<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 September 30, 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 October 31, 1994, 64,071,691 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 September 30,
1994, and December 31, 1993, and the related consolidated statements of
income, common shareholders' equity and cash flows for the three, nine, and
twelve month periods ended September 30, 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 September 30, 1994, and
December 31, 1993, and the results of their operations and their cash flows
for the three, nine, and twelve month periods ended September 30, 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 LLP
Chicago, Illinois
November 2, 1994
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
September 30, December 31,
ASSETS 1994 1993
============== =============
(Dollars in thousands)
<S> <C> <C>
Utility Plant, at original cost
(including construction work in
progress of $210,031 and $189,634,
respectively) (Notes 2 and 4):
Electric $ 3,832,427 $ 3,778,016
Gas 1,243,298 1,216,178
Common 315,267 289,242
______________ _____________
5,390,992 5,283,436
Less - Accumulated provision for
depreciation and amortization 2,162,251 2,052,221
______________ _____________
Total utility plant 3,228,741 3,231,215
______________ _____________
Other Property and Investments:
Other property, at cost, less
accumulated provision
for depreciation 123,518 124,184
Investments, at equity 16,750 19,142
Investments, at cost 9,456 6,189
______________ _____________
Total other property
and investments 149,724 149,515
______________ _____________
Current Assets:
Cash and cash equivalents 36,747 16,140
Accounts receivable, less
reserve of $7,181 and $4,855,
respectively (Note 2) 43,184 115,129
Fuel adjustment clause (Note 2) 4,888 6,440
Gas cost adjustment clause (Note 2) - 35,659
Materials and supplies,
at average cost 68,825 67,120
Electric production fuel,
at average cost 20,597 21,533
Natural gas in storage,
at last-in, first-out cost (Note 2) 86,962 62,870
Prepayments and other 10,231 11,118
______________ _____________
Total current assets 271,434 336,009
______________ _____________
Other Assets:
Regulatory assets (Note 2) 231,220 177,728
Deferred charges and other 18,139 17,857
______________ _____________
Total other assets 249,359 195,585
______________ _____________
$ 3,899,258 $ 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
September 30, December 31,
CAPITALIZATION AND LIABILITIES 1994 1993
============== ==============
(Dollars in thousands)
<S> <C> <C>
Capitalization:
Common shareholders' equity
(See accompanying statement) $ 1,089,838 $ 1,094,672
Cumulative preferred stocks
(Note 11) -
Northern Indiana Public Service Company
Series without mandatory
redemption provisions (Note 12) 94,854 97,753
Series with mandatory
redemption provisions (Note 13) 66,612 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) 1,187,164 1,192,500
______________ ______________
Total capitalization 2,473,468 2,488,387
______________ ______________
Current Liabilities:
Obligations due within one year -
Northern Indiana Public Service Company
Commercial paper 128,200 27,895
First mortgage bonds -
Series N, 4-5/8% - due May 15, 1995 22,436 -
Medium-term note -
9.15% - due April 11, 1994 - 65,000
Notes payable -
Issued at interest rates between
4.98% and 5.23% with a weighted
average interest rate of 5.08%
and various maturities between
October 6, 1994 and October 27,1994 82,050 110,000
NIPSCO Capital Markets Inc.:
Commercial paper 54,500 47,000
Elm Energy and Recycling (UK), Ltd.
Term loan facility 2,608 3,766
NDC Douglas Properties, Inc.
Notes payable 666 -
______________ ______________
290,460 253,661
______________ ______________
Other current liabilities -
Accounts payable 148,218 192,543
Sinking funds due within one year
(Notes 13 and 17) 2,035 3,413
Dividends declared on common and
preferred stocks 25,487 26,165
Customer deposits 9,100 9,471
Taxes accrued 28,279 74,562
Gas cost adjustment clause 20,502 -
Interest accrued 15,918 12,253
Other accruals 45,633 45,296
______________ ______________
295,172 363,703
______________ ______________
Total current liabilities 585,632 617,364
______________ ______________
Other:
Deferred income taxes (Note 7) 594,494 576,071
Deferred investment tax credits, being
amortized over life of related property
(Note 7) 125,009 129,681
Deferred credits 39,993 37,767
Regulatory income tax liability (Note 7) 20,654 25,371
Other noncurrent liabilities 60,008 37,683
______________ ______________
Total other 840,158 806,573
______________ ______________
Commitments and Contingencies
(Notes 3,5,6,19 and 20)
$ 3,899,258 $ 3,912,324
============== ==============
<FN>
The accompanying notes to financial statements are an integral part of this
statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Income
Three Months Nine Months
Ended September 30, Ended September 30,
_______________________ _________________________
1994 1993 1994 1993
========== ========== ========== ==========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
(Notes 2, 5 and 22)
Gas $ 71,795 $ 77,634 $ 493,016 $ 483,305
Electric 262,803 264,904 755,142 729,675
__________ __________ __________ __________
334,598 342,538 1,248,158 1,212,980
__________ __________ __________ __________
Cost of Energy: (Note 2)
Gas costs 36,887 42,823 291,452 291,121
Fuel for electric
generation 62,140 66,472 184,938 183,313
Power purchased 9,143 5,287 27,985 12,989
__________ __________ ___________ __________
108,170 114,582 504,375 487,423
__________ __________ ___________ __________
Operating Margin 226,428 227,956 743,783 725,557
__________ __________ ___________ __________
Operating Expenses and
Taxes (except income):
Operation 69,661 73,691 218,920 215,241
Maintenance (Note 2) 18,988 17,792 60,147 60,028
Depreciation and
amortization (Note 2) 48,606 46,484 144,819 139,020
Taxes (except income) 16,890 16,998 54,866 54,334
__________ __________ ___________ __________
154,145 154,965 478,752 468,623
__________ __________ ___________ __________
Operating Income Before
Utility Income Taxes 72,283 72,991 265,031 256,934
__________ __________ ___________ __________
Utility Income Taxes
(Note 7) 19,233 19,493 72,528 69,856
__________ __________ ___________ __________
Operating Income 53,050 53,498 192,503 187,078
__________ __________ ___________ __________
Other Income (Deductions):
Allowance for funds, other
than borrowed funds, used
during construction
(Note 2) - - - 1
Other, net (Note 2) (7) 172 (2,928) (1,058)
__________ __________ __________ __________
(7) 172 (2,928) (1,057)
__________ __________ __________ __________
Income Before Interest
and Other Charges 53,043 53,670 189,575 186,021
__________ __________ __________ __________
Interest and Other
Charges:
Interest on long-term
debt 18,965 20,821 59,189 61,126
Other interest 3,175 2,273 7,746 7,503
Allowance for borrowed
funds used during
construction (Note 2) (1,181) (184) (2,869) (572)
Amortization of premium,
reacquisition premium,
discount and expense on
debt, net 1,029 889 2,839 2,687
Dividend requirements on
preferred stocks of
subsidiary 2,520 2,578 7,616 7,768
__________ __________ __________ ___________
24,508 26,377 74,521 78,512
__________ __________ __________ ___________
Net Income 28,535 27,293 115,054 107,509
Dividend requirements on
preferred shares 766 766 2,297 2,297
__________ __________ __________ ___________
Balance available for
common shareholders $ 27,769 $ 26,527 $ 112,757 $ 105,212
========== ========== ========== ===========
Average common shares
outstanding 64,513,779 66,263,651 65,089,547 66,195,739
Earnings per average
common share $ 0.43 $ 0.40 $ 1.73 $ 1.58
========== ========== ========== ===========
Dividends declared per
common share $ 0.36 $ 0.33 $ 1.08 $ 0.99
========== ========== ========== ===========
<PAGE>
<CAPTION>
Twelve Months
Ended September 30,
_______________________
1994 1993
========== ==========
(Dollars in thousands)
<S> <C> <C>
Operating Revenues:
(Notes 2, 5 and 22)
Gas $ 723,940 $ 713,904
Electric 989,110 961,652
