<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9779
NIPSCO INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA 35-1719974
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
46320
5265 HOHMAN AVENUE (ZIP CODE)
HAMMOND, INDIANA
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 219-853-5200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON SHARES NEW YORK, CHICAGO AND PACIFIC
PREFERRED SHARE PURCHASE RIGHTS NEW YORK, CHICAGO AND PACIFIC
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
AS OF FEBRUARY 28, 1995 64,187,689 COMMON SHARES (NOT INCLUDING 9,704,420
SHARES HELD IN TREASURY), WERE OUTSTANDING. THE AGGREGATE MARKET VALUE OF THE
COMMON SHARES (BASED UPON THE FEBRUARY 28, 1995 CLOSING PRICE OF $31 5/8 ON THE
NEW YORK STOCK EXCHANGE) HELD BY NONAFFILIATES WAS APPROXIMATELY
$2,014,111,000.
DOCUMENTS INCORPORATED BY REFERENCE
1994 NIPSCO INDUSTRIES, INC. ANNUAL REPORT TO SHAREHOLDERS--PARTS I, II AND
IV.
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT DATED MARCH 10, 1995 FOR ANNUAL
MEETING TO BE HELD APRIL 12, 1995--PART III.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART 1
ITEM 1. BUSINESS
NIPSCO INDUSTRIES, INC. AND ITS SUBSIDIARIES. NIPSCO Industries, Inc.
(Industries) is an Indiana corporation, incorporated on September 22, 1987,
which serves as the holding company for a number of subsidiaries, including
three public utility operating companies: Northern Indiana Public Service
Company (Northern Indiana), Kokomo Gas and Fuel Company (Kokomo Gas) and
Northern Indiana Fuel and Light Company, Inc. (NIFL).
Industries' major non-utility subsidiaries include NIPSCO Development
Company, Inc. (Development), NIPSCO Energy Services, Inc. (Services), and
NIPSCO Capital Markets, Inc. (Capital Markets).
Northern Indiana, Industries' largest and dominant subsidiary, is a public
utility operating company, incorporated in Indiana on August 2, 1912, engaged
in supplying natural gas and electric energy to the public. It operates in 30
counties in the northern part of Indiana, serving an area of about 12,000
square miles with a population of approximately 2,188,000. At December 31,
1994, Northern Indiana served approximately 631,800 customers with gas and
approximately 400,500 with electricity.
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 6 counties having a population
of approximately 100,000, and served approximately 31,500 customers at December
31, 1994. The Kokomo Gas service territory is contiguous to Northern Indiana's
gas service territory.
NIFL is a public utility operating company incorporated in Indiana in 1906,
engaged in supplying natural gas to the public. Headquartered in Auburn,
Indiana, it operates in 5 counties in the northeast corner of the state having
a population of approximately 66,700, and served approximately 29,800 customers
at December 31, 1994. The NIFL service territory is contiguous to Northern
Indiana's gas service territory.
Development makes various investments, including real estate. Development is
a 95% shareholder in Elm Energy and Recycling (UK) Ltd. (Elm Energy), which
owns and operates a tire-fueled electric generating plant in Wolverhampton,
England, that began operating in late 1993. Services coordinates the energy-
related diversification ventures of Industries 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 ventures of
Industries other than Northern Indiana.
The majority of the "Business" discussion of this report relates to Northern
Indiana, Kokomo Gas, NIFL and Crossroads (Utilities). See "Segments of
Business" in the Notes to Consolidated Financial Statements and "Selected
Supplemental Information--Gas Statistics and Electric Statistics" in the 1994
Annual Report to Shareholders, which note and information are incorporated by
reference (see Exhibit 13), regarding financial information about industry
segments and classes of customers served.
1
<PAGE>
BUSINESS OF NORTHERN INDIANA, KOKOMO GAS AND NIFL.
ELECTRIC OPERATIONS. Northern Indiana owns and operates four coal fired
electric generating stations with net capabilities of 3,179,000 kilowatts (kw),
two hydroelectric generating plants with net capabilities of 10,000 kw, and
four gas fired combustion turbine generating units with net capabilities of
203,000 kw, for a total system net capability of 3,392,000 kw. During the year
ended December 31, 1994, Northern Indiana generated 89.5% and purchased 10.5%
of its electric requirements.
Northern Indiana's 1994 electric control area peak of 2,863,700 kw, which
includes Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal
Power Agency (IMPA) for which Northern Indiana controls interchange operations,
was set on June 16, 1994. Northern Indiana's all-time control area peak of
2,953,600 kw was set on August 27, 1993. Northern Indiana's 1994 internal peak
load, which excludes WVPA and IMPA, was 2,652,700 kw set on June 16, 1994.
Northern Indiana's all-time internal peak load of 2,736,100 kw was set on
August 27, 1993.
Northern Indiana's electric system is interconnected with that of Indiana
Michigan Power Company, Commonwealth Edison Company, PSI Energy, Inc.,
Consumers Power Company, WVPA, IMPA, and Central Illinois Public Service
Company. Electric energy is purchased from, sold to, or exchanged with these
and other utilities.
Northern Indiana provides WVPA with transmission and distribution service,
operating reserve requirements and capacity deficiency service, and provides
IMPA with transmission service, operating reserve requirements and capacity
deficiency service, in Northern Indiana's control area. Northern Indiana also
engages in sales and services under the interconnection agreements with WVPA
and IMPA.
WVPA provides service to twelve Rural Electric Membership Corporations
(REMC's) located in Northern Indiana's control area. IMPA provides service to
the municipal electric system of the city of Rensselaer located in Northern
Indiana's control area.
Northern Indiana and WVPA have executed a supplemental agreement for unit
peaking capacity and energy. Pursuant to this agreement, which runs from
January 1, 1992, through December, 2001, WVPA purchases 90,000 kw of capacity
per month.
Northern Indiana has full requirements agreements with each of its eight
municipal wholesale customers. These full requirements contracts became
effective October 1, 1987 and extend through January 31, 1998.
Northern Indiana is a member of the East Central Area Reliability
Coordination Agreement (ECAR). ECAR is one of nine regional electric
reliability councils established to coordinate planning and operations of
member companies regionally and nationally.
FUEL SUPPLY. The generating units of Northern Indiana are located at Bailly,
Mitchell, Michigan City and Schahfer Generating Stations. Northern Indiana's
thirteen steam generating units have a net capability of 3,179,000 kw. Coal is
the primary source of fuel for all units, except for three, which utilize
natural gas. In addition, Northern Indiana's four combustion turbine generating
units with a net capability of 203,000 kw are fired by gas. Fuel requirements
for Northern Indiana's generation for 1994 were supplied as follows:
<TABLE>
<S> <C>
Coal................................................................ 95.6%
Natural Gas......................................................... 4.4%
</TABLE>
2
<PAGE>
In 1994, Northern Indiana used approximately 7.1 million tons of coal at its
generating stations. Northern Indiana has established a normal level of coal
stock which provides adequate fuel supply during the year under all conditions.
Annual coal requirements for Northern Indiana's electric generating units
through 1999 are estimated to range from 8.2 million tons to 8.5 million tons,
depending from year to year upon anticipated sales levels, scheduled
maintenance and other variables. These requirements are being or will be met in
part under long-term contracts as follows:
<TABLE>
<CAPTION>
MILLION
TONS/YEAR SULFUR CONTENT EXPIRATION
--------- -------------- ----------
<S> <C> <C>
1.0 High 1998
Up to 1.0(a) High 1998
1.3(b) Low 2001
1.5(c) Low 1998
1.0(c) Low 1997
1.0(c) Low 1997
</TABLE>
--------
(a) Contract calls for requirements up to 1.0 million tons/contract year.
(b) 1.5 million tons in 1996.
(c) Plus or minus 10%/contract year.
The average cost of coal consumed in 1994 was $32.04 per ton or 16.85 mills
per kilowatt-hour (kwh) generated as compared to $32.90 per ton or 16.65 mills
per kwh generated in 1993. Northern Indiana's forecasts indicate that its coal
costs will remain at the current level or be slightly lower over the next two
years.
COAL RESERVES. Included in the previous table of coal contracts is a coal
mining contract with Cyprus Shoshone Coal Corporation (Cyprus) under which
Cyprus is mining Northern Indiana's coal reserves in the Cyprus mine through
the year 2001. The costs of the reserves are being recovered through the rate
making process as the coal is burned to produce electricity.
FUEL ADJUSTMENT CLAUSE. See "Fuel Adjustment Clause" in the Notes to
Consolidated Financial Statements in the 1994 Annual Report to Shareholders,
which note is incorporated herein by reference (see Exhibit 13).
GAS OPERATIONS. Northern Indiana supplies natural gas of about 1,000 Btu per
cubic foot. In a 24-hour period ended January 19, 1994, Northern Indiana's 1994
maximum day sendout was 1,784,972 dekatherms (dth). The maximum day's sendout
of gas to date in 1995, is 1,545,616 dth during the 24-hour period ended at
noon, January 5, 1995.
In 1994, all of the gas supplied by Northern Indiana was transported by
Natural Gas Pipeline Company of America (Natural), Midwestern Gas Transmission
Company (Midwestern), Panhandle Eastern Pipe Line Company (Panhandle),
Trunkline Gas Company (Trunkline), and ANR Pipeline Company (ANR).
Approximately 20% of Northern Indiana's 1994 gas supply was purchased on the
spot market, generally on 30-day agreements.
The average price per dth (including take-or-pay charges and transition
costs) in 1994 decreased to $2.99 from $3.25 in 1993, and the average cost of
purchased gas, after adjustment for take-or-pay charges and transition costs
for transport customers, was $2.90 per dth as compared to $3.21 per dth in
1993.
The transportation and storage rates of Natural, Midwestern, Panhandle,
Trunkline and ANR to Northern Indiana are subject to change in accordance with
rate proceedings filed with the Federal Energy Regulatory Commission (FERC).
3
<PAGE>
Agreements have been negotiated with natural gas suppliers to replace former
pipeline supplier contracts pursuant to the requirements of FERC Order No. 636
(See "Rate Matters--FERC Order No. 636" in the Notes to Consolidated Financial
Statements in the 1994 Annual Report to Shareholders, which note is
incorporated herein by reference (see Exhibit 13)). Northern Indiana also has
firm transportation agreements with the pipelines, which allow Northern Indiana
to move third party gas through the pipelines' transmission systems. Northern
Indiana also has producer agreements which allow for the purchase of gas either
from gas marketers or producers.
Northern Indiana has a curtailment plan approved by the Indiana Utility
Regulatory Commission (Commission). Effective on August 11, 1981, the plan
allows unrestricted gas sales by Northern Indiana. In 1994, Northern Indiana
added 9,253 new gas customers. There were no firm sales curtailments in 1994
and none is expected during 1995.
Northern Indiana operates an underground gas storage field at Royal Center,
Indiana, which currently has a storage capacity of 6.75 million dth.
Withdrawals have been made in the 1994-95 winter of up to 79,881 dth per day.
In addition, Northern Indiana and NI-TEX have several gas storage service
agreements which make possible the withdrawal of substantial quantities of gas
from other storage facilities. All of the storage agreements have limitations
on the volume and timing of daily withdrawals. These contracts provide in the
aggregate for approximately 30,179,693 dth of annual stored volume, and allow
for approximately 632,306 dth of maximum daily withdrawal.
Northern Indiana has a liquefied natural gas plant in LaPorte County which is
designed for peak shaving and has the following capacities: maximum storage of
4,000,000 dth; maximum liquefaction rate (gas to liquid), 20,000 dth per day;
maximum vaporization rate (output to distribution system), 400,000 dth per day.
KOKOMO GAS. Kokomo Gas' total gas send-out for 1994 was 8,057,901 dth,
compared to 8,122,208 dth for 1993. Total transportation volumes for industrial
customers in 1994 were 2,998,832 dth, compared to 1,785,329 dth in 1993. Kokomo
Gas purchased gas under term agreements from NI-TEX to satisfy all of its
system requirements in 1994.
NIFL. NIFL's total gas send-out for 1994 was 8,626,056 dth compared to
7,881,513 dth for 1993. Total transportation volumes for industrial customers
in 1994 were 3,745,963 dth, compared to 3,227,853 dth in 1993. NIFL purchased
gas on the spot market from a number of suppliers and also under term
agreements from NI-TEX to satisfy all of its system requirements in 1994.
GAS COST ADJUSTMENT CLAUSE. See "Gas Cost Adjustment Clause" in the Notes to
Consolidated Financial Statements in the 1994 Annual Report to Shareholders,
which note is incorporated herein by reference (see Exhibit 13).
TAKE-OR-PAY PIPELINE GAS COSTS. See "Take-or-Pay Pipeline Gas Costs" in the
Notes to Consolidated Financial Statements in the 1994 Annual Report to
Shareholders, which note is incorporated herein by reference (see Exhibit 13).
FERC ORDER NO. 636. See "FERC Order No. 636" in the Notes to Consolidated
Financial Statements in the 1994 Annual Report to Shareholders, which note is
incorporated herein by reference (see Exhibit 13).
4
<PAGE>
BUSINESS OF OTHER SUBSIDIARIES
CAPITAL MARKETS. Capital Markets was formed in 1989 to serve as the funding
agent for ventures of Industries and its subsidiaries other than Northern
Indiana. Capital Markets has a $150 million revolving Credit Agreement, which
provides short-term financing flexibility to Industries and also serves as the
back up instrument for a commercial paper program. As of December 31, 1994,
there were no borrowings outstanding under this agreement. Capital Markets also
has $105 million of money market lines of credit. As of December 31, 1994,
$12.7 million of borrowings were outstanding under these lines of credit. As of
December 31, 1994, Capital Markets had $49.6 million in commercial paper
outstanding, having a weighted average interest rate of 6.18%.
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, was approximately $320.2 million at
December 31, 1994.
DEVELOPMENT. Development looks for partnerships with customers on energy
projects, seeks environmental project opportunities and coordinates the real
estate diversification of Industries.
Development is a 95% shareholder in Elm Energy and Recycling (UK) Ltd. (Elm
Energy), which owns and operates a tire-fueled electric generating plant in
Wolverhampton, England, that began operating in late 1993.
In conjunction with Elm Energy, Development is evaluating similar tires-to-
energy projects in Scotland and Belgium.
In 1994, Development, through a real estate partnership, increased its
investment in multiple- family residential housing developments in Hammond.
Development has similar investments in Fort Wayne and Mishawaka and other joint
projects are being considered in Portage, Gary and other communities in
Northern Indiana's service territories. These projects are part of the
continued commitment by Development to provide high-quality, energy efficient,
affordable housing to the residents of a variety of geographic and economic
regions served by Northern Indiana.
Harbor Coal Company (Harbor Coal), a wholly-owned subsidiary of Development,
has invested in a partnership to finance, construct, own and operate a $65
million pulverized coal injection facility which began commercial operation in
August, 1993. The facility receives raw coal, pulverizes it and delivers it to
Inland Steel Company blast furnaces for use in the operation of its 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.
NORTH LAKE ENERGY CORPORATION (NORTH LAKE). In January, 1995, Industries'
subsidiary, North Lake, entered into definitive agreements with Inland Steel
Company to construct a 75-megawatt electric cogeneration facility using by-
product fuels from Inland's blast furnaces. The plant, which will be operated
by Inland, is expected to begin operating in the third quarter of 1996.
5
<PAGE>
Industries is evaluating other potential partnerships with Northern Indiana
customers for using waste gases from steelmaking and other processes for power
generation. Low BTU blast furnace gases and other fuels, in amounts which could
fuel up to 250 megawatts of new generation, are produced at companies served by
Northern Indiana.
SERVICES. Services coordinates energy-related diversification and has four
wholly-owned subsidiaries: NETCO, NI-TEX, Fuel and Crossroads.
NETCO. NETCO provides natural gas brokering and transportation management
services to customers within Northern Indiana's service territory. During 1993,
NETCO expanded its transportation management services to include imbalance
exchange services for its customers. Service revenues for 1994 totalled $1.0
million.
NI-TEX. NI-TEX is an intrastate natural gas transmission and supply company
providing gas sales, transportation and storage services. NI-TEX provides
flexible city gate gas supply to Northern Indiana, Kokomo Gas and NIFL under
term contracts. NI-TEX, through joint ventures with industry partners, also
owns natural gas transmission and storage facilities located in Texas. Its
Laredo-Nueces pipeline affiliate transported 17.0 million dth of natural gas in
1994. Its Mid-Tex Gas Storage Company affiliate operates a salt dome gas
storage facility with a Phase I operating capacity of 2.9 billion cubic feet,
and provides contract storage services to Northern Indiana and other third
parties. Phase II, which was partially completed and placed in service for the
1994-95 heating season, is projected to increase total storage capacity to 6.0
billion cubic feet, when fully completed during the fourth quarter of 1995.
Income from NI-TEX sales arrangements, combined with joint venture earnings,
totalled $5.9 million for the year.
Fuel. Fuel is an oil and gas exploration and production company with
activities concentrated in the mid-continent region of the United States and
offshore in the Gulf of Mexico. As of December 31, 1994, $47.5 million has been
invested in exploration and development projects. Fuel's share of estimated
proved reserves at year-end totalled 1.5 million barrels of oil and 25.7
million dth of natural gas.
Crossroads. In April 1993, Crossroads purchased a 20-inch crude-oil pipeline
that extends from the Illinois-Indiana state line east 202 miles to Cygnet,
Ohio. The Crossroads pipeline has been converted from oil to natural gas and
was approved by the Commission as an intrastate pipeline. The line provides:
(1) access to major gas supplies in the United States; (2) enhanced ability to
negotiate for gas supplies at the most competitive price; (3) a northern hub in
the Midwest gas market; and (4) increased reliability for customers in extreme
weather conditions such as those that occurred in January 1994. Crossroads was
in operation during 1994, generating operating revenues of $1.8 million.
Crossroads currently is seeking certification from the FERC to become an
interstate pipeline with service extending into Ohio.
TRIUMPH NATURAL GAS, INC. (TRIUMPH). Services owns a 51% interest in Triumph,
a Dallas-based natural gas marketing company, specializing in the purchase,
transportation and sale of natural gas to utility, industrial and commercial
customers in the upper midwest region of the U.S. Triumph also owns an interest
in a gas gathering system in Oklahoma.
On October 10, 1994, Services, in its capacity as majority stockholder,
reconstituted the Board of Directors of Triumph and took control of the
operations of Triumph. New management has actively solicited offers from
interested buyers of Triumph and potential merger partners with Triumph. Based
upon expressions of interest received, Services expects to consummate the
disposition of its interest in Triumph during the first half of 1995.
6
<PAGE>
REGULATION
Holding Company Act. Industries is exempt from registration with the
Securities and Exchange Commission (SEC) as a "registered holding company"
under the Public Utility Holding Company Act of 1935, as amended (Holding
Company Act). However, prior approval of the SEC is required under the Holding
Company Act if Industries proposes to acquire, directly or indirectly, any
securities of other public utility companies. There may also be limits on the
extent to which Industries and its non-utility subsidiaries can enter into
businesses which are not "functionally related" to the electric and gas
businesses without raising questions about Industries' exempt status under the
Holding Company Act. SEC guidelines established in prior decisions of the SEC
require Industries to remain engaged primarily and predominantly in the
electric and gas businesses and to limit the size of its activities outside of
such businesses relative to Industries as a whole.
Industries has no present intention of becoming a registered holding company
subject to regulation by the SEC under the Holding Company Act.
Indiana Utility Regulatory Commission. Northern Indiana and Industries have
been advised by their counsel that Industries will not be subject to regulation
by the Commission as long as it is not a public utility. Under existing law,
Industries and its non-utility subsidiaries are subject to Commission
regulation with respect to transactions and contracts with the Utilities, and
are subject to certain reporting and information access requirements under
Indiana law.
The Utilities are subject to regulation by the Commission as to rates,
service, accounts, issuance of securities, and in other respects. See "Rate
Matters" in the Notes to Consolidated Financial Statements in the 1994 Annual
Report to Shareholders, which note is incorporated herein by reference (see
Exhibit 13). The Utilities are also subject to limited regulation by local
public authorities.
Federal Energy Regulatory Commission. Industries is not regulated by the
FERC, but any subsidiary, including Northern Indiana, that engages in FERC
jurisdictional sales or activities will continue to be subject to such
regulation.
Northern Indiana's restructuring under Industries was approved by a February
29, 1988 order of the FERC. The FERC's February 29, 1988 order is conditioned
upon the FERC's continuing authority to examine the books and records of
Industries and its subsidiaries, upon further order of the FERC, and to make
such supplemental orders, for good cause, as it may find necessary or
appropriate regarding the restructuring.
In 1994, about 2% of Northern Indiana's electric revenues were derived from
electric service it furnished at wholesale in interstate commerce to other
utility companies, municipalities and WVPA (see "Item 1. Business--Electric
Operations" regarding WVPA). Northern Indiana's wholesale rates and operations
are subject to the jurisdiction of the FERC. The jurisdiction of the FERC does
not extend to the issuance of securities by Northern Indiana since it is a
public utility organized and operating in the State of Indiana, under the laws
of which its security issues are regulated by the Commission. The FERC on
October 21, 1954, declared Northern Indiana exempt from the provisions of the
Natural Gas Act. Kokomo Gas, NIFL and Crossroads are also exempt from the
provisions of the Natural Gas Act.
RATE MATTERS. For information regarding Northern Indiana's gas rates, and
the Utilities' take-or-pay pipeline gas costs and gas transition costs, see
"Take-or-Pay Pipeline Gas Costs" and "FERC Order No. 636" in the Notes to
Consolidated Financial Statements in the 1994 Annual Report to Shareholders,
which notes are incorporated herein by reference (see Exhibit 13).
7
<PAGE>
CONSTRUCTION BUDGET. Northern Indiana's 1995-99 construction budget
(including allowance for funds used during construction) is estimated at
approximately $774 million, including $175 million in 1995, $173 million in
1996, $148 million in 1997, $139 million in 1998 and $139 million in 1999.
Northern Indiana's construction estimates include adjustments for anticipated
inflation. No new electric generating units are planned in the 1995-99 budget.
Northern Indiana does not have, and has no plans to construct, a nuclear
generating unit.
COMPETITION. In municipalities where Northern Indiana renders electric
service to the general public as a public utility, no other utility renders
electric or gas service, except in Angola, DeMotte, Rome City, Wanatah and
Waterloo. In certain municipalities where electric service is supplied by
Northern Indiana, NIFL provides competing gas utility service. In localities
where Northern Indiana renders gas service only, it competes with electric
utilities, municipal or private, for the business for which they render
alternative electric service.
