<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1995
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number 1-9779
NIPSCO Industries, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1719974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5265 Hohman Avenue, Hammond, Indiana 46320-1775
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 853-5200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
-------- --------
As of July 31, 1995, 63,036,315 common shares were outstanding.
<PAGE>
NIPSCO INDUSTRIES, INC.
Part I. FINANCIAL INFORMATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of
NIPSCO Industries, Inc.:
We have audited the accompanying consolidated balance sheet of NIPSCO
Industries, Inc. (an Indiana corporation) and subsidiaries as of June 30,
1995, and December 31, 1994, and the related consolidated statements of
income, common shareholders' equity and cash flows for the three, six, and
twelve month periods ended June 30, 1995, and 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 June 30, 1995, and December 31,
1994, and the results of their operations and their cash flows for the three,
six, and twelve month periods ended June 30, 1995, and 1994, in conformity
with generally accepted accounting principles.
As discussed in Notes 7 and 9 to the consolidated financial
statements, effective January 1, 1993, NIPSCO Industries, Inc. and
subsidiaries changed their methods of accounting for income taxes and
postretirement benefits other than pensions.
Arthur Andersen LLP
Chicago, Illinois
July 27, 1995
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
June 30, December 31,
ASSETS 1995 1994
=========== ===========
(Dollars in thousands)
<S> <C> <C>
Utility Plant, at original cost (including
construction work in progress of
$190,241 and $221,830, respectively)
(Note 2):
Electric $ 3,901,756 $ 3,858,118
Gas 1,277,568 1,258,801
Common 331,642 316,120
----------- -----------
5,510,966 5,433,039
Less - Accumulated provision for
depreciation and amortization 2,283,054 2,202,082
----------- -----------
Total Utility Plant 3,227,912 3,230,957
----------- -----------
Other Property and Investments:
Other property, at cost, less accumulated
provision for depreciation 126,741 126,632
Investments, at equity 31,265 27,023
Investments, at cost 17,497 10,355
Other investments 14,178 13,328
----------- -----------
Total Other Property and Investments 189,681 177,338
----------- -----------
Current Assets:
Cash and cash equivalents 48,670 40,441
Accounts receivable, less reserve of
$7,146 and $4,899, respectively (Note 2) 64,406 86,299
Fuel adjustment clause (Note 2) 2,920 1,614
Gas cost adjustment clause (Note 2) 0 25,972
Materials and supplies, at average cost 69,876 66,397
Electric production fuel, at average cost 19,718 18,347
Natural gas in storage, at last-in,
first-out cost (Note 2) 38,330 77,794
Prepayments and other 19,051 11,081
----------- -----------
Total Current Assets 262,971 327,945
----------- -----------
Other Assets:
Regulatory assets (Note 2) 197,420 195,449
Deferred charges and other noncurrent
assets 14,319 15,449
----------- -----------
Total Other Assets 211,739 210,898
----------- -----------
$ 3,892,303 $ 3,947,138
=========== ===========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
June 30, December 31,
CAPITALIZATION AND LIABILITIES 1995 1994
=========== ===========
(Dollars in thousands)
<S> <C> <C>
CAPITALIZATION:
Common shareholders' equity
(See accompanying statement) $ 1,116,208 $ 1,107,848
Cumulative preferred stocks (Note 11) -
Northern Indiana Public Service Company:
Series without mandatory redemption
provisions (Note 12) 82,533 86,389
Series with mandatory redemption
provisions (Note 13) 64,507 66,057
NIPSCO Industries Inc.:
Series with mandatory redemption
provisions (Note 13) 35,000 35,000
Long-term debt excluding amounts due
within one year (Note 17) 1,343,500 1,180,338
----------- -----------
Total Capitalization 2,641,748 2,475,632
----------- -----------
CURRENT LIABILITIES:
Obligations due within one year -
NORTHERN INDIANA PUBLIC SERVICE COMPANY:
Commercial paper 0 156,500
First mortgage bonds -
Series N, 4-5/8% - due May 15, 1995 0 22,436
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 0 92,700
NIPSCO CAPITAL MARKETS, INC.:
Commercial paper 43,100 49,600
Notes payable -
Issued at interest rates between 6.20%
and 6.28% with a weighted average
interest rate of 6.21% and maturities
of July 5, 1995 and July 14, 1995 31,900 12,700
Medium-term notes
9.95% - due June 10, 1996 7,500 0
ELM ENERGY AND RECYCLING (UK), LTD.:
Term loan facility 3,885 3,262
Standby loan facility 788 0
NDC DOUGLAS PROPERTIES, INC.:
Notes payable 1,149 1,013
----------- -----------
88,322 338,211
----------- -----------
OTHER CURRENT LIABILITIES -