__________ __________
1,713,050 1,675,556
__________ __________
Cost of Energy (Note 2)
Gas costs 429,976 433,988
Fuel for electric
generation 246,177 246,608
Power purchased 33,221 15,778
__________ __________
709,374 696,374
__________ __________
Operating Margin 1,003,676 979,182
__________ __________
Operating Expenses and
Taxes Except income):
Operation 288,085 279,832
Maintenance 83,667 78,140
Depreciation and
amortization (Note 2) 192,799 186,034
Taxes (except income) 72,153 71,944
__________ __________
636,704 615,950
__________ __________
Operating Income Before
Utility Income Taxes 366,972 363,232
__________ __________
Utility Income Taxes
(Note 7) 99,502 98,524
__________ __________
Operating Income 267,470 264,708
__________ __________
Other Income (Deductions):
Allowance for funds, other
than borrowed funds, used
during construction
(Note 2) - 10
Other, net (Note 2) (3,941) (2,125)
__________ __________
(3,941) (2,115)
__________ __________
Income Before Interest
and Other Charges 263,529 262,593
__________ __________
Interest and Other
Charges:
Interest on long-term
debt 80,184 82,141
Other interest 9,481 10,762
Allowance for borrowed
funds used during
construction (Note 2) (3,744) (414)
Amortization of premium,
reacquisition premium,
discount and expense on
debt, net 3,734 3,531
Dividend requirements on
preferred stocks of
subsidiary 10,189 9,993
__________ __________
99,844 106,013
__________ __________
Net Income 163,685 156,580
Dividend requirements on
preferred shares 3,063 3,063
__________ __________
Balance available for
common shareholders $ 160,622 $ 153,517
========== ==========
Average common shares
outstanding 65,309,025 66,237,085
Earnings per average
common share $ 2.45 $ 2.31
========== ==========
Dividends declared per
common share $ 1.44 $ 1.32
========== ==========
<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, July 1, 1993 $ 1,085,300 $ 870,930 $ 27,485 $ 351,829
Net income 27,293 27,293
Dividends:
Preferred shares (766) (766)
Common shares (21,809) (21,809)
Treasury shares acquired (8,905)
Issued:
Employee stock purchase
plan 269 138
Long-term incentive plan 1,355 85
Other 249 15
___________ ___________ ___________ ___________
Balance, September 30,
1993 $ 1,082,986 $ 870,930 $ 27,708 $ 356,562
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
______________________________________ __________
Currency
Three Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
====================== =========== ============ =========== ==========
<S> <C> <C> <C> <C>
Balance, July 1, 1993 $ (160,821) $ (2,087) $ (2,036) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (8,905)
Issued:
Employee stock purchase
plan 131
Long-term incentive plan 1,270
Other 195 39
___________ ___________ __________ __________
Balance, September 30,
1993 $ (168,325) $ ( 1,892) $ (1,997) 73,892,109
=========== =========== ========== ==========
<CAPTION>
Shares
___________
Three Months Ended Treasury
(continued) Shares
====================== ===========
<S> <C>
Balance, July 1, 1993 (7,502,343)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (270,401)
Issued:
Employee stock purchase
plan 8,254
Long-term incentive plan 57,850
Other
___________
Balance, September 30,
1993 (7,706,640)
===========
<PAGE>
<CAPTION>
Dollars in Thousands
__________________________________________________
Additional
Three Months Ended Common Paid-In Retained
(continued) Total Shares Capital Earnings
====================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, July 1, 1994 $ 1,102,698 $ 870,930 $ 27,825 $ 418,983
Net income 28,535 28,535
Dividends:
Preferred shares (766) (766)
Common shares (23,073) (23,073)
Treasury shares acquired (18,503)
Issued:
Employee stock purchase
plan 293 135
Long-term incentive plan 222
Other 432 357 (12)
___________ ___________ ___________ ___________
Balance, September 30,
1994 $ 1,089,838 $ 870,930 $ 28,317 $ 423,667
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
_______________________________________ __________
Currency
Three Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
====================== =========== ============ ============ ==========
<S> <C> <C> <C> <C>
Balance, July 1, 1994 $ (211,790) $ (1,359) $ (1,891) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (18,503)
Issued:
Employee stock purchase
plan 158
Long-term incentive plan 222
Other 196 (109)
___________ ___________ ___________ ___________
Balance, September 30,
1994 $ (229,913) $ ( 1,163) $ (2,000) 73,892,109
=========== =========== ========== ===========
<CAPTION>
Shares
___________
Three Months Ended Treasury
(concluded) Shares
====================== ===========
<S> <C>
Balance, July 1, 1994 (9,106,152)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (642,159)
Issued:
Employee stock purchase
plan 9,962
Long-term incentive plan 9,350
Other
___________
Balance, September 30,
1994 (9,728,999)
===========
<PAGE>
<CAPTION>
Dollars in Thousands
__________________________________________________
Additional
Common Paid-In Retained
Nine 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 107,509 107,509
Dividends:
Preferred shares (2,297) (2,297)
Common shares (65,707) (65,707)
Treasury shares acquired (27,808)
Issued:
Employee stock purchase
plan 433 138
Long-term incentive plan 4,708 140
NIFL acquisition 30,172 6,655
Other 1,446 (138)
___________ ___________ ___________ ___________
Balance, September 30,
1993 $ 1,082,986 $ 870,930 $ 27,708 $ 356,562
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
__________________________________________________
Currency
Nine 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 (27,808)
Issued:
Employee stock purchase
plan 295
Long-term incentive plan 4,661 (93)
NIFL acquisition 23,517
Other 1,235 349
__________ ___________ __________ ___________
Balance, September 30,
1993 $ (168,325) $ ( 1,892) $ (1,997) 73,892,109
=========== =========== ========== ===========
<CAPTION>
Shares
___________
Nine Months Ended Treasury
(continued) Shares
====================== ===========
<S> <C>
Balance, January 1, 1993 (8,133,759)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (922,554)
Issued:
Employee stock purchase
plan 18,561
Long-term incentive plan 218,250
NIFL acquisition 1,112,862
Other
___________
Balance, September 30,
1993 (7,706,640)
===========
<PAGE>
<CAPTION>
Dollars in Thousands
___________________________________________________
Additional
Nine 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 115,054 115,054
Dividends:
Preferred shares (2,297) (2,297)
Common shares (69,913) (69,913)
Treasury shares acquired (51,133)
Issued:
Employee stock purchase
plan 598 293
Long-term incentive plan 1,143 29
Other 1,714 364 (65)
___________ ___________ ___________ ___________
Balance, September 30,
1994 $ 1,089,838 $ 870,930 $ 28,317 $ 423,667
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
_______________________________________ __________
Currency
Nine 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 (51,133)
Issued:
Employee stock purchase
plan 305
Long-term incentive plan 1,127 (13)
Other 534 881
__________ ___________ __________ ___________
Balance, September 30,
1994 $ (229,913) $ ( 1,163) $ (2,000) 73,892,109
=========== =========== ========== ===========
<CAPTION>
Shares
___________
Nine Months Ended Treasury
(concluded) Shares
====================== ===========
<S> <C>
Balance, January 1, 1994 (8,063,271)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (1,732,165)
Issued:
Employee stock purchase
plan 19,248
Long-term incentive plan 47,189
Other
___________
Balance, September 30,
1994 (9,728,999)
===========
<PAGE>
<CAPTION>
Dollars in Thousands
__________________________________________________
Additional
Common Paid-In Retained
Twelve Months Ended Total Shares Capital Earnings
======================= =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, October 1, 1992 $ 1,038,175 $ 870,930 $ 22,273 $ 291,411
Net income 156,580 156,580
Dividends:
Preferred shares (3,063) (3,063)
Common shares (87,430) (87,430)
Treasury shares acquired (54,259)
Issued:
Employee stock purchase
plan 433 138
Long-term incentive plan 5,390 140
NIFL acquisition 30,172 6,655
Other (3,012) (1,498) (936)
___________ ___________ ___________ ___________
Balance, September 30,
1993 $ 1,082,986 $ 870,930 $ 27,708 $ 356,562
___________ ___________ ___________ ___________
Net income 163,685 163,685
Dividends:
Preferred shares (3,063) (3,063)
Common shares (93,590) (93,590)
Treasury shares acquired (64,055)
Issued:
Employee stock purchase
plan 598 293
Long-term incentive plan 2,103 (46)
Other 1,174 362 73
___________ ___________ ___________ ___________
Balance, September 30,
1994 $ 1,089,838 $ 870,930 $ 28,317 $ 423,667
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
_______________________________________ __________
Currency
Twelve Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
===================== =========== ============ ============ ==========
<S> <C> <C> <C> <C>
Balance, October 1, 1992 $ (143,221) $ (3,304) $ 86 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (54,259)
Issued:
Employee stock purchase
plan 295
Long-term incentive plan 5,343 (93)
NIFL acquisition 23,517
Other 1,505 (2,083)
___________ ___________ __________ __________
Balance, September 30,
1993 $ (168,325) $ ( 1,892) $ (1,997) 73,892,109
___________ ___________ __________ ___________
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (64,055)
Issued:
Employee stock purchase
plan 305
Long-term incentive plan 2,162 (13)
Other 742 (3)
___________ ___________ __________ ___________
Balance, September 30,
1994 $ (229,913) $ ( 1,163) $ (2,000) 73,892,109
=========== =========== ========== ===========
<CAPTION>
Shares
___________
Twelve Months Ended Treasury
(concluded) Shares
====================== ===========
<S> <C>
Balance, October 1, 1992 (7,127,738)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (1,961,575)
Issued:
Employee stock purchase
plan 18,561
Long-term incentive plan 251,250
NIFL acquisition 1,112,862
Other
___________
Balance, September 30,
1993 (7,706,640)
___________
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (2,134,696)
Issued:
Employee stock purchase
plan 19,248
Long-term incentive plan 93,089
Other
___________
Balance, September 30,
1994 (9,728,999)
===========
<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 Nine Months
Ended September 30, Ended September 30,
____________________ ____________________
1994 1993 1994 1993
========= ========= ========= =========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 28,535 $ 27,293 $ 115,054 $ 107,509
Adjustments to reconcile
net income to net cash:
Depreciation and amortization 48,606 46,484 144,819 139,020
Deferred federal and state
operating income taxes, net 7,523 3,164 (7,904) (12,071)
Deferred investment tax
credits, net (1,854) (1,850) (4,671) (5,550)
Change in certain assets
and liabilities* -
Accounts receivable, net 34,928 25,994 71,945 60,507
Electric production fuel 2,244 18,409 936 17,211
Materials and supplies (1,603) 1,553 (1,705) 5,354
Natural gas in storage (40,805) (43,398) (24,092) (33,324)
Accounts payable (4,530) (20,831) (44,325) (40,350)
Taxes accrued (24,174) (11,874) (46,283) (15,633)
Fuel adjustment clause 2,445 2,871 1,552 2,012
Gas cost adjustment clause (5,179) (11,127) 56,161 21,657
Other accruals 768 (3,312) 337 1,119
Other, net 15,153 10,477 23,113 40,834
_________ _________ _________ _________
Net cash provided by
operating activities 62,057 43,853 284,937 288,295
_________ _________ _________ _________
Cash flows provided by (used in)
investing activities:
Utility construction
expenditures (54,983) (43,298) (154,658) (115,514)
Acquisition and construction
expenditures related to
Crossroads Pipeline Company 94 - (1,286) -
Purchase of Northern Indiana
Fuel and Light Company, Inc.,
net of cash acquired - - - (30,137)
Return of capital from equity
investments - 32,435 8,000 32,435
Other, net (7,900) (9,081) (14,880) (49,402)
_________ _________ _________ _________
Net cash used in
investing activities (62,789) (19,944) (162,824) (162,618)
_________ _________ _________ _________
Cash flows provided by (used in)
financing activities:
Issuance of long-term debt 187,207 326,946 213,846 451,218
Issuance of short-term debt 295,125 320,352 741,977 983,355
Issuance of preferred shares - - - -
Net change in commercial paper 38,800 (88,500) 107,805 (61,800)
Retirement of long-term debt (67,546) (90,111) (258,091) (312,951)
Retirement of short-term debt (409,903) (462,952) (782,804)(1,139,655)
Retirement of preferred stock (891) (206) (2,050) (1,640)
Issuance of common shares 515 1,638 1,754 35,302
Acquisition of treasury shares (18,503) (8,905) (51,133) (27,808)
Cash dividends paid on common
shares (23,311) (21,881) (70,513) (65,627)
Cash dividends paid on
preferred shares (766) (766) (2,297) (2,297)
_________ _________ _________ _________
Net cash provided by
(used in) financing
activities 727 (24,385) (101,506) (141,903)
_________ _________ _________ _________
Net increase (decrease) in cash
and cash equivalents (5) (476) 20,607 (16,226)
Cash and cash equivalents
at beginning of period 36,752 25,308 16,140 41,058
_________ _________ _________ _________
Cash and cash equivalents
at end of period $ 36,747 $ 24,832 $ 36,747 $ 24,832
========= ========= ========= =========
<PAGE>
<CAPTION>
Twelve Months
Ended September 30,
____________________
1994 1993
========= =========
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 163,685 $ 156,580
Adjustments to reconcile
net income to net cash:
Depreciation and amortization 192,799 186,034
Deferred federal and state
operating income taxes, net 6,289 1,684
Deferred investment tax
credits, net (6,567) (7,413)
Change in certain assets
and liabilities* -
Accounts receivable, net (817) (9,096)
Electric production fuel 4,137 19,492
Materials and supplies 285 7,635
Natural gas in storage (15,453) (15,746)
Accounts payable 19,532 (14,107)
Taxes accrued (30,109) (5,169)
Fuel adjustment clause (2,565) (1,638)
Gas cost adjustment clause 45,145 (7,185)
Other accruals (782) 9,859
Other, net (5,960) 32,398
_________ _________
Net cash provided by
operating activities 369,619 353,328
_________ _________
Cash flows provided by (used in)
investing activities:
Utility construction
expenditures (219,996) (168,207)
Acquisition and construction
expenditures related to
Crossroads Pipeline Company (25,647) -
Purchase of Northern Indiana
Fuel and Light Company, Inc.,
net of cash acquired - (30,137)
Return of capital from equity
investments 8,000 32,435
Other, net (18,539) (66,516)
_________ _________
Net cash used in
investing activities (256,182) (232,425)
_________ _________
Cash flows provided by (used in)
financing activities:
Issuance of long-term debt 230,897 501,302
Issuance of short-term debt 1,013,129 1,582,456
Issuance of preferred shares - 43,000
Net change in commercial paper 168,000 (86,150)
Retirement of long-term debt (322,209) (320,005)
Retirement of short-term debt (1,031,357)(1,704,367)
Retirement of preferred stock (2,580) (30,335)
Issuance of common shares 2,816 35,951
Acquisition of treasury shares (64,055) (54,259)
Cash dividends paid on common
shares (93,100) (86,317)
Cash dividends paid on
preferred shares (3,063) (3,063)
_________ _________
Net cash provided by
(used in) financing
activities (101,522) (121,787)
_________ _________
Net increase (decrease) in cash
and cash equivalents 11,915 (884)
Cash and cash equivalents
at beginning of period 24,832 25,716
_________ _________
Cash and cash equivalents
at end of period $ 36,747 $ 24,832
========= =========
<FN>
*Net of effects from purchase of Northern Indiana Fuel and Light Company, Inc.
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.
Wholly-owned subsidiaries of Industries in addition to Northern Indiana,
include 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), which are all Indiana corporations.
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 30,800 customers
at September 30, 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 29,200 customers
at September 30, 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.