Kokomo Gas and NIFL service territories are contiguous to Northern Indiana's
gas service territory, but Northern Indiana, Kokomo Gas and NIFL do not compete
for any of the same customers. Kokomo Gas and NIFL compete with other electric
utilities serving customers in their respective service territories.
All electric service territories within the State of Indiana are assigned to
the existing suppliers, and boundaries of new territories outside existing
municipalities are assigned to the utility having the nearest existing electric
distribution lines. Only existing municipal electric utilities may expand their
service areas and then only into areas that have been annexed by the
municipality, subject to the approval of the Commission and certain other
conditions. Northern Indiana makes no representation as to the possible effect
upon its business of present or future competition by private or municipal
utilities or governmental agencies, instrumentalities or authorities within the
territory now served.
Northern Indiana is also subject to competition for gas sales to industrial
customers through the ability of these customers, under Northern Indiana's rate
provisions, to make their own purchases of gas and have Northern Indiana
transport the gas to them. During 1994, gas transportation represented 60% of
Northern Indiana's total gas sendout.
Indiana law requires Commission approval before a gas customer of a utility
may bypass the utility and make other arrangements for gas service. Any entity
which transports gas from outside Indiana for direct sale or delivery to itself
or other end-users within the state will be considered a public utility and
must obtain a necessity certificate from the Commission in order to engage in
such activities.
EMPLOYEE RELATIONS. Northern Indiana had 4,236 employees at December 31,
1994. Approximately 65% of the Company's employees (physical and clerical
workers) are represented by two local unions of the United Steelworkers of
America, AFL-CIO-CLC. Effective June 1, 1993, the bargaining unit employees
ratified new four-year agreements which continue until June 1, 1997. These
agreements provide for base wage increases of two percent in 1993, three
percent in 1994 and 1995, and three and one-half percent in 1996. Additional
economic provisions include an early signing bonus of four percent and a
variable compensation plan linked to improvements in productivity. Certain
officers of Northern Indiana are also officers of Industries. Industries
currently has 50 employees in its diversified operations.
Kokomo Gas had 72 full-time employees at December 31, 1994. Of these, 52
employees are represented by the Oil, Chemical and Atomic Workers International
Union, AFL-CIO. New collective bargaining agreements covering these employees
were negotiated in early 1995 and will expire February 15, 1998.
8
<PAGE>
NIFL had 83 full-time employees at December 31, 1994, none of whom is
represented by a union.
ENVIRONMENTAL MATTERS. The Utilities are subject to regulation with regard
to environmental matters by various federal, state and local authorities. The
Utilities cannot forecast the effect of all such regulation upon their
generating, transmission or other facilities, or their operations. The
Utilities intend to comply with all applicable governmental requirements but
reserve the right to contest any such requirements they deem to be
unreasonable, impossible to comply with, otherwise invalid or contrary to the
public interest.
The application of federal and state restrictions to protect the
environment, including but not limited to those hereinafter described,
involves or may involve review, certification or issuance of permits by
various federal, state and local authorities. Such restrictions, particularly
in regard to emissions into the air and water, and disposal of solid wastes,
may impact the operation of Northern Indiana's facilities, and may also
require substantial investments.
Northern Indiana's total capital expenditures from January 1, 1990, through
December 31, 1994, for pollution control facilities were approximately $102
million and were financed in part by the sale of Pollution Control Notes and
Bonds--Jasper County. Northern Indiana anticipates expenditures of
approximately $38 million for pollution control equipment in the 1995-99
period which includes anticipated expenditures of $6 million in 1995 and $10
million in 1996.
AIR. The Indiana Department of Environmental Management (IDEM) Office of Air
Management has submitted to the U.S. Environmental Protection Agency (EPA) a
State Implementation Plan (SIP) in accordance with the requirements of the
Clean Air Act Amendments of 1977.
Attainment-Nonattainment. Under the Clean Air Act Amendments of 1977, the
State has identified areas which are in compliance with the National Ambient
Air Quality Standards (NAAQS) (attainment areas) and areas that are not in
compliance with respect to the sulfur dioxide, particulate matter and other
pollutant standards established by NAAQS (nonattainment areas). Portions of
Lake, Porter and LaPorte Counties in which Northern Indiana operates electric
generating facilities remain designated as nonattainment areas for sulfur
dioxide. Control plans for each county are being implemented. Any reductions
in emissions of sulfur dioxide required to be made by Northern Indiana have
been made, and Northern Indiana anticipates no increased costs as a result of
the implementation of the control plans for Lake, Porter and LaPorte Counties.
Lake County, Indiana, is designated as a nonattainment area for particulate
or PM-10. The State of Indiana promulgated a new PM-10 SIP rule, which became
effective on June 11, 1993. The rule requires reduced opacity and mass
emissions limits at Dean H. Mitchell Station as well as the establishment of a
fugitive dust control and continuous compliance plans. Northern Indiana
invested $2.8 million to rebuild the Unit 5 electrostatic precipitator during
1993 to help meet the new PM-10 emission limits. In order to improve fugitive
dust control, during 1994 Mitchell Station installed a water spray dust
suppression system to minimize emissions from the coal pile and coal unloading
areas. Porter County has been determined to have an unclassified status for
PM-10. According to state requirements, the area will be monitored for PM-10
impacts to determine the appropriate classification with respect to the NAAQS.
All other counties where Northern Indiana operates electric production
facilities have an unclassified status for PM-10.
Under Title I of the Clean Air Act Amendments of 1990 (CAAA), Lake and
Porter Counties are classified as severe nonattainment areas for ozone.
Passage of the CAAA results in new provisions applicable to mobile and
stationary sources in Lake and Porter Counties. Transportation control
measures required by the Employee Commute Options (ECO) rules will affect
seven Northern Indiana facilities by late 1996. These measures will include
plans to reduce the number
9
<PAGE>
of vehicles used by employees during their daily commutes to work and programs
that promote the use of alternative fuel vehicles. Control measures requiring
reduction of emissions of nitrogen oxides from the Mitchell and Bailly
Generating Stations as a consequence of the Lake Michigan Ozone Control Program
have yet to be determined. Northern Indiana is evaluating potential least-cost
methods to reduce emissions of nitrogen oxides from the generating stations.
Northern Indiana cannot determine the cost impact of the future provisions.
Acid Rain. Title IV of the CAAA addresses the acid rain issue by targeting
large sources of sulfur dioxide and nitrogen oxides for significant reductions.
The core acid rain rules for sulfur dioxide were promulgated by the EPA January
11, 1993. As required by the regulations, Bailly Units 7 and 8 and Michigan
City Unit 12 reduced their sulfur dioxide emissions below 2.5 pounds per
million British thermal units (lbs/mmBtu) by January 1, 1995. These units,
along with the remainder of Northern Indiana's coal-fired units, are required
to reduce their sulfur dioxide emissions below 1.2 lbs/mmBtu by January 1,
2000.
Presently, all of Northern Indiana's eleven coal-fired generating units
utilize low sulfur fuel or flue gas desulfurization units to control sulfur
dioxide emissions below the 1.2 lbs/mmBtu level.
The EPA approved Northern Indiana's Acid Rain permits for the Bailly and
Michigan City Generating Stations on August 31, 1993. The Phase I Acid Rain
permits for the stations are effective from January 1, 1995 through December
31, 1999. One component of the permit is the Phase I extension plan for Bailly.
Northern Indiana was eligible for and received the extension because of the
construction and operation of the Bailly scrubber. This extension plan
allocates additional allowances above the basic allowances applicable to Bailly
and Michigan City Generating Stations.
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.
Additional Air Issues. The CAAA contain provisions that could lead to
limitations on emissions of nitrogen oxides and hazardous air pollutants which
may require significant capital expenditures for control of these emissions.
Northern Indiana is evaluating a nitrogen oxide control program to meet future
requirements. Northern Indiana cannot predict the costs of complying with CAAA
requirements, but it believes that any such mandated costs would be recoverable
through the rate making process.
The EPA has promulgated a permit program to meet the requirements of Title V
of the CAAA. The IDEM, on November 3, 1993, proposed an Air Operating permit
program to meet the requirements of Title V to the Air Pollution Control Board.
Indiana's Air Pollution Control Board adopted rules to implement the Title V
permit program on March 10, 1994. These operating permit rules, including a new
fee schedule, became effective in Indiana on June 24, 1994. Indiana submitted
the Title V rules to EPA for approval in August of 1994.
Water. The Clean Water Act, as amended, subjects point source dischargers to
technology and water quality based controls through the National Pollution
Discharge Elimination System (NPDES) permit program. Northern Indiana is
required to have NPDES permits for discharges from its generating stations into
the waters of the United States. The IDEM Office of Water Management has issued
renewal NPDES permits effective as follows: Schahfer Station, November 1, 1993;
Mitchell Station, November 1, 1993; and Michigan City Generating Station,
November 1, 1993. The renewed Bailly Station NPDES permit is expected to be
issued in 1995. Northern Indiana received NPDES permit modifications for
intermittent chemical treatment of the main discharge at the Mitchell and
Michigan City Stations for zebra mussel control. Bailly Station
10
<PAGE>
utilizes thermal treatment in its water systems to control zebra mussels.
Schahfer Station has not presently experienced operational impacts due to zebra
mussels. Rather, Schahfer Station has experienced equipment problems due to an
asiatic clam infestation. Alternate forms of control are being investigated by
Northern Indiana in an effort to prevent any impact on plant operations
relating to these infestations, while also minimizing the environmental impact
of the controls.
Superfund Sites. 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 and remediation.
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 all of the remedial costs at these sites are not
determinable, Northern Indiana's analysis indicates its share of such costs
with other PRPs should not have a significant impact on the results of future
operations.
Manufactured Gas Plant Sites. The Utilities have instituted a program to
investigate former manufactured gas plants where one of them is the current or
former owner. The Utilities have identified twenty-seven of these sites and
made visual inspections of these sites. The Utilities have conducted initial
samplings at eight sites. Follow-up investigations have been conducted at three
sites and potential remedial measures are being evaluated. The Utilities will
continue their program to assess sites during 1995. During the follow-up
investigation of the former manufactured gas plant in Elkhart, Indiana,
Northern Indiana noted the presence of hydrocarbons in the Elkhart River.
Northern Indiana reported this finding to IDEM and the EPA. Northern Indiana is
evaluating this site to determine what remedial measures, if any, may be
needed.
Northern Indiana was notified by 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 has remediated part of the Fort Wayne site. The
remainder of the site is being evaluated to determine what future remediation
measures, if any, may be needed.
Northern Indiana was notified by Indiana Gas Company, Inc. (Indiana Gas) that
the site of a former manufactured gas plant in Lafayette, Indiana, formerly
owned by Northern Indiana, was being investigated and partially remediated by
Indiana Gas pursuant to an administrative order issued by IDEM. Northern
Indiana is investigating its potential liability and evaluating appropriate
action.
The Utilities have an ongoing program to remain aware of laws and regulations
involved with hazardous waste. It is the Utilities' intent to continue to
evaluate their facilities and properties with respect to these rules and
identify any sites that would require corrective action.
Electric And Magnetic Fields. 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.
----------------
It is not possible to predict the scope, enforceability or financial impact
of other environmental regulations or standards which may be established in the
future.
11
<PAGE>
ITEM 2. PROPERTIES.
The physical properties of the Utilities are located in the State of Indiana.
Crossroads owns a 202-mile natural gas pipeline running from northwest Indiana
to Cygnet, Ohio. Only the Indiana portion of the line is presently in service
as an intrastate gas pipeline.
The only significant properties owned by other subsidiaries of Industries
are: the Southlake Complex, a 325,000 square foot office building in
Merrillville, Indiana, leased to Northern Indiana and owned by Development; a
36-mile intrastate natural gas pipeline, located in southern Texas and half-
owned by NI-TEX, Inc.; a golf course and surrounding residential development in
Chesterton, Indiana, owned by Lake Erie Land Company (a subsidiary of
Development); a waste-to-energy generating plant in Wolverhampton, England
owned by Elm Energy; and commercial real estate joint ventures, half-owned by
KOGAF Enterprises, (a subsidiary of Development) located in Kokomo, Indiana.
ELECTRIC. Northern Indiana owns and operates four coal fired electric
generating stations with net capabilities of 3,179,000 kw, two hydroelectric
generating plants with net capabilities of 10,000 kw and four gas fired
combustion turbine generating units with net capabilities of 203,000 kw, for a
total system net capability of 3,392,000 kw. During the year ended December 31,
1994, Northern Indiana generated 89.5% and purchased 10.5% of its electric
requirements.
Northern Indiana has 292 substations with an aggregate transformer capacity
of 22,575,000 kva. Its transmission system with voltages from 34,500 to 345,000
consists of 3,049 circuit miles of line, of which 2,072 miles are on wood
poles, 822 miles are on steel towers, 134 miles are on steel poles, 19 miles
are on concrete poles and 2 miles are in underground conduits. The electric
distribution system extends into 21 counties and consists of 7,684 circuit
miles of overhead and 1,193 cable miles of underground primary distribution
lines operating at various voltages from 2,400 to 12,500 volts. Of 313,019
poles on which Northern Indiana has transmission and distribution circuits,
about 48,949 poles are owned by other utilities. Northern Indiana has
distribution transformers having an aggregate capacity of 10,597,576 kva and
425,418 electric watt-hour meters.
GAS. Northern Indiana has an underground storage field at Royal Center and a
liquefied natural gas plant in LaPorte County both of which are described under
"Item 1. Business--Gas Operations." Northern Indiana has 12,854 miles of gas
mains.
Kokomo Gas has a liquified natural gas plant in Howard County which has the
following capacities: maximum storage of 400,000 mcf; maximum liquefaction rate
(gas to liquid), 2,850 mcf per day; maximum vaporization rate (output to
distribution system), 30,000 mcf per day. Kokomo Gas also has a gas holder with
a storage capacity of 12,000 mcf. Kokomo Gas has 719 miles of gas mains.
NIFL has 751 miles of gas mains.
OTHER PROPERTIES. Northern Indiana owns offices and service buildings,
salesrooms, garages, repair shops, motor vehicles, construction equipment and
tools, and office furniture and equipment, and also leases offices in various
localities. It also owns miscellaneous parcels of real estate not now used in
utility operations.
DONATION OF PROPERTY. On January 5, 1995, Northern Indiana completed the
planned donation of approximately 2,150 acres of land, including 60 miles of
lake and river frontage, to the Shafer and Freeman Lakes Environmental
Conservation Corporation (a not-for-profit organization), the State of Indiana
Department of Natural Resources, and the Indiana Natural Resources Foundation.
The property frames and includes the resort areas of Lake Shafer and Lake
Freeman in White and Carroll Counties, near the cities of Monticello and Delphi
in central Indiana.
12
<PAGE>
Northern Indiana acquired the property in 1944 as part of the purchase of dams
and two small hydroelectric plants and has maintained the area since that time.
Northern Indiana donated this property to ensure the land is managed to enhance
its preservation and recreational value. The dams and hydroelectric plants are
being retained for Northern Indiana operations.
CHARACTER OF OWNERSHIP. The properties of Northern Indiana are subject to the
lien of its First Mortgage Indenture. The principal offices and properties are
held in fee and are free from other encumbrances, subject to minor exceptions,
none of which is of such a nature as substantially to impair the usefulness to
Northern Indiana of such properties. Many of the offices in the various
communities served are occupied by Northern Indiana under leases. All
properties are subject to liens for taxes, assessments and undetermined charges
(if any) incidental to construction, which it is Northern Indiana's practice
regularly to pay, as and when due, unless contested in good faith. In general,
the electric and gas lines and mains are located on land not owned in fee but
are covered by necessary consents of various governmental authorities or by
appropriate rights obtained from owners of private property. These consents and
rights are deemed adequate for the purposes for which they are being used.
Northern Indiana does not, however, generally have specific easements from the
owners of the property adjacent to public highways over, upon or under which
its electric and gas lines are located. At the time each of the principal
properties was purchased a title search was made. In general, no examination
of titles as to rights-of-way for electric and gas lines and mains was made,
other than examination, in certain cases, to verify the grantors' ownership and
the lien status thereof.
ITEM 3. LEGAL PROCEEDINGS.
Industries and Northern Indiana are parties to various pending proceedings,
including suits and claims against them for personal injury, death and property
damage, but, in the opinion of their counsel, the nature of such proceedings
and suits, and the amounts involved, do not depart from the ordinary routine
litigation and proceedings incidental to the kind of business conducted by
Northern Indiana, except as set forth above under "Item 1. Business--
Environmental Matters," and as described under the captions "Pending Tax
Matter" and "Environmental Matters" in the Notes to Consolidated Financial
Statements in the 1994 Annual Report to Shareholders, which notes are
incorporated herein by reference (see Exhibit 13). To the knowledge of
Industries no other material legal proceedings against Industries, Northern
Indiana or their subsidiaries are contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
<PAGE>
SUPPLEMENTAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
DATE OF ASSUM-
ING
PRESENT POSI-
NAME AGE OFFICE TION
---- --- ------ --------------
<S> <C> <C> <C>
Gary L. Neale 55 Chairman, President, Chief March 1, 1993
Executive Officer and Director
Stephen P. Adik 51 Executive Vice President, Chief January 1, 1994
Financial Officer and
Treasurer
Patrick J. Mulchay 53 Executive Vice President, Chief January 1, 1994
Operating Officer, Electric
Jeffrey W. Yundt 49 Executive Vice President, Chief January 1, 1994
Operating Officer, Gas
William R. Elliott 50 Vice President, Subsidiary Operations, June 1, 1994
Electric
Owen C. Johnson, Jr. 48 Vice President, Human January 1, 1994
Resources
David A. Kelly 56 Vice President, Real January 1, 1994
Estate and Taxes
Jerry M. Springer 62 Controller and Assistant Secretary April 13, 1994
Dennis E. Senchak 49 Assistant Treasurer January 1, 1994
Nina M. Rausch 51 Secretary July 1, 1992
</TABLE>
Throughout the past five years, each of the executive officers of Industries
has been continuously active in the business of Industries or Northern Indiana
except as follows: Prior to July 30, 1990, Owen C. Johnson, Jr. was Senior
Vice President, Administration of LIT America,
Inc. and prior to December 31, 1991, David A. Kelly was Partner, Tax Division
of Arthur
Andersen LLP.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
Industries' common shares are listed and traded on the New York, Chicago and
Pacific stock exchanges. The table below indicates the high and low sales
price of Industries' common shares, on the composite tape, during the periods
indicated.
<TABLE>
<CAPTION>
1994 1993
------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter...... 33 29 1/8 30 1/4 26 1/8
Second Quarter..... 32 7/8 28 3/4 32 7/8 29 1/8
Third Quarter...... 30 1/4 26 1/8 34 7/8 31 5/8
Fourth Quarter..... 29 7/8 26 3/8 34 1/4 30 1/2
</TABLE>
As of February 28, 1995, Industries had 38,968 common shareholders of record.
The policy of the Board of Directors has been to declare dividends on a
quarterly basis payable on or about the 20th day of February, May, August and
November. Industries paid quarterly common dividends of $0.33 per share during
1993; and quarterly common dividends of $0.36 per share during 1994. At its
December 16, 1994 meeting Industries' Board of Directors increased the
quarterly common dividend to $0.39 per share, payable February 17, 1995.
14
<PAGE>
Holders of Industries' common shares will be entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. Although the Board of Directors of Industries currently
intends to consider the payment of regular quarterly cash dividends on common
shares, the timing and amount of future dividends will depend on the earnings
of Northern Indiana and other subsidiaries, their financial condition, cash
requirements, any restrictions in financing agreements and other factors deemed
relevant by the Board of Directors. During the next few years, it is expected
that the great majority of earnings available for distribution of dividends
will depend upon dividends paid to Industries by Northern Indiana.
The following limitations on payment of dividends and issuance of preferred
stock apply to Northern Indiana:
When any bonds are outstanding under its First Mortgage Indenture, Northern
Indiana may not pay cash dividends on its stock (other than preferred or
preference stock) or purchase or retire common shares, except out of earned
surplus or net profits computed as required under the provisions of the
maintenance and renewal fund. At December 31, 1994, Northern Indiana had
approximately $145.3 million of retained earnings (earned surplus) available
for the payment of dividends. Future common share dividends by Northern Indiana
will depend upon adequate retained earnings, adequate future earnings and the
absence of adverse developments.
So long as any shares of Northern Indiana's cumulative preferred stock are
outstanding, no cash dividends shall be paid on its common shares in excess of
75% of the net income available therefor for the preceding calendar year unless
the aggregate of the capital applicable to stocks subordinate as to assets and
dividends to the cumulative preferred stock plus the surplus, after giving
effect to such dividends, would equal or exceed 25% of the sum of all
obligations evidenced by bonds, notes, debentures or other securities, plus the
total capital and surplus. At December 31, 1994, the sum of the capital
applicable to stocks subordinate to the cumulative preferred stock plus the
surplus was equal to 40% of the total capitalization including surplus.
In connection with the foregoing discussion, see "Common Share Dividend" in
the Notes to Consolidated Financial Statements in the 1994 Annual Report to
Shareholders, which note is incorporated herein by reference (see Exhibit 13).
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating revenues
(000's)................ $1,676,401 $1,677,872 $1,582,356 $1,535,161 $1,520,995
Net income (000's)...... $ 163,987 $ 156,140 $ 136,648 $ 133,388 $ 125,361
Earnings per average
common share .......... $2.48 $2.31 $2.00 $1.94 $1.81
Total assets (000's).... $3,944,543 $3,912,324 $3,807,941 $3,647,557 $3,625,181
Long-term obligations
and redeemable pre-
ferred stock (000's)... $1,281,395 $1,295,962 $1,160,122 $1,157,686 $1,260,040
Cash dividends declared
per common share....... $1.47 $1.35 $1.26 $1.18 $1.07
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information regarding results of operations, liquidity and capital resources,
environmental matters and competition is reported in the 1994 Annual Report to
Shareholders under "Management's Discussion and Analysis of Financial Condition
and Results of Operations," which information is incorporated herein by
reference (see Exhibit 13).
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following Consolidated Financial Statements and Supplementary Data are
included in the 1994 Annual Report to Shareholders and are hereby incorporated
by reference and made a part of this report (see Exhibit 13).