Accounts payable 114,791 158,712
Sinking funds due within one year
(Notes 13 and 17) 2,278 2,578
Dividends declared on common and
preferred stocks 26,719 27,077
Customer deposits 9,393 9,291
Taxes accrued 53,794 43,625
Gas cost adjustment clause (Note 2) 35,151 0
Interest accrued 11,429 10,561
Other accruals 79,742 54,419
----------- -----------
333,297 306,263
----------- -----------
Total Current Liabilities 421,619 644,474
----------- -----------
OTHER:
Deferred income taxes (Note 7) 582,522 581,866
Deferred investment tax credits, being
amortized over life of related property
(Note 7) 119,445 123,181
Deferred credits 42,557 44,171
Accrued liability for postretirement
benefits (Note 9) 59,110 48,548
Regulatory income tax liability (Note 7) 15,095 18,599
Other noncurrent liabilities 10,207 10,667
----------- -----------
Total other 828,936 827,032
----------- -----------
COMMITMENTS AND CONTINGENCIES:
(Notes 3, 4, 5, 6, 19 and 20)
$ 3,892,303 $ 3,947,138
=========== ===========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1995 1994 1995 1994
========== ========== ========== ==========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
(Notes 2, 5 and 22)
Gas $ 114,559 $ 102,641 $ 399,469 $ 421,221
Electric 245,903 245,368 483,491 492,339
---------- ---------- ---------- ----------
360,462 348,009 882,960 913,560
---------- ---------- ---------- ----------
Cost of Energy: (Note 2)
Gas costs 65,059 56,260 237,358 254,565
Fuel for electric
generation 55,912 59,654 109,697 122,798
Power purchased 11,169 9,740 22,133 18,842
---------- ---------- ---------- ----------
132,140 125,654 369,188 396,205
---------- ---------- ---------- ----------
Operating Margin 228,322 222,355 513,772 517,355
---------- ---------- ---------- ----------
Operating Expenses and
Taxes (except income):
Operation 70,876 72,809 141,677 149,259
Maintenance (Note 2) 18,597 20,846 40,050 41,159
Depreciation and
amortization (Note 2) 49,748 48,568 98,865 96,213
Taxes (except income) 17,137 17,142 37,569 37,976
---------- ---------- ---------- ----------
156,358 159,365 318,161 324,607
---------- ---------- ---------- ----------
Operating Income Before
Utility Income Taxes 71,964 62,990 195,611 192,748
---------- ---------- ---------- ----------
Utility Income Taxes
(Note 7) 18,774 15,493 56,348 53,295
---------- ---------- ---------- ----------
Operating Income 53,190 47,497 139,263 139,453
---------- ---------- ---------- ----------
Other Income (Deductions)
(Note 2) (143) (1,855) (974) (2,921)
---------- ---------- ---------- ----------
Income Before Interest
and Other Charges 53,047 45,642 138,289 136,532
---------- ---------- ---------- ----------
Interest and Other Charges:
Interest on long-term debt 21,448 19,075 41,109 40,224
Other interest 2,680 2,605 6,500 4,571
Allowance for borrowed
funds used during
construction (Note 2) (1,351) (961) (3,291) (1,688)
Amortization of premium,
reacquisition premium,
discount and expense
on debt, net 1,057 918 2,102 1,810
Dividend requirements on
preferred stocks of
subsidiary 2,265 2,527 4,590 5,096
---------- ---------- ---------- ----------
26,099 24,164 51,010 50,013
---------- ---------- ---------- ----------
Net Income 26,948 21,478 87,279 86,519
Dividend requirements on
preferred shares 765 765 1,531 1,531
---------- ---------- ---------- ----------
Balance available for
common shareholders $ 26,183 $ 20,713 $ 85,748 $ 84,988
========== ========== ========== ==========
Average common shares
outstanding 63,474,328 65,145,601 63,787,171 65,382,202
Earnings per average
common share $ 0.41 $ 0.31 $ 1.34 $ 1.29
========== ========== ========== ==========
Dividends declared per
common share $ 0.39 $ 0.36 $ 0.78 $ 0.72
========== ========== ========== ==========
<CAPTION>
Twelve Months
Ended June 30,
----------------------
1995 1994
========== ==========
(Dollars in thousands)
<S> <C> <C>
Operating Revenues:
(Notes 2, 5 and 22)
Gas $ 660,157 $ 729,779
Electric 985,644 991,211
---------- ----------
1,645,801 1,720,990
---------- ----------
Cost of Energy: (Note 2)
Gas costs 386,230 435,912
Fuel for electric
generation 234,033 250,509
Power purchased 35,794 29,365
---------- ----------
656,057 715,786
---------- ----------
Operating Margin 989,744 1,005,204
---------- ----------
Operating Expenses and
Taxes (except income):
Operation 280,184 292,115
Maintenance (Note 2) 79,061 82,471
Depreciation and
amortization (Note 2) 196,935 190,677
Taxes (except income) 71,820 72,261
---------- ----------
628,000 637,524
---------- ----------
Operating Income Before
Utility Income Taxes 361,744 367,680
---------- ----------
Utility Income Taxes
(Note 7) 100,785 99,762
---------- ----------
Operating Income 260,959 267,918
---------- ----------
Other Income (Deductions)
(Note 2) 4,163 (3,762)