Development is a 95% shareholder in Elm Energy and Recycling (UK) Ltd.,
which owns and operates a tire-fueled generating plant in Wolverhampton,
England, that began operating in late 1993.
<PAGE>
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.
(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, nine, and
twelve month periods ended September 30, 1994, and 3.9% for the three, nine,
and twelve month periods ended September 30, 1993, respectively. 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, nine and twelve month periods ended September 30, 1994, and 3.2% for
the three, nine, and twelve month periods ended September 30, 1993.
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.
<PAGE>
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 September 30, 1994, Northern Indiana had sold
$100 million of certain of its accounts receivable under a sales agreement
which expires May 31, 1997.
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 Nine Months Twelve Months
Ended Ended Ended
September 30, September 30, September 30,
__________________ __________________ __________________
1994 1993 1994 1993 1994 1993
======== ======== ======== ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income taxes $ 20,520 $ 24,975 $ 96,596 $ 79,057 $110,694 $ 85,459
Interest, net
of amounts
capitalized $ 13,078 $ 14,437 $ 57,837 $ 60,135 $ 85,299 $ 91,754
</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 period
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.
<PAGE>
NATURAL GAS IN STORAGE. Based on the average cost of gas purchased
in September, 1994, and December, 1993, the estimated replacement cost of gas
in storage (current and non-current) at September 30, 1994, and December 31,
1993, exceeded the stated LIFO cost by approximately $28 million and $55
million, respectively.
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>
September 30, December 31,
1994 1993
============= ============
(Dollars in thousands)
<S> <C> <C>
Unamortized reacquisition
premium on debt (Note 17) $ 55,070 $ 48,033
Unamortized R.M. Schahfer Unit 17
and Unit 18 carrying charges
and deferred depreciation (See below) 76,035 79,198
Bailly scrubber carrying charges
and deferred depreciation (See below) 7,078 4,711
Deferral of SFAS No. 106 expense
not recovered (Note 9) 39,537 22,410
FERC Order No. 636
transition costs (Note 5) 53,500 23,376
_____________ ____________
$ 231,220 $ 177,728
============= ============
</TABLE>
CARRYING CHARGES AND DEFERRED DEPRECIATION. Upon completion 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.
<PAGE>
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.
(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. The
matter was tried on May 31 and June 1, 1994, and briefing was completed
September 30, 1994. Northern Indiana estimates that the IRS claim
approximates $44 million of principal and interest at September 30, 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 $18 million) was recorded as a plant acquisition
adjustment.
<PAGE>
(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 $190.9 million of take-or-pay costs and interest from
their customers through September 30, 1994. As of September 30, 1994, an
additional $7.3 million was scheduled to be billed to the Utilities and
recovered from customers over a period of one to four 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 from their
customers certain transition costs associated with restructuring under the
Order No. 636 regulation. 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 $54 million
of such costs have been recorded, a portion of which has been paid to the
pipeline suppliers, subject to refund. On November 2, 1994, the Commission
issued an order which approved the recovery of these FERC-allowed transition
costs on a volumetric basis from Northern Indiana's sales and transportation
customers (which is consistent with what the Commission authorized for the
recovery of take-or-pay pipeline gas costs). This order is subject to
rehearing or appeal by other parties within 20 days of its issuance.
Regulatory assets, in amounts corresponding to the costs recorded, have been
recorded to reflect the ultimate recovery of these costs.
<PAGE>
(6) ENVIRONMENTAL MATTERS: Because of major investments made in modern
environmental control facilities and the use of low sulfur coal, all of
Northern Indiana's electric production facilities now comply with the sulfur
dioxide limitations contained in acid rain provisions of the Clean Air Act
Amendments of 1990 (CAAA).
Northern Indiana is now using low sulfur coal at Unit 12 at the Michigan
City Generating Station, the only generating unit that had not been in
compliance with future sulfur dioxide limitations. 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 hazardous air pollutants, 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, but the increase is not significant.
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.
<PAGE>
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 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, remedial
costs may be incurred.
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.
<PAGE>
The components of the net deferred income tax liability at September
30, 1994, and December 31, 1993, are as follows:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
================== =================
(Dollars in thousands)
<S> <C> <C>
Deferred tax liabilities -
Accelerated depreciation and
other property differences $ 683,873 $ 677,493
AFUDC-equity 43,105 44,863
Adjustment clauses - 16,876
Take-or-pay gas costs 1,520 4,234
Other regulatory assets 35,246 17,364
Reacquisition premium on debt 19,480 16,844
Deferred tax assets -
Deferred investment tax
credits (47,402) (49,174)
Removal costs (101,923) (93,279)
Adjustment clauses (6,085) -
FERC Order No. 636 transition
costs (6,486) (7,111)
Other postretirement benefits (14,994) (8,499)
Regulatory income tax
liability (7,834) (9,582)
Other, net (14,289) (22,511)
__________________ _________________
584,211 587,518
Less: Deferred income taxes
related to current assets
and liabilities (10,283) 11,447
__________________ _________________
Deferred income taxes -
noncurrent $ 594,494 $ 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 Nine Months
Ended September 30, Ended September 30,
____________________ _____________________
1994 1993 1994 1993
======== ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current income taxes -
Federal $ 11,625 $ 16,225 $ 73,784 $ 76,574
State 1,939 1,954 11,319 10,903
________ ________ ________ ________
13,564 18,179 85,103 87,477
________ ________ ________ ________
Deferred income taxes, net-
Federal and State-
Accelerated depreciation and
other property differences 3,277 3,629 9,832 9,347
Removal costs (2,808) (2,101) (8,425) (7,951)
Adjustment clauses 458 3,293 (21,003) (8,624)
FERC Order No. 636
transition costs 3,718 - 11,873 -
Take-or-pay gas costs (363) (7,270) (1,833) (8,187)
Reacquisition premium on debt 1,382 3,294 2,451 2,772
Other 1,859 2,319 (799) 572
________ ________ ________ ________
7,523 3,164 (7,904) (12,071)
________ ________ ________ ________
Deferred investment tax
credits, net (1,854) (1,850) (4,671) (5,550)
________ ________ ________ ________
Total utility operating
income taxes 19,233 19,493 72,528 69,856
Income tax applicable to non-
operating activities and
income of non-utility
subsidiaries (1,600) (2,047) (4,777) (5,158)
________ ________ ________ ________
Total income taxes $ 17,633 $ 17,446 $ 67,751 $ 64,698
======== ======== ======== ========
<CAPTION>
Twelve Months
Ended September 30,
____________________
1994 1993
======== ========
(Dollars in thousands)
<S> <C> <C>
Current income taxes -
Federal $ 86,232 $ 90,595
State 13,548 13,658
________ ________
99,780 104,253
________ ________
Deferred income taxes, net-
Federal and State-
Accelerated depreciation and
other property differences 13,696 11,107
Removal costs (9,234) (10,926)
Adjustment clauses (14,845) 3,434
FERC Order No. 636
transition costs 11,873 -
Take-or-pay gas costs 555 842
Reacquisition premium on debt 2,503 2,327
Other 1,741 (5,100)
________ ________
6,289 1,684
________ ________
Deferred investment tax
credits, net (6,567) (7,413)
________ ________
Total utility operating
income taxes 99,502 98,524
Income tax applicable to non-
operating activities and
income of non-utility
subsidiaries (5,156) (6,776)
________ ________
Total income taxes $ 94,346 $ 91,748
======== ========
</TABLE>
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 Nine Months
Ended September 30, Ended September 30,
____________________ _____________________
1994 1993 1994 1993
======== ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net Income $ 28,535 $ 27,293 $115,054 $107,509
Add-Income taxes 17,633 17,446 67,751 64,698
Dividend requirements on
preferred stocks of
subsidiary 2,520 2,578 7,616 7,768
________ ________ ________ ________
Income before preferred
dividend requirements of
subsidiary and income taxes $ 48,688 $ 47,317 $190,421 $179,975
======== ======== ======== ========
Amount derived by multiplying
pretax income by statutory
rate $ 17,040 $ 16,561 $ 66,647 $ 62,928
Reconciling items multiplied
by the statutory rate:
Book depreciation over
related tax depreciation 967 962 2,902 2,920
Amortization of deferred
investment tax credits (1,854) (1,850) (5,637) (5,550)
State income taxes, net of
federal income tax benefit 1,849 1,363 6,654 5,995
Reversal of deferred taxes
provided at rates in excess
of the current federal
income tax rate (1,298) (1,143) (3,895) (3,906)
Other, net 929 1,553 1,080 2,311
________ ________ ________ ________
Total income taxes $ 17,633 $ 17,446 $ 67,751 $ 64,698
======== ======== ======== ========
<CAPTION>
Twelve Months
Ended September 30,
____________________
1994 1993
======== ========
(Dollars in thousands)
<S> <C> <C>
Net Income $163,685 $156,580
Add-Income taxes 94,346 91,748
Dividend requirements on
preferred stocks of
subsidiary 10,189 9,993
________ ________
Income before preferred
dividend requirements of
subsidiary and income taxes $268,220 $258,321
======== ========
Amount derived by multiplying
pretax income by statutory
rate $ 93,940 $ 89,566
Reconciling items multiplied
by the statutory rate:
Book depreciation over
related tax depreciation 3,875 4,026
Amortization of deferred
investment tax credits (7,533) (7,413)
State income taxes, net of
federal income tax benefit 9,227 8,734
Reversal of deferred taxes
provided at rates in excess
of the current federal
income tax rate (5,069) (5,136)
Other, net (94) 1,971
________ ________
Total income taxes $ 94,346 $ 91,748
======== ========
</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>
<PAGE>
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 and nine month periods ended September 30, 1994:
<TABLE>
<CAPTION>
Three Nine
Months Months
========= =========
(Dollars in thousands)
<S> <C> <C>
Service costs $ 4,598 $ 11,852
Interest costs 12,020 36,120
Estimated return on plan assets (13,022) (36,884)
Amortization of transition obligation 1,347 4,041
Other net amortization and deferral 621 1,863
_________ _________
$ 5,564 $ 16,992
========= =========
</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 and
notes.
