant Accounting Policies:
Principles of Consolidation. The consolidated financial statements
include the accounts of NIPSCO Industries, Inc., its utility subsidiaries
Northern Indiana, Kokomo Gas, NIFL and Crossroads (Utilities), and all
non-utility subsidiaries. In addition, the consolidated financial statements
of Northern Indiana include its consolidated subsidiaries, Shore Line and
Exploration. The operating results of all non-utility subsidiaries are
included in "Other, net" under the caption "Other Income (Deductions)" in the
Consolidated Statement of Income (except for Exploration's net results of
operations, which are reported as a component of "Gas costs," since
Exploration is subject to Commission rate treatment). Interest on long-term
debt, other interest, and amortization of debt discount and expense are
reflected as a component of "Interest and Other Charges." All significant
intercompany items have been eliminated in consolidation. Certain
reclassifications were made to conform the prior years' financial
statements to the current presentation.
Operating Revenues. Revenues are recorded based on estimated service
rendered, but are billed to customers monthly on a cycle basis.
Depreciation and Maintenance. Northern Indiana provides depreciation
on a straight-line method over the remaining service lives of the electric,
gas, and common properties. The provisions as a percentage of the cost of
depreciable utility plant were approximately 4.0%, for the three and twelve
month periods ended March 31, 1994, and March 31, 1993. The depreciation
rates for electric and gas properties were 3.55% and 4.92%, respectively.
Kokomo Gas provides depreciation on the original cost of utility plant
in service using straight-line rates that averaged approximately 3.4% for the
three and twelve month periods ended March 31, 1994, and March 31, 1993,
respectively.
NIFL provides depreciation on the original cost of utility plant in
service using straight-line rates that averaged approximately 2.75%.
The Utilities follow the practice of charging maintenance and repairs,
including the cost of renewals of minor items of property, to maintenance
expense accounts, except that repairs of transportation and service equipment
are charged to clearing accounts and redistributed to operating expense and
other accounts. When property which represents a retirement unit is replaced
or removed, the cost of such property is credited to utility plant, and such
cost, together with the cost of removal less salvage, is charged to the
accumulated provision for depreciation.
Coal Reserves. Northern Indiana has a long-term mining contract to
mine its coal reserves through the year 2001. The costs of these reserves
are being recovered through the rate making process as such coal reserves are
used to produce electricity.
Oil and Natural Gas Accounting. Fuel uses the full cost method of
accounting for its oil and natural gas production activities. Under this
method all costs incurred in the acquisition, exploration and development of
oil and natural gas properties are capitalized and amortized on the units of
production basis.
Power Purchased. Power purchases and net interchange power with other
electric utilities under interconnection agreements are included in Cost of
Energy under the caption "Power purchased."
Accounts Receivable. At March 31, 1994, Northern Indiana had sold
$100 million of certain of its accounts receivable under a sales agreement
which expires May 31, 1997.
<PAGE>
Statement of Cash Flows. For the purposes of the Consolidated
Statement of Cash Flows, Industries considers temporary cash investments with
an original maturity of three months or less to be cash equivalents.
Cash paid during the periods reported for income taxes and interest
was as follows:
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended March 31, Ended March 31,
------------------ -------------------
1994 1993 1994 1993
======== ======= ========= =======
(Dollars in thousands)
<S> <C> <C> <C> <C>
Income taxes $ 2,435 $ 3,342 $ 92,248 $ 65,656
Interest, net of amounts
capitalized $ 11,356 $ 16,232 $ 82,870 $ 97,207
</TABLE>
Fuel Adjustment Clause. All metered electric rates contain a
provision for adjustment in charges for electric energy to reflect increases
and decreases in the cost of fuel and the fuel cost of purchased power through
operation of a fuel adjustment clause. As prescribed by order of the
Commission applicable to metered retail rates, the adjustment factor has been
calculated based on the estimated cost of fuel and the fuel cost of purchased
power in a future three-month period. If two statutory requirements relating
to expense and return levels are satisfied, any under or overrecovery caused
by variances between estimated and actual cost in a given three month priod
will be included in a future filing. Northern Indiana records any under or
overrecovery as a current asset or current liability until such time as it is
billed or refunded to its customers. The fuel adjustment factor is subject to
a quarterly hearing by the Commission and remains in effect for a three-month
period.
Gas Cost Adjustment Clause. All metered gas rates contain an
adjustment factor which reflects the cost of purchased gas, contracted gas
storage and storage transportation charges. The Utilities record any under or
overrecovery as a current asset or current liability until such time as it is
billed or refunded to their customers. The gas cost adjustment factor for
Northern Indiana is subject to a quarterly hearing by the Commission and
remains in effect for a three-month period. The gas cost adjustment factors
for Kokomo Gas and NIFL are subject to a semi-annual hearing by the Commission
and remain in effect for a six-month period. If the statutory requirement
relating to the level of return is satisfied, any under or overrecovery caused
by variances between estimated and actual cost in a given three or six month
period will be included in a future filing. See Note 5, Rate Matters
(Take-or-Pay Pipeline Gas Costs) for a discussion of take-or-pay charges.
Natural Gas in Storage. Based on the average cost of gas purchased
in March, 1994, and December, 1993, the estimated replacement cost of gas in
storage (current and non-current) at March 31, 1994, and December 31, 1993,
exceeded the stated LIFO cost by approximately $37 million and $55 million,
respectively.
<PAGE>
Regulatory Assets. The Utilities' operations are subject to the
regulation of the Commission and the Federal Energy Regulatory Commission
(FERC). Accordingly,the Utilities' accounting policies are subject to the
provisions of Statement of Financial Accounting Standards (SFAS) No. 71
"Accounting for the Effects of Certain Types of Regulation." The regulatory
assets below represent probable future revenue to the Utilities' associated
with certain incurred costs as these costs are recovered through the rate
making process. Regulatory assets were comprised of the following items, and
were reflected in the Consolidated Balance Sheet as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
=========== =============
(Dollars in thousands)
<S> <C> <C>
Unamortized reacquisition
premium on debt (Note 17) $ 47,386 $ 48,033
Unamortized R.M. Schahfer Unit 17
and Unit 18 carrying charges
and deferred depreciation (see below) 78,144 79,198
Bailly scrubber carrying charges
and deferred depreciation (see below) 5,453 4,711
Deferral of SFAS No. 106 expense
not recovered (Note 9) 27,902 22,410
FERC Order No. 636
transition costs (Note 5) 36,835 23,376
___________ ___________
$ 195,720 $ 177,728
=========== ===========
</TABLE>
Carrying Charges and Deferred Depreciation. Upon completin of R.
M. Schahfer Units 17 and 18, Northern Indiana capitalized the carrying charges
and deferred depreciation in accordance with orders of the Commission until
the cost of each unit was allowed in rates. Such carrying charges and
deferred depreciation are being amortized over the remaining life of each
unit.
Northern Indiana began capitalizing carrying charges and deferring
depreciation and certain operating expenses relating to its scrubber service
agreement upon completion of the flue gas desulfurization plant in June, 1992,
at Northern Indiana's Bailly Generating Station in accordance with an order
of the Commission. Capitalization of carrying charges and deferral of
depreciation and certain operating expenses will continue until the earlier of
December 31, 1995, or the date a final order considering the costs in rates is
approved by the Commission.
Allowance for Funds Used During Construction. Allowance for funds
used during construction (AFUDC) is charged to construction work in progress
during the period of construction and represents the net cost of borrowed
funds used for construction purposes and a reasonable rate upon other (equity)
funds. Under established regulatory rate practices, after the construction
project is placed in service, Northern Indiana is permitted to include in the
rates charged for utility services (a) a fair return on and (b) depreciation
of such AFUDC included in plant in service.
At January 1, 1992, a pretax rate of 4.0% for all construction was
being used; effective January 1, 1993, the rate decreased to 3.7% and
effective January 1, 1994, the rate increased to 5.0%.
Foreign Currency Translation. Translation gains or losses are based
upon the end-of-period exchange rate and are recorded as a separate component
of shareholders' equity.
Income Taxes. Deferred income taxes are recognized as costs in the
rate making process by the commissions having jurisdiction over the rates
charged by the Utilities. Deferred income taxes are provided as a result of
provisions in the income tax law that either require or permit certain items
to be reported on the income tax return in a different period than they are
reported in the financial statements. These taxes are reversed by a debit or
credit to deferred income tax expense as the temporary differences reverse.
Investment tax credits have been deferred and are being amortized to income
over the life of the related property.
For additional information relating to income taxes, including
information related to Industries' adoption of SFAS No. 109 effective January
1, 1993, which requires an asset and liability approach to accounting for
income taxes, see Note 7.
<PAGE>
(3) Pending Tax Matter: On August 1, 1991, the Internal Revenue Service
(IRS) issued a notice of deficiency for Northern Indiana's taxes for the years
1982 through 1985 ($3,785,250 per year plus interest) relating to interest
payments on $70 million of 17-1/4% Notes issued in 1981 by Northern Indiana's
foreign subsidiary, Northern Indiana Public Service Finance N.V. (Finance).