---------- ----------
Income Before Interest
and Other Charges 265,122 264,156
---------- ----------
Interest and Other Charges:
Interest on long-term debt 79,177 82,040
Other interest 13,579 8,579
Allowance for borrowed
funds used during
construction (Note 2) (5,977) (2,747)
Amortization of premium,
reacquisition premium,
discount and expense
on debt, net 4,189 3,594
Dividend requirements on
preferred stocks of
subsidiary 9,407 10,247
---------- ----------
100,375 101,713
---------- ----------
Net Income 164,747 162,443
Dividend requirements on
preferred shares 3,063 3,063
---------- ----------
Balance available for
common shareholders $ 161,684 $ 159,380
========== ==========
Average common shares
outstanding 64,029,078 65,750,088
Earnings per average
common share $ 2.52 $ 2.42
========== ==========
Dividends declared per
common share $ 1.53 $ 1.41
========== ==========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
Dollars in Thousands
--------------------------------------------------
Additional
Common Paid-in Retained
Three Months Ended Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, April 1, 1994 $ 1,122,463 $ 870,930 $ 27,750 $ 421,601
Net income 21,478 21,478
Dividends:
Preferred shares (765) (765)
Common shares (23,301) (23,301)
Treasury shares acquired (18,357)
Issued:
Employee stock purchase
plan
Long-term incentive plan 501 68
Other 679 7 (30)
----------- ----------- ----------- -----------
Balance, June 30, 1994 $ 1,102,698 $ 870,930 $ 27,825 $ 418,983
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
--------------------------------------------------
Currency
Three Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, April 1, 1994 $ (193,926) $ (1,514) $ (2,378) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (18,357)
Issued:
Employee stock purchase
plan
Long-term incentive plan 493 (60)
Other 215 487
----------- ----------- ----------- -----------
Balance, June 30, 1994 $ (211,790) $ (1,359) $ (1,891) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
-----------
Three Months Ended Treasury
(continued) Shares
======================== ===========
<S> <C>
Balance, April 1, 1994 (8,506,040)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (623,662)
Issued:
Employee stock purchase
plan
Long-term incentive plan 23,550
Other
-----------
Balance, June 30, 1994 (9,106,152)
===========
<PAGE>
<CAPTION>
Dollars in Thousands
--------------------------------------------------
Additional
Three Months Ended Common Paid-in Retained
(continued) Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, April 1, 1995 $ 1,134,786 $ 870,930 $ 31,806 $ 481,176
Net income 26,948 26,948
Dividends:
Preferred shares (765) (765)
Common shares (24,511) (24,511)
Treasury shares acquired (21,791)
Issued:
Employee stock purchase
plan
Long-term incentive plan 1,455 23
Other 86 121 (25)
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ 1,116,208 $ 870,930 $ 31,950 $ 482,823
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
--------------------------------------------------
Currency
Three Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, April 1, 1995 $ (240,222) $ (8,022) $ (882) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (21,791)
Issued:
Employee stock purchase
plan
Long-term incentive plan 1,528 (96)
Other 589 (599)
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ (260,485) $ (7,529) $ (1,481) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
-----------
Three Months Ended Treasury
(concluded) Shares
======================== ===========
<S> <C>
Balance, April 1, 1995 (10,020,238)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (669,335)
Issued:
Employee stock purchase
plan
Long-term incentive plan 62,000
Other
-----------
Balance, June 30, 1995 (10,627,573)
===========
<PAGE>
<CAPTION>
Dollars in Thousands
--------------------------------------------------
Additional
Common Paid-in Retained
Six Months Ended Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ 1,094,672 $ 870,930 $ 27,631 $ 380,888
Net income 86,519 86,519
Dividends:
Preferred shares (1,531) (1,531)
Common shares (46,840) (46,840)
Treasury shares acquired (32,630)
Issued:
Employee stock purchase
plan 305 158
Long-term incentive plan 921 29
Other 1,282 7 (53)
----------- ----------- ----------- -----------
Balance, June 30, 1994 $ 1,102,698 $ 870,930 $ 27,825 $ 418,983
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
------------------------------------- -----------
Currency
Six Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ (180,212) $ (1,684) $ (2,881) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (32,630)
Issued:
Employee stock purchase
plan 147
Long-term incentive plan 905 (13)
Other 338 990
----------- ----------- ----------- -----------