Industries recorded provisions for pension costs as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1994 1993
============= =============
(Dollars in thousands)
<S> <C> <C>
Three months ended $ 5,564 $ 5,708
Nine months ended $ 16,992 $ 17,080
Twelve months ended $ 22,820 $ 21,950
</TABLE>
(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 insurance plans 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.
<PAGE>
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 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 and nine month
periods ended September 30, 1994, include the following components:
<TABLE>
<CAPTION>
Three Nine
Months Months
========= =========
(Dollars in thousands)
<S> <C> <C>
Service costs $ 2,045 $ 6,135
Interest costs 4,962 14,886
Amortization of transition obligation
over 20 years 2,882 8,646
_________ _________
$ 9,889 $ 29,667
========= =========
</TABLE>
Industries recorded net periodic postretirement benefit costs of
$39,009,000 for the twelve months ended September 30, 1994.
<PAGE>
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 and $3.6 million and for the three
and nine month periods ended September 30, 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.
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 and stated that a deferral period of four years or
less would be rebuttably presumed to be reasonable; Northern Indiana expects
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, Northern Indiana believes 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.
Northern Indiana 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,
Northern Indiana believes 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.
<PAGE>
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.
(12) PREFERRED STOCKS, Redeemable Solely at the Option of the Issuer,
Outstanding at September 30, 1994, and December 31, 1993 (see Note 11):
<TABLE>
<CAPTION>
Redemption
Price at
September 30, December 31, September 30,
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 - 211,266 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
September 30, 1994),
Series A (stated value $50
per share) -
743,585 and 801,500 shares
outstanding,respectively 37,179 40,075 50.00
____________ ____________
$ 94,854 $ 97,753
============ ============
</TABLE>
During the period October 1, 1992, to September 30, 1994, there were
no issuances of the above preferred stocks.
<PAGE>
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 SEPTEMBER 30, 1994, AND
DECEMBER 31, 1993 (SEE NOTE 11):
<TABLE>
<CAPTION>
September 30, 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 - 100,000 and 112,500
shares outstanding, respectively,
excluding sinking fund payments
due within one year $ 10,000 $ 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 - 75,000 and 81,000
shares outstanding, respectively,
excluding sinking fund payments
due within one year 7,500 8,100
Cumulative preferred stock -
no par value -
6.50% series - 430,000 shares
outstanding 43,000 43,000
_____________ _____________
66,612 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
_____________ _____________
$ 101,612 $ 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 September 30, 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
====== ============================== ==================================
Northern Indiana Public Service Company:
Cumulative preferred stock -
$100 par value -
<S> <C> <C>
8.85% $102.59, reduced periodically 12,500 shares on or before April 1.
8.35% $104.43, 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.
<CAPTION>
Cumulative preferred stock - no par value -
<S> <C> <C>
6.50% $100.00 on October 14, 2002 430,000 shares on October 14, 2002.
<CAPTION>
NIPSCO Industries, Inc.:
Cumulative preferred shares - without par value -
<S> <C> <C>
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 September 30, 1994, for each of the twelve month periods
subsequent to September 30, 1995, are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended September 30:*
==================================
<S> <C>
1996 $ 36,827,700
1997 $ 1,827,700
1998 $ 1,827,700
1999 $ 1,827,700
<FN>
* Table does not reflect redemptions made after September 30, 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 September
30, 1994, Northern Indiana had approximately $139.4 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. On October 25, 1994, the Board of Directors
of Industries has authorized the repurchase of an additional 3.5 million
common shares. The total shares authorized to be repurchased are
approximately 14.6 million common shares in addition to those required in
connection with the acquisitions of Kokomo Gas and NIFL. At September 30,
1994, Industries had purchased 13,629,234 shares at an average price of $22.66
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 3.9 million additional common shares may be repurchased under
the Board's authorization.
(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 September 30, 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 September 30, 1994.
<PAGE>
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 September 30, 1994,
and December 31, 1993, respectively.