The IRS believes that interest paid on the Notes should have been subject to
United States tax withholding. The Notes were redeemed in 1985 and Finance was
subsequently liquidated. On October 25, 1991, Northern Indiana filed its
petition challenging the assessment in the United States Tax Court and trial
is set to begin May 31, 1994. Northern Indiana estimates that the IRS claim
approximates $41 million of principal and interest at March 31, 1994.
Northern Indiana's management and general counsel believe Northern Indiana
will be successful in establishing that no tax withholding was required for
the period.
(4) Acquisition of NIFL: On March 31, 1993, Industries acquired NIFL.
Industries issued 1,112,862 common shares and $26,311 cash in exchange for
all of the common shares of NIFL. The acquisition was accounted for as a
purchase in accordance with Accounting Principles Board Opinion No. 16. The
excess of the total acquisition costs over the recorded value of net assets
acquired (approximately $17 million) was recorded as a plant acquisition
adjustment.
(5) Rate Matters:
Take-or-Pay Pipeline Gas Costs. The FERC has allowed certain
interstate pipeline suppliers to pass on to their customers a portion of costs
for contracted gas not purchased (take-or-pay), contract reformation and
associated interest charges through direct billing to their customers,
including the Utilities.
Northern Indiana records take-or-pay costs as they are billed by the
respective pipeline, and in an order dated September 28, 1988, the Commission
allowed Northern Indiana to recover these additional gas costs on a volumetric
basis from all customers, including transport customers. The Utilities have
recovered approximately $188.5 million of take-or-pay costs and interest from
their customers through March 31, 1994. As of March 31, 1994, an additional
$10.2 million was scheduled to be billed to the Utilities and recovered from
customers over a period of one to five years.
FERC Order No. 636. On April 8, 1992, the FERC issued Order No. 636
which required interstate pipelines to restructure their services. Under the
Order, existing pipeline sales services have "unbundled" such that gas
supplies are being sold separately from interstate transportation services.
The Utilities' interstate pipeline suppliers have filed new tariffs with the
FERC to implement Order No. 636, and the Utilities have contracted for a mix
of transportation and storage services which allows them to meet the needs of
their customers. Customers, such as the Utilities, are expected to benefit
from enhanced access to competitively priced gas supplies as well as from more
flexible transportation services. Pipelines are seeking to recover certain
transition costs associated with restructuring under the Order No. 636
regulation from their customers. Any such recovery is subject to established
review procedures at the FERC. Also, mandated changes in pipeline rate design
could increase the cost of firm transportation service on interstate
pipelines. All interstate pipelines are now operating under Order No. 636
regulation.
The Utilities' pipeline suppliers have made certain filings with the
FERC to begin collecting their respective transition costs. The Utilities
expect that the total transition costs from all suppliers will approximate
$96-$107 million. However, the ultimate level of costs will depend on future
events, including the market price of natural gas. Approximately $37 million
of such costs have been recorded, a portion of which has been paid to the
pipeline suppliers, subject to refund. The Utilities believe that any
transition costs which the FERC would allow the Utilities' pipeline suppliers
to collect would be recoverable by the Utilities from their customers.
Northern Indiana has filed a petition with the Commission seeking recovery of
the transition costs from its sales and transport customers on a volumetric
basis, (which is consistent with what the Commission authorized for the
recovery of take-or-pay pipeline gas costs), which petition is now pending.
Accordingly, regulatory assets, in amounts corresponding to the costs
recorded, have been recorded to reflect the anticipated recovery.
<PAGE>
(6) Environmental Matters: Because of major investments made in modern
environmental control facilities and the use of low sulfur coal, substantially
all of Northern Indiana's electric production facilities already comply with
the sulfur dioxide limitations contained in acid rain provisions of the Clean
Air Act Amendments of 1990 (CAAA).
Northern Indiana has successfully tested the use of low sulfur coal
at Unit 12 at the Michigan City Generating Station, the only generating unit
not in compliance with the future sulfur dioxide limitations, and expects that
unit to be able to meet the limits with low sulfur coal. Northern Indiana
estimates that total costs of compliance with the CAAA sulfur dioxide
regulations will impact electric rates by less than 5% in the future.
The CAAA contain provisions that could lead to strict limitations on
emissions of nitrogen oxides and "air toxics", which may require significant
capital expenditures for control of these emissions. Northern Indiana cannot
predict the costs of complying with them, but Northern Indiana believes that
any such mandated costs would be recoverable through the rate making process.
The Environmental Protection Agency (EPA) and Indiana have promulgated
an air operating permit program to meet the requirements of the CAAA. This
permit program increases the fees associated with operating permits for air
emissions.
Northern Indiana has received notices from the EPA that it is a
"potentially responsible party" (PRP) under the Comprehensive Environmental
Response Compensation and Liability Act (CERCLA) and the Superfund Amendment
and Reauthorization Act (SARA) and may be required to share in the cost of
cleanup of several waste disposal sites identified by the EPA. The sites are
in various stages of investigation and analysis to determine the amount of
remedial costs necessary to clean up the sites. At each of the sites,
Northern Indiana is one of several PRPs, and it is expected that remedial
costs, as provided under CERCLA and SARA,will be shared among them. At some
sites Northern Indiana and/or the other named PRPs are presently working with
the EPA to clean up the site and avoid the imposition of fines or added costs.
While remedial costs at these sites are not presently determinable, Northern
Indiana's preliminary analysis indicates its share of such costs should not
have a significant impact on the results of future operations.
Northern Indiana was notified by the Indiana Department of
Environmental Management (IDEM) of the release of a petroleum substance into
the St. Mary's River in Fort Wayne, Indiana, from the site of a former
manufactured gas plant formerly owned by Northern Indiana. In cooperation
with IDEM, Northern Indiana has taken steps to investigate and contain the
substance. Northern Indiana is continuing to monitor and investigate the site
to determine what further remedial action, if any, will be required.
Northern Indiana was notified by Indiana Gas Company, Inc. (Indiana
Gas) that the site of a former manufactured gas plant in Lafayette, Indiana,
believed to have been formerly owned by Northern Indiana, was being
investigated and partially remediated by Indiana Gas pursuant to an
administrative order issued by IDEM. Northern Indiana is investigating its
potential liability and evaluating appropriate action.
The Utilities have an ongoing program to remain aware of laws and
regulations involved with hazardous waste. It is the Utilities' intent to
continue to evaluate their facilities and properties with respect to these
rules and identify any sites that would require corrective action. Northern
Indiana has commenced a voluntary program of investigating its former
manufactured gas plant sites in order to determine what, if any, remediation
of any potential remaining waste materials may be required. Since this
program is in its early stages, it is not possible at this time to estimate
what, if any, remediation costs may be incurred.
<PAGE>
The possibility that exposure to electric and magnetic fields
emanating from power lines, household appliances and other electric sources
may result in adverse health effects has been the subject of increased public,
governmental and media attention. A considerable amount of scientific
research has been conducted on this topic without definitive results.
Research is continuing to resolve scientific uncertainties.
(7) Income Taxes. Effective January 1, 1993, Industries adopted
SFAS No. 109, "Accounting for Income Taxes," which requires the use of the
liability method of accounting for income taxes. Under the liability method,
deferred income taxes are recognized, at currently enacted income tax rates,
to reflect the tax effect of temporary differences between the financial
statement and tax bases of assets and liabilities.
To implement SFAS No. 109, certain adjustments were made to deferred
income taxes. To the extent such income taxes are recoverable or payable
through future rates, regulatory assets and liabilities have been recorded in
the Consolidated Balance Sheet. These adjustments include the amounts
reflecting the Utilities' obligation to credit to ratepayers deferred income
taxes provided at rates higher than the current federal tax rate which are
currently being credited to ratepayers using the average rate assumption
method required by the Tax Reform Act of 1986 and the Commission. The
initial application of this statement was reflected in the January 1, 1993,
Consolidated Balance Sheet, with no impact on results of operations or cash
flow. The effect of the implementation entry on regulated activities was to
record a net decrease in deferred income taxes and provide a net regulatory
income tax liability of approximately $52 million. On August 10, 1993, the
Federal statutory income tax rate was increased to 35%, a change of 1%,
effective January 1, 1993. The impact of this change reduced the balance of
the net regulatory liability approximately $22.1 million during 1993. The net
regulatory income tax liability is derived from regulatory assets primarily
attributable to undepreciated AFUDC-equity and the cumulative net amount of
other income tax timing differences for which deferred taxes had not been
provided in the past when regulators did not recognize such taxes as costs in
the rate making process and regulatory liabilities primarily attributable
to deferred taxes provided at rates in excess of the current statutory rate,
as discussed above, and unamortized deferred investment tax credits.