Balance, June 30, 1994 $ (211,790) $ (1,359) $ (1,891) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
-----------
Six Months Ended Treasury
(continued) Shares
======================== ===========
<S> <C>
Balance, January 1, 1994 (8,063,271)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (1,090,006)
Issued:
Employee stock purchase
plan 9,286
Long-term incentive plan 37,839
Other
-----------
Balance, June 30, 1994 (9,106,152)
===========
<PAGE>
<CAPTION>
Dollars in Thousands
--------------------------------------------------
Additional
Six Months Ended Common Paid-in Retained
(concluded) Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $ 1,107,848 $ 870,930 $ 29,657 $ 446,928
Net income 87,279 87,279
Dividends:
Preferred shares (1,531) (1,531)
Common shares (49,657) (49,657)
Treasury shares acquired (32,239)
Issued:
Employee stock purchase
plan 305 142
Long-term incentive plan 2,717 1,654
Other 1,486 497 (196)
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ 1,116,208 $ 870,930 $ 31,950 $ 482,823
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
------------------------------------- -----------
Currency
Six Months Ended Treasury Unearned Translation Common
(concluded) Shares Compensation Adjustment Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1995
Net income $ (237,193) $ (970) $ (1,504) 73,892,109
Dividends:
Preferred shares
Common shares
Treasury shares acquired (32,239)
Issued:
Employee stock purchase
plan 163
Long-term incentive plan 8,784 (7,721)
Other 1,162 23
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ (260,485) $ (7,529) $ (1,481) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
-----------
Six Months Ended Treasury
(concluded) Shares
======================== ===========
<S> <C>
Balance, January 1, 1995 (9,986,720)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (1,003,334)
Issued:
Employee stock purchase
plan 10,231
Long-term incentive plan 352,250
Other
-----------
Balance, June 30, 1995 (10,627,573)
===========
<PAGE>
<CAPTION>
Dollars in Thousands
--------------------------------------------------
Additional
Common Paid-in Retained
Twelve Months Ended Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, July 1, 1993 $ 1,085,300 $ 870,930 $ 27,485 $ 351,829
Net income 162,443 162,443
Dividends:
Preferred shares (3,063) (3,063)
Common shares (92,326) (92,326)
Treasury shares acquired (54,457)
Issued:
Employee stock purchase
plan 574 296
Long-term incentive plan 3,236 39
Other 991 5 100
----------- ----------- ----------- -----------
Balance, June 30, 1994 1,102,698 870,930 27,825 418,983
----------- ----------- ----------- -----------
Net income 164,747 164,747
Dividends:
Preferred shares (3,063) (3,063)
Common shares (97,620) (97,620)
Treasury shares acquired (58,326)
Issued:
Employee stock purchase
plan 598 277
Long-term incentive plan 3,245 1,656
Other 3,929 2,192 (224)
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ 1,116,208 $ 870,930 $ 31,950 $ 482,823
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
------------------------------------- -----------
Currency
Twelve Months Ended Treasury Unearned Translation Common
(continued) Shares Compensation Adjustment Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, July 1, 1993 $ (160,821) $ (2,087) $ (2,036) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (54,457)
Issued:
Employee stock purchase
plan 278
Long-term incentive plan 3,210 (13)
Other 741 145
----------- ----------- ----------- -----------
Balance, June 30, 1994 (211,790) (1,359) (1,891) 73,892,109
----------- ----------- ----------- -----------
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (58,326)
Issued:
Employee stock purchase
plan 321
Long-term incentive plan 9,310 (7,721)
Other 1,551 410
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ (260,485) $ (7,529) $ (1,481) 73,892,109
=========== =========== =========== ===========
<PAGE>
<CAPTION>
Shares
-----------
Twelve Months Ended Treasury
(continued) Shares
======================== ===========
<S> <C>
Balance, July 1, 1993 (7,502,343)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (1,762,938)
Issued:
Employee stock purchase
plan 17,540
Long-term incentive plan 141,589
Other
-----------
Balance, June 30, 1994 (9,106,152)
-----------
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (1,915,914)
Issued:
Employee stock purchase
plan 20,193
Long-term incentive plan 374,300
Other
-----------
Balance, June 30, 1995 (10,627,573)
===========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1995 1994 1995 1994
=========== =========== =========== ===========
(Dollars in thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 26,948 $ 21,478 $ 87,279 $ 86,519
ADJUSTMENTS TO
RECONCILE NET INCOME
TO NET CASH:
Depreciation and
amortization 49,748 48,568 98,865 96,213
Deferred federal and
state operating