Changes in outstanding shares under option and SARs for three, nine,
and twelve month periods ended September 30, 1994, and 1993, are as follows:
<PAGE>
<TABLE>
<CAPTION>
Nonqualified Stock Options
______________________________________________________
Three Months Ended Option Option
September 30, 1994 Price 1993 Price
====================== ========= =============== ======= ===============
<S> <C> <C> <C> <C>
Balance beginning of 832,700 $10.94 - $33.19 706,050 $10.94 - $26.06
period
Granted 294,650 $28.75 288,500 $33.19
Exercised (9,350) $17.06 - $26.06 (57,850) $10.94 - $26.06
Cancelled (5,750) $28.75 - $33.19 -
_________ _______
Balance end of period 1,112,250 $10.94 - $33.19 936,700 $10.94 - $33.19
========= =======
Shares exercisable 819,850 $10.94 - $33.19 648,200 $10.94 - $26.06
<CAPTION>
Nonqualified Stock Options
______________________________________________________
Nine Months Ended Option Option
September 30, 1994 Price 1993 Price
====================== ========= =============== ======= ===============
<S> <C> <C> <C> <C>
Balance beginning of 890,800 $10.94 - $33.19 869,150 $10.94 - $26.06
period
Granted 294,650 $28.75 288,500 $33.19
Exercised (49,150) $10.94 - $26.06 (215,250) $10.94 - $26.06
Cancelled (24,050) $28.75 - $33.19 (5,700) $26.06
_________ _______
Balance end of period 1,112,250 $10.94 - $33.19 936,700 $10.94 - $33.19
========= =======
Shares exercisable 819,850 $10.94 - $33.19 648,200 $10.94 - $26.06
<CAPTION>
Nonqualified Stock Options
_____________________________________________________
_
Twelve Months Ended Option Option
September 30, 1994 Price 1993 Price
====================== ========= =============== ======= ===============
<S> <C> <C> <C> <C>
Balance beginning of 936,700 $10.94 - $33.19 902,150 $10.94 - $26.06
period
Granted 294,650 $28.75 288,500 $33.19
Exercised (95,050) $10.94 - $26.06 (248,250) $10.94 - $26.06
Cancelled (24,050) $28.75 - $33.19 (5,700) $26.06
_________ _______
Balance end of period 1,112,250 $10.94 - $33.19 936,700 $10.94 - $33.19
======== =======
Shares exercisable 819,850 $10.94 - $33.19 648,200 $10.94 - $26.06
<CAPTION>
Nonqualified Stock Options
With SARs
_____________________________________________________
Three Months Ended
September 30, 1994 Option Price 1993 Option Price
====================== ========================= =========================
<S> <C> <C> <C> <C>
Balance beginning of 9,900 $10.94 9,900 $10.94
period
Granted - -
Exercised - -
Cancelled - -
________ ________
Balance end of period 9,900 $10.94 9,900 $10.94
======== ========
Shares exercisable 9,900 $10.94 9,900 $10.94
<CAPTION>
Nonqualified Stock Options
With SARs
_____________________________________________________
Nine Months Ended
September 30, 1994 Option Price 1993 Option Price
====================== ========================= =========================
<S> <C> <C> <C> <C>
Balance beginning of 9,900 $10.94 11,500 $10.94
period
Granted - -
Exercised - -
Cancelled - (1,600)
________ _________
Balance end of period 9,900 $10.94 9,900 $10.94
======== =========
Shares exercisable 9,900 $10.94 9,900 $10.94
<CAPTION>
Nonqualified Stock Options
With SARs
_____________________________________________________
Twelve Months Ended
September 30, 1994 Option Price 1993 Option Price
====================== ========================= =========================
<S> <C> <C> <C> <C>
Balance beginning of 9,900 $10.94 11,500 $10.94
period
Granted - -
Exercised - -
Cancelled - (1,600)
________ ________
Balance end of period 9,900 $10.94 9,900 $10.94
======== ========
Shares exercisable 9,900 $10.94 9,900 $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
September 30, 1994, 24,750 shares were issued under the Plan.<PAGE>
(17) LONG TERM DEBT: At September 30, 1994, and December 31, 1993, Industries'
long-term debt, excluding amounts due within one year, issued and not retired
or cancelled was as follows:
<TABLE>
<CAPTION>
Amount Outstanding
______________________________
September 30, 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
Series O, 6-3/8%, due September 1, 1997 27,300 27,507
Series P, 6-7/8%, due October 1, 1998 14,509 15,671
Series S, 8-1/8%, due May 1, 2001 - 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
Series Z, 8-1/8%, due August 15, 2007 43,069 43,069
Series AA,8-1/2%, due November 1, 2007 - 33,407
Series LL,7-1/2%, due October 15, 2014 - 41,000
Series MM,7-1/2%, due October 15, 2004 - 10,000
Series NN,7.10%, due July 1, 2017 55,000 55,000
_____________ ____________
Total 236,260 436,047
_____________ ____________
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
Series 1988 bonds - Jasper County -
Series A, B and C
3.17% weighted average at September 30, 1994,
due November 1, 2016 130,000 130,000
Series 1988 bonds - Jasper County -
Series D
3.22% weighted average at September 30, 1994,
due November 1, 2007 24,000 24,000
Series 1994 Bonds - Jasper County -
Series A -
3.60% weighted average at September 30, 1994,
due August 1, 2010 10,000 -
Series 1994 Bonds - Jasper County -
Series B -
3.60% weighted average at September 30, 1994,
due June 1, 2013 18,000 -
Series 1994 Bonds - Jasper County -
Series C -
3.60% weighted average at September 30, 1994,
due April 1, 2019 41,000 -
_____________ ____________
Total 244,500 193,500
_____________ ____________
Medium-term notes -
Issued at interest rates between 4.94% and
7.64% with a weighted average interest
rate of 6.47% and various maturities between
July 25, 1996 and January 19, 2024 594,750 454,200
_____________ ___________
Unamortized premium and discount on long-term
debt, net (3,869) (4,663)
_____________ ___________
Total long-term debt of Northern Indiana
Public Service Company 1,071,641 1,079,084
_____________ ___________
NIPSCO Capital Markets, Inc.
Medium-term note - 9.95% - due June 10, 1996 7,500 7,500
Unamortized discount (11) (16)
Zero coupon notes - 7.57%, $72,500 at maturity,
due December 1, 1997 57,302 54,191
_____________ ___________
Total long-term debt of NIPSCO Capital
Markets, Inc. 64,791 61,675
_____________ ___________
NIPSCO Development Company, Inc.
Lake Erie Land Company - Notes Payable -
Interest rates between 7.75% and 8.75% with
a weighted average interest rate of 8.17%
and various maturities between July 5,
1996 and June 30, 1998 3,168 3,256
Elm Energy and Recycling (UK), Ltd.
Term Loan Facility - 6.79% - due December 31,
2004 41,878 41,577
Metals Technology Corporation - Notes Payable -
Mortgage note, 8.25% - due September 25, 2005 108 108
NDC Douglas Properties, Inc.
Notes Payable -
Interest rates of 6.72% and 7.58% with a
weighted average interest rate of 7.16%
and maturities through January 1, 2004 5,578 -
_____________ ___________
Total long-term debt of NIPSCO Development
Company, Inc. 50,732 44,941
_____________ ___________
Northern Indiana Fuel and Light Company, Inc.
Sinking Fund Debentures -
Series G, 9.50%, - due August 1, 2001 - 3,000
Series H, 10.80%, - due August 1, 2008 - 3,800
_____________ ___________
Total long-term debt of Northern Indiana
Fuel and Light Company, Inc. - 6,800
_____________ ___________
Total long-term debt, excluding amounts
due in one year $ 1,187,164 $ 1,192,500
============= ===========
</TABLE>
<PAGE>
The sinking fund requirements of long-term debt outstanding at September
30, 1994, (including the maturity of Northern Indiana's first mortgage bonds:
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 September 30, 1995, are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended September 30,
==========================================
<S> <C>
1996 $ 93,054,657
1997 $ 76,563,816
1998 $ 115,358,345
1999 $ 21,946,793
</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 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 April,
1993, redemption of first mortgage bonds, 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. On May 23, 1994, Northern Indiana exercised its option to redeem
all the outstanding First Mortgage Bonds, Series S, Y and AA aggregating
$125.5 million, through the use of working capital and the proceeds of
short-term debt. As of July 31, 1994, $120.0 million of the Medium-Term
Notes, Series D, have been issued to complete the permanent refinancing of
those first mortgage bonds.
On August 25, 1994, Jasper County, Indiana issued Pollution Control
Refunding Revenue Bonds, Series 1994 (Northern Indiana Public Service Company
Project) (the "Series 1994 bonds"), including $10 million of Series 1994A
Bonds, due August 1, 2010; $18 million of Series 1994B Bonds; due June 1,
2013; and $41 million of Series 1994C Bonds, due April 1, 2019. The proceeds
of these issuances were loaned to Northern Indiana under similar terms. The
initial interest rate on Series 1994 Bonds was 3.10%, which resets daily. The
proceeds of the Series 1994A and Series 1994C issues were placed in an escrow
account for the purpose of retiring on October 15, 1994, $10 million of Series
MM First Mortgage Bonds, 7-1/2%, due October 15, 2004 and $41 million of
Series LL First Mortgage Bonds, 7-1/2%, due October 15, 2014. The proceeds of
the Series 1994B Bonds were used to retire the $18 million Series 1978 Note,
6.70%, on August 25, 1994. Accordingly, the accompanying financial statements
reflect these first mortgage bonds and notes as being retired. The Series
1994 Bonds are secured by Letters of Credit from Union Bank of Switzerland.
<PAGE>
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 $303.7
million at September 30, 1994.