The components of the net deferred income tax liability at March 31,
1994, and December 31, 1993, are as follows:
<TABLE>
<CAPTION>
March 31, 1994 December 31, 1993
================ ==================
(Dollars in thousands)
<S> <C> <C>
Deferred tax liabilities -
Accelerated depreciation and
other property differences $ 679,656 $ 677,493
AFUDC-equity 44,278 44,863
Adjustment clauses 3,038 16,876
Take-or-pay gas costs 3,128 4,234
Reacquisition premium on debt 16,586 16,844
Deferred tax assets -
Deferred investment tax credits (48,801) (49,174)
Removal costs (96,160) (93,279)
Regulatory income tax liability (9,327) (9,582)
Other, net (19,118) (20,757)
____________ ___________
573,280 587,518
Less: Deferred income taxes related
to current assets and liabilities (1,034) 11,447
____________ ___________
Deferred income taxes - noncurrent $ 574,314 $ 576,071
============ ===========
</TABLE>
Federal and state income taxes as set forth in the Consolidated
Statement of Income are comprised of the following:
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended March 31, Ended March 31,
------------------ ------------------
1994 1993 1994 1993
========= ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current income taxes -
Federal $ 46,797 $ 41,894 $ 93,925 $ 81,754
State 7,035 6,222 13,945 13,286
_________ ________ ________ ________
53,832 48,116 107,870 95,040
_________ ________ ________ ________
Deferred income taxes, net- Federal
and State-
Accelerated depreciation and
other property differences 3,277 2,858 13,630 10,781
Removal costs (2,809) (2,925) (8,644) (11,436)
Adjustment clauses (13,838) (9,749) (6,555) 6,247
Take-or-pay gas costs (1,106) (474) (6,431) 1,092
Minimum tax credit deferral - - - 730
Reacquisition premium on debt (258) (261) 2,827 (1,284)
Other (334) (813) 3,591 (6,172)
________ _______ _______ _______
(15,068) (11,364) (1,582) (42)
________ _______ _______ _______
Deferred investment tax credits, net (962) (1,850) (6,558) (7,439)
________ _______ _______ _______
Total utility operating income taxes 37,802 34,902 99,730 87,559
Income tax applicable to non-
operating activities and income
of non-utility subsidiaries (1,677) (1,515) (5,699) (4,275)
________ ________ ________ ________
Total income taxes $ 36,125 $ 33,387 $ 94,031 $ 83,284
======== ======== ======== ========
</TABLE>
<PAGE>
A reconciliation of total tax expense to an amount computed by
applying the statutory federal income tax rate to pretax income is as follows:
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended March 31, Ended March 31,
------------------- ---------------------
1994 1993 1994 1993
========= ======== ======== =========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net Income $ 65,041 $ 58,559 $ 162,623 $ 146,959
Add-Income taxes 36,125 33,387 94,031 83,284
Dividend requirements on
preferred stocks of subsidiary 2,569 2,618 10,292 10,438
_________ ________ _________ _________
Income before preferred dividend
requirements of subsidiary and
income taxes $ 103,735 $ 94,564 $ 266,946 $ 240,681
========= ======== ========= =========
Amount derived by multiplying
pretax income by statutory rate $ 36,307 $ 32,152 $ 94,376 $ 81,833
Reconciling items multiplied by
the statutory rate:
Book depreciation over related
tax depreciation 967 979 3,881 4,254
Amortization of deferred
investment tax credits (1,928) (1,850) (7,524) (7,439)
State income taxes, net of
federal income tax benefit 3,377 3,211 8,734 8,579
Reversal of deferred taxes
provided at rates in excess
of the current federal income
tax rate (1,298) (1,381) (4,997) (5,436)
Other, net (1,300) 276 (439) 1,493
_________ ________ ________ ________
Total income taxes $ 36,125 $ 33,387 $ 94,031 $ 83,284
========= ======== ======== ========
</TABLE>
(8) Pension Plans. Industries and its subsidiaries have four
noncontributory, defined benefit retirement plans covering substantially all
employees. Benefits under the plans reflect the employees' compensation,
years of service and age at retirement.
The plans' funded status as of January 1, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1994 1993
========= =========
(Dollars in thousands)
<S> <C> <C>
Vested benefit obligation $ 481,755 $ 429,359
Nonvested benefit 86,373 75,815
_________ _________
Accumulated benefit obligation $ 568,128 $ 505,174
========= =========
Projected benefit obligation for
service rendered to date $ 657,068 $ 588,800
Plan assets at fair market value 605,379 539,387
_________ _________
Projected benefit obligation in excess of plan assets 51,689 49,413
Unrecognized transition obligation at January 1,
being recognized over 17 years (54,055) (59,933)
Unrecognized prior service cost (31,464) (23,100)
Unrecognized gains 51,154 50,033
_________ _________
Accrued pension costs $ 17,324 $ 16,413
========= =========
</TABLE>
The accumulated benefit obligation is the present value of future
pension benefit payments and is based on the plan benefit formula without
considering expected future salary increases. The projected benefit
obligation considers estimated future salary increases. Discount rates of
7.50% and 7.75% and rates of increase in compensation levels of 5.5% were used
to determine the accumulated benefit obligation and projected benefit
obligation at January 1, 1994, and 1993, respectively. The reduction of the
discount rate, as discussed above, along with certain plan changes increased
the accumulated benefit obligation as of January 1, 1994, by approximately $31
million.
The following items are the components of provisions for pensions for
the three months ended March 31, 1994, and March 31, 1993:
<TABLE>
<CAPTION>
March 31, March 31,
1994 1993
========== ==========
(Dollars in thousands)
<S> <C> <C>
Service costs $ 3,627 $ 3,329
Interest costs 12,050 11,328
Estimated return on plan assets (11,931) (11,045)
Amortization of transition obligation 1,347 1,347
Other net amortization and deferral 621 719
__________ _________
$ 5,714 $ 5,678
========== =========
</TABLE>
Assumptions used in the valuation and determination of 1994 and 1993
pension expenses were as follows:
<TABLE>
<CAPTION>
1994 1993
======= =======
<S> <C> <C>
Discount rate 7.50% 7.75%
Rate of increase in compensation levels 5.50% 5.50%
Expected long-term rate of return on assets 8.25% 8.25%
</TABLE>
The plans' assets are invested primarily in common stocks, bonds,
notes and real estate investment funds.
Industries recorded provisions for pension costs as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1994 1993
========== ==========
(Dollars in thousands)
<S> <C> <C>
Three months ended $ 5,714 $ 5,678
Twelve months ended $ 22,944 $ 21,820
</TABLE>
<PAGE>
(9) Postretirement Benefits. Industries provides certain health care and
life insurance benefits for retired employees. Substantially all of
Industries' employees may become eligible for those benefits if they reach
retirement age while working for Industries. Those and similar benefits for
active employees are provided through an insurance company whose premiums are
based on the benefits to active employees and retirees paid during the
year.Prior to January 1, 1993, the Utilities recognized the cost of providing
those benefits by expensing insurance premiums, which is consistent with
current rate making practices. The annual cost of providing those benefits for
retirees and/or their surviving spouses was $6.3 million for the year ended
December 31, 1992.
Effective January 1, 1993, Industries adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", which
establishes accounting and reporting standards for such postretirement
benefits. This standard requires the accrual of the expected cost of such
benefits during the employee's years of service. The assumptions and
calculations involved in determining the accrual closely parallel pension
accounting requirements.
The following table sets forth the plans' accumulated postretirement
benefit obligation as of January 1, 1994, and January 1, 1993.
<TABLE>
<CAPTION>
January 1, January 1,
1994 1993
============== ==============
(Dollars in thousands)
<S> <C> <C>
Retirees $ 89,650 $ 86,318
Fully eligible active plan participants 30,501 26,748
Other active plan participants 150,215 118,802
__________ __________
Accumulated postretirement benefit obligation 270,366 231,868
Unrecognized transition obligation (220,274) (231,868)
Unrecognized prior actuarial loss (20,737) -
__________ __________
Accrued liability for postretirement
health care benefit obligation $ 29,355 $ -
========== ==========
</TABLE>
Discount rates of 7.5% and 8% at January 1, 1994, and January 1, 1993,
respectively, and a pre-Medicare medical trend rate of 13% declining to a
long-term rate of 7% were used to determine the accumulated postretirement
benefit obligation at January 1, 1994, and January 1, 1993.
The transition obligation at January 1, 1993, for accumulated
postretirement benefits earned and not recognized is being amortized over
twenty years as allowed by SFAS No. 106.
Net periodic postretirement benefits costs for the three months ended
March 31, 1994, and 1993, include the following components:
<TABLE>
<CAPTION>
March 31, March 31,
1994 1993
========== ==========
(Dollars in thousands)
<S> <C> <C>
Service costs $ 2,045 $ 1,701
Interests costs 4,962 4,532
Amortization of transition obligation
over 20 years 2,882 2,880
_________ _________
$ 9,889 $ 9,113
========= =========
</TABLE>
Industries recorded net periodic postretirement benefit costs of
$37,457,000 for the twelve months ended March 31, 1994.
The net periodic postretirement benefit costs were determined assuming
a 7.5% discount rate for 1994 and an 8% discount rate for 1993, a 5% rate of
compensation increase and a pre-Medicare medical trend rate of 13%
declining to a long-term rate of 7%. The effect of a 1% increase in the
assumed health care cost trend rates for each future year would increase the
accumulated postretirement benefit obligation at January 1, 1994, by
approximately $45 million and increase the aggregate of the service and
interest cost components of plan costs by approximately $1.2 million for the
three month period ended March 31, 1994. Amounts disclosed above could be
changed significantly in the future by changes in health care costs, work
force demographics, interest rates or plan changes.