income taxes, net (4,897) (359) (21,954) (15,427)
Deferred investment
tax credits, net (1,868) (1,855) (3,736) (2,817)
Change in certain
assets and
liabilities* -
Accounts
receivable, net 52,847 73,763 21,893 37,017
Electric
production fuel 5,217 612 (1,371) (1,308)
Materials and
supplies (129) 260 (3,479) (102)
Natural gas in
storage (16,302) (28,028) 39,464 16,713
Accounts payable (31,170) (49,329) (43,921) (39,795)
Taxes accrued (40,946) (66,915) 29,969 (22,109)
Fuel adjustment
clause (2,553) 1,944 (1,306) (893)
Gas cost
adjustment
clause 13,805 22,849 61,123 61,340
Other accruals 7,770 (11,207) 25,415 (431)
Other, net (6,941) (5,877) 6,106 7,960
----------- ----------- ----------- -----------
Net cash
provided by
operating
activities 51,529 5,904 294,347 222,880
----------- ----------- ----------- -----------
CASH FLOWS PROVIDED BY
(USED IN) INVESTING
ACTIVITIES:
Utility construction
expenditures (46,545) (46,853) (96,484) (99,675)
Acquisition and
construction
expenditures
related to
Crossroads Pipeline
Company (718) (313) (932) (1,380)
Return of capital from
equity investments 0 8,000 0 8,000
Other, net (399) (7,175) (8,435) (6,980)
----------- ----------- ----------- -----------
Net cash used
in investing
activities (47,662) (46,341) (105,851) (100,035)
----------- ----------- ----------- -----------
CASH FLOWS PROVIDED BY
(USED IN) FINANCING
ACTIVITIES:
Issuance of
long-term debt 169,623 6,244 173,974 26,639
Issuance of
short-term debt 137,278 359,451 408,139 446,852
Net change in
commercial paper (70,000) 111,900 (163,000) 69,005
Retirement of
long-term debt (25,092) (185,503) (25,956) (190,545)
Retirement of
short-term debt (155,192) (225,500) (487,592) (372,901)
Retirement of
preferred stock (1,761) (1,159) (5,331) (1,159)
Issuance of common
shares 1,432 554 2,828 1,239
Acquisition of
treasury shares (21,791) (18,357) (32,239) (32,630)
Cash dividends paid
on common shares (24,876) (23,526) (50,022) (47,202)
Cash dividends paid
on preferred
shares (765) (765) (1,531) (1,531)
Other, net (210) 0 463 0
----------- ----------- ----------- -----------
Net cash
provided by
(used in)
financing
activities 8,646 23,339 (180,267) (102,233)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 12,513 (17,098) 8,229 20,612
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD 36,157 53,850 40,441 16,140
----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS AT END
OF PERIOD $ 48,670 $ 36,752 $ 48,670 $ 36,752
=========== =========== =========== ===========
<PAGE>
<CAPTION>
Twelve Months
Ended June 30,
------------------------
1995 1994
=========== ===========
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 164,747 $ 162,443
ADJUSTMENTS TO
RECONCILE NET INCOME
TO NET CASH:
Depreciation and
amortization 196,935 190,677
Deferred federal and
state operating
income taxes, net (18,015) 1,930
Deferred investment
tax credits, net (7,418) (6,563)
Change in certain
assets and
liabilities* -
Accounts
receivable, net 13,706 (9,751)
Electric
production fuel 3,123 20,302
Materials and
supplies (2,654) 3,441
Natural gas in
storage 7,827 (18,046)
Accounts payable (38,206) 3,231
Taxes accrued 33,174 (17,809)
Fuel adjustment
clause 4,413 (2,139)
Gas cost
adjustment
clause 9,470 39,197
Other accruals 24,758 (4,862)
Other, net 15,999 (9,876)
----------- -----------
Net cash
provided by
operating
activities 407,859 352,175
----------- -----------
CASH FLOWS PROVIDED BY
(USED IN) INVESTING
ACTIVITIES:
Utility construction
expenditures (197,395) (208,310)
Acquisition and
construction
expenditures
related to
Crossroads Pipeline
Company (1,511) (25,741)
Return of capital from
equity investments 0 40,435
Other, net (21,022) (19,721)
----------- -----------
Net cash used
in investing
activities (219,928) (213,337)
----------- -----------
CASH FLOWS PROVIDED BY
(USED IN) FINANCING
ACTIVITIES:
Issuance of
long-term debt 369,910 370,636
Issuance of
short-term debt 982,064 1,038,356
Net change in
commercial paper (100,800) 40,700
Retirement of
long-term debt (53,983) (344,774)
Retirement of
short-term debt (1,205,081) (1,084,406)
Retirement of
preferred stock (14,367) (1,895)
Issuance of common
shares 3,649 3,939
Acquisition of
treasury shares (58,326) (54,457)
Cash dividends paid
on common shares (96,398) (91,670)
Cash dividends paid
on preferred
shares (3,063) (3,063)
Other, net 382 (1,059)
----------- -----------
Net cash
provided by
(used in)
financing
activities (176,013) (127,693)
----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 11,918 11,145
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD 36,752 25,607
----------- -----------
CASH AND CASH
EQUIVALENTS AT END
OF PERIOD $ 48,670 $ 36,752
=========== ===========
<FN>
*Net of effects from purchase of Northern Indiana Fuel and Light Company, Inc.