<TABLE>
<CAPTION>
<S> <C>
(1) Consolidated Financial Statements--
Consolidated Statement of Income for the years ended December 31,
1994, 1993 and 1992
Consolidated Balance Sheet at December 31, 1994 and 1993
Consolidated Statement of Capitalization at December 31, 1994 and
1993
Consolidated Statement of Long-term Debt at December 31, 1994 and
1993
Consolidated Statement of Cash Flows for the years ended December
31, 1994, 1993 and 1992
Consolidated Statement of Common Shareholders' Equity for the
years ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Report of Independent Public Accountants (includes an explanatory
paragraph referring to changes in the methods of accounting for
income taxes and postretirement benefits other than pensions).
(2) Supplementary Data--
Selected Supplemental Information
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding executive officers is included as a supplemental item
at the end of Item 4 of Part I of this Form 10-K.
Information regarding directors is included at pages 2-5 in the Notice of
Annual Meeting and Proxy Statement dated March 10, 1995, for Annual Meeting to
be held April 12, 1995, which information is incorporated herein by reference.
Information regarding compliance with Forms 3, 4 and 5 reporting requirements
is included at page 19 in the Notice of Annual Meeting and Proxy Statement
dated March 10, 1995, for Annual Meeting to be held April 12, 1995, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is included at pages 5-6 and 12-
17 in the Notice of Annual Meeting and Proxy Statement dated March 10, 1995,
for Annual Meeting to be held April 12, 1995, which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management is included at page 6-7 in the Notice of Annual Meeting and Proxy
Statement dated March 10, 1995, for Annual Meeting to be held April 12, 1995,
which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) The Financial Statements filed herewith as a part of this report on
Form 10-K are listed on the Index to Financial Statements under Item 8 on page
16.
(2) The following is a list of the Financial Statement Schedules filed
herewith as part of this report on Form 10-K:
<TABLE>
<CAPTION>
SCHEDULE PAGE OF
NUMBER DESCRIPTION 1994 10-K
-------- ----------- ---------
<C> <S> <C>
I Condensed Financial
Information of
Registrant.............. 18, 19, 20 & 21
Valuation and Qualifying
II Accounts................ 22, 23 & 24
</TABLE>
(3)
Exhibits--
The exhibits filed herewith as a part of this report on Form 10-K
are listed on the Exhibit Index included on pages 27--29. Each
management contract or compensatory plan or arrangement of
Industries listed on the Exhibit Index is separately identified by
an asterisk.
(b) Reports on Form 8-K: None.
17
<PAGE>
NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
---------- ----------
(DOLLARS IN
THOUSANDS)
ASSETS
------
<S> <C> <C>
Property:
Property in service.......................................... $ 3,495 $ 2,464
Construction work in progress................................ 20 97
Less: accumulated depreciation............................... 399 266
---------- ----------
Total property........................................... 3,116 2,295
---------- ----------
Investments (principally investments in wholly-owned
subsidiaries)................................................. 1,087,684 1,080,460
---------- ----------
Current Assets:
Cash and cash equivalents.................................... 740 2,371
Amounts receivable from subsidiaries......................... 60,485 60,809
Prepayments.................................................. 7,557 8,522
---------- ----------
Total current assets..................................... 68,782 71,702
---------- ----------
Other (principally notes receivable from associated companies). 172,935 135,947
---------- ----------
$1,332,517 $1,290,404
========== ==========
<CAPTION>
CAPITALIZATION AND LIABILITIES
------------------------------
<S> <C> <C>
Capitalization:
Common shares................................................ $ 870,930 $ 870,930
Cumulative preferred shares with mandatory redemption
provisions.................................................. 35,000 35,000
Additional paid-in capital................................... 29,657 27,631
Retained earnings............................................ 446,928 380,888
Less: Treasury shares........................................ 237,193 180,212
Unearned compensation...................................... 970 1,684
Currency translation adjustment............................ 1,504 2,881
---------- ----------
Total capitalization..................................... 1,142,848 1,129,672
---------- ----------
Current Liabilities:
Dividends declared on common and preferred stock............. 25,570 24,345
Amounts payable to subsidiaries.............................. 26,304 19,203
Other........................................................ 1,290 2,972
---------- ----------
Total current liabilities................................ 53,164 46,520
---------- ----------
Other (principally notes payable to associated companies)...... 136,505 114,212
---------- ----------
Commitments and Contingencies (Note 3):
$1,332,517 $1,290,404
========== ==========
</TABLE>
The accompanying notes to condensed financial statements are an integral part
of this statement.
18
<PAGE>
NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Equity in net earnings of subsidiaries...... $ 167,780 $ 158,222 $ 141,115
---------- ---------- ----------
Other income (deductions):
Administrative and general expense........ (5,560) (6,031) (4,469)
Interest income........................... 11,289 9,576 5,345
Interest expense.......................... (8,741) (9,339) (7,919)
Other, net................................ (1,727) 203 (75)
---------- ---------- ----------
(4,739) (5,591) (7,118)
---------- ---------- ----------
Net income before income taxes.............. 163,041 152,631 133,997
Income taxes................................ (946) (3,509) (2,651)
---------- ---------- ----------
Net income.................................. 163,987 156,140 136,648
Dividend requirements on preferred shares... 3,063 3,063 3,063
---------- ---------- ----------
Balance available for common shareholders... $ 160,924 $ 153,077 $ 133,585
========== ========== ==========
Average common shares outstanding........... 64,820,039 66,136,396 66,715,941
Earnings per average common share........... $ 2.48 $ 2.31 $ 2.00
========== ========== ==========
</TABLE>
The accompanying notes to condensed financial statements are an integral part
of this statement.
19
<PAGE>
NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by operating activities........ $157,613 $153,788 $133,392
-------- -------- --------
Cash flows used in investing activities:
Purchase of Kokomo Gas and Fuel Co., net of
cash acquired................................. -- -- (43,752)
Purchase of Northern Indiana Fuel and Light
Company, Inc., net of cash acquired........... -- (30,137) --
Capital expenditures........................... (954) (103) (418)
-------- -------- --------
Net cash used in investing activities........ (954) (30,240) (44,170)
-------- -------- --------
Cash flows provided by (used in) financing
activities:
Issuance of common shares...................... 2,060 36,364 53,911
Increase (decrease) in notes payable to
subsidiaries.................................. 21,262 (703) 67,031
Increase in notes receivable from subsidiaries. (26,254) (26,412) (53,768)
Cash dividends paid on common shares........... (93,578) (88,214) (83,379)
Cash dividends paid on preferred shares........ (3,063) (3,063) (3,063)
Acquisition of treasury shares................. (58,717) (40,730) (76,281)
Other.......................................... -- -- (1,467)
-------- -------- --------
Net cash used in financing activities........ (158,290) (122,758) (97,016)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (1,631) 790 (7,794)
Cash and cash equivalents at beginning of year... 2,371 1,581 9,375
-------- -------- --------
Cash and cash equivalents at end of year......... $ 740 $ 2,371 $ 1,581
======== ======== ========
</TABLE>
The accompanying notes to condensed financial statements are an integral part
of this statement.
20
<PAGE>
NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. DIVIDENDS FROM SUBSIDIARIES
Cash dividends paid to NIPSCO Industries, Inc. (Industries) by its
consolidated subsidiaries were (in thousands of dollars): $174,245, $155,224
and $138,676 in 1994, 1993 and 1992, respectively.
2. SUPPORT AGREEMENT
The obligations of NIPSCO Capital Markets, Inc. (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 Public
Service Company (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 $320.2 million at December
31, 1994.
3. CONTINGENCIES
No proceedings against Industries or any of its subsidiaries other than
Northern Indiana are pending or contemplated to the knowledge of Industries.
The Company is a party to various pending proceedings, including suits and
claims against it for personal injury, death and property damage, but, in the
opinion of counsel for Northern Indiana, the nature of such proceedings and
suits, and the amounts involved, do not depart from the routine litigation and
proceedings incident to the kind of business conducted by Northern Indiana.
4. CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1993, Industries adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions," and Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". The adoption of these standards did not have a
significant impact on the condensed financial statements.
--------
See also Notes to Consolidated Financial Statements in the 1994 Annual Report
to Shareholders, which are incorporated herein by reference. (See Exhibit 13).
21
<PAGE>
NIPSCO INDUSTRIES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------- ------------------ ------------ --------
ADDITIONS
------------------ DEDUCTIONS
CHARGED FOR PURPOSES
BALANCE TO CHARGED FOR WHICH BALANCE
JAN. 1, COSTS AND TO OTHER RESERVES DEC. 31,
DESCRIPTION 1994 EXPENSES ACCOUNTS WERE CREATED 1994
----------- ------- --------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserves Deducted in Consoli-
dated Balance Sheet from As-
sets to Which They Apply:
Reserve for accounts receiv-
ables...................... $4,855 $6,918 $-- $6,874 $4,899
Reserve for investments, at
equity..................... $2,500 $ 350 $-- $ -- $2,850
Reserve for investments, at
cost....................... $2,500 $ -- $-- $2,500 $ --
Reserves Classified Under Re-
serve Section of Consoli-
dated Balance Sheet:
Injuries and damages re-
serve...................... $3,994 $3,350 $-- $4,806 $2,538
Miscellaneous operating re-
serves..................... $6,102 $2,620 $-- $1,051 $7,671
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
22
<PAGE>
NIPSCO INDUSTRIES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 1993
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------- --------------------------- ------------ --------
ADDITIONS
---------------------------
NORTHERN
INDIANA DEDUCTIONS
FUEL AND CHARGED FOR PURPOSES
BALANCE LIGHT TO CHARGED FOR WHICH BALANCE
JAN. 1, COMPANY, COSTS AND TO OTHER RESERVES DEC. 31,
DESCRIPTION 1993 INC.(A) EXPENSES ACCOUNTS WERE CREATED 1993
----------- ------- -------- --------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Reserves Deducted in
Consolidated Balance
Sheet from Assets to
Which They Apply:
Reserve for accounts
receivables........... $5,121 $ 93 $5,254 $-- $5,613 $4,855
Reserve for invest-
ments, at equity...... $1,200 $-- $2,300 $-- $1,000 $2,500
Reserve for invest-
ments, at cost........ $ -- $-- $2,500 $-- $ -- $2,500
Reserves Classified Un-
der Reserve Section of
Consolidated Balance
Sheet:
Injuries and damages
reserve............... $4,367 $-- $4,450 $-- $4,823 $3,994
Miscellaneous operating
reserves.............. $4,160 $-- $2,066 $-- $ 124 $6,102
</TABLE>
(a) Northern Indiana Fuel and Light Company, Inc. purchased on March 31, 1993.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
23
<PAGE>
NIPSCO INDUSTRIES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 1992
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------- ------------------------------ ------------ --------
ADDITIONS
------------------------------ DEDUCTIONS
CHARGED FOR PURPOSES
BALANCE KOKOMO GAS TO CHARGED FOR WHICH BALANCE
JAN. 1, AND COSTS AND TO OTHER RESERVES DEC. 31,
DESCRIPTION 1992 FUEL CO.(a) EXPENSES ACCOUNTS WERE CREATED 1992
----------- ------- ----------- --------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Reserves Deducted in
Consolidated Balance
Sheet from Assets to
Which They Apply:
Reserve for accounts
receivables......... $3,387 $ 175 $7,315 $-- $5,756 $5,121
Reserve for invest-
ments, at equity.... $1,200 $ -- $ -- $-- $ -- $1,200
Reserves Classified Un-
der Reserve Section of
Consolidated Balance
Sheet:
Injuries and damages
reserve............... $4,008 $-- $2,975 $-- $2,616 $4,367
Miscellaneous operating
reserves.............. $4,132 $190 $1,582 $-- $1,744 $4,160
</TABLE>
(a) Kokomo Gas and Fuel Company purchased on February 10, 1992.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
NIPSCO Industries, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in NIPSCO Industries, Inc.'s
annual report to shareholders for the year ended December 31, 1994,
incorporated by reference in this Form 10-K, and have issued our report thereon
dated January 27, 1995. Our audits were made for the purpose of forming an
opinion on those consolidated financial statements taken as a whole. The
schedules listed on Page 17, Item 14(a)(2) are the responsibility of NIPSCO
Industries, Inc.'s management and are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
As discussed in the notes to 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
January 27, 1995
25
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
NIPSCO Industries, Inc.
(Registrant)
March 29, 1995 /s/ Gary L. Neale
Date_______________________________ By_________________________________
Gary L. Neale, Its Chairman and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gary L. Neale
------------------------------------
Gary L. Neale Chairman, President, Principal
Executive Officer and
Director
/s/ Stephen P. Adik
------------------------------------
Stephen P. Adik Executive Vice President and
Principal Financial Officer
/s/ Jerry M. Springer
------------------------------------
Jerry M. Springer Controller and Principal
Accounting Officer
/s/ Steven C. Beering
------------------------------------
Steven C. Beering Director
/s/ Arthur J. Decio
------------------------------------
Arthur J. Decio Director
/s/ Ernestine M. Raclin
------------------------------------
Ernestine M. Raclin Director March 29, 1995
/s/ Denis E. Ribordy
------------------------------------
Denis E. Ribordy Director
/s/ Ian M. Rolland
------------------------------------
Ian M. Rolland Director
/s/ Edmund A. Schroer
------------------------------------
Edmund A. Schroer Director
/s/ John W. Thompson
------------------------------------
John W. Thompson Director
------------------------------------
Robert J. Welsh, Jr. Director
</TABLE>
26
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF ITEM PAGE
------- ------------------- ------------
<C> <S> <C>
(3.1) Articles of Incorporation of September 22, 1987, and all Articles of
Amendment thereto (incorporated by reference to Exhibit 1 to the
NIPSCO Industries, Inc. Current Report on Form 8-K dated March 25,
1992).
(3.2) Amended By-laws effective May 25, 1993 (incorporated by reference to
Exhibit (3)(ii) to the NIPSCO Industries, Inc. Form 8-K dated July
13, 1993).
(4.1) Indenture dated August 1, 1939 between Registrant and Trustees (in-
corporated by reference to Exhibit 7 to Northern Indiana Public
Service Company ("Northern Indiana") Registration Statement (Regis-
tration No. 2-5178)).
(4.2) Third Supplemental Indenture dated August 1, 1943 (incorporated by
reference to Exhibit 7-C to Northern Indiana Registration Statement
(Registration No. 2-5178)).
(4.3) Seventeenth Supplemental Indenture dated May 15, 1965 (incorporated by
reference to Exhibit 1 to Northern Indiana Current Report on Form 8-K
dated June 8, 1965).
(4.4) Eighteenth Supplemental Indenture dated September 1, 1967 (incorpo-
rated by reference to Exhibit 1 to Northern Indiana Current Report on
Form 8-K dated October 9, 1967).
(4.5) Nineteenth Supplemental Indenture dated October 1, 1968 (incorporated
by reference to Exhibit 1 to Northern Indiana Current Report on Form
8-K dated November 8, 1968).
(4.6) Twenty-third Supplemental Indenture dated March 31, 1972 (incorporated
by reference to Exhibit 2 to Northern Indiana Current Report on Form
8-K dated May 5, 1972).
(4.7) Twenty-fourth Supplemental Indenture dated July 15, 1973 (incorporated
by reference to Exhibit 1 to Northern Indiana Current Report on Form
8-K dated August 7, 1973).
(4.8) Twenty-ninth Supplemental Indenture dated August 15, 1977 (incorpo-
rated by reference to Exhibit 1 to Northern Indiana Current Report on
Quarterly Report on Form 10-Q for the quarter ended September 30,
1977).
(4.9) Thirty-third Supplemental Indenture dated June 1, 1980 (incorporated
by reference to Exhibit 1 to Northern Indiana Quarterly Report on
Form 10-Q for the quarter ended June 30, 1980).
(4.10) Forty-first Supplemental Indenture dated July 1, 1991 (incorporated by
reference to Exhibit 1 to Northern Indiana Current Report on Form 8-K
dated March 25, 1992).
(4.11) Indenture, dated as of March 1, 1988, between Northern Indiana and
Manufacturers Hanover Trust Company, as Trustee (incorporated by
reference to Exhibit 4 to Northern Indiana Registration Statement
(Registration No. 33-44193)).
(4.12) First Supplemental Indenture dated December 1, 1991, between Northern
Indiana and Manufacturers Hanover Trust Company, as Trustee (incor-
porated by reference to Exhibit 4.1 to Northern Indiana Registration
Statement (Registration No. 33-63870)).
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF ITEM PAGE
------- ------------------- ------------
<C> <S> <C>
(4.13) Memorandum of Agreement with City of Michigan City, Indiana (incorpo-
rated by reference to Exhibit 7 to Northern Indiana Registration
Statement (Registration No. 2-48531)).
(4.14) Financing Agreement No. 1 dated November 1, 1988 with Jasper County,
Indiana regarding $37,000,000 Series 1988A Pollution Control Re-
funding Revenue Bonds. Identical financing agreements between Regis-
trant and Jasper County provide for the issuance of $47,000,000 Se-
ries 1988B, $46,000,000 Series 1988C and $24,000,000 Series 1988D
Pollution Control Refunding Revenue Bonds (incorporated by reference
to Exhibit 8 to Northern Indiana Current Report on Form 8-K dated
March 16, 1989).
(4.15) Financing Agreement dated July 1, 1991, with Jasper County, Indiana
regarding $55,000,000 Series 1991 Collateralized Pollution Control
Refunding Revenue Bonds (incorporated by reference to Exhibit 3 to
Northern Indiana Current Report on Form 8-K dated March 25, 1992).
(4.16) Financing Agreement dated August 1, 1994, with Jasper County, Indiana
regarding $10,000,000 Series 1994A, $18,000,000 Series 1994B and
$41,000,000 Series 1994C Pollution Control Refunding Revenue Bonds
(incorporated by reference to Exhibit 4.16 to Northern Indiana Annual
Report on Form 10-K for year ended December 31, 1994).
(4.17) Rights Agreement between Registrant and Harris Trust and Savings Bank,
dated February 27, 1990 (incorporated by reference to Exhibit 4.1 to
the NIPSCO Industries, Inc. Current Report on Form 8-K dated March 7,
1990).
(10.1) Supplemental Life Insurance Plan effective January 1, 1991 (incorpo-
rated by reference to Exhibit 2 to the NIPSCO Industries, Inc. Cur-
rent Report on Form 8-K dated March 25, 1992).*
(10.2) Executive Deferred Compensation Plan effective December 1, 1990 (in-
corporated by reference to Exhibit 3 to the NIPSCO Industries, Inc.
Current Report on Form 8-K dated March 25, 1992).*
(10.3) Form of Change in Control and Termination Agreements (incorporated by
reference to Exhibit 4 to the NIPSCO Industries, Inc. Current Report
on Form 8-K dated March 25, 1992).*
(10.4) Nonemployee Director Stock Incentive Plan effective February 1, 1992
(incorporated by reference to Exhibit 5 to the NIPSCO Industries,
Inc. Current Report on Form 8-K dated March 25, 1992).*
(10.5) NIPSCO Industries, Inc. Long-Term Incentive Plan (incorporated by ref-
erence to Exhibit 6 to the NIPSCO Industries, Inc. Current Report on
Form 8-K dated March 25, 1992).*
(10.6) Amended and Restated Pension Plan Provisions effective January 1, 1989
(incorporated by reference to Exhibit 17 to Northern Indiana Current
Report on Form 8-K dated March 25, 1992).*
(10.7) NIPSCO Industries, Inc. 1994 Long-Term Incentive Plan.*
(10.8) NIPSCO Industries, Inc. Directors' Charitable Gift Program.*
(11) Computation of Per Share Earnings.
(13) 1994 Annual Report to Shareholders for pages 39-67.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF ITEM PAGE
------- ------------------- ------------
<C> <S> <C>
(21) List of Subsidiaries.
(23) Consent of Arthur Andersen LLP.
(99) Amended Articles of Incorporation of Northern Indiana Public Service
Company (incorporated by reference to Exhibit 1 to the Northern In-
diana Current Report of Form 8-K dated May 5, 1982).
</TABLE>
--------
* Management contract or compensatory plan arrangement of NIPSCO Industries,
Inc.
29
<PAGE>
EXHIBIT 10.7
NIPSCO INDUSTRIES, INC.
1994 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of the NIPSCO Industries, Inc. 1994 Long-Term
Incentive Plan (the "Plan") is to further the earnings of NIPSCO Industries,
Inc. (the "Company") and its subsidiaries. The Plan provides long-term
incentives to those officers and key executives who make substantial
contributions by their ability, loyalty, industry and invention. The Company
intends that the Plan will thereby facilitate securing, retaining, and
motivating management employees of high caliber and potential.
2. ADMINISTRATION. The Plan shall be administered by the Nominating and
Compensation Committee ("Committee") of the Board of Directors of the Company
("Board"). The Committee shall be composed of not fewer than two members of the
Board who are not employed by the Company. No member of the Committee may
exercise discretion with respect to, or participate in, the administration of
the Plan if, at any time, during the twelve-month period prior to such exercise
or participation, he or she has been granted or awarded stock, restricted
stock, stock options, stock appreciation rights or any other derivative
security of the Company or an affiliate thereof under this Plan or any similar
plan of the Company, except as permitted in Rule 16b-3(c)(2)(i)(A) through (D)
under the Securities Exchange Act of 1934, as amended (the "1934 Act"). Members
of the Committee shall be subject to any additional restrictions necessary to
satisfy the requirements for disinterested administration of the Plan as set
forth in Rule 16b-3, as it may be amended from time to time. If at any time any
member of the Committee does not satisfy such disinterested administration
requirements, no awards shall be made under this Plan to any person until such
time as all members of the Committee satisfy such requirements. Subject to the
express provisions of the Plan, the Committee may interpret the Plan,
prescribe, amend and rescind rules and regulations relating to it, determine
the terms and provisions of awards to officers and other key executive
employees under the Plan (which need not be identical) and make such other
determinations as it deems necessary or advisable for the administration of the
Plan. The decisions of the Committee under the Plan shall be conclusive and
binding. No member of the Board or the Committee shall be liable for any action
taken, or determination made, hereunder in good faith. Service on the Committee
shall constitute service as director of the Company so that members of the
Committee shall be entitled to indemnification and reimbursement as directors
of the Company pursuant to its by-laws.