<PAGE>
Northern Indiana joined with other Indiana utilities and requested
that the Commission conduct generic hearings to approve the accrual method
of accounting for postretirement benefits for rate making purposes and to
authorize the deferral, as a regulatory asset to be recovered through future
revenues, of the net increase in cost until such time as the new accrual cost
method may be reflected in the rate making process in the next general rate
proceeding. Generic hearings were conducted by the Commission during October,
1992, and, in an order issued on December 30, 1992, the Commission authorized
the deferral accounting requested but stated such deferral period should not
exceed four years; the Utilities expect to request recovery of such costs
within that period. The Commission also indicated each utility would have to
demonstrate its postretirement benefit costs were prudent and reasonably
incurred at the time such costs were proposed to be recovered in the rate
making process. In addition, while the Commission stated it was hopeful
something less than full accrual of such costs in rates would be possible
under generally accepted accounting principles, the Utilities believe the
Commission recognizes the full accrual of such postretirement benefits may be
required in future rate proceedings in order to avoid any negative impact on a
utility's earnings. The Utilities will defer as a regulatory asset the
difference between the amount that would have been charged to expense under
pay-as-you-go accounting and the amount accrued in accordance with the new
standard. Accordingly, the Utilities believe SFAS No. 106 will not have a
material effect on future results of operations.
(10) Postemployment Benefits. In November, 1992, the FASB issued SFAS No.
112, "Employers' Accounting for Postemployment Benefits", which requires
Industries to accrue the estimated cost of benefits provided to former or
inactive employees after employment but before retirement. Industries adopted
SFAS No. 112 effective January 1, 1994, and its adoption did not have a
material impact on financial position or results of operations.
(11) Authorized Classes of Cumulative Preferred and Preference Stocks:
Industries -
20,000,000 shares - Preferred - without par value
Effective March 2, 1990, 2,000,000 shares of Industries' Series A
Junior Participating Preferred Shares were reserved for issuance pursuant to
the Share Purchase Rights Plan described in Note 15, Common Shares.
Northern Indiana -
2,400,000 shares - Cumulative Preferred - $100 par value
3,000,000 shares - Cumulative Preferred - no par value
2,000,000 shares - Cumulative Preference - $50 par value (none
outstanding)
3,000,000 shares - Cumulative Preference - no par value (none
issued)
Note 12 sets forth the preferred stocks which are redeemable solely
at the option of the issuer, and Note 13 sets forth the preferred stocks which
are subject to mandatory redemption requirements or whose redemption is
outside the control of the issuer.
The Preferred shareholders of Industries and Northern Indiana have
no voting rights except in the event of default on the payment of four
consecutive quarterly dividends or as required by Indiana law to authorize
additional preferred shares or by the Articles of Incorporation in the event
of certain merger transactions.
<PAGE>
(12) Preferred Stocks, Redeemable Solely at the Option of the Issuer,
Outstanding at March 31, 1994, and December 31, 1993 (see Note 11):
<TABLE>
<CAPTION>
Redemption
Price at
March 31, December 31, March 31,
1994 1993 1994
========== ============= ============
(Dollars in thousands)
<S> <C> <C> <C>
Northern Indiana Public Service Company
Cumulative preferred stock - $100 par
value -
4-1/4% series - 211,271 and
211,298 shares outstanding,
respectively $ 21,127 $ 21,130 $ 101.20
4-1/2% series - 79,996 shares
outstanding 8,000 8,000 100.00
4.22% series - 106,200 shares
outstanding 10,620 10,620 101.60
4.88% series - 100,000 shares
outstanding 10,000 10,000 102.00
7.44% series - 41,900 shares
outstanding 4,190 4,190 101.00
7.50% series - 34,842 shares
outstanding 3,484 3,484 101.00
Premium on preferred stock 254 254
Cumulative preferred stock -
no par value -
Adjustable rate (6.00% at
March 31, 1994),Series A
(stated value $50 per share) -
801,500 shares outstanding 40,075 40,075 50.00
________ _________
$ 97,750 $ 97,753
======== =========
</TABLE>
During the period April 1, 1992, to March 31, 1994, there were no
issuances of the above preferred stocks.
The foregoing preferred stocks are redeemable in whole or in part at
any time upon 30 days notice at the option of Northern Indiana at the
redemption prices shown, except that the redemption price for the Adjustable
Rate Preferred will be reduced periodically in the future.
(13) Redeemable Preferred Stocks Outstanding at March 31, 1994, and
December 31, 1993 (see Note 11):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
========== =============
(Dollars in thousands)
<S> <C> <C>
Preferred stocks subject to mandatory redemption
requirements or whose redemption is outside
the control of issuer:
Northern Indiana Public Service Company:
Cumulative preferred stock - $100 par value -
8.85% series - 112,500 shares outstanding,
excluding sinking fund payments due within
one year $ 11,250 $ 11,250
7-3/4% series - 61,122 shares outstanding,
excluding sinking fund payments due within
one year 6,112 6,112
8.35% series - 81,000 shares outstanding,
excluding sinking fund payments due within
one year 8,100 8,100
Cumulative preferred stock - no par value -
6.50% series - 430,000 shares outstanding 43,000 43,000
_________ __________
68,462 68,462
_________ __________
NIPSCO Industries, Inc.:
Cumulative preferred shares - without par
value - 8.75% series (stated value -
- $100 per share), 350,000 shares
outstanding 35,000 35,000
_________ __________
$ 103,462 $ 103,462
========= ==========
</TABLE>
On October 13, 1992, Northern Indiana issued and sold through an
underwritten public offering 430,000 shares of 6.50% Series Cumulative
Preferred Stock for $43 million. The shares are subject to mandatory
redemption in whole by Northern Indiana on October 14, 2002.
<PAGE>
The redemption prices at March 31, 1994, as well as sinking fund
provisions for the cumulative preferred stock subject to mandatory redemption
requirements, or whose redemption is outside the control of Northern Indiana
and Industries are as follows:
<TABLE>
<CAPTION>
Series Redemption Price Per Share Annual Sinking Fund Provisions
====== ========================== ==============================
<S> <C>
Northern Indiana Public Service Company:
Cumulative preferred stock - $100 par value -
8.85% $102.95, reduced periodically 12,500 shares on or
before April 1.
8.35% $104.67, reduced periodically 3,000 shares on or before
July 1; 6,000 shares
beginning in 2004;
noncumulative option
to double amount each
year.
7-3/4% $104.94, reduced periodically 2,777 shares on or
before December 1;
noncumulative option
to double amount each
year.
Cumulative preferred stock - no par value -
6.50% $100.00 on October 14, 2002 430,000 shares on October
14, 2002.
NIPSCO Industries, Inc.:
Cumulative preferred shares - without par value -
8.75% $100.00 on January 14, 1996 350,000 shares on January
14, 1996.
</TABLE>
Sinking fund requirements with respect to redeemable preferred stocks
outstanding at March 31, 1994, for each of the twelve month periods subsequent
to March 31, 1995, are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended March 31:*
===================================================
<S> <C>
1996 $ 36,827,700
1997 $ 1,827,700
1998 $ 1,827,700
1999 $ 1,827,700
* Table does not reflect redemptions made after March 31, 1994.
</TABLE>
<PAGE>
(14) Common Share Dividend: During the next few years, Industries expects
that the great majority of earnings available for distribution of dividends
will depend upon dividends paid to Industries by Northern Indiana. Northern
Indiana's Indenture provides that it will not declare or pay any dividends
on any class of capital stock (other than preferred or preference stock)
except out of earned surplus or net profits of Northern Indiana. At March
31, 1994, Northern Indiana had approximately $168.2 million of retained
earnings (earned surplus) available for the payment of dividends. Future
dividends will depend upon adequate retained earnings, adequate future
earnings and the absence of adverse developments.
(15) Common Shares: Industries has 200,000,000 common shares authorized
without par value.
Share Purchase Rights Plan. On February 27, 1990, the Board of
Directors of Industries declared a dividend distribution of one Right for each
outstanding common share of Industries to shareholders of record on March 12,
1990. The Rights are not currently exercisable. Each Right, when
exercisable, would initially entitle the holder to purchase from Industries
one one-hundredth of a share of Series A Junior Participating Preferred
Shares, without par value, of Industries at a price of $60 per one
one-hundredth of a share. In certain circumstances, if an acquirer obtained
25% of Industries' outstanding shares, or merged into Industries or Industries
into the acquirer, the Rights would entitle the holders to purchase
Industries' or the acquirer's common shares for one-half of the market price.
The Rights will not dilute Industries' common shares nor affect earnings per
share unless they become exercisable for common shares. The Plan was not
adopted in response to any specific attempt to acquire control of Industries.