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) HOLDING COMPANY STRUCTURE: NIPSCO Industries, Inc. (Industries) 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).
(2) 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 all non-utility subsidiaries are included in "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%, 4.0% and 4.1%, for the
three, six, and twelve month periods ended June 30, 1995, respectively, and
4.0% for the three, six, and twelve month periods ended June 30, 1994. 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
three, six, and twelve month periods ended June 30, 1995, and 3.4% for the
three, six, and twelve month periods ended June 30, 1994.
NIFL provides depreciation on the original cost of utility plant in
service using straight-line rates that averaged approximately 2.75% for the
three, six, and twelve month periods ended June 30, 1995, and June 30, 1994.
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 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 June 30, 1995, Northern Indiana had sold
$100 million of certain of its accounts receivable under a sales agreement
which expires May 31, 1997.
STATEMENT OF CASH FLOWS. For the purposes of the Consolidated Statement
of Cash Flows, Industries considers temporary cash investments with an
original maturity of three months or less to be cash equivalents.
Cash paid during the periods reported for income taxes and interest
was as follows:
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
------------------ ------------------ ------------------
1995 1994 1995 1994 1995 1994
======== ======== ======== ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income taxes $ 49,600 $ 73,641 $ 49,600 $ 76,076 $ 95,009 $115,149
Interest, net of
amounts
capitalized $ 25,023 $ 33,403 $ 40,932 $ 44,759 $ 78,911 $ 86,964
</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 Note 5, 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 June, 1995, and December, 1994, the estimated replacement cost of gas in
storage (current and non-current) at June 30, 1995, and December 31, 1994,
exceeded the stated LIFO cost by approximately $39 million and $38 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>
June 30, December 31,
1995 1994
============ =============
(Dollars in thousands)
<S> <C> <C>
Unamortized reacquisition premium on
debt (Note 17) $ 52,657 $ 54,265
Unamortized R.M. Schahfer Unit 17 and
Unit 18 carrying charges
and deferred depreciation (See below) 77,089 79,198
Bailly scrubber carrying charges and
deferred depreciation (See below) 9,801 7,864
Deferral of SFAS No. 106 expense not
recovered (Note 9) 51,191 43,939
FERC Order No. 636
transition costs (Note 5) 35,223 56,153
------------ -------------
225,961 241,419
------------ -------------
Less: Current portion of regulatory assets 28,541 45,970
------------ -------------
$ 197,420 $ 195,449
============ =============
</TABLE>
In March, 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement imposes stricter criteria for
retention of regulatory assets by requiring that such assets be probable of
future recovery at each balance sheet date. Northern Indiana anticipates
adopting this standard on January 1, 1996, and does not expect that adoption
will have a material impact on its financial position or results of operations
based on the current regulatory structure in which Northern Indiana operates.
CARRYING CHARGES AND DEFERRED DEPRECIATION. Upon completion of R. M.
Schahfer Units 17 and 18, Northern Indiana capitalized the carrying charges
and deferred depreciation in accordance with orders of the Commission until
the cost of each unit was allowed in rates. Such carrying charges and
deferred depreciation are being amortized over the remaining life of each
unit.
Northern Indiana began capitalizing carrying charges and deferring
depreciation and certain operating expenses relating to its scrubber service
agreement upon completion of the flue gas desulfurization plant in June, 1992,
at Northern Indiana's Bailly Generating Station in accordance with an order of
the Commission. Capitalization of carrying charges and deferral of
depreciation and certain operating expenses will continue until the earlier of
December 31, 1995, or the date a final order considering the costs in rates is
approved by the Commission.
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, 1993, a pretax rate of 3.7% for all construction was
being used; effective January 1, 1994, the rate increased to 5.0% and
effective January 1, 1995, the rate increased to 7.0%.
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.
(3) PENDING TAX MATTER: On August 1, 1991, the Internal Revenue Service
(IRS) issued a notice of deficiency for Northern Indiana's taxes for the years
1982 through 1985 ($3,785,250 per year plus interest) relating to interest
payments on $70 million of 17-1/4% Notes issued in 1981 by Northern Indiana's
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 $48 million of principal and interest at June 30, 1995.
Northern Indiana's management and general counsel believe Northern Indiana
will be successful in establishing that no tax withholding was required for
the period.