3. COMMON SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of
Section 3(b), the shares that may be issued, or may be the measure of stock
appreciation rights granted, under the Plan shall not exceed in the aggregate
2,500,000 of the common shares without par value of the
1
<PAGE>
Company (the "Common Shares"). Such shares may be authorized and unissued
shares or treasury shares. Except as otherwise provided herein, any shares
subject to an option or right which for any reason expires or is terminated,
unexercised as to such shares, shall again be available under the Plan.
(b) The number of shares of Common Shares subject to the Plan and to Options
granted under the Plan shall be adjusted as follows: (i) in the event that the
number of outstanding shares of Common Shares is changed by any stock dividend,
stock split or combination of shares, the number of shares subject to the Plan
and to awards previously granted thereunder shall be proportionately adjusted,
(ii) in the event of any merger, consolidation or reorganization of the Company
with any other corporation or corporations, there shall be substituted on an
equitable basis as determined by the Board of Directors, in its sole
discretion, for each share of Common Shares then subject to the Plan and for
each share of Common Shares then subject to an award granted under the Plan,
the number and kind of shares of stock, other securities, cash or other
property to which the holders of Common Shares of the Company are entitled
pursuant to the transaction, and (iii) in the event of any other change in the
capitalization of the Company, the Committee, in its sole discretion, shall
provide for an equitable adjustment in the number of shares of Common Shares
then subject to the Plan and to each share of Common Shares then subject to an
award granted under the Plan.
4. PARTICIPANTS. Persons eligible to participate shall be limited to those
officers and other key executive employees of the Company and its subsidiaries
who are in positions in which their decisions, actions and counsel
significantly impact upon profitability. Directors who are not otherwise
officers or employees shall not be eligible to participate in the Plan.
5. AWARDS UNDER THE PLAN. Awards under the Plan may be in the form of stock
options (both options designed to satisfy statutory requirements necessary to
receive favorable tax treatment pursuant to any present or future legislation
and options not designed to so qualify), incentive stock options, stock
appreciation rights, performance units or shares, and restricted shares or such
combinations of the above as the Committee may in its discretion deem
appropriate.
6. SECTION 162(M) LIMITATIONS. Subject to Section 3(b) of the Plan, the
maximum number of Options granted to any person who qualifies as an executive
officer named from time to time in the summary compensation table in the
Company's annual meeting proxy statement and who is employed by the Company on
the last day of the taxable year (the "SCT Executives") shall be 25,000 options
to purchase Common Shares per year and 250,000 options to purchase Common
Shares during the term of the Plan. The maximum number of restricted stock
awards granted to any SCT Executive shall be 25,000 shares per year, provided,
however, that no more than 25,000 shares of restricted stock may be awarded in
any three-year period and that the maximum number of shares of restricted stock
granted to any SCT Executive during the term of the Plan shall be 75,000.
2
<PAGE>
7. NONQUALIFIED STOCK OPTIONS. Options shall be evidenced by stock option
agreements in such form and not inconsistent with this Plan as the Committee
shall approve from time to time, which agreements shall contain in substance
the following terms and conditions:
(A) OPTION PRICE. The purchase price per share deliverable upon the
exercise of an option shall not be less than 100% of the fair market value
of the share on the day the option is granted, as determined by the
Committee. Fair market value shall be the average of the high and low
prices on the New York Stock Exchange Composite Transactions on the date of
the grant.
(B) EXERCISE OF OPTION. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
optionee, in whole or in part, which shall be such period or periods of
time as may be determined by the Committee, provided that the option
exercise period shall not commence earlier than six months after the date
of the grant of the option nor end later than ten years after the date of
the grant of the option. The Committee shall have the power to permit in
its discretion an acceleration of the previously determined exercise terms,
within the terms of the Plan, under such circumstances and upon such terms
and conditions as it deems appropriate.
(C) PAYMENT FOR SHARES. Except as otherwise provided in the Plan or in
any option agreement, the optionee shall pay the purchase price of the
Common Shares upon exercise of any option (i) in cash, (ii) in cash
received from a broker-dealer to whom the optionee has submitted an
exercise notice consisting of a fully endorsed option (however, in the case
of an optionee subject to Section 16 of the 1934 Act, this payment option
shall only be available to the extent such insider complies with Regulation
T issued by the Federal Reserve Board), (iii) by delivering Common Shares
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (iv) by directing the Company to withhold such
number of Common Shares otherwise issuable upon exercise of such option
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (v) by such other medium of payment as the
Committee, in its discretion, shall authorize at the time of grant, or (vi)
by any combination of (i), (ii), (iii), (iv) and (v). In the case of an
election pursuant to (i) or (ii) above, cash shall mean cash or a check
issued by a federally insured bank or savings and loan, and made payable to
NIPSCO Industries, Inc. In the case of payment pursuant to (ii), (iii) or
(iv) above, the optionee's election must be made on or prior to the date of
exercise and shall be irrevocable. In the case of an optionee who is
subject to Section 16 of the 1934 Act and who elects payment pursuant to
(iv) above, the election must be made in writing either (A) within the ten
(10) business days beginning on the third business day following release of
the Company's quarterly or annual summary consolidated statements of
earnings and ending on the twelfth business day following such day, or (B)
at least six (6) months prior to the date of
3
<PAGE>
exercise of such option. In lieu of a separate election governing each
exercise of an option, an optionee may file a blanket election with the
Committee which shall govern all future exercises of options until revoked
by the optionee. The Company shall issue, in the name of the optionee,
stock certificates representing the total number of Common Shares issuable
pursuant to the exercise of any option as soon as reasonably practicable
after such exercise, provided that any Common Shares purchased by an
optionee through a broker-dealer pursuant to clause (ii) above shall be
delivered to such broker-dealer in accordance with 12 C.F.R. (S)
220.3(e)(4) or other applicable provision of law.
(D) TRANSFERABILITY. Each stock option agreement shall provide that it is
not transferable by the optionee otherwise than by will or the laws of
descent or distribution.
(E) RIGHTS UPON TERMINATION OF EMPLOYMENT. In the event that an optionee
ceases to be an employee for any cause other than death, disability or
retirement, the optionee shall have the right to exercise the option during
its term within a period of thirty days after such termination to the
extent that the option was exercisable at the date of such termination of
employment, or during such other period and subject to such terms as may be
determined by the Committee. In the event that an optionee dies, retires,
or becomes disabled prior to termination of his option without having fully
exercised his option, the optionee or his successor shall have the right to
exercise the option during its term within a period of three years after
the date of such termination due to death, disability or retirement, to the
extent that the option was exercisable at the date of termination due to
death, disability or retirement, or during such other period and subject to
such terms as may be determined by the Committee. For purposes of this
Plan, the term "disability" shall mean disability as defined in the
Company's Long-Term Disability Plan. The Committee, in its sole discretion,
shall determine the date of any disability. The term "retirement" shall
mean retirement as defined in the Company's pension plan.
8. INCENTIVE STOCK OPTIONS. Incentive stock options shall be evidenced by
stock option agreements in such form and not inconsistent with the Plan as the
Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(A) OPTION PRICE. Except as otherwise provided in Section 8(b), the
purchase price per share of stock deliverable upon the exercise of an
incentive stock option shall not be less than 100% of the fair market value
of the stock on the day the option is granted, as determined by the
Committee.
(B) EXERCISE OF OPTION. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
optionee, in whole or in part, which shall be such period or periods of
time as may be determined by the Committee, provided that the option period
shall not commence earlier than six months after the date of the grant of
the option nor end later than ten years after the date of the grant of the
option. The aggregate fair
4
<PAGE>
market value (determined with respect to each incentive stock option at the
time of grant) of the Common Shares with respect to which incentive stock
options are exercisable for the first time by an individual during any
calendar year (under all incentive stock option plans of the Company and
its parent and subsidiary corporations) shall not exceed $100,000. If the
aggregate fair market value (determined at the time of grant) of the Common
Shares subject to an option, which first becomes exercisable in any
calendar year exceeds the limitation of this Section 8(b), so much of the
option that does not exceed the applicable dollar limit shall be an
incentive stock option and the remainder shall be a nonqualified stock
option; but in all other respects, the original option agreement shall
remain in full force and effect. As used in this Section 8, the words
"parent" and "subsidiary" shall have the meanings given to them in Section
425(e) and 425(f) of the Internal Revenue Code. Notwithstanding anything
herein to the contrary, if an incentive stock option is granted to an
individual who owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of
its parent or subsidiary corporations, within the meaning of Section
422(b)(6) of the Internal Revenue Code, (i) the purchase price of each
common share subject to the incentive stock option shall be not less than
one hundred ten percent (110%) of the fair market value of the Common
Shares on the date the incentive stock option is granted, and (ii) the
incentive stock option shall expire and all rights to purchase shares
thereunder shall cease no later than the fifth anniversary of the date the
incentive stock option was granted.
(C) PAYMENT FOR SHARES. Except as otherwise provided in the Plan or in
any option agreement, the optionee shall pay the purchase price of the
Common Shares upon exercise of any option (i) in cash, (ii) in cash
received from a broker-dealer to whom the optionee has submitted an
exercise notice consisting of a fully endorsed option (however, in the case
of an optionee subject to Section 16 of the 1934 Act, this payment option
shall only be available to the extent such insider complies with Regulation
T issued by the Federal Reserve Board), (iii) by delivering Common Shares
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (iv) by directing the Company to withhold such
number of Common Shares otherwise issuable upon exercise of such option
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (v) by such other medium of payment as the
Committee, in its discretion, shall authorize at the time of grant, or (vi)
by any combination of (i), (ii), (iii), (iv) and (v). In the case of an
election pursuant to (i) or (ii) above, cash shall mean cash or a check
issued by a federally insured bank or savings and loan, and made payable to
NIPSCO Industries, Inc. In the case of payment pursuant to (ii), (iii) or
(iv) above, the optionee's election must be made on or prior to the date of
exercise and shall be irrevocable. In the case of an optionee who is
subject to Section 16 of the 1934 Act and who elects payment pursuant to
(iv) above, the election must be made in writing either (A)
within the ten (10) business days beginning on the third business day
following release of the
5
<PAGE>
Company's quarterly or annual summary consolidated statements of earnings
and ending on the twelfth business day following such day, or (B) at least
six (6) months prior to the date of exercise of such option. In lieu of a
separate election governing each exercise of an option, an optionee may
file a blanket election with the Committee which shall govern all future
exercises of options until revoked by the optionee. The Company shall
issue, in the name of the optionee, stock certificates representing the
total number of Common Shares issuable pursuant to the exercise of any
option as soon as reasonably practicable after such exercise, provided that
any Common Shares purchased by an optionee through a broker-dealer pursuant
to clause (ii) above shall be delivered to such broker-dealer in accordance
with 12 C.F.R. (S) 220.3(e)(4) or other applicable provision of law.
(D) TRANSFERABILITY. Each stock option agreement shall provide that it is
not transferable by the optionee otherwise than by will or the laws of
descent or distribution.
(E) RIGHTS UPON TERMINATION OF EMPLOYMENT. In the event that an optionee
ceases to be an employee for any cause other than death, disability or
retirement, the optionee shall have the right to exercise the option during
its term within a period of thirty days after such termination to the
extent that the option was exercisable at the date of such termination of
employment, or during such other period and subject to such terms as may be
determined by the Committee. In the event that an optionee dies, retires,
or becomes disabled prior to termination of his option without having fully
exercised his option, the optionee or his successor shall have the right to
exercise the option during its term within a period of three years after
the date of such termination due to death, disability or retirement, to the
extent that the option was exercisable at the date of termination due to
death, disability or retirement, or during such other period and subject to
such terms as may be determined by the Committee. Notwithstanding the
foregoing, in accordance with Section 422 of the Internal Revenue Code, if
an incentive stock option is exercised more than ninety days after
termination of employment, that portion of the option exercised after such
date shall automatically be a nonqualified stock option, but in all other
respects, the original option agreement shall remain in full force and
effect.
The provisions of this section 8 shall be construed and applied, and (subject
to the limitations of section 20) shall be amended from time to time so as to
comply with Section 422 or its successors of the Internal Revenue Code and
Regulations issued thereunder.
9. STOCK APPRECIATION RIGHTS. Stock appreciation rights shall be evidenced by
stock appreciation right agreements in such form and not inconsistent with this
Plan as the Committee shall approve from time to time, which agreements shall
contain in substance the following terms and conditions:
(A) AWARD. A stock appreciation right shall entitle the grantee to
receive upon exercise the excess of (i) the fair market value of a
specified number of shares of the Company Common
6
<PAGE>
Shares at the time of exercise over (ii) a specified price which shall not
be less than 100% of the fair market value of the shares at the time the
appreciation right was granted, or, if connected with a previously issued
stock option, not less than 100% of the fair market value of the shares at
the time such option was granted. A stock appreciation right may be granted
in connection with all of any portion of a previously or contemporaneously
granted stock option or not in connection with a stock option.
(B) TERM. Stock appreciation rights shall be granted for a period of not
less than one year nor more than ten years, and shall be exercisable in
whole or in part, at such time or times and subject to such other terms and
conditions as shall be prescribed by the Committee at the time of grant,
subject to the following:
(i) No stock appreciation right shall be exercisable in whole or in
part, during the six-month period starting with the date of grant; and
(ii) Stock appreciation rights will be exercisable only during a
grantee's employment except that in the discretion of the Committee a
stock appreciation right may be made exercisable for up to thirty days
after the grantee's employment is terminated for any reason other than
death, disability or retirement. In the event that a grantee dies,
retires, or becomes disabled without having fully exercised his stock
appreciation rights, the grantee or his successor shall have the right
to exercise the stock appreciation rights during their term within a
period of three years after the date of such termination due to death,
disability or retirement to the extent that the right was exercisable
at the date of such termination, or during such other period and
subject to such terms as may be determined by the Committee.
The Committee shall have the power to permit in its discretion an
acceleration of previously determined exercise terms, within the terms
of the Plan, under such circumstances and upon such terms and
conditions as it deems appropriate.
(C) PAYMENT. Upon exercise of a stock appreciation right, payment shall
be made in cash, in the form of Common Shares at Fair Market Value, or in a
combination thereof, as the Committee may determine.
10. PERFORMANCE UNITS. Performance Units ("Units") shall be evidenced by
performance unit agreements in such form and not inconsistent with this Plan as
the Committee shall approve from time to time, which agreements shall contain
in substance the following terms and conditions:
(A) PERFORMANCE PERIOD. At the time of award, the Committee shall
establish with respect to each unit award a performance period of not less
than two, nor more than five years.
7
<PAGE>
(B) VALUATION OF UNITS. At the time of award, the Committee shall
establish with respect to each such award a value for each Unit which shall
not thereafter change, or which may vary thereafter determinable from
criteria specified by the Committee at the time of award.
(C) PERFORMANCE TARGETS. At the time of award, the Committee shall
establish maximum and minimum performance targets to be achieved with
respect to each award during the performance period. The participant shall
be entitled to payment with respect to all Units awarded if the maximum
target is achieved during the performance period, but shall be entitled to
payment with respect to a portion of the Units awarded according to the
level of achievement of performance targets, as specified by the Committee,
for performance during the performance period which meets or exceeds the
minimum target but fails to meet the maximum target.
The performance targets established shall relate to corporate, division,
or unit performance and may be established in terms of growth in gross
revenue, earnings per share, ratio of earnings to shareholders' equity or
to total assets or such other performance standards as determined by the
Committee in its discretion. Multiple targets may be used and may have the
same or different weighting, and they may relate to absolute performance or
relative performance as measured against other institutions or divisions or
units thereof.
(D) ADJUSTMENTS. At any time prior to payment of the Units, the Committee
may adjust previously established performance targets and other terms and
conditions, including the corporation's, or division's or unit's financial
performance for Plan purposes, to reflect major unforeseen events such as
changes in laws, regulations or accounting practices, mergers, acquisitions
or divestitures or extraordinary, unusual or non-recurring items or events.
(E) PAYMENTS OF UNITS. Following the conclusion of each performance
period, the Committee shall determine the extent to which performance
targets have been attained for such period as well as the other terms and
conditions established by the Committee. The Committee shall determine
what, if any, payment is due on the Units. Payment shall be made in cash,
in the form of Common Shares at Fair Market Value, or in a combination
thereof, as the Committee may determine.
(F) TERMINATION OF EMPLOYMENT. In the event that a participant holding a
Unit award ceases to be an employee prior to the end of the applicable
performance period by reason of death, disability or retirement, his Units,
to the extent earned under the applicable performance targets, shall be
payable at the end of the performance period in proportion to the active
service of the participant during the performance period, as determined by
the Committee. Upon any other termination of employment, participation
shall terminate forthwith and all outstanding Units held by the participant
shall be cancelled.
8
<PAGE>
(G) OTHER TERMS. The unit agreements shall contain such other terms and
provisions and conditions not inconsistent with this Plan as shall be
determined by the Committee.
11. RESTRICTED STOCK AWARDS. Restricted Stock Awards under the Plan shall be
in the form of Common Shares of the Company, restricted as to transfer and
subject to forfeiture, and shall be evidenced by restricted stock agreements in
such form and not inconsistent with this Plan as the Committee shall approve
from time to time, which agreements shall contain in substance the following
terms and conditions:
(A) RESTRICTION PERIOD. Shares awarded pursuant to this Plan shall be
subject to such terms, conditions, and restrictions, including without
limitation: prohibitions against transfer, substantial risks of
forfeiture, attainment of performance objectives and repurchase by the
corporation or right of first refusal, and for such period or periods
as shall be determined by the Committee at the time of grant. The
Committee shall have the power to permit in its discretion, an
acceleration of the expiration of the applicable restriction period
with respect to any part or all of the shares awarded to a participant.
(B) RESTRICTIONS UPON TRANSFER. Shares awarded, and the right to vote
such shares and to receive dividends thereon, may not be sold,
assigned, transferred, exchanged, pledged, hypothecated, or otherwise
encumbered, except as herein provided, during the restriction period
applicable to such shares. Subject to the foregoing, and except as
otherwise provided in the Plan, the participant shall have all the
other rights of a shareholder including, but not limited to, the right
to receive dividends and the right to vote such shares.
(C) CERTIFICATES. Each certificate issued in respect of shares
awarded to a participant shall be deposited with the Company, or its
designee, and shall bear the following legend:
"This certificate and the shares represented hereby are subject to
the terms and conditions (including forfeiture and restrictions against
transfer) contained in the NIPSCO Industries, Inc. 1994 Long-Term
Incentive Plan and an Agreement entered into by the registered owner.
Release from such terms and conditions shall obtain only in accordance
with the provisions of the Plan and Agreement, a copy of each of which
is on file in the office of the Secretary of said Company."
(D) LAPSE OF RESTRICTIONS. The Agreement shall specify the terms and
conditions upon which any restrictions upon shares awarded under the Plan
shall lapse, as determined by the Committee. Upon the lapse of such
restrictions, Common Shares, free of the foregoing restrictive legend,
shall be issued to the participant or his legal representative.
9
<PAGE>
(E) TERMINATION PRIOR TO LAPSE OF RESTRICTIONS. In the event of a
participant's termination of employment, other than due to death,
disability or retirement, prior to the lapse of restrictions applicable to
any shares awarded to such participant, all shares as to which there still
remains unlapsed restrictions shall be forfeited by such participant
without payment of any consideration to the participant, and neither the
participant nor any successors, heirs, assigns, or personal representatives
of such participant shall thereafter have any further rights or interest in
such shares or certificates.
12. SUPPLEMENTAL CASH PAYMENTS. Subject to the Company's discretion, stock
option, incentive stock option, stock appreciation right, performance unit or
restricted stock agreements may provide for the payment of a supplemental cash
payment to a participant promptly after the exercise of an option or stock
appreciation right, or, at the time of payment of a performance unit or at the
end of a restriction period of a restricted stock award. Supplemental cash
payments shall be subject to such terms and conditions as shall be provided by
the Committee at the time of grant, provided that in no event shall the amount
of each payment exceed:
(a) In the case of an option, the excess of the fair market value of a
common share on the date of exercise over the option price multiplied by
the number of shares for which such option is exercised, or
(b) In the case of a stock appreciation right, performance unit or
restricted stock award, the value of the shares and other consideration
issued in payment of such award.
13. GENERAL RESTRICTIONS. Each award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the Common Shares subject or related
thereto upon any securities exchange or under any state or federal law, or (ii)
the consent or approval of any government regulatory body, or (iii) an
agreement by the recipient of an award with respect to the disposition of
Common Shares, is necessary or desirable as a condition of, or in connection
with, the granting of such award or the issue or purchase of Common Shares
thereunder, such award may not be consummated in whole or in part unless such
listing, registration, qualification, consent, approval or agreement shall have
been effected or obtained, free of any conditions not acceptable to the
Committee.
14. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan,
unless otherwise provided by the Plan, shall have no rights as a shareholder
with respect thereto unless and until certificates for shares are issued to
him.
15. EMPLOYMENT RIGHTS. Nothing in the Plan or in any agreement entered into
pursuant to the Plan shall confer upon any participant the right to continue in
employment or affect any right which his employer may have to terminate the
employment of such participant.
10
<PAGE>
16. TAX-WITHHOLDING. Whenever the Company proposes or is required to issue or
transfer Common Shares to a participant under the Plan, the Company shall have
the right to require the participant to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares. If
such certificates have been delivered prior to the time a withholding
obligation arises, the Company shall have the right to require the participant
to remit to the Company an amount sufficient to satisfy all federal, state or
local withholding tax requirements at the time such obligation arises and to
withhold from other amounts payable to the participant, as compensation or
otherwise, as necessary. Whenever payments under the Plan are to be made to a
participant in cash, such payments shall be net of any amounts sufficient to
satisfy all federal, state and local withholding tax requirements. In lieu of
requiring a participant to make a payment to the Company in an amount related
to the withholding tax requirement, the Committee may, in its discretion,
provide that at the participant's election, the tax withholding obligation
shall be satisfied by the Company's withholding a portion of the shares
otherwise distributable to the participant, such shares being valued at their
fair market value at the date of exercise, or by the participant's delivering
to the Company a portion of the shares previously delivered by the Company,
such shares being valued at their fair market value as of the date of delivery
of such shares by the participant to the Company. For this purpose, the amount
of required withholding shall be a specified rate not less than the statutory
minimum federal and state withholding rate and not greater than the maximum
federal, state and local (if any) marginal tax rate applicable to the
participant and to the particular transaction. Notwithstanding any provision of
the Plan to the contrary, a participant's election pursuant to the preceding
sentences (a) must be made on or prior to the date as of which income is
realized by the recipient in connection with the particular exercise
transaction, (b) must be irrevocable, and (c) if the election is made by a
participant who is subject to Section 16 of the 1934 Act, must be made in
writing either (A) within the ten (10) business days beginning on the third
business day following the release of the Company's quarterly or annual summary
consolidated statements of earnings and ending on the twelfth business day
following such day, or (B) at least six (6) months prior to the effective date
of the particular exercise transaction. In lieu of a separate election on each
effective date of each exercise transaction, a participant may file a blanket
election with the Committee which shall govern all future exercise transactions
until revoked by the participant.