Common Share Repurchases. The Board of Directors of Industries has
authorized the repurchase of up to approximately 10.7 million common shares
in addition to those required in connection with the acquisitions of Kokomo
Gas and NIFL. At March 31, 1994, Industries had purchased 12,363,373 shares
at an average price of $22.00 per share of which 1,848,588 shares and
1,112,862 shares were reissued in connection with the Kokomo Gas and NIFL
acquisitions, respectively. Approximately 1.3 million additional common
shares may be repurchased under the Board's authorizations.
(16) Long-Term Incentive Plan: Industries' Long-Term Incentive Plan (the
1988 Plan) for key management employees, which was approved by shareholders
on April 13, 1988, provides for the issuance of up to 2,500,000 of Industries'
common shares to key employees through 1998. At March 31, 1994, there were
785,000 shares reserved for future awards under the 1988 Plan. The 1988 Plan
permits the following types of grants, separately or in combination:
nonqualified stock options, incentive stock options, restricted stock awards,
stock appreciation rights and performance units. No incentive stock options
or performance units were outstanding at March 31, 1994.
The stock appreciation rights (SARs) may be exercised only in tandem
with stock options on a one-for-one basis and are payable in cash, Industries
stock or a combination thereof. Restricted stock awards are restricted as
to transfer and subject to forfeiture for specific periods from the date of
grant. Restrictions on the shares awarded during 1990 and 1991 lapse five
years from date of grant and vest subject to specific share price appreciation
conditions. If a participant's employment is terminated other than by reason
of death, disability or retirement, restricted shares are forfeited. There
were 150,500 and 157,500 restricted shares outstanding at March 31, 1994, and
December 31, 1993, respectively.
Changes in outstanding shares under option and SARs for three and
twelve month periods ended March 31, 1994, and 1993, are as follows:
<PAGE>
<TABLE>
<CAPTION>
Nonqualified Stock Options
___________________________________________________
Three Months Ended Option Option
March 31, 1994 Price 1993 Price
================== ======================= =======================
<S> <C> <C> <C> <C>
Balance beginning
of period 890,800 $10.94-$33.19 869,150 $10.94-$26.06
Granted - -
Exercised (18,250) $10.94-$26.06 (104,800) $10.94-$22.94
Cancelled (8,300) $33.19 (1,500) $26.06
_______ ________
Balance end of period 864,250 $10.94-$33.19 762,850 $10.94-$26.06
======= ========
Shares exercisable 584,050 $10.94-$26.06 470,950 $10.94-$22.94
<CAPTION>
Nonqualified Stock Options
With SARs
_________________________________________________
Three Months Ended Option Option
March 31, 1994 Price 1993 Price
================== ======================= =====================
<S> <C> <C> <C> <C>
Balance beginning
of period 9,900 $10.94 11,500 $10.94
Granted - -
Exercised - -
Cancelled - -
_______ ________
Balance end of period 9,900 $10.94 11,500 $10.94
======= ========
Shares exercisable 9,900 $10.94 11,500 $10.94
<CAPTION>
Nonqualified Stock Options
___________________________________________________
Twelve Months Ended Option Option
March 31, 1994 Price 1993 Price
==================== ======================= =======================
<S> <C> <C> <C> <C>
Balance beginning
of period 762,850 $10.94-$26.06 756,925 $10.94-$22.94
Granted 288,500 $33.19 293,400 $26.06
Exercised (174,600) $10.94-$26.06 (254,775) $10.94-$22.94
Cancelled (12,500) $26.06-$33.19 (32,700) $10.94-$26.06
_______ ________
Balance end of period 864,250 $10.94-$33.19 762,850 $10.94-$26.06
======= ========
Shares exercisable 584,050 $10.94-$26.06 470,950 $10.94-$22.94
<CAPTION>
Nonqualified Stock Options
With SARs
___________________________________________________
Twelve Months Ended Option Option
March 31, 1994 Price 1993 Price
=================== ======================= =======================
<S> <C> <C> <C> <C>
Balance beginning
of period 11,500 $10.94 39,000 $10.94
Granted - -
Exercised - (27,500) $10.94
Cancelled (1,600) $10.94 -
_______ _______
Balance end of period 9,900 $10.94 11,500 $10.94
======= ========
Shares exercisable 9,900 $10.94 11,500 $10.94
</TABLE>
Industries' 1994 Long-Term Incentive Plan (1994 Plan) was adopted by
the shareholders on April 13, 1994. It is similar to the 1988 Plan and
provides an additional 2.5 million common shares available for issuance to key
employees through 2004. No shares have been issued under the 1994 Plan.
The Industries Nonemployee Director Stock Incentive Plan, which was
approved by shareholders, provides for the issuance of up to 100,000 of
Industries' common shares to nonemployee directors of Industries. The Plan
provides for awards of common shares which vest in 20% per year increments,
with full vesting after five years. The Plan also allows the award of
nonqualified stock options in the future. If a director's service on the
Board is terminated for any reason other than death or disability, any common
shares not vested as of the date of termination are forfeited. As of April
13, 1994, 24,750 shares were issued under the Plan.
<PAGE>
(17) Long-term Debt: At March 31, 1994, and December 31, 1993, the
long-term debt of Industries' consolidated subsidiaries, excluding amounts due
within one year, issued and not retired or cancelled was as follows:
<TABLE>
<CAPTION>
Amount Outstanding
___________________________
March 31, December 31,
1994 1993
============= =============
(Dollars in thousands)
<S> <C> <C>
Northern Indiana Public Service Company
First mortgage bonds
Series N, 4-5/8%, due May 15, 1995 $ 22,436 $ 22,436
Series O, 6-3/8%, due September 1, 1997 27,300 27,507
Series P, 6-7/8%, due October 1, 1998 15,671 15,671
Series S, 8-1/8%, due May 1, 2001 41,000 41,000
Series T, 7-1/2%, due April 1, 2002 40,643 40,643
Series U, 8-1/8%, due July 15, 2003 55,739 55,739
Series Y, 8-3/8%, due October 15, 2006 50,575 50,575
Series Z, 8-1/8%, due August 15, 2007 43,069 43,069
Series AA, 8-1/2%, due November 1, 2007 33,407 33,407
Series LL, 7-1/2%, due October 15, 2014 41,000 41,000
Series MM, 7-1/2%, due October 15, 2004 10,000 10,000
Series NN, 7.10%, due July 1, 2017 55,000 55,000
___________ __________
Total 435,840 436,047
___________ __________
Pollution control notes and bonds
Series A note -
City of Michigan City,
5.70% due October 1, 2003 21,500 21,500
Series 1978 note -
County of Jasper,
6.70% due November 1, 2008 18,000 18,000
Series 1988 bonds - Jasper County -
Series A, B and C
2.53% weighted average at
March 31, 1994, due November 1, 2016 130,000 130,000
Series 1988 bonds - Jasper County -
Series D 2.41% weighted average at
March 31, 1994, due November 1, 2007 24,000 24,000
___________ __________
Total 193,500 193,500
___________ __________
Medium-term notes -
Issued at interest rates between
5.83% and 7.64% with a weighted average
interest rate of 6.85% and various maturities
between April 6, 1998 and August 17, 2023 474,750 454,200
Unamortized premium and discount on
long-term debt, net (4,733) (4,663)
___________ __________
Total long-term debt of
Northern Indiana Public Service Company 1,099,357 1,079,084
___________ __________
NIPSCO Capital Markets, Inc.
Medium-term note - 9.95% - due June 10, 1996 7,500 7,500
Unamortized discount (14) (16)
Zero coupon notes - 7.57%, $72,500 at maturity,
due December 1, 1997 55,211 54,191
___________ __________
Total long-term debt of NIPSCO Capital
Markets, Inc. 62,697 61,675
___________ __________
NIPSCO Development Company, Inc.
Lake Erie Land Company - Notes Payable -
Interest rates between 6.25% and 7.25% with
a weighted average interest rate of 6.68%
and various maturities between July 5,
1996 and June 30, 1998 3,212 3,256
Elm Energy and Recycling (UK), Ltd.
Term Loan Facility - 6.79% - due December 31,
2004 42,394 41,577
Metals Technology Corporation - Notes Payable -
Mortgage note, 6.50% - due September 25, 2005 108 108
___________ __________
Total long-term debt of NIPSCO Development
Company, Inc. 45,714 44,941
___________ __________
Northern Indiana Fuel and Light Company, Inc.
Sinking Fund Debentures -
Series G, 9.50%, - due August 1, 2001 3,000 3,000
Series H, 10.80%, - due August 1, 2008 3,800 3,800
___________ __________
Total long-term debt of Northern Indiana
Fuel and Light
Company, Inc. 6,800 6,800
___________ __________
Total long-term debt, excluding amounts due
in one year $ 1,214,568 $1,192,500
=========== ==========
</TABLE>
<PAGE>
The sinking fund requirements of long-term debt outstanding at March
31, 1994, (including the maturity of Northern Indiana's first mortgage bonds:
Series N, 4-5/8%, due May 15, 1995; Series O, 6-3/8%, due September 1, 1997;
Series P, 6-7/8% due October 1, 1998; Northern Indiana's medium-term notes
due from April 6, 1998 to April 13, 1998; NIPSCO Capital Markets' medium-term
note due June 10, 1996, and Zero Coupon Notes due December 1, 1997; and Lake
Erie Land Company's notes payable due July 5, 1996 to June 30, 1998), for
each of the twelve month periods subsequent to March 31, 1995, are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended March 31,
==============================
<S> <C>
1996 $ 28,033,643
1997 $ 17,200,678
1998 $ 34,922,423
1999 $ 130,722,423
</TABLE>
Unamortized debt expense, premium and discount on long-term debt,
applicable to outstanding bonds are being amortized over the lives of such
bonds. Reacquisition premiums are being deferred and amortized.