(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 September 30, 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, 1995. 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
September 30, 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 $238.5 million of money market lines of credit.
As of September 30, 1994, $82.1 million of borrowings were outstanding under
these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
September 30, 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 September 30, 1994, Northern Indiana had $128.2 million
in commercial paper outstanding, having a weighted average interest rate of
4.94%.
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 September 30,
1994, there were no borrowings outstanding under this agreement.
Capital Markets also has $50 million of money market lines of credit.
As of September 30, 1994, there were no borrowings outstanding under these
lines of credit.
<PAGE>
As of September 30, 1994, Capital Markets had $54.5 million in commercial
paper outstanding, having a weighted average interest rate of 5.06%.
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 September 30, 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 September 30, 1994:
<TABLE>
<CAPTION>
Twelve Months Ended September 30,
========================================================
(Dollars in thousands)
<S> <C>
1995 $ 5,246
1996 3,019
1997 2,733
1998 2,208
1999 1,758
Later years 23,730
________
Total minimum payments required $ 38,694
========
</TABLE>
The consolidated financial statements include rental expense for all
operating leases as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1994 1993
============= =============
(Dollars in thousands)
<S> <C> <C>
Three months ended $ 2,058 $ 1,890
Nine months ended $ 6,282 $ 5,370
Twelve months ended $ 8,163 $ 6,238
</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.
<PAGE>
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 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.
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.
The carrying values and estimated fair values of Industries' financial
instruments are as follows:
<TABLE>
<CAPTION>
September 30, 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 $ 36,747 $ 36,747 $ 16,140 $ 16,140
Investments at cost 9,456 9,894 6,189 6,474
Long-term debt (including
current portion) 1,213,235 1,098,896 1,263,029 1,267,728
Preferred stock 198,294 137,061 203,043 185,368
</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 25% of electric revenue for the twelve months ended September 30, 1994,
as compared to 3% and 23%, respectively, for the twelve months ended September
30, 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), NIPSCO Energy Trading Corp.
(NETCO) and Crossroads Pipeline Company (Crossroads) 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
(the Utilities).
REVENUES -
Total operating revenues for the twelve months ended September 30,
1994, increased $37.5 million as compared to the twelve months ended
September 30, 1993. Gas revenues increased $10.0 million and electric
revenues increased $27.5 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, increased deliveries of gas
transported to others partially offset by decreased purchase gas cost per
dekatherm (dth). 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 682,200 gas customers at September 30, 1994.
The increase in electric revenues for the twelve months ended September
30, 1994, was mainly due to increased sales to industrial customers and higher
fuel cost per kilowatt-hour (kwh), and was partially offset by decreased
sales to wholesale customers. At September 30, 1994, Northern Indiana had
approximately 399,300 electric customers.
Total operating revenue for the nine months ended September 30, 1994,
increased $35.2 million as compared to the nine months ended September 30,
1993. Gas revenues increased $9.7 million and electric revenues increased
$25.5 million as compared to the same period in 1993. The increase in gas
revenues was mainly due to increased sales to residential and commercial
customers due to colder weather and the inclusion of Crossroads this year and
was partially offset by reduced gas costs per dth. The increase in electric
revenue for the nine months ended September 30, 1994, was mainly due to higher
sales to commercial customers, increased industrial demands and higher fuel
costs per kwh, which were partially offset by decreased sales to wholesale
customers.
Total operating revenue for the three months ended September 30, 1994,
decreased $7.9 million as compared to the three months ended September 30,
1993. Gas revenues decreased $5.8 million and electric revenues decreased
$2.1 million as compared to the same period in 1993. The decrease in gas
revenues was mainly due to decreased gas costs per dth. The decrease in
electric revenue for the three months ended September 30, 1994, was mainly due
to decreased sales to residential and commercial customers as a result of
milder weather and decreased sales to wholesale customers partially offset by
increased sales to industrial customers.
<PAGE>
The basic steel industry accounted for 37% of natural gas delivered
(including volumes transported) and 40% of electric sales during the twelve
months ended September 30, 1994.
The components of the variations in gas and electric revenues are shown
in the following tables:
<TABLE>
<CAPTION>
Variations from Prior Periods
___________________________________________
September 30, 1994
Compared to
September 30, 1993
Three Months Nine Months Twelve Months
============ =========== =============
(Dollars in thousands)
<S> <C> <C> <C>
Gas Revenue -
Pass through of net
changes in purchased
gas costs, gas storage
and storage
transportation costs $ (4,349) $ (13,027) $ (22,962)
Take-or-pay costs (41) 1,669 2,736
Changes in sales levels (1,955) 19,465 19,504
Gas transport levels 506 1,604 2,336
NIFL acquisition - - 8,422
____________ ___________ _____________
Gas Revenue Change $ (5,839) $ 9,711 $ 10,036
____________ ___________ _____________
Electric Revenue -
Pass through of net
changes in fuel costs $ 568 $ 6,186 $ 3,991
Changes in sales levels (2,669) 19,281 23,467
____________ ___________ _____________
Electric Revenue Change $ (2,101) $ 25,467 $ 27,458
____________ ___________ _____________
Total Revenue Change $ (7,940) $ 35,178 $ 37,494
============ =========== =============
<FN>
See Note 5 to the consolidated financial statements (Rate Matters),
regarding gas take-or-pay costs.
</TABLE>
GAS COSTS -
The Utilities' gas costs decreased $4.0 million for the twelve month
period ended September 30, 1994, due to decreased gas costs per dth partially
offset by the inclusion of purchased gas costs related to NIFL and increased
purchases. The average cost for the Utilities purchased gas for the three,
nine, and twelve month periods ended September 30, 1994, after adjustment for
take-or-pay charges billed to transport customers, was $2.93, $3.01 and $3.03
per dth as compared to $3.42, $3.30 and $3.37 per dth for the same periods
in 1993.
<PAGE>
FUEL AND PURCHASED POWER -
The cost of fuel for electric generation decreased for the three month
period ended September 30, 1994, compared to 1993 periods, mainly as the
result of decreased production.
Power purchased increased $3.8, $15.0 and $17.4 million for the three,
nine, and twelve month periods ended September 30, 1994, respectively. Power
purchased increased mainly due to purchases required to replace R. M. Schahfer
Generating Station Unit 15 generation from February 1 to July 5, 1994, while
this unit was down on an extended outage as part of the Powder River Basin
coal conversion project.
OPERATING MARGINS -
Operating margins increased $24.5 million for the twelve months ended
September 30, 1994, over the same period a year ago. The operating margin
from gas deliveries increased $14.1 million, 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 of gas
transported to others. The operating margins from electric sales increased
$10.4 million, due to increased sales to industrial customers, partially
offset by decreased sales to wholesale customers.
Operating margins increased $18.2 million for the nine months ended
September 30, 1994, over the same period a year ago. The operating margins
from gas increased $9.4 million reflecting increased sales to residential and
commercial customers due to colder weather during the first quarter of 1994.
Operating margins on electric sales increased $8.8 million reflecting
increased sales to commercial and industrial customers partially offset by
decreased sales to wholesale customers.
Operating margins decreased $1.5 million for the three months ended
September 30, 1994, over the same period a year ago. Gas operating margin
remained relatively unchanged. Operating margins on electric sales decreased
$1.6 million reflecting decreased sales to residential and commercial
customers as a result of milder weather and decreased sales to wholesale
customers partially offset by increased sales to industrial customers.
OPERATING EXPENSES AND TAXES -
Operation expenses decreased $4.0 and increased $3.7 and $8.3 million
for the three, nine, and twelve month periods ended September 30, 1994,
respectively. Operation expense increased for the twelve month period mainly
due to increased operating costs of pollution control facilities, NIFL
operating expenses for the entire twelve month period, and operating expenses
in connection with Crossroads beginning in January, 1994.