17. CHANGE IN CONTROL. (a) Effect of Change in Control. Notwithstanding any
of the provisions of the Plan or any agreement evidencing awards granted
hereunder, upon a Change in Control of the Company (as defined in Section
17(b)) all outstanding awards shall become fully exercisable and all
restrictions thereon shall terminate in order that participants may fully
realize the benefits thereunder. Further, the Committee, as constituted before
such Change in Control, is authorized, and has sole discretion, as to any
award, either at the time such award is granted hereunder or any time
thereafter, to take any one or more of the following actions: (i) provide for
the exercise of any
11
<PAGE>
such award for an amount of cash equal to the difference between the exercise
price and the then Fair Market Value of the Common Shares covered thereby had
such award been currently exercisable; (ii) provide for the vesting or
termination of the restrictions on any such award; (iii) make such adjustment
to any such award then outstanding as the Committee deems appropriate to
reflect such Change in Control; and (iv) cause any such award then outstanding
to be assumed, by the acquiring or surviving corporation, after such Change in
Control.
(b) Definition of Change in Control. The term "Change in Control" shall mean
the occurrence, at any time during the specified term of an Option granted
under the Plan, of any of the following events:
(i) The occurrence of any "Distribution Date," as such term is defined in
Section 3 of the Rights Agreement between the Company and Harris Trust and
Savings Bank dated February 27, 1990, as such may be amended from time to
time;
(ii) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person (an "Acquiror") and as a result
of such merger, consolidation or reorganization less than 50% of the
outstanding voting securities or other capital interests of the surviving,
resulting or acquiring corporation or other person are owned in the
aggregate by the shareholders of the Company, directly or indirectly,
immediately prior to such merger, consolidation or reorganization, other
than the Acquiror or any corporation or other person controlling,
controlled by or under common control with the Acquiror;
(iii) The Company sells all or substantially all of its business and/or
assets to an Acquiror, of which less than 50% of the outstanding voting
securities or other capital interests are owned in the aggregate by the
shareholders of the Company, directly or indirectly, immediately prior to
such sale, other than the Acquiror or any corporation or other person
controlling, controlled by or under common control with the Acquiror; or
(iv) The election to the Board, without the recommendation or approval of
the incumbent Board, of the lesser of (i) three Directors or (ii) Directors
constituting a majority of the number of Directors of the Company then in
office.
18. AMENDMENT OR TERMINATION. The Board or the Committee may at any time
terminate, suspend or modify the Plan without the authorization of shareholders
to the extent allowed by law, including without limitation any rules issued by
the Securities and Exchange Commission under Section 16 of the 1934 Act,
insofar as shareholder approval thereof is not required in order for the Plan
to continue to satisfy the requirements of Rule 16b-3 under the 1934 Act. No
termination, suspension or modification of the Plan shall adversely affect any
right acquired by any participant under an award granted before the date of
such termination, suspension or modification, unless
12
<PAGE>
such participant shall consent; but it shall be conclusively presumed that any
adjustment for changes in capitalization as provided for herein does not
adversely affect any such right.
19. EFFECT ON OTHER PLANS. Unless otherwise specifically provided,
participation in this Plan shall not preclude an employee's eligibility to
participate in any other benefit or incentive plan and any awards made pursuant
to this Plan shall not be considered as compensation in determining the
benefits provided under any other plan.
20. DURATION OF THE PLAN. The Plan shall remain in effect until all awards
under the Plan have been satisfied by the issuance of shares or the payment of
cash, but no award shall be granted more than ten years after the date the Plan
is approved by the shareholders, which shall be its effective date of adoption.
13
<PAGE>
EXHIBIT 10.8
NIPSCO INDUSTRIES, INC.
DIRECTORS' CHARITABLE GIFT PROGRAM
1. PURPOSE OF THE PROGRAM
Under the NIPSCO Industries, Inc. Directors' Charitable Gift Program (the
"Program"). NIPSCO Industries, Inc. (the "Company") will make a donation on
behalf of each eligible Director, in the Director's name, to the eligible
tax-exempt organization(s) (the "Donee(s)") selected by the Director. The
purpose of the Program is to acknowledge the service of the Company's
Directors, to recognize the interest of the Company and its Directors in
supporting worthy educational institutions and charitable organizations and
to enhance the Company's ability to continue to attract and retain highly
qualified individuals to serve as Directors.
2. ELIGIBILITY
All persons serving as Directors of the Company as of September 27, 1994,
other than Directors who are current or former employees of the Company or
any of its subsidiaries, shall be eligible to participate in the Program.
All Directors who join the Company's Board of Directors after that date,
other than Directors who are current or former employees of the Company or
any of its subsidiaries, shall be immediately eligible to participate in
the Program upon election to the Board.
3. DONATION AMOUNT
While serving as a Director, the donation amount for a Director will be
determined based on the Director's completed years of Board service, in
accordance with the following schedule.
Completed Years Cumulative
of Service Donations
--------------- ----------
Less than 5 $0
5-9 125,000
10 or more 250,000
Notwithstanding this schedule, a Director who has completed at least five
years of service will be treated as having served for 10 or more years if
he or she terminates Board service as a result of death, disability or
mandatory retirement.
In determining a Director's total cumulative donation amount, Board service
prior to the effective date of the Program (even if it is not continuous
service) will be counted.
1
<PAGE>
4. RECOMMENDATION OF DONATION
At any time after a Director becomes eligible to participate in the
Program, he or she may make a written recommendation to the Company, on a
form provided by the Company for this purpose, designating the Donee(s)
which he or she recommends as the recipient(s) of the Company donation to
be made on his or her behalf. A Director may revise or revoke any such
recommendation prior to payment of the donation by signing a new
recommendation from and submitting it to the Company. Each eligible
Director may choose one Donee or several Donees to receive a Company
donation, provided that each Donee must be recommended to receive a
donation of at least $25,000.
5. DONEES
In order to be eligible to receive a donation, a recommended organization
must be (i) a charitable organization located in the State of Indiana or
(ii) an accredited educational institution (x) located in the State of
Indiana, (y) which the recommending Director attended or (z) for which the
recommending Director serves or has served as a trustee, governor or
director, and such charitable organization or educational institution must
initially, and at the time a donation is to be made, qualify to receive
tax-deductible donations under the Internal Revenue Code. An organization
or institution will be approved unless it is determined, in the exercise of
good faith judgment, that a donation to the organization or institution
would be detrimental to the best interests of the Company. A Director's
private foundation is not eligible to receive donations under the Program.
6. TIMING OF DONATION
Each donation made on a Director's behalf will be made by the Company as
soon as is practicable after the Company receives the Director's
recommendation, the Director completes the requisite number of years of
service, and the Company confirms the eligibility of the Donee, or at such
later date as the Director may specify.
7. FUNDING AND PROGRAM ASSETS
The Company currently intends not to fund the Program. However, if in the
future the Company elects to fund the Program in any manner, neither the
Directors nor their recommended Donee(s) shall have any rights or interests
in any assets of the Company identified for such purpose. Nothing contained
in the Program shall create, or be deemed to create, a trust, actual or
constructive, for the benefit of a Director or any Donee recommended by a
Director to receive a donation, or shall give, or be deemed to give, any
Director or recommended Donee any interest in any assets of the Program or
the Company.
2
<PAGE>
8. AMENDMENT OR TERMINATION
The Board of Directors of the Company, may at any time, without the consent
of the Directors participating or eligible to participate in the Program,
amend, suspend or terminate the Program.
9. ADMINISTRATION
The Program shall be administered by the Northern Indiana Public Service
Company Contributions Committee (the "Committee"). The Committee shall have
plenary authority in its discretion, but subject to the provisions of the
Program, to prescribe, amend and rescind rules, regulations and procedures
relating to the program. The determinations of the Committee on the
foregoing matters shall be conclusive and binding on all interested
parties.
10. GOVERNING LAW
The Program shall be construed and enforced according to the laws of the
State of Indiana, and all provisions thereof shall be administered
according to the laws of said State.
11. EFFECTIVE DATE
The effective date of the Program is September 27, 1994. The recommendation
of any individual Director will be effective when he or she completes and
submits to the Committee a written recommendation on the form provided for
that purpose.
3
<PAGE>
EXHIBIT 11
NIPSCO INDUSTRIES, INC.
COMPUTATION OF PER SHARE EARNINGS
TWELVE MONTHS ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
---------- ----------
<S> <C> <C>
Weighted Average Number of Shares
Average Common Shares Outstanding at 12/31/94.... 64,820,039 64,820,039
Dilutive Effect for Nonqualified Stock Options at
12/31/94........................................ 134,775 136,688
---------- ----------
Weighted Average Shares at 12/31/94.............. 64,954,814 64,956,727
========== ==========
Net Income to be Used to Compute
Earnings Per Average Common Share
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net Income....................................... $ 163,987 $ 163,987
Dividend Requirements on Preferred Shares........ 3,063 3,063
---------- ----------
Balance Available for Common Shareholders........ $ 160,924 $ 160,924
========== ==========
Earnings Per Average Common Share.................. $ 2.48(a) $ 2.48(a)
========== ==========
</TABLE>
--------
Note:
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
30
<PAGE>
EXHIBIT 11
NIPSCO INDUSTRIES, INC.
COMPUTATION OF PER SHARE EARNINGS
TWELVE MONTHS ENDED DECEMBER 31, 1993
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
---------- ----------
<S> <C> <C>
Weighted Average Number of Shares
Average Common Shares Outstanding at 12/31/93.... 66,136,396 66,136,396
Dilutive Effect for Nonqualified Stock Options at
12/31/93........................................ 173,417 193,693
---------- ----------
Weighted Average Shares at 12/31/93.............. 66,309,813 66,330,089
========== ==========
Net Income to be Used to Compute
Earnings Per Average Common Share
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net Income....................................... $ 156,140 $ 156,140
Dividend Requirements on Preferred Shares........ 3,063 3,063
---------- ----------
Balance Available for Common Shareholders........ $ 153,077 $ 153,077
========== ==========
Earnings Per Average Common Share.................. $ 2.31(a) $ 2.31(a)
========== ==========
</TABLE>
--------
Note:
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
31
<PAGE>
EXHIBIT 11
NIPSCO INDUSTRIES, INC.
COMPUTATION OF PER SHARE EARNINGS
TWELVE MONTHS ENDED DECEMBER 31, 1992
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
---------- ----------
<S> <C> <C>
Weighted Average Number of Shares
Average Common Shares Outstanding at 12/31/92.... 66,715,941 66,715,941
Dilutive Effect for Nonqualified Stock Options at
12/31/92........................................ 115,467 144,072
---------- ----------
Weighted Average Shares at 12/31/92.............. 66,831,408 66,860,013
========== ==========
Net Income to be Used to Compute
Earnings Per Average Common Share
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net Income....................................... $ 136,648 $ 136,648
Dividend Requirements on Preferred Shares........ 3,063 3,063
---------- ----------
Balance Available for Common Shareholders........ $ 133,585 $ 133,585
========== ==========
Earnings Per Average Common Share.................. $ 1.99(a) $ 1.99(a)
========== ==========
</TABLE>
--------
Note:
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
32
<PAGE>
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and 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 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).
Net Income
For 1994, net income of Industries increased to $164.0 million, or earnings
of $2.48 per average common share, compared to $156.1 million, or earnings of
$2.31 per average common share, for 1993. There were approximately 1.3 million
fewer average common shares outstanding in 1994 than 1993. In 1992, net income
was $136.6 million, or earnings of $2.00 per average common share. See Notes to
Consolidated Financial Statements for Segments of Business regarding the
revenue and utility operating income derived from the delivery of gas and
electricity.
Revenues
Operating revenues decreased $1.5 million, or 0.1%, from 1993. Operating
revenues in 1993 increased $95.5 million, or 6.0%, from 1992.
During 1994, gas deliveries in dekatherms (dth), which include
transportation services, increased 5.5%. Gas sales in 1994 decreased 3.3% due
to lower sales to residential and commercial customers due to warmer weather
during the fourth quarter of 1994, compared to the fourth quarter of 1993. Gas
transportation services increased 11.9% mainly due to increased deliveries to
industrial customers and gas volumes transported through Crossroads, which
began operations in 1994. The Utilities had approximately 693,100 gas customers
at December 31, 1994. During 1993, gas deliveries increased 9.8% over 1992. The
increase in gas deliveries was largely attributable to increased deliveries to
residential, commercial and transportation customers and the addition of 27,500
customers acquired through the purchase of NIFL in March, 1993.
Gas revenues were $681.9 million in 1994, a decrease of $32.3 million
from 1993. The decrease in gas revenues was mainly due to decreased sales to
residential and commercial customers due to the warmer weather this year, and
reduced gas costs. Gas revenues were $714.2 million in 1993, an increase of
$48.0 million from 1992. The increase in gas revenues was mainly due to
increased sales to residential and commercial customers due to the colder
weather, and the inclusion of NIFL, and was partially offset by decreased
transportation revenue per dth delivered due to lower take-or-pay costs. The
large commercial and industrial customers continued to utilize transportation
services provided by the Utilities. 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
transported 188.6, 167.9 and 149.5 million dth in 1994, 1993 and 1992,
respectively.
In 1994, sales of electricity in kilowatt-hours (kwh) increased 2.4%
over 1993 mainly due to higher sales to commercial and industrial customers due
to increased demands of steel related customers. Northern Indiana had
approximately 400,500 electric customers at December 31, 1994. In 1993, sales of
electricity in kwh increased 5.1% over 1992 mainly due to higher sales to
residential and commercial customers due to warmer weather in the second and
third quarters and increased industrial demands.
In 1994, electric revenues were $994.5 million, an increase of $30.8
million from 1993. The increase in electric revenue was mainly due to higher
sales to commercial and industrial customers due to increased demands of steel
related customers and higher fuel costs per kwh, which were partially offset by
decreased sales to wholesale customers. In 1993, electric revenues were $963.7
million, an increase of $47.5 million from 1992. The increase in electric
revenue was mainly due to higher sales to residential and commercial customers
due to warmer weather in the second and third quarters and increased industrial
demands.
39
<PAGE>
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
The components of the changes in gas and electric revenues are shown in
the following tables:
Year 1994 Year 1993
Compared to Compared to
Year 1993 Year 1992
----------------------------------------- -----------
(Dollars in millions)
Gas Revenue
Pass through of net
changes in purchased
gas costs, gas storage
and storage transpor-
tation costs $(25.9) $ 27.1
Take-or-pay costs and
transition costs 12.0 (27.0)
Changes in sales levels (21.5) 19.3
Gas transported 3.1 2.9
NIFL acquisition -- 25.7
------ ------
Gas Revenue Change $(32.3) $ 48.0
------ ------
Electric Revenue
Pass through of net
changes in fuel costs $ 7.6 $(10.4)
Changes in sales levels 23.2 57.9
------ ------
Electric Revenue Change $ 30.8 $ 47.5
------ ------
Total Revenue Change $ (1.5) $ 95.5
====== ======
See Rate Matters in Notes to Consolidated Financial Statements regarding
changes in gas rates, gas take-or-pay and FERC Order No. 636 transition costs.
The basic steel industry accounted for 38% of natural gas delivered
(including volumes transported) and 41% of electric sales during 1994.
The Utilities' rate schedules for gas and electric service to their
customers contain electric rate adjustment clauses for changes in the cost of
fuel and firm purchases of electric energy and gas rate adjustment clauses to
reflect changes in the cost of gas purchased and contracted gas storage and
storage transportation costs. (See Fuel Adjustment Clause and Gas Cost
Adjustment Clause under Summary of Significant Accounting Policies in Notes to
Consolidated Financial Statements.)
Gas Costs
The Utilities' gas costs decreased $26.2 million (6.1%) in 1994 due to
decreased volumes purchased and lower gas costs per dth. The average cost for
the Utilities purchased gas in 1994, after adjustment for take-or-pay charges
and transition costs for transport customers, was $2.95 per dth as compared to
$3.23 per dth in 1993. Gas costs increased $27.8 million (6.9%) in 1993, due to
increased purchases resulting from the colder weather of 1993, and the
inclusion of $16.1 million of purchased gas costs related to NIFL. The average
cost for the Utilities purchased gas in 1993, after adjustment for take-or-pay
charges billed to transport customers, was $3.23 per dth as compared to $3.16
per dth in 1992.
Fuel and Purchased Power
Cost of fuel for electric generation in 1994 increased mainly as a result of
increased cost per kwh generated. The average cost per kwh generated increased
1.2% from 1993 to 16.85 mills. The cost of fuel for electric generation in 1993
increased mainly as a result of increased production offset by decreased fuel
costs per kwh produced. The average cost per kwh generated decreased 1.0% from
1992 to 16.65 mills.
Power purchased increased $14.3 million 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. Purchased power costs increased $7.2
million in 1993, as a result of increased power purchases from other utilities.
Operating Margins
Operating margins increased $7.9 million in 1994 to $993.3 million. The
operating margin from gas deliveries decreased $6.1 million in 1994, mainly due
to the decreased sales to residential and commercial customers, due to warmer
weather during the fourth quarter of 1994, partially offset by increased
transportation services. Operating margins from electric sales increased $14.0
million mainly reflecting increased sales to commercial and industrial
customers due to increased demand partially offset by decreased sales to
wholesale customers. Operating margins increased $58.3 million in 1993 to
$985.5 million. The operating margin from gas deliveries increased $20.2
million mainly due to the increased sales to residential and commercial
customers due to colder weather, and the addition of 27,500 gas customers due
to the purchase of NIFL. Operating margins from electric sales increased $38.1
million mainly reflecting increased sales to residential and commercial
customers due to warmer weather in the second and third quarters and increased
industrial demands.
Operating Expenses and Taxes
Operating expenses and taxes in 1994 increased 1.2% from 1993 to $732.2
million and in 1993 increased 6.2% from 1992 to $723.4 million.
40
<PAGE>
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
The increase in 1994 from 1993 is mainly due to increased operating
costs of pollution control facilities, environmental costs and operating costs
related to Crossroads offset by decreased maintenance activity. The increase in
1993 from 1992 was mainly due to the full year of the service agreement
associated with the Bailly scrubber, increased gas storage costs reflecting
changes in the Utilities' gas supply arrangements, higher employee related
expenses and the addition of operating expenses of NIFL.
Depreciation and amortization expenses increased $7.3 million compared
to 1993 as a result of net plant additions.
Income taxes and other tax provisions charged to operations amounted to
$170.0 million in 1994, $168.5 million in 1993 and $149.9 million in 1992 and
represent 10.1% of operating revenues for 1994. Utility income taxes remained
relatively unchanged from 1993 to 1994 consistent with the level of pre-tax
income. The increase in 1993 from 1992 was due to the increase in the statutory
federal tax rate and an increase in pre-tax income. Taxes, except income taxes,
increased primarily due to higher property tax requirements in 1994.
The after tax effects of the Northern Indiana land donation to the
Shafer and Freeman Lakes Environmental Conservation Corporation are included in
"Other, net" under the caption "Other Income (Deductions)" in the 1994
Consolidated Statement of Income. The operating results of all non-utility
subsidiaries are also included in the caption "Other, net."
Interest and other charges decreased $4.5 million and $7.2 million in
1994 and 1993, respectively. The 1994 decrease reflects Northern Indiana's
continued refinancing to reduce interest rates on long-term debt outstanding.
The 1993 decrease reflects 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 for a discussion of
Carrying Charges and Deferred Depreciation, Allowance for Funds Used During
Construction, FERC Order No. 636, Income Taxes, Postretirement Benefits, and
Postemployment Benefits.
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
deposition provisions of the Clean Air Act Amendments of 1990 (CAAA). 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 limitations on emissions
of nitrogen oxides and hazardous air pollutants which may require significant
capital expenditures for control of these emissions. Northern Indiana is
evaluating a nitrogen oxide control program to meet future requirements.
Northern Indiana cannot predict the costs of complying with CAAA requirements,
but Northern Indiana believes that any such mandated costs would be recoverable
through the rate making process.
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 received notices from the Environmental Protection
Agency (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, analysis, and
remediation. 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 all of the remedial costs at these
sites are not determinable, Northern Indiana's analysis indicates its share of
such costs with other PRPs should not have a significant impact on its
financial position or the results of future operations.
The Utilities have instituted a program to investigate former
manufactured gas plants where one of them is the current or former owner. The
Utilities have identified twenty-seven of these sites and made visual
inspections of these sites. The Utilities have conducted initial
41
<PAGE>
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
samplings at eight sites. Follow-up investigations have been conducted at three
sites and potential remedial measures are being evaluated. The Utilities will
continue their program to assess sites during 1995. During the follow-up
investigation of the former manufactured gas plant in Elkhart, Indiana, Northern
Indiana noted the presence of hydrocarbons in the Elkhart River. Northern
Indiana reported this finding to the Indiana Department of Environmental
Management (IDEM) and the EPA. Northern Indiana is evaluating this site to
determine what remedial measures, if any, may be needed.
Northern Indiana was notified by 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 has remediated part of the Fort Wayne
site. The remainder of the site is being evaluated to determine what further
remedial measures, if any, may be needed.
Northern Indiana was notified by Indiana Gas Company, Inc. (Indiana Gas)
that the site of a former manufactured gas plant in Lafayette, Indiana,
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 possibility that exposure to electric and magnetic fields emanating
from power lines, household appliances and other electric sources may result in
adverse health effects has been the subject of increased public, governmental
and media attention. A considerable amount of scientific research has been
conducted on this topic without definitive results. Research is continuing to
resolve scientific uncertainties.
Liquidity and Capital Resources
During the next few years, it is anticipated that the great majority of
earnings available for distribution of dividends will depend upon dividends
paid to Industries by Northern Indiana. See Notes to Consolidated Financial
Statements for a discussion of the Common Share Dividend.
Utility construction expenditures by Industries for 1994, 1993 and 1992
were approximately $201 million, $181 million and $172 million, respectively.