Northern Indiana's Indenture dated August 1, 1939, as amended and
supplemented, securing the first mortgage bonds issued by Northern Indiana,
constitutes a direct first mortgage lien upon substantially all property and
franchises, other than expressly excepted property, owned by Northern Indiana.
On April 5, 1993, Series V, First Mortgage Bonds, 8.90% due 2004;
Series BB, First Mortgage Bonds, 9-7/8% due 2004; and the Series KK, First
Mortgage Bonds, 9-1/4% due 2016 were redeemed in total at the option of
Northern Indiana. Redemption was accomplished through the issuance of
short-term debt.
In April, 1993, Northern Indiana sold $125,000,000 in Medium-Term
Notes, Series B, due from 1 year to 30 years from date of issue. The proceeds
from the sale of the notes were used to repay short-term debt which was
incurred to pay at maturity certain of Northern Indiana's previously
outstanding medium-term notes and first mortgage bonds.
On June 2, 1993, Northern Indiana received authorization from the
Commission to issue up to $349,750,000 of Medium-Term Notes, Series C, due
from 1 year to 30 years from date of issue for refinancing purposes and paying
outstanding long-term debt at maturity. A portion of the proceeds was used
to repay short-term debt which was incurred in connection with the first
mortgage bonds redeemed on April 5, 1993, and a portion was used for early
redemption on August 2, 1993, of $88 million of Northern Indiana's medium-term
notes due in 1996. As of January 19, 1994, all of the Medium-Term Notes,
Series C, have been issued.
On March 4, 1994, the Commission authorized Northern Indiana to issue
up to $289,275,000 of its Medium-Term Notes, Series D, due from 1 year to 30
years, for purposes of refinancing certain first mortgage bonds and paying
short-term debt used to pay at maturity medium-term notes due in January and
April, 1994. As of March 31, 1994, none of the Medium-Term Notes, Series D,
have been issued.
The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed
to make payments of interest and principal on Capital Markets' securities in
the event of a failure to pay by Capital Markets. Restrictions in the Support
Agreement prohibit recourse on the part of Capital Markets' investors against
the stock and assets of Northern Indiana which are owned by Industries. Under
the terms of the Support Agreement, in addition to the cash flow of cash
dividends paid to Industries by any of its consolidated subsidiaries, the
assets of Industries, other than the stock and assets of Northern Indiana, are
available as recourse to holders of Capital Markets' securities. The carrying
value of those assets other than Northern Indiana, reflected in the
consolidated financial statements of Industries, is approximately $305.6
million at March 31, 1994.
<PAGE>
(18) Short-term Borrowings: Northern Indiana has a $250 million
revolving Credit Agreement with several banks which terminates September 21,
1996, unless extended by its terms. As of March 31, 1994, there were no
borrowings outstanding under this agreement. In addition, Northern Indiana
has $14.2 million in lines of credit which run to May 31, 1994, which are
expected to be renewed for the subsequent twelve month period. The credit
pricing of each of the lines varies from either the lending banks' commercial
prime or market rates. Northern Indiana has agreed to compensate the
participating banks with arrangements that vary from no commitment fee to a
combination of fees which are mutually satisfactory to both parties. As of
March 31, 1994, there were no borrowings under these lines of credit. The
Credit Agreement and lines of credit are also available to support the
issuances of commercial paper.
Northern Indiana also has $173.5 million of money market lines of
credit. As of March 31, 1994, there were no borrowings outstanding under
these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
March 31, 1994, there were no borrowings outstanding under this facility.
On April 5, 1993, Northern Indiana executed a 364-day $50 million
private placement loan. The loan was repaid April 4, 1994.
Northern Indiana uses commercial paper to fund short-term working
capital requirements. As of March 31, 1994, Northern Indiana had no
commercial paper outstanding.
Capital Markets has a $150 million revolving Credit Agreement which
will terminate October 21, 1995, unless extended by its terms. This facility
provides short-term financing flexibility to Industries and also serves as
the back-up instrument for a commercial paper program. As of March 31, 1994,
there were no borrowings outstanding under this agreement.
Capital Markets also has $50 million of money market lines of credit.
As of March 31, 1994, there were no borrowings outstanding under these lines
of credit.
As of March 31, 1994, Capital Markets had $32.0 million in commercial
paper outstanding, having a weighted average interest rate of 3.83%.
NIFL has an unsecured revolving credit agreement with a bank for $2
million. Borrowings bear interest at the bank's prevailing prime rate. As
of March 31, 1994, there were no borrowings under this agreement.
(19) Operating Leases: On April 1, 1990, Northern Indiana entered into
a 20-year agreement for the rental of office facilities from Development at
a current annual rental payment of approximately $3.0 million.
The following is a schedule, by years, of future minimum rental
payments, excluding those to associated companies, required under operating
leases that have initial or remaining noncancelable lease terms in excess of
one year as of March 31, 1994:
<TABLE>
<CAPTION>
Twelve Months Ended March 31,
=============================================
(Dollars in thousands)
<S> <C>
1995 $ 5,650
1996 2,972
1997 1,896
1998 1,796
1999 1,761
Later years 24,169
_______
Total minimum payments required $38,244
=======
</TABLE>
<PAGE>
The consolidated financial statements include rental expense for all
operating leases as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1994 1993
========== ==========
(Dollars in thousands)
<S> <C> <C>
Three months ended $ 1,857 $ 1,729
Twelve months ended $ 7,379 $ 5,496
</TABLE>
(20) Commitments: Northern Indiana estimates that approximately $738
million will be expended for construction purposes for the period from January
1, 1994, to December 31, 1998. Substantial commitments have been made by
Northern Indiana in connection with this program.
Northern Indiana has entered into a service agreement with Pure Air,
a general partnership between Air Products and Chemicals, Inc. and Mitsubishi
Heavy Industries America, Inc., under which Pure Air will provide scrubber
services to reduce sulfur dioxide emissions for Units 7 and 8 at Bailly
Generating Station. Services under this contract commenced on June 15, 1992,
with annual charges approximating $20 million. The scrubber will receive
$14.4 million in government funding for operating and maintenance expenses
during a three-year demonstration period. Pure Air is required to meet
certain performance standards during the demonstration period commencing with
the date above. During this period, either Northern Indiana or Pure Air can
terminate this agreement unilaterally. The agreement provides that, assuming
various performance standards are met by Pure Air, a termination payment would
be due if Northern Indiana terminates the agreement prior to the end of the
20-year contract period.
Harbor Coal Company (Harbor Coal), a wholly-owned subsidiary of
Development, has invested in a partnership to finance, construct, own and
operate a $65 million pulverized coal injection facility which began
commercial operation in August, 1993. The facility receives raw coal,
pulverizes it and delivers it to Inland Steel Company blast furnaces for use
in the operation of their blast furnaces. Harbor Coal is a 50% partner in the
project with an Inland Steel affiliate. Industries has guaranteed the payment
and performance of the partnership's obligations under a sale and leaseback of
a 50% undivided interest in the facility.
(21) Fair Value of Financial Instruments: The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amount approximates fair
value because of the short maturity of those instruments.
<PAGE>
Investments at cost: The fair value of some investments are estimated
based on market prices for those or similar investments.
Long-term debt/Preferred stock: The fair value of long-term debt and
preferred stock are estimated based on the quoted market prices for the same
or similar issues or on the rates offered to Industries for securities of the
same remaining maturities. Certain premium costs associated with the early
settlement of long-term debt are not taken into consideration in determining
fair value.
<PAGE>
The carrying values and estimated fair values of Industries' financial
instruments are as follows:
<TABLE>
<CAPTION>
March 31, 1994 December 31, 1993
________________________ ______________________
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
========== =========== ========== ==========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 53,850 $ 53,850 $ 16,140 $ 16,140
Investments at cost 7,118 7,655 6,189 6,474
Long-term debt
(including current
portion) 1,280,381 1,206,159 1,263,029 1,267,728
Preferred stock 203,040 181,280 203,043 185,368
</TABLE>
The majority of the long-term debt relates to utility operations.
The Utilities are subject to regulation and gains or losses may be included
in rates over a prescribed amortization period, if in fact settled at amounts
approximating those above.