(4) ELM ENERGY AND RECYCLING (UK) LTD.: Development is a 95% shareholder in
Elm Energy and Recycling (UK) Ltd. (Elm), which owns and operates a tire-
fueled electric generating plant in Wolverhampton, England (the Project), that
began operating in late 1993. In 1992, Elm entered into a contract with TBV
Power Limited (TBV), a company jointly owned by affiliates of the Tarmac PLC
Group and Black & Veatch, for the design, construction and commissioning of
the Project. Pursuant to that contract and other agreements between Elm and
TBV, TBV committed to complete certain work and pass certain performance and
reliability tests for the Project no later than June 30, 1995, which would
have allowed the independent Project engineer to issue an Acceptance and
Completion Certificate by that date.
On July 3, 1995, the Project engineer notified TBV that an Acceptance
and Completion Certificate had not been issued as of June 30, 1995. Elm then
notified TBV that it was rejecting the Project in accordance with the terms of
the contract between it and TBV. As a result, on July 3, 1995 Barclays Bank,
as agent for the banks which had provided financing for the Project, issued a
notice of an event of default to Elm. On July 4, 1995, the Project engineer
notified TBV that, in accordance with the contract between Elm and TBV all
monies previously paid by Elm to TBV ( 29.6 million) were to be reimbursed by
TBV to Elm. The certificate issued by the Project engineer is currently being
adjudicated under a procedure provided in the construction contract.
Development believes that it and Elm have adequate remedies under the
construction contract such that rejection will not have a material effect on
Elm, Development or Industries. It is the intent of Elm and Development to
seek such additional remedies at law, in both the United States and the United
Kingdom, for further damages and/or sanctions against TBV and/or Tarmac PLC
Group and Black & Veatch. Development believes that these additional
remedies, in conjunction with Elm's rights under the construction contract,
will be sufficient to mitigate any losses which Elm and/or Development may
otherwise incur as a result of TBV's failure to complete the Project in
accordance with the contract.
(5) RATE MATTERS:
TAKE-OR-PAY PIPELINE GAS COSTS. The FERC has allowed certain interstate
pipeline suppliers to pass on to their customers a portion of costs for
contracted gas not purchased (take-or-pay), contract reformation and
associated interest charges through direct billing to their customers,
including the Utilities.
Northern Indiana records take-or-pay costs as they are billed by the
respective pipeline, and in an order dated September 28, 1988, the Commission
allowed Northern Indiana to recover these additional gas costs on a volumetric
basis from all customers, including transport customers. The Utilities have
recovered approximately $195.3 million of take-or-pay costs and interest from
their customers through June 30, 1995. As of June 30, 1995, an additional
$5.5 million was scheduled to be billed to the Utilities and recovered from
customers over a period of one to four years.
FERC ORDER NO. 636. On April 8, 1992, the FERC issued Order No. 636
which required interstate pipelines to restructure their services. Under the
Order, existing pipeline sales services have 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 allows them to meet the needs
of their customers. Customers of the pipelines, 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 for the collection of their respective transition costs. The Utilities
expect that the total transition costs from all suppliers will approximate
$139 million. However, the ultimate level of costs will depend on future
events, including the market price of natural gas. Approximately $73 million
of such costs have been recorded, a portion of which has been paid to the
pipeline suppliers, subject to refund. On November 2, 1994, the Commission
issued an order which approved the recovery of these FERC-allowed transition
costs on a volumetric basis from Northern Indiana's sales and transportation
customers (which is consistent with what the Commission authorized for the
recovery of take-or-pay pipeline gas costs). Certain industrial customers
appealed the November 2, 1994, order to the Indiana Court of Appeals. On May
25, 1995, the Court granted Northern Indiana's motion to dismiss the appeal
for want of subject matter jurisdiction. On June 23, 1995, the transportation
customers filed a petition for rehearing and reconsideration of the Court's
order. On July 27, 1995, the Court denied the transportation customers'
petition. Regulatory assets, in amounts corresponding to the costs recorded,
have been recorded to reflect the ultimate recovery of these costs.
(6) ENVIRONMENTAL MATTERS: Because of major investments made in modern
environmental control facilities and the use of low sulfur coal, all of
Northern Indiana's electric production facilities now comply with the sulfur
dioxide limitations contained in acid 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 sites 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
eleven 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 has placed the Elkhart site in the IDEM
Voluntary Remediation Program (VRP). The goal of placing the site in the VRP
will be to obtain IDEM approval of the determination and subsequent
implementation of what remedial measures, if any, may be needed.
Northern Indiana was notified by the 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 and Indiana Gas Company, Inc. (Indiana Gas) have each
notified the other about five former manufactured gas plants at which both
companies or their predecessors were former owners or operators. Northern
Indiana is discussing various matters with Indiana Gas, including past and
future steps to further investigate or remediate these sites and potential
cost allocation for this activity. One of these sites was the Lafayette site
which Indiana Gas had previously notified Northern Indiana was being
investigated and remediated pursuant to an administrative order with IDEM.