Industries' total utility plant investment on December 31, 1994, was $5.4
billion.
On June 2, 1993, Northern Indiana received authorization from the
Indiana Utility Regulatory Commission (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. 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. As
of December 31, 1994, an additional $169,275,000 of Medium-Term Notes, Series D,
can be issued in the future.
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 were used to retire 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
42
<PAGE>
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
proceeds of the Series 1994B Bonds were used to retire the $18 million
Series 1978 Note, 6.70%, on August 25, 1994. 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
terminates August 19, 1997, 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 December 31, 1994,
there were no borrowings outstanding under this agreement.
Capital Markets also has $105 million of money market lines of credit.
As of December 31, 1994, $12.7 million of borrowings were outstanding under
these lines of credit.
As of December 31, 1994, Capital Markets had $49.6 million in commercial
paper outstanding, having a weighted average interest rate of 6.18%.
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 $320.2
million at December 31, 1994.
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 December 31, 1994, Northern
Indiana had $156.5 million in commercial paper outstanding, having a weighted
average interest rate of 6.13%.
Northern Indiana has a $250 million revolving Credit Agreement with
several banks which terminates August 19, 1997, unless extended by its terms. As
of December 31, 1994, there were no borrowings outstanding under this agreement.
In addition, Northern Indiana has $14.2 million in lines of credit which run to
May 31, 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 December 31, 1994, there were no borrowings under these lines of
credit. The Credit Agreement and lines of credit are also available to support
the issuances of commercial paper.
Northern Indiana also has $273.5 million of money market lines of
credit. As of December 31, 1994, $92.7 million of borrowings were outstanding
under these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
December 31, 1994, there were no borrowings outstanding under this facility.
On April 5, 1993, Northern Indiana executed a 364-day $50 million
private placement loan. The loan was repaid on April 4, 1994.
During recent years, Northern Indiana has been able to finance its
construction program with internally generated funds and expects to be able to
meet future commitments through such funds.
The Utilities do not expect the effects of inflation at current levels
to have a significant impact on their results of operations, ability to contain
cost increases or need to seek timely and adequate rate relief. The Utilities do
not anticipate the need to file for gas and 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 (4%
43
<PAGE>
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Concluded)
for 1994), 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 sales service. The Utilities
believe they have taken appropriate steps to ensure 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-1980s, 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 effects in the
near future, unless the current regulatory structure is substantially altered.
The Utilities believe the steps they are taking to deal with increased
competition will have significant, positive effects in the next few years.
(Selected Statistical Charts)
(Capitalization Ratios Chart)
<TABLE>
<CAPTION>
COMMON PREFERRED AND
LONG-TERM SHARE PREFERENCE
YEAR DEBT EQUITY STOCK TOTAL
---- --------- ------ ------------- -------
<S> <C> <C> <C> <C>
1985 53.6% 34.8% 11.6% 100.0%
1986 55.3% 33.6% 11.1% 100.0%
1987 52.7% 36.1% 11.2% 100.0%
1988 52.0% 41.0% 7.0% 100.0%
1989 52.3% 40.8% 6.9% 100.0%
1990 49.2% 42.6% 8.2% 100.0%
1991 47.1% 44.6% 8.3% 100.0%
1992 46.0% 45.1% 8.9% 100.0%
1993 47.9% 44.0% 8.1% 100.0%
1994 47.7% 44.8% 7.6% 100.0%
</TABLE>
(Cost of Fuel for Electric Generation Chart)
<TABLE>
<CAPTION>
YEAR (MILLS PER KWH)
---- ---------------
<S> <C>
1985 27.85
1986 23.92
1987 21.02
1988 19.09
1989 18.01
1990 18.13
1991 17.86
1992 16.82
1993 16.65
1994 16.85
</TABLE>
(Cost of Gas Purchased for Resale Chart)
<TABLE>
<CAPTION>
DOLLARS
YEAR PER DEKATHERM
---- -------------
<S> <C>
1985 3.42
1986 3.20
1987 2.94
1988 3.03
1989 3.21
1990 3.40
1991 3.16
1992 3.31
1993 3.27
1994 3.03
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Income
Year Ended December 31, 1994 1993 1992
----------------------- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Operating Revenues:
Gas $ 681,909 $ 714,229 $ 666,221
Electric 994,492 963,643 916,135
----------- ----------- -----------
1,676,401 1,677,872 1,582,356
----------- ----------- -----------
Cost of Energy:
Gas costs 403,437 429,645 401,854
Fuel for electric generation 247,134 244,552 242,385
Power purchased 32,503 18,225 11,028
----------- ----------- -----------
683,074 692,422 655,267
----------- ----------- -----------
Operating Margin 993,327 985,450 927,089
----------- ----------- -----------
Operating Expenses and Taxes (except income):
Operation 287,766 284,406 262,841
Maintenance 80,170 83,548 85,451
Depreciation and amortization 194,283 187,000 182,717
Taxes (except income) 72,227 71,621 69,555
----------- ----------- -----------
634,446 626,575 600,564
----------- ----------- -----------
Operating Income Before Utility Income Taxes 358,881 358,875 326,525
----------- ----------- -----------
Utility Income Taxes 97,732 96,830 80,308
----------- ----------- -----------
Operating Income 261,149 262,045 246,217
----------- ----------- -----------
Other Income (Deductions):
Allowance for funds, other than borrowed funds,
used during construction -- 1 30
Other, net 2,216 (2,071) 1,454
----------- ----------- -----------
2,216 (2,070) 1,484
----------- ----------- -----------
Income Before Interest and Other Charges 263,365 259,975 247,701
----------- ----------- -----------
Interest and Other Charges:
Interest on long-term debt 78,292 82,121 87,660
Other interest 11,650 9,238 9,955
Allowance for borrowed funds used
during construction and carrying charges (4,374) (1,447) (543)
Amortization of premium, reacquisition
premium, discount and expense on debt, net 3,897 3,582 3,323
Dividend requirements on preferred
stocks of subsidiary 9,913 10,341 10,658
----------- ----------- -----------
99,378 103,835 111,053
----------- ----------- -----------
Net Income 163,987 156,140 136,648
Dividend requirements on preferred shares 3,063 3,063 3,063
----------- ----------- -----------
Balance available for common
shareholders $ 160,924 $ 153,077 $ 133,585
=========== =========== ===========
Average common shares outstanding 64,820,039 66,136,396 66,715,941
Earnings per average common share $ 2.48 $ 2.31 $ 2.00
=========== =========== ===========
Dividends declared per common share $ 1.47 $ 1.35 $ 1.26
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
45
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
December 31,
1994 1993
---- ----
(Dollars in thousands)
<S> <C> <C>
Assets
Utility Plant, at original cost
(including construction work
in progress of $221,830 and
$189,634, respectively):
Electric $3,858,118 $3,778,016
Gas 1,258,801 1,216,178
Common 316,120 289,242
---------- ----------
5,433,039 5,283,436
Less--Accumulated provision for depreciation
and amortization 2,202,082 2,052,221
---------- ----------
Total utility plant 3,230,957 3,231,215
---------- ----------
Other Property and Investments:
Other property, at cost, less accumulated
provision for depreciation 126,632 124,184
Investments, at equity 27,023 19,142
Investments, at cost 10,355 6,189
---------- ----------
Total other property and investments 164,010 149,515
---------- ----------
Current Assets:
Cash and cash equivalents 40,441 16,140
Accounts receivable, less reserve of
$4,899 and $4,855, respectively 86,299 115,129
Fuel adjustment clause 1,614 6,440
Gas cost adjustment clause 25,972 35,659
Materials and supplies, at average cost 66,397 67,120
Electric production fuel, at average cost 18,347 21,533
Natural gas in storage, at last-in, first-out cost 77,794 62,870
Prepayments and other 11,081 11,118
---------- ----------
Total current assets 327,945 336,009
---------- ----------
Other Assets:
Regulatory assets 195,449 177,728
Deferred charges and other non-current assets 26,182 17,857
---------- ----------
Total other assets 221,631 195,585
---------- ----------
$3,944,543 $3,912,324
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
46
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
1994 1993
---- ----
(Dollars in thousands)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization (see page 48):
Common shareholders' equity (see page 51) $1,107,848 $1,094,672
Preferred stocks--
Northern Indiana Public Service Company:
Series without mandatory redemption provisions 86,389 97,753
Series with mandatory redemption provisions 66,057 68,462
NIPSCO Industries, Inc.:
Series with mandatory redemption provisions 35,000 35,000
Long-term debt, excluding amounts due within one year 1,180,338 1,192,500
---------- ----------
Total capitalization 2,475,632 2,488,387
---------- ----------
Current Liabilities:
Obligations due within one year--
Northern Indiana Public Service Company:
Commercial paper 156,500 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 6.00% and 6.33% with a weighted average interest rate
of 6.15% and various maturities between January 4, 1995 and
February 14, 1995 92,700 110,000
NIPSCO Capital Markets, Inc.:
Commercial paper 49,600 47,000
Notes payable--
Issued at interest rates of 6.27% and 6.30% with a weighted average interest rate
of 6.30% and maturities of January 17, 1995 and January 27, 1995 12,700 --
Elm Energy and Recycling (UK), Ltd.:
Term loan facility 3,262 3,766
NDC Douglas Properties, Inc.:
Notes payable 1,013 --
---------- ----------
338,211 253,661
---------- ----------
Other current liabilities--
Accounts payable 158,463 192,543
Sinking funds due within one year 2,578 3,413
Dividends declared on common and preferred stocks 27,077 26,165
Customer deposits 9,291 9,471
Taxes accrued 50,168 74,562
Interest accrued 10,561 12,253
Other accruals 44,639 45,296
---------- ----------
302,777 363,703
---------- ----------
Total current liabilities 640,988 617,364
---------- ----------
Other:
Deferred income taxes 575,323 576,071
Deferred investment tax credits, being amortized over life of related property 123,181 129,681
Deferred credits 45,001 37,767
Regulatory income tax liability 18,599 25,371
Other noncurrent liabilities 65,819 37,683
---------- ----------
Total other 827,923 806,573
---------- ----------
Commitments and Contingencies (see notes) $3,944,543 $3,912,324
========== ==========
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CAPITALIZATION
December 31,
1994 1993
---------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Common shareholders' equity (see page 51) $1,107,848 44.7% $1,094,672 44.0%
---------- ----------
Preferred Stocks, which are redeemable solely at option of issuer:
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
4-1/2% series--79,996 shares outstanding 8,000 8,000
4.22% series--106,200 shares outstanding 10,620 10,620
4.88% series--100,000 shares outstanding 10,000 10,000
7.44% series--41,900 shares outstanding 4,190 4,190
7.50% series--34,842 shares outstanding 3,484 3,484
Premium on preferred stock 254 254
Cumulative preferred stock--no par value--
Adjustable Rate (6.00% at December 31, 1994)--
Series A (stated value--$50 per share),
574,285 and 801,500 shares
outstanding, respectively 28,714 40,075
---------- ----------
86,389 3.5% 97,753 3.9%
---------- ----------
Redeemable 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 10,000 11,250
7-3/4% series--55,568 and 61,122 shares
outstanding, respectively 5,557 6,112
8.35% series--75,000 and 81,000 shares
outstanding, respectively 7,500 8,100
Cumulative preferred stock--no par value--
6.50% series--430,000 shares outstanding 43,000 43,000
---------- ----------
66,057 2.7% 68,462 2.7%
---------- ----------
NIPSCO Industries, Inc.--
Cumulative preferred shares--without par value--8.75% series
(stated value--$100 per share),
350,000 shares outstanding 35,000 1.4% 35,000 1.4%
---------- ----------
Long-term debt (see page 49) 1,180,338 47.7% 1,192,500 48.0%
---------- ------ ---------- -----
Total capitalization $2,475,632 100.0% $2,488,387 100.0%
========== ====== ========== =====
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
48
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF LONG-TERM DEBT
December 31,
1994 1993
---------- -----------
<S> <C> <C>
Northern Indiana Public Service Company: (Dollars in thousands)
First mortgage bonds--
Series N, 4 5/8%--due May 15, 1995 $ -- $ 22,436
Series O, 6 3/8%--due September 1, 1997 25,747 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 40,543 40,643
Series U, 8 1/8%--due July 15, 2003 55,239 55,739
Series Y, 8 3/8%--due October 15, 2006 -- 50,575
Series Z, 8 1/8%--due August 15, 2007 39,569 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 230,607 436,047
---------- ----------
Pollution control notes and bonds--
Series A note--City of Michigan City--5.70% due October 1, 2003 20,750 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
3.68% weighted average at December 31, 1994, due November 1, 2016 130,000 130,000
Series 1988 bonds--Jasper County--Series D
3.90% weighted average at December 31, 1994, due November 1, 2007 24,000 24,000
Series 1994 bonds--Jasper County--Series A
6.15% weighted average at December 31, 1994, due August 1, 2010 10,000 --
Series 1994 bonds--Jasper County--Series B
6.15% weighted average at December 31, 1994, due June 1, 2013 18,000 --
Series 1994 bonds--Jasper County--Series C
6.15% weighted average at December 31, 1994, due April 1, 2019 41,000 --
---------- ----------
Total 243,750 193,500
---------- ----------
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 (3,756) (4,663)
---------- ----------
Total long-term debt of Northern Indiana Public Service Company 1,065,351 1,079,084
---------- ----------
NIPSCO Capital Markets, Inc.:
Medium-term note--9.95%--due June 10, 1996 7,500 7,500
Unamortized discount (9) (16)
Zero Coupon Notes--7.57%, $72,500 at maturity, due December 1, 1997 58,373 54,191
---------- ----------
Total long-term debt of NIPSCO Capital Markets, Inc. 65,864 61,675
---------- ----------
NIPSCO Development Company, Inc.:
Lake Erie Land Company--Notes Payable--
Interest rates between 8.50% and 9.50% with a
weighted average interest rate of 8.91% and
various maturities between July 5, 1996 and June 30, 1998 3,155 3,256
Elm Energy and Recycling (UK), Ltd. Term Loan
Facility--6.79%--due December 31, 2004 34,606 41,577
Metals Technology Corporation--Notes Payable--
Mortgage note, 9.00%--due September 25, 2005 98 108
NDC Douglas Properties, Inc.--Notes Payable--
Interest rates between 6.72% and 7.94% with a weighted
average interest rate of 7.54% and maturities through January 1, 2005 11,264 --
---------- ----------
Total long-term debt of NIPSCO Development Company, Inc. 49,123 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 $1,180,338 $1,192,500
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
49
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
(Dollars in thousands)
Cash flows from operating activities
Net income $163,987 $156,140 $136,648
Adjustments to reconcile net income to net cash:
Depreciation and amortization 194,283 187,000 182,717
Deferred federal and state operating income taxes, net (11,488) 2,122 14,503
Deferred investment tax credits, net (6,499) (7,446) (7,452)
Change in certain assets and liabilities* --
Accounts receivable, net 28,830 (12,255) 18,284
Electric production fuel 3,186 20,412 (10,861)
Materials and supplies 723 7,344 2,394
Natural gas in storage (14,924) (24,685) 3,074
Accounts payable (34,080) 23,507 (4,521)
Taxes accrued (18,904) 541 16,593
Fuel adjustment clause 4,826 (2,105) 6,965
Gas cost adjustment clause 9,687 10,641 (43,565)
Other, net 16,765 11,462 3,638
--------- --------- ---------
Net cash provided by operating activities 336,392 372,678 318,417
--------- --------- ---------
Cash flows provided by (used in) investing activities:
Utility construction expenditures (200,586) (180,852) (172,329)
Acquisition and construction expenditures
related to Crossroads Pipeline Company (1,959) (24,361) --
Purchase of Kokomo Gas and Fuel
Company, net of cash acquired -- -- (43,752)
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 (19,567) (53,061) (78,566)
--------- --------- ---------
Net cash used in investing activities (214,112) (255,976) (294,647)
--------- --------- ---------
Cash flows provided by (used in) financing activities:
Issuance of long-term debt 222,575 468,269 82,456
Issuance of short-term debt 1,020,777 1,254,507 1,865,713
Issuance of preferred shares -- -- 43,000
Net change in commercial paper 131,205 (1,605) (21,040)
Retirement of long-term debt (218,572) (377,069) (91,319)
Retirement of short-term debt (1,090,390) (1,388,208) (1,744,812)
Retirement of preferred stock (10,195) (2,170) (30,478)
Issuance of common shares 2,060 36,364 53,911
Acquisition of treasury shares (58,717) (40,730) (76,281)
Cash dividends paid on common shares (93,578) (88,214) (83,379)
Cash dividends paid on preferred shares (3,063) (3,063) (3,063)
Other, net (81) -- 582
--------- --------- ---------
Net cash used in financing activities (97,979) (141,919) (4,710)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 24,301 (25,217) 19,060
Cash and cash equivalents at beginning of period 16,140 41,357 22,297
--------- --------- ---------
Cash and cash equivalents at end of period $40,441 $16,140 $41,357
========= ========= =========
</TABLE>
*Net of effects from purchase of Kokomo Gas and Fuel Company and Northern
Indiana Fuel and Light Company, Inc. The accompanying notes to consolidated
financial statements are an integral part of this statement.
50
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
Dollars in Thousands Shares
------- -- --------- ------
Additional Unearned Currency
Common Paid-In Retained Treasury Compen- Translation Common Treasury
Total Shares Capital Earnings Shares sation Adjustment Shares Shares
=========== ======== ======= ======== ========= ======= ======= ========== ==========
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 $1,011,666 $867,582 $11,941 $269,161 $(133,337) $(3,681) $ -- 73,721,755 (7,050,140)
Net Income 136,648 136,648
Dividends:
Preferred shares (3,063) (3,063)
Common shares (84,437) (84,437)
Treasury shares acquired (76,281) (76,281) (3,135,902)
Issued:
Employee stock purchase plan 327 327 20,614
Long-term incentive plan 3,307 51 3,705 (449) 183,125
Kokomo Gas acquisition 46,828 10,232 36,596 1,848,588
Conversion of 4-1/4%
convertible debentures 3,348 3,348 170,354
Other (3,813) (1,449) (1,114) 1,096 (2,346) (44)
---------- -------- ------- -------- --------- ------- ------- ---------- ----------
BALANCE, DECEMBER 31, 1992 $1,034,530 $870,930 $20,775 $317,195 $(168,990) $(3,034) $(2,346) 73,892,109 (8,133,759)
---------- -------- ------- -------- --------- ------- ------- ---------- ----------
Net income 156,140 156,140
Dividends:
Preferred shares (3,063) (3,063)
Common shares (89,384) (89,384)
Treasury shares acquired (40,730) (40,730) (1,325,085)
Issued:
Employee stock purchase plan 433 138 295 18,561
Long-term incentive plan 5,666 63 5,696 (93) 264,150
NIFL acquisition 30,172 6,655 23,517 1,112,862
Other 908 1,443 (535)
---------- -------- ------- -------- --------- ------- ------- ---------- ----------
BALANCE, DECEMBER 31, 1993 $1,094,672 $870,930 $27,631 $380,888 $(180,212) $(1,684) $(2,881) 73,892,109 (8,063,271)
---------- -------- ------- -------- --------- ------- ------- ---------- ----------
Net income 163,987 163,987
Dividends:
Preferred shares (3,063) (3,063)
Common shares (94,803) (94,803)
Treasury shares acquired (58,717) (58,717) (2,002,586)
Issued:
Employee stock purchase plan 598 293 305 19,248
Long-term incentive plan 1,449 31 1,431 (13) 59,889
Other 3,725 1,702 (81) 727 1,377
---------- -------- ------- -------- --------- ------- ------- ---------- ----------
BALANCE, DECEMBER 31, 1994 $1,107,848 $870,930 $29,657 $446,928 $(237,193) $ (970) $(1,504) 73,892,109 (9,986,720)
========== ======== ======= ======== ========= ======= ======= ========== ==========
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOLDING COMPANY STRUCTURE
NIPSCO Industries, Inc. (Industries) is an Indiana corporation serving as the
holding company for a number of subsidiaries, including three public utility
operating companies: Northern Indiana Public Service Company (Northern Indiana),
Kokomo Gas and Fuel Company (Kokomo Gas) and Northern Indiana Fuel and Light
Company, Inc. (NIFL).
Industries' major non-utility subsidiaries include NIPSCO Development
Company, Inc. (Development), NIPSCO Energy Services, Inc. (Services), and NIPSCO
Capital Markets, Inc. (Capital Markets).
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Industries, its
utility subsidiaries Northern Indiana, Kokomo Gas, NIFL and Crossroads Pipeline
Company, a wholly-owned subsidiary of Services (Utilities), and all non-utility
subsidiaries. Investments for which Industries has at least a 20% interest and
certain joint ventures are accounted for under the equity method of accounting.
Investments with less than a 20% interest are accounted for under the cost
method of accounting. The operating results of the non-utility subsidiaries are
included in "Other, net" under the caption "Other Income (Deductions)" in the
Consolidated Statement of Income. 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 years 1994, 1993 and 1992. 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 3.2% for the years
1994, 1993 and 1992.
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 for repairs of transportation and service equipment
which
51
<PAGE>
are charged to clearing accounts and redistributed to operating expense and
other accounts. When property which represents a retirement unit is replaced or
removed, the cost of such property is credited to utility plant, and such cost,
together with the cost of removal less salvage, is charged to the accumulated
provision for depreciation.
COAL RESERVES
Northern Indiana has a long-term mining contract to mine its coal reserves
through the year 2001. The costs of these reserves are being recovered through
the rate making process as such coal reserves are used to produce electricity.
OIL AND NATURAL GAS ACCOUNTING
NIPSCO Fuel Company, Inc., a wholly-owned subsidiary of Services 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 December 31, 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>
1994 1993 1992
-------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Income taxes $121,485 $93,155 $65,532
Interest, net of amounts capitalized $ 82,738 $88,353 $96,909
</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 Indiana Utility Regulatory Commission (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 Rate Matters
(Take-or-Pay Pipeline Gas Costs) and (FERC Order No. 636) for a discussion of
take-or-pay charges and gas transition cost charges.