(22) Customer Concentrations: Northern Indiana is a public utility
operating company supplying natural gas and electrical energy in the northern
third of Indiana. Although Northern Indiana has a diversified base of
residential and commercial customers, a substantial portion of its electric
and gas industrial deliveries are dependent upon the basic steel industry. The
basic steel industry accounted for 2% of gas revenue (including transportation
services) and 24% of electric revenue for the twelve months ended March 31,
1994, as compared to 2% and 25%, respectively, for twelve months ended March
31, 1993.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Holding Company -
NIPSCO Industries, Inc. (Industries), an Indiana corporation, became
a holding company on March 3, 1988. Northern Indiana Public Service Company
(Northern Indiana), Northern Indiana Fuel and Light Company, Inc., (NIFL),
Kokomo Gas and Fuel Company (Kokomo Gas), NIPSCO Development Company, Inc.,
(Development), NIPSCO Energy Services, Inc. (Services), and NIPSCO Capital
Markets, Inc. (Capital Markets) are direct subsidiaries of Industries. NIPSCO
Fuel Company, Inc. (Fuel), NI-TEX Inc. (NI-TEX) and NIPSCO Energy Trading
Corp. (NETCO) are direct subsidiaries of Services. The following discussion,
except where noted, is attributable to the utility operations of Northern
Indiana, Kokomo Gas, NIFL and Crossroads Pipeline Company (Utilities).
Revenues -
Total operating revenues for the twelve months ended March 31, 1994,
increased $91.8 million as compared to the twelve months ended March 31, 1993.
Gas revenues increased $36.7 million and electric revenues increased $55.1
million.
The increase in gas revenues was largely attributable to increased
sales to residential and commercial customers due to colder weather, inclusion
of NIFL for the entire twelve month period, higher purchase gas cost per
dekatherm(dth), and was partially offset by decreased transportation revenue
per dth delivered due to lower take-or-pay charges. Gas transportation
customers purchase much of their gas directly from producers and marketers and
then pay a transportation fee to have their gas delivered over the Utilities'
systems. The Utilities had approximately 685,500 gas customers at March 31,
1994.
The increase in electric revenues for the twelve months ended March
31, 1994, was mainly due to increased sales to residential and commercial
customers as a result of warmer weather during the second and third quarters
of 1993 and increased sales to industrial customers partially offset by
decreased sales to wholesale customers. At March 31, 1994, Northern Indiana
had approximately 396,100 electric customers.
Total operating revenue for the three months ended March 31, 1994,
increased $43.9 million as compared to the three months ended March 31, 1993.
Gas revenues increased $28.9 million and electric revenues increased $15.0
million as compared to the same period in 1993. The increase in gas revenues
was mainly due to increased sales due to colder weather this year. The
increase in electric revenue for the three months ended March 31, 1994, was
mainly due to higher sales to residential customers and increased industrial
demands.
The basic steel industry accounted for 39% of natural gas delivered
(including volumes transported) and 40% of electric sales during the twelve
months ended March 31, 1994.
<PAGE>
The components of the variations in gas and electric revenues are
shown in the following tables:
<TABLE>
<CAPTION>
Variations from Prior Periods
__________________________________
March 31, 1994
Compared to
March 31, 1993
Three Months Twelve Months
============= =============
(Dollars in thousands)
<S> <C> <C>
Gas Revenue -
Pass through of net changes
in purchased gas costs, gas storage
and storage transportation costs $ 5,088 $ 19,907
Take-or-pay costs 816 (16,340)
Changes in sales levels 22,505 14,851
Gas transport levels 537 2,497
NIFL acquisition - 15,735
________ _________
Gas Revenue Change $ 28,946 $ 36,650
________ _________
Electric Revenue -
Pass through of net
changes in fuel costs $ 4,012 $ (2,679)
Changes in sales levels 10,946 57,819
________ _________
Electric Revenue Change $ 14,958 $ 55,140
________ _________
Total Revenue Change $ 43,904 $ 91,790
======== =========
<FN>
See Note 5 to the consolidated financial statements (Rate Matters), regarding
gas take-or-pay costs.
</TABLE>
Gas Costs -
The Utilities' gas costs increased $22.5 million for the twelve month
period ended March 31, 1994, due to increased purchases resulting from the
colder weather during the twelve month period, increased gas costs per dth
and the inclusion of purchased gas costs related to NIFL. The average cost
for the Utilities purchased gas for the three and twelve month periods ended
March 31, 1994, after adjustment for take-or-pay charges billed to transport
customers, was $3.10 and $3.23 per dth as compared to $3.09 and $3.17 per dth
for the same periods in 1993.
Fuel and Purchased Power -
The cost of fuel for electric generation increased for the three and
twelve month periods ended March 31, 1994, compared to 1993 periods, mainly
as the result of increased production.
<PAGE>
Operating Margins -
Operating margins increased $51.0 million for the twelve months ended
March 31, 1994, over the same period a year ago. The operating margin from
gas deliveries increased $14.2 million, mainly due to the inclusion of NIFL
for the entire twelve month period, increased sales to residential and
commercial customers due to the colder weather and increased deliveries to gas
transportation customers. The operating margins from electric sales increased
$36.8 million, mainly due to increased sales to residential and commercial
customers as a result of warmer weather in the second and third quarters of
1993 and increased sales to industrial customers, partially offset by
decreased sales to wholesale customers.
Operating margins increased $14.0 million for the three months ended
March 31, 1994, over the same period a year ago. The operating margins from
gas increased $8.4 million mainly reflecting increased sales to residential
and commercial customers due to colder weather. Operating margins on electric
sales increased $5.6 million mainly reflecting increased sales to residential
and commercial customers and increased industrial demands.
Operating Expenses and Taxes -
Operation expenses increased $4.6 and $19.2 million for the three and
twelve month periods ended March 31, 1994. Operation expense increased mainly
due to higher employee related expenses and NIFL operating expenses for the
entire twelve month period.
Maintenance expenses decreased $1.0 million for the three month period
ended March 31, 1994, mainly due to improved cost controls implemented at the
electric production facilities. Maintenance expenses increased $2.8 million
for the twelve month period ended March 31, 1994, mainly as a result of a
higher level of overall maintenance activity.
Depreciation and amortization expense increased for the three and
twelve month periods ended March 31, 1994, as a result of net plant additions.
Utility income taxes increased for the three and twelve month periods
ended March 31, 1994, as a result of increased pre-tax income and the
increased Federal income tax rate which was enacted into law in August, 1993,
effective retroactively to January 1, 1993.
The operating results of all non-utility subsidiaries are included
in "Other, net" under the caption, "Other Income (Deductions)" in the
Consolidated Statement of Income (except for Exploration's net results of
operations, which are reported as a component of gas purchased for resale,
since Exploration is subject to Commission rate treatment.) Capital Market's
interest on long-term debt, other interest and amortization of debt discount
and expense are reflected as components of "Interest and Other Charges."
Interest charges (net) decreased for the three and twelve month
periods ended March 31, 1994, reflecting Northern Indiana's reduced interest
rates on long-term debt outstanding and favorable interest rates on short-term
borrowings.
See Notes to Consolidated Financial Statements (Summary of Significant
Accounting Policies) for a discussion of Carrying Charges and Deferred
Depreciation and Allowance for Funds Used During Construction. Also, see
Notes 5, 7, 9 and 10 for discussion of FERC Order No. 636, Income Taxes,
Postretirement Benefits and Postemployment Benefits, respectively.
Net Income -
Industries' net income for the twelve month period ended March 31,
1994, was $162.6 million compared to $147.0 million for the twelve month
period ended March 31, 1993.
Net income for the three months ended March 31, 1994, was $65.0
million compared to $58.6 million for the three months ended March 31, 1993.
<PAGE>
Environmental Matters
Because of major investments made in modern environmental control
facilities and the use of low sulfur coal, substantially all of Northern
Indiana's electric production facilities comply with the sulfur dioxide
limitations contained in acid rain provisions of the Clean Air Act Amendments
of 1990 (CAAA).
Northern Indiana has successfully tested the use of low sulfur coal
at Unit 12 at the Michigan City Generating Station, the only generating unit
not in compliance with the future sulfur dioxide limitations, and expects that
unit to be able to meet the limits with low sulfur coal. Northern Indiana
estimates that total costs of compliance with the CAAA sulfur dioxide
regulations will impact electric rates by less than 5% in the future.
The CAAA contain provisions that could lead to strict limitations on
emissions of nitrogen oxides and "air toxics", which may require significant
capital expenditures for control of these emissions. Northern Indiana cannot
predict the costs of complying with them, but Northern Indiana believes that
any such mandated costs would be recoverable through the rate making process.
The Environmental Protection Agency (EPA) and Indiana have
promulgated an air operating permit program to meet the requirements of the
CAAA. This permit program increases the fees associated with operating
permits for air emissions.
Northern Indiana has received notices from the EPA that it is a
"potentially responsible party" (PRP) under the Comprehensive Environmental
Response Compensation and Liability Act (CERCLA) and the Superfund Amendment
and Reauthorization Act (SARA) and may be required to share in the cost of
cleanup of several waste disposal sites identified by the EPA. The sites are
in various stages of investigation and analysis to determine the amount of
remedial costs necessary to clean up the sites. At each of the sites Northern
Indiana is one of several PRPs, and it is expected that remedial costs, as
provided under CERCLA and SARA, will be shared among them. At some sites
Northern Indiana and/or the other named PRPs are presently working with the
EPA to clean up the site and avoid the imposition of fines or added costs.