Maintenance expenses increased $5.5 million for the twelve month period
ended September 30, 1994, mainly as a result of a higher level of overall
maintenance activity at the electric production facilities.
<PAGE>
Depreciation and amortization expense increased for the three, nine,
and twelve month periods ended September 30, 1994, as a result of net plant
additions.
Utility income taxes increased for the nine and twelve month periods
ended September 30, 1994, as a result of increased pre-tax income and the
increased Federal income tax rate which was enacted into law in August, 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.) 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 nine and twelve month periods
ended September 30, 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 a 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 September
30, 1994, was $163.7 million compared to $156.6 million for the twelve month
period ended September 30, 1993.
Net income for the nine months ended September 30, 1994, was $115.1
million compared to $107.5 million for the nine months ended September 30,
1993.
Net income for the three months ended September 30, 1994, was $28.5
million compared to $27.3 million for the three months ended September 30,
1993.
ENVIRONMENTAL MATTERS
Because of major investments made in modern environmental control
facilities and the use of low sulfur coal, 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 is now using low sulfur coal at Unit 12 at the Michigan
City Generating Station, the only generating unit that had not been in
compliance with future sulfur dioxide limitations. 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.
<PAGE>
The CAAA contain provisions that could lead to strict limitations on
emissions of nitrogen oxides and hazardous air pollutants, 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, but the increase is not significant.
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 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, remedial
costs may be incurred.
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.
<PAGE>
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 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 April, 1993
redemption of first mortgage bonds, 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. On May 23, 1994, Northern Indiana exercised its option to
redeem all the outstanding First Mortgage Bonds, Series S, Y and AA
aggregating $125.5 million, through the use of working capital and the
proceeds of short-term debt. As of July 31, 1994, $120.0 million of the
Medium-Term Notes, Series D, had been issued to complete the permanent
refinancing of those first mortgage bonds.
On August 25, 1994, Jasper County, Indiana issued Pollution Control
Refunding Revenue Bonds, Series 1994 (Northern Indiana Public Service Company
Project) (the "Series 1994 bonds"), including $10 million of Series 1994A
Bonds, due August 1, 2010; $18 million of Series 1994B Bonds; due June 1,
2013; and $41 million of Series 1994C Bonds, due April 1, 2019. The proceeds
of these issuances were loaned to Northern Indiana under similar terms. The
initial interest rate on Series 1994 Bonds was 3.10%, which resets daily. The
proceeds of the Series 1994A and Series 1994C issues were placed in an escrow
account for the purpose of retiring on October 15, 1994, $10 million of Series
MM First Mortgage Bonds, 7-1/2%, due October 15, 2004 and $41 million of
Series LL First Mortgage Bonds, 7-1/2%, due October 15, 2014. The proceeds of
the Series 1994B Bonds were used to retire the $18 million Series 1978 Note,
6.70%, on August 25, 1994. Accordingly, the accompanying financial statements
reflect these first mortgage bonds and notes as being retired. The Series
1994 Bonds are secured by Letters of Credit from Union Bank of Switzerland.
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
September 30, 1994, there were no borrowings outstanding under this agreement.
<PAGE>
Capital Markets also has $50 million of money market lines of credit.
As of September 30, 1994, there were no borrowings outstanding under these
lines of credit.
As of September 30, 1994, Capital Markets had $54.5 million in commercial
paper outstanding, having a weighted average interest rate of 5.06%.
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 $303.7
million at September 30, 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 September 30, 1994, there were no borrowings under this agreement.
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 September 30,
1994, Northern Indiana had $128.2 million in commercial paper outstanding,
having a weighted average interest rate of 4.94%.
Northern Indiana has a $250 million revolving Credit Agreement with
several banks which terminates September 21, 1996, unless extended by its
terms. As of September 30, 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, 1995. As of September 30, 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 $238.5 million of money market lines of credit.
As of September 30, 1994, $82.1 million of borrowings were outstanding under
these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
September 30, 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.
<PAGE>
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.
COMPETITION
The Energy Policy Act of 1992 (Energy Act) allows FERC to order electric
utilities to grant access to transmission systems by third party power
producers. The Energy Act specifically prohibits federally mandated wheeling
of power for retail customers. That authority lies with the individual states
several of which are considering opening the transmission network to retail
customers. The Energy Act will stimulate greater competition in the wholesale
electric markets. This competition will create opportunities to compete for
new customers and revenues, as well as increase the risk of the loss of
customers. Although wholesale customers represent a relatively small portion
of Northern Indiana's sales (6% for 1993), Northern Indiana will continue its
efforts to retain and add customers by offering competitive rates.
Competitive forces have also begun to influence retail pricing in the
industry. In some instances, industrial customers, threatening to pursue
cogeneration, self-generation, retail wheeling or relocation to other service
territories, have obtained price concessions from utilities.
Operating in a competitive environment will place added pressures on
utility profit margins and credit quality. Increasing competition in the
electric utility industry has already led the credit rating agencies to apply
more stringent guidelines in making credit rating determinations.
Northern Indiana's management has taken steps to make the company more
competitive and profitable in the changing utility environment, including
partnering on energy projects with major industrial customers and conversions
of some of its generating units to allow use of lower cost low sulfur coal.
FERC Order No. 636 effective in late 1993 shifted primary responsibility
for gas acquisition, transportation and peak days' supply from pipelines to
local gas distribution companies, such as the Utilities. Although pipelines
continue to transport gas, they no longer provide sale service. The Utilities
believe they have taken appropriate steps to insure the continued acquisition
of adequate gas supplies at reasonable prices.
The mix of gas revenues from retail sales, interruptible retail sales,
firm transportation service and interruptible transportation services has
changed significantly over the past several years. The deregulation of the
gas industry, since the mid-1980's, allows large industrial and commercial
customers to purchase their gas supplies directly from producers and use the
Utilities' facilities to transport the gas. Transportation customers pay the
Utilities only for transporting their gas from the pipeline to the customers'
premises.
To date, the Utilities' system has not been materially affected by
competition, and management does not foresee substantial adverse effect in
the near future, unless the current regulatory structure is substantially
altered. Northern Indiana believes the steps it is taking to deal with
increased competition will have significant, positive effects in the next few
years.
<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 a 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.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 23-Consent of Arthur Andersen LLP
(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 November 10, 1994
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of NIPSCO Industries, Inc. for nine months ended September
30, 1994, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,228,741
<OTHER-PROPERTY-AND-INVEST> 149,724
<TOTAL-CURRENT-ASSETS> 271,434
<TOTAL-DEFERRED-CHARGES> 18,139
<OTHER-ASSETS> 231,220
<TOTAL-ASSETS> 3,899,258
<COMMON> 641,017
<CAPITAL-SURPLUS-PAID-IN> 27,154
<RETAINED-EARNINGS> 421,667
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,089,838
101,612
94,854
<LONG-TERM-DEBT-NET> 1,187,164
<SHORT-TERM-NOTES> 82,050
<LONG-TERM-NOTES-PAYABLE> 3,428
<COMMERCIAL-PAPER-OBLIGATIONS> 182,700
<LONG-TERM-DEBT-CURRENT-PORT> 22,643
1,828
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,133,141
<TOT-CAPITALIZATION-AND-LIAB> 3,899,258
<GROSS-OPERATING-REVENUE> 1,248,158
<INCOME-TAX-EXPENSE> 72,528
<OTHER-OPERATING-EXPENSES> 983,127
<TOTAL-OPERATING-EXPENSES> 1,055,655
<OPERATING-INCOME-LOSS> 192,503
<OTHER-INCOME-NET> (2,928)
<INCOME-BEFORE-INTEREST-EXPEN> 189,575
<TOTAL-INTEREST-EXPENSE> 74,521
<NET-INCOME> 115,054
2,297
<EARNINGS-AVAILABLE-FOR-COMM> 112,757
<COMMON-STOCK-DIVIDENDS> 69,913
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 284,937
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
<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 LLP
Chicago, Illinois
November 10, 1994