NATURAL GAS IN STORAGE
Based on the average cost of gas purchased in December, 1994 and 1993, the
estimated replacement cost of gas in storage (current and non-current) at
December 31, 1994 and 1993, exceeded the stated LIFO cost by approximately $38
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>
December 31, December 31,
1994 1993
------------ ------------
(Dollars in Thousands)
<S> <C> <C>
Unamortized reacquisition premium on debt
(see long-term Debt note) $ 54,265 $ 48,033
Unamortized R. M. Schahfer Unit 17 and
Unit 18 carrying charges and deferred
depreciation (See below) 74,981 79,198
Bailly scrubber carrying charges and deferred
depreciation (See below) 7,864 4,711
Deferral of SFAS No. 106 expense not recovered
(See Postretirement Benefits note) 43,939 22,410
FERC Order No. 636 transition costs (See Rate
Matters--FERC Order No. 636 note) 14,400 23,376
-------- --------
$195,449 $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.
52
<PAGE>
Northern Indiana began capitalizing carrying charges and deferring
depreciation and certain operating expenses relating to its scrubber service
agreement upon completion of the flue gas desulfurization plant in June, 1992,
at Northern Indiana's Bailly Generating Station in accordance with an order of
the Commission. Capitalization of carrying charges and deferral of depreciation
and certain operating expenses will continue until the earlier of December 31,
1995, or the date a final order considering the costs in rates is approved by
the Commission.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Allowance for funds used during construction (AFUDC) is charged to construction
work in progress during the period of construction and represents the net cost
of borrowed funds used for construction purposes and a reasonable rate upon
other (equity) funds. Under established regulatory rate practices, after the
construction project is placed in service, Northern Indiana is permitted to
include in the rates charged for utility services (a) a fair return on and (b)
depreciation of such AFUDC included in plant in service.
At January 1, 1992, a pretax rate of 4.0% for all construction was
being used; effective January 1, 1993, the rate decreased to 3.7% and effective
January 1, 1994, the rate increased to 5.0%.
FOREIGN CURRENCY TRANSLATION
Translation gains or losses are based upon the end-of-period exchange rate and
are recorded as a separate component of shareholders' equity.
INCOME TAXES
Deferred income taxes are recognized as costs in the rate making process by the
commissions having jurisdiction over the rates charged by the Utilities.
Deferred income taxes are provided as a result of provisions in the income tax
law that either require or permit certain items to be reported on the income tax
return in a different period than they are reported in the financial statements.
These taxes are reversed by a debit or credit to deferred income tax expense as
the temporary differences reverse. Investment tax credits have been deferred and
are being amortized to income over the life of the related property.
For additional information relating to income taxes, including
information related to Industries' adoption of SFAS No. 109 effective January 1,
1993, which requires an asset and liability approach to accounting for income
taxes, see Income Taxes.
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 former 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 $45 million of principal and
interest at December 31, 1994. Northern Indiana's management and general counsel
believe Northern Indiana will be successful in establishing that no tax
withholding was required for the period.
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.
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 $192.1 million of take-or-pay costs and interest from
their customers through December 31, 1994. As of December 31, 1994, an
additional $6.6 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 its Order No. 636 which required interstate
pipelines to restructure their services. Under the Order, existing pipeline
sales services have been "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 will allow 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 $61 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
53
<PAGE>
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). Certain
industrial customers have appealed the November 2, 1994, order to the Indiana
Court of Appeals. Regulatory assets, in amounts corresponding to the costs
recorded, have been recorded to reflect the ultimate recovery of these costs.
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
deposition provisions of the Clean Air Act Amendments of 1990 (CAAA). 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 limitations on
emissions of nitrogen oxides and hazardous air pollutants, which may require
significant capital expenditures for control of these emissions. Northern
Indiana is evaluating a nitrogen oxide control program to meet future
requirements. Northern Indiana cannot predict the costs of complying with CAAA
requirements, but Northern Indiana believes that any such mandated costs would
be recoverable through the rate making process.
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 received notices from the Environmental
Protection Agency (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, analysis, and
remediation. 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 all of the remedial costs at these sites are not
determinable, Northern Indiana's analysis indicates its share of such costs with
other PRPs should not have a significant impact on its financial position or the
results of future operations.
The Utilities have instituted a program to investigate former
manufactured gas plants where one of them is the current or former owner. The
Utilities have identified twenty-seven of these sites and made visual
inspections of these sites. The Utilities have conducted initial samplings at
eight sites. Follow-up investigations have been conducted at three sites and
potential remedial measures are being evaluated. The Utilities will continue
their program to assess sites during 1995. During the follow-up investigation of
the former manufactured gas plant in Elkhart, Indiana, Northern Indiana noted
the presence of hydrocarbons in the Elkhart River. Northern Indiana reported
this finding to the Indiana Department of Environmental Management (IDEM) and
the EPA. Northern Indiana is evaluating this site to determine what remedial
measures, if any, may be needed.
Northern Indiana was notified by 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 has remediated part of the Fort Wayne site. The
remainder of the site is being evaluated to determine what further remedial
measures, if any, may be needed.
Northern Indiana was notified by Indiana Gas Company, Inc. (Indiana
Gas) that the site of a former manufactured gas plant in Lafayette, Indiana,
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 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.
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 Consolidated Balance Sheet
at December 31, 1994 and 1993 reflects a net regulatory income tax liability of
$18.6 million and $25.4 million, respectively. 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
54
<PAGE>
primarily attributable to deferred taxes provided at rates in excess of the
current statutory rate, as discussed above, and unamortized deferred investment
tax credits.
The components of the net deferred income tax liability at December
31, 1994, and 1993, are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
(Dollars in thousands)
<S> <C> <C>
Deferred tax liabilities--
Accelerated depreciation and other property differences $ 691,319 $677,493
AFUDC-equity 42,447 44,863
Adjustment clauses 10,596 16,876
Take-or-pay gas costs 2,045 4,234
Other regulatory assets 22,125 17,364
Reacquisition premium on debt 20,580 18,216
Deferred tax assets--
Deferred investment tax credits (46,703) (49,174)
Removal costs (105,671) (93,279)
FERC Order No. 636 transition costs (5,461) (7,111)
Other postretirement benefits (22,712) (8,958)
Regulatory income tax liability (7,054) (9,582)
Other, net (20,231) (23,424)
--------- --------
581,280 587,518
Less: Deferred income taxes related to current
assets and liabilities 5,957 11,447
--------- --------
Deferred income taxes--noncurrent $ 575,323 $576,071
========= ========
</TABLE>
Federal and state income taxes as set forth in the Consolidated
Statement of Income are comprised of the following:
<TABLE>
<CAPTION>
1994 1993 1992
-------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Current income taxes--
Federal $100,321 $ 89,022 $ 61,557
State 15,398 13,132 11,700
-------- --------- --------
115,719 102,154 73,257
-------- --------- --------
Deferred income taxes, net--Federal and State--
Accelerated depreciation and other property differences 8,328 13,211 11,078
Removal costs (12,093) (8,760) (11,352)
Adjustment clauses (17,025) (2,466) 14,086
FERC Order No. 636 transition costs 11,393 -- --
Minimum tax credit deferral -- -- 9,798
Take-or-pay gas costs (2,189) (5,799) (2,403)
Reacquisition premium on debt 2,787 2,824 (904)
Other (2,689) 3,112 (5,800)
-------- --------- --------
(11,488) 2,122 14,503
-------- --------- --------
Deferred investment tax credits, net (6,499) (7,446) (7,452)
-------- --------- --------
Total utility operating income taxes 97,732 96,830 80,308
Income tax applicable to non-operating
activities and income of non-utility
subsidiaries (16,333) (5,537) (3,324)
-------- --------- --------
Total income taxes $ 81,399 $ 91,293 $ 76,984
======== ========= ========
</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>
1994 1993 1992
-------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Net Income $163,987 $ 156,140 $136,648
Add--Income taxes 81,399 91,293 76,984
Dividend requirements on preferred stocks of subsidiary 9,913 10,341 10,658
-------- --------- --------
Income before preferred dividend
requirements of subsidiary and income taxes $255,299 $ 257,774 $224,290
======== ========= ========
Amount derived by multiplying pretax income by statutory rate $ 89,355 $ 90,221 $ 76,259
Reconciling items multiplied by the statutory rate:
Book depreciation over related tax depreciation 4,044 3,893 4,359
Amortization of deferred investment tax credits (7,466) (7,446) (7,452)
State income taxes, net of federal income tax benefit 8,835 8,568 8,006
Fair market value of property donated in excess of book value (7,753) -- --
Reversal of deferred taxes provided
at rates in excess of the current federal income tax rate (5,807) (5,080) (5,468)
Other, net 191 1,137 1,280
-------- --------- --------
Total income taxes $ 81,399 $ 91,293 $ 76,984
======== ========= ========
</TABLE>
55
<PAGE>
PENSION PLANS
Industries and its subsidiaries have three 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 December 31, 1994, and 1993, are as
follows:
<TABLE>
<CAPTION>
1994 1993
--------- --------
(Dollars in thousands)
<S> <C> <C>
Vested benefit obligation $449,043 $481,755
Nonvested benefit 97,138 86,373
-------- --------
Accumulated benefit obligation $546,181 $568,128
======== ========
Projected benefit obligation for service rendered to date $613,094 $657,068
Plan assets at fair market value 571,624 605,379
-------- --------
Projected benefit obligation in excess of plan assets 41,470 51,689
Unrecognized transition obligation at December 31, being recognized over 17 years (48,906) (54,055)
Unrecognized prior service cost (29,847) (31,464)
Unrecognized gains 47,788 51,154
-------- --------
Accrued pension costs $ 10,505 $ 17,324
======== ========
</TABLE>
The accumulated benefit obligation is the present value of future
pension benefit payments and is based on the plan benefit formula without
considering expected future salary increases. The projected benefit obligation
considers estimated future salary increases. Discount rates of 8.75% and 7.50%
and rates of increase in compensation levels of 5.5% were used to determine the
accumulated benefit obligation and projected benefit obligation at December 31,
1994, and 1993, respectively. The decrease in the accumulated benefit obligation
as of December 31, 1994, is mainly caused by the increase in the discount rate
to 8.75% and was partially offset by changes in other plan assumptions.
The following items are the components of provisions for pensions for
the years ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Service costs $ 14,099 $ 13,086 $ 13,277
Interest costs 48,058 46,019 43,408
Actual loss (return) on plan assets 15,077 (81,150) (41,796)
Amortization of transition obligation 5,422 5,387 5,437
Other net amortization and deferral (61,422) 39,567 1,599
-------- -------- --------
$ 21,234 $ 22,909 $ 21,925
======== ======== ========
</TABLE>
Assumptions used in the valuation and determination of 1994, 1993 and
1992 pension expenses were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Discount rate 7.50% 7.75% 7.50%
Rate of increase in compensation levels 5.50% 5.50% 6.00%
Expected long-term rate of return on assets 8.25% 8.25% 8.25%
</TABLE>
The plans' assets are invested primarily in common stocks, bonds and
notes.
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.
Effective January 1, 1993, Industries adopted Statement of Financial
Accounting Standards (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 December 31, 1994, and 1993:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Retirees $ 96,676 $ 89,650
Fully eligible active plan participants 20,008 30,501
Other active plan participants 105,991 150,215
--------- ---------
Accumulated postretirement benefit obligation 222,675 270,366
Unrecognized transition obligation at December 31 being recognized
over 20 years (208,681) (220,274)
Unrecognized actuarial gain (loss) 45,496 (20,737)
--------- ---------
Accrued liability for postretirement health care benefit obligation $ 59,490 $ 29,355
========= =========
</TABLE>
56
<PAGE>
A discount rate of 8.75% and a pre-Medicare medical trend rate of 11%
declining to a long-term rate of 7% and a discount rate of 7.5% and a pre-
Medicare medical trend rate of 12% declining to a long-term rate of 7% were used
to determine the accumulated postretirement benefit obligation at December 31,
1994, and 1993, respectively.
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 benefit costs for the year ended December
31, 1994, and 1993 include the following components:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Service costs $ 8,272 $ 6,863
Interest costs 19,945 18,224
Amortization of transition obligation over 20 years 11,593 11,594
------- -------
$39,810 $36,681
======= =======
</TABLE>
The net periodic postretirement benefit costs for 1994 were determined
assuming a 7.5% discount rate, a 5% rate of compensation increase and a pre-
Medicare medical trend rate of 12% declining to a long-term rate of 7%. The net
periodic postretirement benefit costs for 1993 were determined assuming an 8%
discount rate, a 5% rate of compensation increase and a pre-Medicare medical
trend rate of 12% 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 December 31, 1994,
by approximately $32.0 million and increase the aggregate of the service and
interest cost components of plan costs by approximately $4.8 million for the
year ended December 31, 1994. Amounts disclosed above could be changed
significantly in the future by changes in health care costs, work force
demographics, interest rates or plan changes.
On December 30, 1992, the Commission authorized the accrual method of
accounting for postretirement benefits for rate making purposes and authorized
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. The
Commission stated that a deferral period of four years or less would be
rebuttably presumed to be reasonable and 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. Northern Indiana expects to request recovery of such costs within that
period. 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 is deferring 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.
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
operation.
PREFERRED AND PREFERENCE STOCKS
Industries is authorized to issue 20,000,000 shares of Preferred Stock, without
par value. Effective March 2, 1990, 2,000,000 shares of the Industries' Series A
Junior Participating Preferred Shares were reserved for issuance pursuant to the
Share Purchase Rights Plan described in Common Shares. In November, 1990,
Industries issued and sold 350,000 shares of 8.75% Series Cumulative Preferred
Shares through a private placement for $35 million. The shares are subject to
mandatory redemption in whole by Industries on January 14, 1996.
The authorized classes of par value and no par value cumulative
preferred and preference stocks of Northern Indiana are as follows:
Cumulative Preferred--$100 par value--2,400,000 shares; Cumulative
Preferred--no par value--3,000,000 shares; Cumulative Preference--$50 par value-
-2,000,000 shares (none outstanding); and Cumulative Preference--no par value--
3,000,000 shares (none issued). 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. On October 15,
1992, Northern Indiana redeemed all outstanding shares of the 12.55% Series
Preferred Stock at $105.94 per share.
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.
57
<PAGE>
The redemption prices at December 31, 1994, for the cumulative
preferred stock, which are redeemable solely at the option of Northern Indiana,
in whole or in part, at any time upon 30 days' notice, are as follows:
<TABLE>
<CAPTION>
Series Redemption Price Per Share
-------- --------------------------
<S> <C> <C>
Cumulative Preferred Stock--$100 par value-- 4 1/4% $101.20
4 1/2% $100.00
4.22% $101.60
4.88% $102.00
7.44% $101.00
7.50% $101.00
Cumulative Preferred Stock--no par value--Adjustable Rate
(6.00% at December 31, 1994), Series A (stated value $50 per share) $ 50.00
</TABLE>
The redemption prices at December 31, 1994, as well as sinking fund
provisions for the cumulative preferred stock subject to mandatory redemption
requirements, or whose redemption is outside the control of Northern Indiana are
as follows:
<TABLE>
<CAPTION>
Series Redemption Price Per Share Annual Sinking Fund Provisions
------ -------------------------- ------------------------------
<S> <C> <C>
Cumulative Preferred Stock--$100 par value--
8.85% $102.22, 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% $104.76, reduced periodically 2,777 shares on or before December 1; noncumulative option
to double amount each year.
</TABLE>
Sinking fund requirements with respect to redeemable preferred stocks
outstanding at December 31, 1994, for each of the four years subsequent to
December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
--------------------------
<S> <C>
1996 $36,827,700
1997 $ 1,827,700
1998 $ 1,827,700
1999 $ 1,827,700
</TABLE>
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 December 31, 1994, Northern Indiana had approximately
$145.3 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.
COMMON SHARES
Industries has 200,000,000 common shares authorized without par value.
SHARE PURCHASE RIGHTS PLAN
On February 27, 1990, the Board of Directors of Industries declared a dividend
distribution of one Right for each outstanding common share of Industries to
shareholders of record on March 12, 1990. The Rights are not currently
exercisable. Each Right, when exercisable, would initially entitle the holder to
purchase from Industries one one-hundredth of a share of Series A Junior
Participating Preferred Shares, without par value, of Industries at a price of
$60 per one one-hundredth of a share. In certain circumstances, if an acquirer
obtained 25% of Industries' outstanding shares, or merged into Industries or
Industries into the acquirer, the Rights would entitle the holders to purchase
Industries' or the acquirer's common shares for one-half of the market price.
The Rights will not dilute Industries' common shares nor affect earnings per
share unless they become exercisable for common shares. The Plan was not adopted
in response to any specific attempt to acquire control of Industries.
COMMON SHARE REPURCHASES
The Board of Directors of Industries has authorized the repurchase of
approximately 14.6 million common shares in addition to those required in
connection with the acquisitions of Kokomo Gas and NIFL. At December 31, 1994,
Industries had purchased approximately 13.9 million shares at an average price
of $22.76 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 3.6 million additional common shares may be repurchased under the
Board's authorization.
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 2.5 million of Industries' common shares to key employees
through 1998. At December 31, 1994, there were 508,361 shares reserved for
future awards under the 1988 Plan. On April 13, 1994, shareholders adopted
Industries' 1994 Long-Term Incentive Plan (1994 Plan). 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 awards have been
58
<PAGE>
issued under the 1994 Plan. The 1988 Plan and 1994 Plan permit 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 December 31, 1994.
The stock appreciation rights (SARs) may be exercised only in tandem
with stock options on a one-for-one basis and are payable in cash, Industries
stock or a combination thereof. Restricted stock awards are restricted as to
transfer and subject to forfeiture for specific periods from the date of grant.
Restrictions on the shares awarded during 1990 and 1991 lapse five years from
date of grant and vest subject to specific share price appreciation conditions.
If a participant's employment is terminated other than by reason of death,
disability or retirement, restricted shares are forfeited. There were 214,000,
157,500 and 150,500 restricted shares outstanding at December 31, 1992, 1993,
and 1994, respectively.
Changes in outstanding shares under option and SARs for 1992, 1993
and 1994, are as follows:
<TABLE>
<CAPTION>
Nonqualified Nonqualified Stock
Stock Options Options With SARs
------------------------- ------------------
Option Option
Year Ended December 31, 1992 Options Price Options Price
------------------------------ --------- ------------- --------- ------
<S> <C> <C> <C> <C>
Balance at beginning of year 770,325 $10.94-$22.94 39,000 $10.94
Granted 293,400 $26.06 --
Exercised (163,375) $10.94-$22.94 (27,500) $10.94
Cancelled (31,200) $10.94-$22.94 --
--------- ---------
Balance at end of year 869,150 $10.94-$26.06 11,500 $10.94
========= =========
Shares exercisable 575,750 $10.94-$22.94 11,500 $10.94
Option Option
Year Ended December 31, 1993 Options Price Options Price
------------------------------ --------- ------------- --------- ------
Balance at beginning of year 869,150 $10.94-$26.06 11,500 $10.94
Granted 288,500 $33.19 --
Exercised (261,150) $10.94-$26.06 --
Cancelled (5,700) $26.06 (1,600) $10.94
--------- ---------
Balance at end of year 890,800 $10.94-$33.19 9,900 $10.94
========= =========
Shares exercisable 602,300 $10.94-$26.06 9,900 $10.94
Option Option
Year Ended December 31, 1994 Options Price Options Price
------------------------------ --------- ------------- --------- ------
Balance at beginning of year 890,800 $10.94-$33.19 9,900 $10.94
Granted 294,650 $28.75 --
Exercised (61,850) $10.94-$26.06 --
Cancelled (26,050) $28.75-$33.19 --
--------- ---------
Balance at end of year 1,097,550 $10.94-$33.19 9,900 $10.94
========= =========
Shares exercisable 807,150 $10.94-$33.19 9,900 $10.94
</TABLE>
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 December 31, 1994, 24,750 shares
were issued under the Plan.
LONG-TERM DEBT
The sinking fund requirements of long-term debt outstanding at December 31, 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: 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 four years subsequent to December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1996 $ 96,953,346
1997 $ 74,301,620
1998 $130,563,435
1999 $ 8,812,861
</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.
59
<PAGE>
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. 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.
As of December 31, 1994, an additional $169,275,000 of Medium-Term Notes, Series
D, can be issued in the future.
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 were used to retire 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. The Series 1994 Bonds are secured
by Letters of Credit from Union Bank of Switzerland.
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 $320.2 million at December
31, 1994.
SHORT-TERM BORROWINGS
Northern Indiana has a $250 million revolving Credit Agreement with several
banks which terminates August 19, 1997, unless extended by its terms. As of
December 31, 1994, there were no borrowings outstanding under this agreement. In
addition, Northern Indiana has $14.2 million in lines of credit which run to May
31, 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 December 31, 1994, there were no borrowings under these lines of
credit. The Credit Agreement and lines of credit are also available to support
the issuances of commercial paper.
Northern Indiana also has $273.5 million of money market lines of
credit. As of December 31, 1994, $92.7 million of borrowings were outstanding
under these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
December 31, 1994, there were no borrowings outstanding under this facility.
On April 5, 1993, Northern Indiana executed a 364-day $50 million
private placement loan. The loan was repaid April 4, 1994.
Northern Indiana uses commercial paper to fund short-term working
capital requirements. As of December 31, 1994, Northern Indiana had $156.5
million in commercial paper outstanding, having a weighted average interest rate
of 6.13%.
Capital Markets has a $150 million revolving Credit Agreement which
terminates August 19, 1997, 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 December 31, 1994, there were
no borrowings outstanding under this agreement.
Capital Markets also has $105 million of money market lines of credit.
As of December 31, 1994, $12.7 million of borrowings were outstanding under
these lines of credit.
As of December 31, 1994, Capital Markets had $49.6 million in
commercial paper outstanding, having a weighted average interest rate of 6.18%.
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 $3.1 million.
60
<PAGE>
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 December 31, 1994:
<TABLE>
<CAPTION>
Year Ending December 31, (Dollars in thousands)
------------------------ ----------------------
<S> <C>
1995 $ 5,160
1996 3,581
1997 3,319
1998 2,397
1999 1,776
Later years 22,851
-------
Total minimum payments required $39,084
=======
</TABLE>
The consolidated financial statements include rental expense for all operating
leases as follows:
<TABLE>
<CAPTION>
Year Ending December 31, (Dollars in thousands)
------------------------ ----------------------
<S> <C>
1994 $7,890
1993 $7,251
1992 $5,182
</TABLE>
COMMITMENTS
Northern Indiana estimates that approximately $774 million will be expended for
construction purposes for the period from January 1, 1995, to December 31, 1999.
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 of approximately $20 million. The scrubber project 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
twenty-year contract period.