While remedial costs at these sites are not presently determinable, Northern
Indiana's preliminary analysis indicates its share of such costs should not
have a significant impact on the results of future operations.
Northern Indiana was notified by the Indiana Department of
Environmental Management (IDEM) of the release of a petroleum substance into
the St. Mary's River in Fort Wayne, Indiana, from the site of a former
manufactured gas plant formerly owned by Northern Indiana. In cooperation with
IDEM, Northern Indiana has taken steps to investigate and contain the
substance. Northern Indiana is continuing to monitor and investigate the site
to determine what further remedial action, if any, will be required.
Northern Indiana was notified by Indiana Gas Company, Inc. (Indiana
Gas) that the site of a former manufactured gas plant in Lafayette, Indiana,
believed to have been formerly owned by Northern Indiana, was being
investigated and partially remediated by Indiana Gas pursuant to an
administrative order issued by IDEM. Northern Indiana is investigating its
potential liability and evaluating appropriate action.
The Utilities have ongoing programs to remain aware of laws and
regulations involved with hazardous waste. It is the Utilities' intent to
continue to evaluate their facilities and properties with respect to these
rules and identify any sites that would require corrective action. Northern
Indiana has commenced a voluntary program of investigating its former
manufactured gas plant sites in order to determine what, if any, remediation
of any potential remaining waste materials may be required. Since this
program is in its early stages, it is not possible at this time to estimate
what, if any, remediation costs may be incurred.
<PAGE>
The possibility that exposure to electric and magnetic fields
emanating from power lines, household appliances and other electric sources
may result in adverse health effects has been the subject of increased public,
governmental and media attention. A considerable amount of scientific research
has been conducted on this topic without definitive results. Research is
continuing to resolve scientific uncertainties.
Liquidity and Capital Resources
During the next few years, it is anticipated that the great majority
of earnings available for distribution of dividends will depend upon dividends
paid to Industries by Northern Indiana. See Notes to Consolidated Financial
Statements for a discussion of the Common Share Dividend.
On April 5, 1993, Series V, First Mortgage Bonds, 8.90% due 2004;
Series BB, First Mortgage Bonds, 9-7/8% due 2004; and the Series KK, First
Mortgage Bonds, 9-1/4% of 2016 were redeemed in total at the option of
Northern Indiana. Redemption was accomplished through the issuance of
short-term debt.
In April, 1993, Northern Indiana sold $125,000,000 in Medium-Term
Notes, Series B, due from 1 year to 30 years from date of issue. The proceeds
from the sale of the notes were used to repay short-term debt which was
incurred to pay at maturity certain of Northern Indiana's previously
outstanding medium-term notes and first mortgage bonds.
On June 2, 1993, Northern Indiana received authorization from the
Commission to issue up to $349,750,000 of Medium-Term Notes, Series C, due
from 1 year to 30 years from date of issue for refinancing purposes and paying
outstanding long-term debt at maturity. A portion of the proceeds was used
to repay short-term debt which was incurred in connection with the first
mortgage bonds redeemed on April 5, 1993, and a portion was used for early
redemption on August 2, 1993, of $88 million of Northern Indiana's medium-term
notes due in 1996. As of January 19, 1994, all of the Medium-Term Notes,
Series C, have been issued.
On March 4, 1994, the Commission authorized Northern Indiana to issue
up to $289,275,000 of its Medium-Term Notes, Series D, due from 1 year to 30
years, for purposes of refinancing certain first mortgage bonds and paying
short-term debt used to pay at maturity medium-term notes due in January and
April, 1994. As of March 31, 1994, none of the Medium-Term Notes, Series D,
have been issued.
Capital Markets has a $150 million revolving Credit Agreement which
will terminate October 21, 1995, unless extended by its terms. This facility
provides short-term financing flexibility at the holding company level and
also serves as the back-up instrument for a commercial paper program. As of
March 31, 1994, there were no borrowings outstanding under this agreement.
Capital Markets also has $50 million of money market lines of credit.
As of March 31, 1994, there were no borrowings outstanding under these lines
of credit.
As of March 31, 1994, Capital Markets had $32.0 million in commercial
paper outstanding, having a weighted average interest rate of 3.83%.
The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed
to make payments of interest and principal on Capital Markets securities in
the event of a failure to pay by Capital Markets. Restrictions in the Support
Agreement prohibit recourse on the part of Capital Markets' investors against
the stock and assets of Northern Indiana which are owned by Industries. Under
the terms of the Support Agreement, in addition to the cash flow of cash
dividends paid to Industries by any of its consolidated subsidiaries, the
assets of Industries, other than the stock and assets of Northern Indiana, are
available as recourse to holders of Capital Markets' securities. The carrying
value of those assets other than Northern Indiana, reflected in the
consolidated financial statements of Industries, is approximately $305.6
million at March 31, 1994.
NIFL has an unsecured revolving credit agreement with a bank for $2
million. Borrowings bear interest at the bank's prevailing prime rate. As
of March 31, 1994, there were no borrowings under this agreement.
<PAGE>
Cash flow from operations has provided sufficient liquidity to meet
current operating requirements. Because of the seasonal nature of the utility
business and the construction program, Northern Indiana makes use of
commercial paper intermittently as short-term financing. As of March 31,
1994, Northern Indiana had no commercial paper outstanding.
Northern Indiana has a $250 million revolving Credit Agreement with
several banks which terminates September 21, 1996, unless extended by its
terms. As of March 31, 1994, there were no borrowings outstanding under this
agreement. In addition, Northern Indiana has $14.2 million in lines of credit
which run to May 31, 1994, which are expected to be renewed for the subsequent
twelve month period. As of March 31, 1994, there were no borrowings under
these lines of credit. The Credit Agreement and lines of credit are also
available to support the issuances of commercial paper.
Northern Indiana also has $173.5 million of money market lines of
credit. As of March 31, 1994, there were no borrowings outstanding under
these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
March 31, 1994, there were no borrowings outstanding under this facility.
On April 5, 1993, Northern Indiana executed a 364-day $50 million
private placement loan. The loan was repaid on April 4, 1994.
During recent years, Northern Indiana has been able to finance its
construction program with internally generated funds and expects to be able
to meet future commitments through such funds.
The Utilities do not expect the effects of inflation at current levels
to have a significant impact on their results of operations, ability to
contain cost increases or need to seek timely and adequate rate relief. The
Utilities do not anticipate the need to file for gas or electric base rate
increases in the near future.
<PAGE>
Item 1. Legal Proceedings.
Industries and Northern Indiana are parties to various legal or
administrative proceedings before courts and agencies with respect to matters
occurring in the ordinary course of business. Although management of
Industries cannot predict the ultimate outcome of these matters, it believes
the final disposition of these matters will not have a material adverse effect
on the financial position or results of operations of Industries.
Information regarding various matters involving federal and state
environmental laws and regulations and pending tax matter is included in Notes
6 and 3, respectively, of Industries financial statements under Part I, Item 1
of this Report on Form 10-Q.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On April 13, 1994, at the Annual Meeting of Shareholders of the
registrant, shareholders of the registrant elected Arthur J. Decio, Gary L.
Neale and Robert J. Welsh, Jr. as directors to serve until the 1997 Annual
Meeting of Shareholders. Directors whose term of office as a director
continue after the 1994 Annual Meeting of Shareholders are Steven C. Beering,
Ernestine M. Raclin and Denis E. Ribordy whose terms expire at the 1995 Annual
Meeting of Shareholders, and Ian M. Rolland, Edmund A. Schroer and John W.
Thompson,whose terms expire at the 1996 annual Meeting of Shareholders.
There were no abstentions and no broker non-votes for any of the
nominees for directors. The number of votes cast for, or withheld, for each
nominee for director was as follows.
<TABLE>
<CAPTION>
For Withheld
__________ ________
<S> <C> <C>
Arthur J. Decio 53,972,149 316,489
Gary L. Neale 53,954,131 334,507
Robert J. Welsh, Jr. 53,968,582 320,056
</TABLE>
Also, on April 13, 1994, shareholders of the registrant approved the
1994 Long-Term Incentive Plan. There were no broker non-votes for the 1994
Long-Term Incentive Plan. The number of votes cast for, against, or withheld
for the 1994 Long-Term Incentive Plan was 42,806,286 for, 10,843,205 against,
and 639,147 abstained.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 23-Consent of Arthur Andersen & Co.
(b) Reports on Form 8-K.
None
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NIPSCO Industries, Inc.
(Registrant)
/s/Jerry M. Springer
_____________________________
Jerry M. Springer,
Controller
and Chief Accounting Officer
Date May 11,1994
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-Q into NIPSCO Industries, Inc.'s
previously filed Form S-8 Registration Statement, No. 33-30619; and Form S-8
Registration Statement, No. 33-30621.
Arthur Andersen & Co.
Chicago, Illinois
May 11, 1994