Harbor Coal Company (Harbor Coal), a wholly-owned subsidiary of
Development, has invested in a partnership to finance, construct, own and
operate a $65 million pulverized coal injection facility which began commercial
operation in August, 1993. The facility receives raw coal, pulverizes it and
delivers it to Inland Steel Company 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.
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>
December 31, 1994 December 31, 1993
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Cash and cash equivalents $ 40,441 $ 40,441 $ 16,140 $ 16,140
Investments at cost $ 10,355 $ 11,284 $ 6,189 $ 6,474
Long-term debt (including current
portion) $1,207,936 $1,102,019 $1,263,029 $1,267,728
Preferred stock $ 189,274 $ 156,591 $ 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.
61
<PAGE>
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 following table shows the basic steel industry
percentage of gas revenue (including transportation services) and electric
revenue for 1994, 1993 and 1992.
<TABLE>
<CAPTION>
Basic Steel Industry 1994 1993 1992
-------------------- ---- ---- ----
<S> <C> <C> <C>
Gas revenue percent 3% 2% 4%
Electric revenue percent 26% 24% 25%
</TABLE>
Quarterly Financial Data
The following data summarize certain operating results for each of the quarters
of 1994 and 1993:
<TABLE>
<CAPTION>
1994 Quarters Ended March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Operating revenues $565,551 $348,009 $334,598 $428,243
Operating expenses and taxes 473,595 300,512 281,548 359,597
-------- -------- -------- --------
Operating income 91,956 47,497 53,050 68,646
Other income and deductions, net (1,066) (1,855) (7) 5,144
Interest and other charges 25,849 24,164 24,508 24,857
-------- -------- -------- --------
Net income 65,041 21,478 28,535 48,933
Dividend requirements on preferred shares 766 765 766 766
-------- -------- -------- --------
Balance available for common shareholders $ 64,275 $ 20,713 $ 27,769 $ 48,167
======== ======== ======== ========
Earnings per average common share(a) $0.97 $0.31 $0.43 $0.75
===== ===== ===== =====
<CAPTION>
1993 Quarters Ended March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Operating revenues $521,647 $348,795 $342,538 $464,892
Operating expenses and taxes 435,012 301,850 289,040 389,925
-------- -------- -------- --------
Operating income 86,635 46,945 53,498 74,967
Other income and deductions, net (864) (365) 172 (1,013)
Interest and other charges 27,213 24,922 26,377 25,323
-------- -------- -------- --------
Net income 58,558 21,658 27,293 48,631
Dividend requirements on preferred shares 766 765 766 766
-------- -------- -------- --------
Balance available for common shareholders $ 57,792 $ 20,893 $ 26,527 $ 47,865
======== ======== ======== ========
Earnings per average common share(a) $0.87 $0.31 $0.40 $0.72
===== ===== ===== =====
</TABLE>
(a)Because of the combined mathematical effect of common shares repurchased and
issued and the cyclical nature of net income during the year, the sum of
earnings per share for any four quarterly periods may vary slightly from the
earnings per share for the equivalent twelve-month period.
62
<PAGE>
SEGMENTS OF BUSINESS
Industries' primary business is the distribution of natural gas and electrical
energy. The reportable items for the gas and electric segments for the years
1994, 1993 and 1992 are as follows:(1)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Operating information--
Gas operations:
Operating revenues $ 681,909 $ 714,229 $ 666,221
Operating expenses, excluding provision
for utility income taxes 613,698 634,742 595,074
---------- ---------- ----------
Operating income before utility income taxes 68,211 79,487 71,147
Allowance for funds used during construction (AFUDC)
2,067 875 26
---------- ---------- ----------
Operating income before utility income
taxes and including AFUDC 70,278 80,362 71,173
---------- ---------- ----------
Electric operations:
Operating revenues 994,492 963,643 916,135
Operating expenses, excluding provision
for utility income taxes 703,822 684,255 660,757
---------- ---------- ----------
Operating income before utility income taxes 290,670 279,388 255,378
Allowance for funds used during construction (AFUDC) 2,307 573 547
---------- ---------- ----------
Operating income before utility
income taxes and including AFUDC 292,977 279,961 255,925
---------- ---------- ----------
Total 363,255 360,323 327,098
Other income, net 2,216 (2,071) 1,454
Less--interest and other charges 103,752 105,282 111,596
Less--provision for utility income taxes 97,732 96,830 80,308
---------- ---------- ----------
Net income per Consolidated Statement of Income 163,987 156,140 136,648
Dividend requirements on preferred shares 3,063 3,063 3,063
---------- ---------- ----------
Balance available for common shareholders $ 160,924 $ 153,077 $ 133,585
========== ========== ==========
Other information--
Depreciation and amortization expense:
Electric $ 135,203 $ 131,993 $ 130,811
Gas 59,080 55,007 51,906
---------- ---------- ----------
Total $ 194,283 $ 187,000 $ 182,717
========== ========== ==========
Utility construction expenditures:
Electric $ 145,095 $ 125,449 $ 126,648
Gas 55,491 55,403 45,681
---------- ---------- ----------
Total $ 200,586 $ 180,852 $ 172,329
========== ========== ==========
Investment information--
Identifiable assets(a):
Electric $2,594,976 $2,602,826 $2,644,133
Gas 921,693 900,146 818,384
---------- ---------- ----------
Total 3,516,669 3,502,972 3,462,517
Other corporate assets 427,874 409,352 345,424
---------- ---------- ----------
Total assets $3,944,543 $3,912,324 $3,807,941
========== ========== ==========
</TABLE>
(a)Utility plant less accumulated provision for depreciation and amortization,
materials and supplies, electric production fuel, natural gas in storage, fuel
and gas cost adjustment clauses, unamortized R. M. Schahfer Units 17 and 18
carrying charges and deferred depreciation, gas supply exploration investments
and FERC Order No. 636 transition costs.
(1)NIFL is not included for the year 1992.
63
<PAGE>
TO THE BOARD OF DIRECTORS OF NIPSCO INDUSTRIES, INC.:
We have audited the accompanying consolidated balance sheet and consolidated
statements of capitalization and long-term debt of NIPSCO Industries, Inc. (an
Indiana corporation) and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, common shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. 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 December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in the notes to 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.
Chicago, Illinois
January 27, 1995 Arthur Andersen LLP
64
<PAGE>
<TABLE>
<CAPTION>
SELECTED SUPPLEMENTAL INFORMATION
Gas Statistics(1)
Year Ended December 31, 1994 1993 1992
----------------------- ---- ---- ----
<S> <C> <C> <C>
Operating Revenues ($000's)
Residential (including home heating) $ 449,391 $ 452,176 $ 377,600
Commercial 152,400 157,235 127,203
Industrial 76,321 73,815 67,641
Gas transportation for others 32,207 32,503 40,086
Other* (28,410) (1,500) 53,691
----------- ----------- -----------
Total $ 681,909 $ 714,229 $ 666,221
=========== =========== ===========
Deliveries in dth (000's):
Residential (including home heating) 73,749 76,761 70,830
Commercial (including transportation) 32,654 29,754 27,280
Industrial (including transportation) 182,789 183,739 166,161
Other 17,983 793 838
----------- ----------- -----------
Total 307,175 291,047 265,109
=========== =========== ===========
Customers Served--End of Year:
Residential (including home heating) 636,601 626,492 592,201
Commercial 52,245 51,386 48,168
Industrial 4,218 4,270 3,901
Other 68 67 65
----------- ----------- -----------
Total 693,132 682,215 644,335
=========== =========== ===========
</TABLE>
*Includes deferred gas cost revenue of $(43,460), $(10,375) and $46,005,
respectively.
(1)NIFL is not included in 1992 Gas Statistics.
<TABLE>
<CAPTION>
ELECTRIC STATISTICS
Year Ended December 31, 1994 1993 1992
----------------------- ---- ---- ----
<S> <C> <C> <C>
Operating Revenues ($000's):
Residential $ 259,708 $ 257,033 $ 240,680
Commercial 238,402 232,609 227,707
Industrial 449,623 413,485 397,859
Street lighting 8,363 8,254 8,085
Sales for resale 22,522 27,730 29,697
Other** 15,874 24,532 12,107
----------- ----------- -----------
Total $ 994,492 $ 963,643 $ 916,135
=========== =========== ===========
Sales in kilowatt-hours (000's):
Residential 2,552,430 2,552,837 2,343,303
Commercial 2,736,683 2,705,751 2,608,614
Industrial 9,542,109 8,855,106 8,188,605
Street lighting 55,438 54,741 52,609
Sales for resale 564,166 912,773 1,162,005
Other 85,568 83,959 77,975
----------- ----------- -----------
Total 15,536,394 15,165,167 14,433,111
=========== =========== ===========
Customers Served--End of Year:
Residential 355,658 350,964 346,356
Commercial 41,308 40,634 40,101
Industrial 2,672 2,686 2,695
Other 831 828 823
----------- ----------- -----------
Total 400,469 395,112 389,975
=========== =========== ===========
</TABLE>
**Includes deferred fuel cost revenue of $(4,826), $4,813 and $(6,995),
respectively.
65
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues
Gas ($000's) $ 681,909 $ 714,229 $ 666,221
Electric ($000's) $ 994,492 $ 963,643 $ 916,135
----------- ----------- -----------
Total Operating Revenues ($000's) $ 1,676,401 $ 1,677,872 $ 1,582,356
Operating Margin ($000's) $ 993,327 $ 985,450 $ 927,089
Operating Income ($000's) $ 261,149 $ 262,045 $ 246,217
Income Before Extraordinary Items ($000's) $ 163,987 $ 156,140 $ 136,648
Net Income ($000's) $ 163,987 $ 156,140 $ 136,648
Shares outstanding at year end 63,905,389 65,828,838 65,758,350
Number of common shareholders 39,172 41,038 38,097
Earnings (loss) per average common share $ 2.48 $ 2.31 $ 2.00
Return on average common equity 14.6% 14.4% 13.1%
Times interest earned (pre-tax) 3.63 3.63 3.18
Dividends paid per share $ 1.44 $ 1.32 $ 1.24
Dividend payout ratio 58.1% 57.1% 62.0%
Market values during the year:
High $ 33.000 $ 34.875 $ 26.625
Low $ 26.125 $ 26.125 $ 22.500
Close $ 29.750 $ 32.875 $ 26.500
Book value of common shares $ 17.34 $ 16.63 $ 15.73
Market-to-book ratio at year end 171.6% 197.7% 168.5%
Total Assets ($000's) $ 3,944,543 $ 3,912,324 $ 3,807,941
Utility construction expenditures ($000's)a $ 200,586 $ 180,852 $ 172,329
Capitalization:
Common shareholders' equity ($000's) $ 1,107,848 $ 1,094,672 $ 1,034,530
Preferred and preference stock--
Northern Indiana Public Service Company:
Series without mandatory redemption provision ($000's) $ 86,389 $ 97,753 $ 97,917
Series with mandatory redemption provisions ($000's) $ 66,057 $ 68,462 $ 70,668
NIPSCO Industries, Inc.:
Series with mandatory redemption provision ($000's) $ 35,000 $ 35,000 $ 35,000
Long-term debt ($000's) $ 1,180,338 $ 1,192,500 $ 1,054,454
----------- ----------- -----------
Total Capitalization ($000's) $ 2,475,632 $ 2,488,387 $ 2,292,569
Number of employees 4,441 4,602 4,648
</TABLE>
Notes: /a/ Including AFUDC.
/b/ Excluding Extraordinary Loss related to Bailly NI Plant Abandonment
in 1985.
/c/ Excluding Carbon County, return would have been 6.1%
/d/ Excluding Carbon County Coal Settlement and related income taxes.
66
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1991 1990 1989 1988
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Revenues
Gas ($000's) $ 601,920 $ 625,159 $ 677,262 $ 620,723
Electric ($000's) $ 933,241 $ 895,836 $ 882,303 $ 903,461
----------- ----------- ----------- -----------
Total Operating Revenues ($000's) $ 1,535,161 $ 1,520,995 $ 1,559,565 $ 1,524,184
Operating Margin ($000's) $ 919,951 $ 885,262 $ 900,035 $ 863,213
Operating Income ($000's) $ 254,354 $ 247,777 $ 252,807 $ 257,923
Income Before Extraordinary Items ($000's) $ 133,388 $ 125,361 $ 72,112f $ 103,449
Net Income ($000's) $ 133,388 $ 125,361 $ 72,112f $ 103,449
Shares outstanding at year end 66,671,615 68,874,229 69,369,492 73,310,210
Number of common shareholders 39,346 41,285 43,763 47,324
Earnings (loss) per average common share $ 1.94 $ 1.81 $ 1.00f $ 1.41
Return on average common equity 12.9% 12.7% 7.2%f 10.4%
Times interest earned (pre-tax) 2.93 2.81 2.02f 2.38
Dividends paid per share $ 1.16 $ 1.04 $ 0.84 $ 0.60
Dividend payout ratio 59.8% 57.5% 84.0%f 42.6%
Market values during the year:
High $ 27.000 $ 19.250 $ 19.625 $ 14.125
Low $ 18.500 $ 15.750 $ 13.125 $ 8.625
Close $ 25.750 $ 18.875 $ 19.375 $ 13.875
Book value of common shares $ 15.17 $ 14.61 $ 13.92 $ 14.03
Market-to-book ratio at year end 169.7% 129.2% 139.2% 98.9%
Total Assets ($000's) $ 3,647,557 $ 3,625,181 $ 3,657,718 $ 3,684,721
Utility construction expenditures ($000's)a $ 168,958 $ 152,280 $ 150,786 $ 116,874
Capitalization:
Common shareholders' equity ($000's) $ 1,011,666 $ 1,005,982 $ 965,437 $ 1,028,554
Preferred and preference stock--
Northern Indiana Public Service Company:
Series without mandatory redemption provision ($000's) $ 98,710 $ 99,374 $ 99,874 $ 99,937
Series with mandatory redemption provisions ($000's) $ 53,978 $ 59,358 $ 66,309 $ 75,189
NIPSCO Industries, Inc.:
Series with mandatory redemption provision ($000's) $ 35,000 $ 35,000 $ -- $ --
Long-term debt ($000's) $ 1,068,708 $ 1,165,682 $ 1,261,760 $ 1,308,303
----------- ----------- ----------- -----------
Total Capitalization ($000's) $ 2,268,062 $ 2,365,396 $ 2,393,380 $ 2,511,983
Number of employees 4,600 4,547 4,825 4,946
<CAPTION>
Year Ended December 31, 1987 1986 1985 1984
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Revenues
Gas ($000's) $ 581,130 $ 741,021 $ 943,855 $ 1,011,716
Electric ($000's) $ 870,499 $ 885,106 $ 964,648 $ 989,356
----------- ----------- ----------- -----------
Total Operating Revenues ($000's) $ 1,451,629 $ 1,626,127 $ 1,908,503 $ 2,001,072
Operating Margin ($000's) $ 777,573 $ 756,712 $ 803,864 $ 854,320
Operating Income ($000's) $ 192,415 $ 179,896 $ 198,098 $ 236,302
Income Before Extraordinary Items ($000's) $ 38,876 $ (40,477) $ 79,085 $ 89,747
Net Income ($000's) $ 38,876 $ (40,477) $ (15,758) $ 89,747
Shares outstanding at year end 73,243,100 73,170,788 73,045,160 69,516,560
Number of common shareholders 50,074 56,466 74,303 86,298
Earnings (loss) per average common share $ 0.53 $ (0.55)e $ 1.11b $ 1.32
Return on average common equity 4.1% (4.2%)c 7.5%b 8.7%
Times interest earned (pre-tax) 1.65 1.96d 2.24 2.50
Dividends paid per share $ 0.15 none $ 1.56 $ 1.55
Dividend payout ratio 28.3% -- 140.5%b 117.0%
Market values during the year:
High $ 13.00 $ 13.50 $ 12.875 $ 15.125
Low $ 8.00 $ 9.375 $ 8.375 $ 11.125
Close $ 8.50 $ 11.75 $ 9.875 $ 11.75
Book value of common shares $ 13.13 $ 12.90 $ 13.46 $ 15.03
Market-to-book ratio at year end 64.7% 91.1% 73.4% 78.2%
Total Assets ($000's) $ 3,821,690 $ 3,944,637 $ 3,833,302 $ 3,786,643
Utility construction expenditures ($000's)a $ 156,750 $ 197,324 $ 279,175 $ 285,297
Capitalization:
Common shareholders' equity ($000's) $ 961,562 $ 943,933 $ 983,127 $ 1,044,555
Preferred and preference stock--
Northern Indiana Public Service Company:
Series without mandatory redemption provision ($000's) $ 191,392 $ 191,392 $ 191,392 $ 191,392
Series with mandatory redemption provisions ($000's) $ 105,395 $ 122,122 $ 135,350 $ 141,500
NIPSCO Industries, Inc.:
Series with mandatory redemption provision ($000's) $ -- $ -- $ -- $ --
Long-term debt ($000's) $ 1,401,326 $ 1,552,324 $ 1,511,215 $ 1,317,948
----------- ----------- ----------- -----------
Total Capitalization ($000's) $ 2,659,675 $ 2,809,771 $ 2,821,084 $ 2,695,395
Number of employees 5,172 5,695 5,774 5,886
</TABLE>
[FN]
e Earnings per share were reduced by $1.39 due to the payment in satisfaction of
the Carbon County Coal Company contract litigation.
f Earnings per share were reduced by $0.72 due to the $82.0 million refund, less
associated tax benefits of $30.3 million, related to the Bailly N1 generating
unit.
67
<PAGE>
GRAPHIC MATERIAL CROSS-REFERENCE PAGE
CAPITALIZATION RATIO CHART SHOWS PERCENT OF LONG-TERM DEBT, COMMON SHARE EQUITY
AND PREFERRED AND PREFERENCE STOCK FOR YEARS 1985-1994.
COST OF FUEL FOR ELECTRIC GENERATION CHART SHOWS IN MILLS PER KWH THE COST OF
FUEL FOR ELECTRIC GENERATION FOR YEARS 1985-1994.
COST OF GAS PURCHASED FOR RESALE CHART SHOWS IN DOLLARS PER DEKATHERM THE COST
OF GAS PURCHASED FOR RESALE FOR YEARS 1985-1994.
<PAGE>
EXHIBIT 21
NIPSCO INDUSTRIES, INC.
LIST OF SUBSIDIARIES AS DECEMBER 31, 1994
All subsidiaries are incorporated in Indiana, except for Elm Energy and
Recycling (UK) Ltd., which is incorporated in United Kingdom and Triumph Natural
Gas, Inc., which is incorporated in Delaware. All subsidiaries are wholly-owned
unless otherwise indicated.
801 East Corp.
Hamilton Harbour Insurance Services, Ltd.
Kokomo Gas and Fuel Company
Lakeside Energy Corporation
NIPSCO Capital Markets, Inc.
NIPSCO Development Company, Inc.
Its subsidiaries are:
Analytic Systems Laboratories, Inc.(1)
Elm Energy and Recycling (UK) Ltd.(1)
G. R. Clark Corporation
Harbor Coal Company
JOF Transportation Company
KOGAF Enterprise, Inc.
Its subsidiary is:
Metals Technology Corporation(2)
Lake Erie Land Company
Its subsidiary is:
SCC Services, Inc.
NDC Douglas Properties, Inc.
NIPSCO International Power Systems Company
NIPSCO Security Services, Inc.
Process and Control Technology Corporation
RIC, Inc.
Its subsidiary is:
Cardinal Property Management, Inc.
Riverside Caloric Company
NIPSCO Energy Services, Inc.
Its subsidiaries are:
Crossroads Pipeline Company
NIPSCO Energy Trading Corp.
NIPSCO Fuel Company, Inc.
Its subsidiary is:
NFCO Acquisition Company
NI-TEX, Inc.
Triumph Natural Gas, Inc.(3)
North Lake Energy Corporation
Northern Indiana Fuel and Light Company, Inc.
Its subsidiary is:
Northern Indiana Trading Company
Northern Indiana Public Service Company
Its subsidiaries are:
NIPSCO Exploration Company, Inc.
Shore Line Shops, Incorporated
-------------
(1) Majority-owned subsidiary of NIPSCO Development Company, Inc.
(2) Majority-owned subsidiary of KOGAF Enterprises, Inc.
(3) Majority-owned subsidiary of NIPSCO Energy Services, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included or incorporated by reference in this Form 10-K, into
Industries' previously filed Form S-8 Registration Statement No. 33-30619; and
Form S-8 Registration Statement No. 33-30621.
Arthur Andersen LLP
Chicago, Illinois
March 29, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NIPSCO INDUSTRIES, INC. FOR TWELVE MONTHS ENDED DECEMBER
31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,230,957
<OTHER-PROPERTY-AND-INVEST> 164,010
<TOTAL-CURRENT-ASSETS> 327,945
<TOTAL-DEFERRED-CHARGES> 26,182
<OTHER-ASSETS> 195,449
<TOTAL-ASSETS> 3,944,543
<COMMON> 633,737
<CAPITAL-SURPLUS-PAID-IN> 28,687
<RETAINED-EARNINGS> 445,424
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,107,848
101,057
86,389
<LONG-TERM-DEBT-NET> 449,851
<SHORT-TERM-NOTES> 105,400
<LONG-TERM-NOTES-PAYABLE> 730,487
<COMMERCIAL-PAPER-OBLIGATIONS> 206,100
<LONG-TERM-DEBT-CURRENT-PORT> 27,600
1,828
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,127,983
<TOT-CAPITALIZATION-AND-LIAB> 3,944,543
<GROSS-OPERATING-REVENUE> 1,676,401
<INCOME-TAX-EXPENSE> 97,732
<OTHER-OPERATING-EXPENSES> 1,317,520
<TOTAL-OPERATING-EXPENSES> 1,415,252
<OPERATING-INCOME-LOSS> 261,149
<OTHER-INCOME-NET> 2,216
<INCOME-BEFORE-INTEREST-EXPEN> 263,365
<TOTAL-INTEREST-EXPENSE> 99,378
<NET-INCOME> 163,987
3,063
<EARNINGS-AVAILABLE-FOR-COMM> 160,924
<COMMON-STOCK-DIVIDENDS> 94,803
<TOTAL-INTEREST-ON-BONDS> 31,075
<CASH-FLOW-OPERATIONS> 336,392
<EPS-PRIMARY> 2.48
<EPS-DILUTED> 2.48
</TABLE>