Northern Indiana also notified PSI Energy, Inc. that it was a former owner or
operator of seven former manufactured gas plants at which Northern Indiana had
conducted or was planning investigation or remediation activities.
The possibility that exposure to electric and magnetic fields emanating
from power lines, household appliances and other electric sources may result
in adverse health effects has been the subject of increased public,
governmental and media attention. A considerable amount of scientific
research has been conducted on this topic without definitive results.
Research is continuing to resolve scientific uncertainties.
(7) INCOME TAXES: Effective January 1, 1993, Industries adopted SFAS No.
109, "Accounting for Income Taxes," which requires the use of the liability
method of accounting for income taxes. Under the liability method, deferred
income taxes are recognized, at currently enacted income tax rates, to reflect
the tax effect of temporary differences between the financial statement and
tax bases of assets and liabilities.
To implement SFAS No. 109, certain adjustments were made to deferred
income taxes. To the extent such income taxes are recoverable or payable
through future rates, regulatory assets and liabilities have been recorded in
the Consolidated Balance Sheet. These adjustments include the amounts
reflecting the Utilities' obligation to credit to ratepayers deferred income
taxes provided at rates higher than the current federal tax rate which are
currently being credited to ratepayers using the average rate assumption
method required by the Tax Reform Act of 1986 and the Commission. The
Consolidated Balance Sheet at June 30, 1995, and December 31, 1994, reflects
a net regulatory income tax liability of $15.1 million and $18.6 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 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 June 30,
1995, and December 31, 1994, are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
============ ===========
(Dollars in thousands)
<S> <C> <C>
Deferred tax liabilities -
Accelerated depreciation
and other property differences $ 697,661 $ 691,319
AFUDC-equity 41,297 42,447
Adjustment clauses 0 10,596
Take-or-pay gas costs 1,727 2,045
Other regulatory assets 23,551 22,125
Reacquisition premium on debt 19,973 20,580
Deferred tax assets -
Deferred investment tax credits (45,287) (46,703)
Removal costs (111,521) (105,671)
Adjustment clauses (11,282) 0
FERC Order No. 636 transition costs (4,134) (5,461)
Other postretirement benefits (26,941) (22,712)
Regulatory income tax liability (5,725) (7,054)
Other, net (17,183) (20,231)
----------- -----------
562,136 581,280
Less: Deferred income taxes related to
current assets and liabilities (20,386) (586)
----------- -----------
Deferred income taxes - noncurrent $ 582,522 $ 581,866
=========== ===========
</TABLE>
Federal and state income taxes as set forth in the Consolidated
Statement of Income are comprised of the following:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1995 1994 1995 1994
========= ========= ========= =========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current income taxes -
Federal $ 22,197 $ 15,362 $ 71,575 $ 62,159
State 3,342 2,345 10,463 9,380
--------- --------- --------- ---------
25,539 17,707 82,038 71,539
--------- --------- --------- ---------
Deferred income taxes, net -
Federal and State -
Accelerated depreciation and
other property differences 2,012 3,278 4,024 6,555
Removal costs (2,851) (2,808) (5,702) (5,617)
Adjustment clauses (225) (6,130) (11,171) (21,461)
FERC Order No. 636
transition costs (2,828) 6,662 (8,275) 8,155
Take-or-pay gas costs (159) (364) (319) (1,470)
Reacquisition premium on debt (320) 1,327 (627) 1,069
Other (526) (2,324) 116 (2,658)
--------- --------- --------- ---------
(4,897) (359) (21,954) (15,427)
--------- --------- --------- ---------
Deferred investment tax credits,
net (1,868) (1,855) (3,736) (2,817)
--------- --------- --------- ---------
Total utility operating income
taxes 18,774 15,493 56,348 53,295
Income tax applicable to non-
operating activities and income
of non-utility subsidiaries (2,957) (1,500) (5,013) (3,177)
--------- --------- --------- ---------
Total income taxes $ 15,817 $ 13,993 $ 51,335 $ 50,118
========= ========= ========= =========
<CAPTION>
Twelve Months
Ended June 30,
--------------------
1995 1994
========= =========
(Dollars in thousands)
<S> <C> <C>
Current income taxes -
Federal $ 109,737 $ 90,832
State 16,481 13,563
--------- ---------
126,218 104,395
--------- ---------
Deferred income taxes, net -
Federal and State -
Accelerated depreciation and
other property differences 5,797 14,048
Removal costs (12,178) (8,527)
Adjustment clauses (6,735) (12,010)
FERC Order No. 636
transition costs (5,037) 8,155
Take-or-pay gas costs (1,038) (6,352)
Reacquisition premium on debt 1,091 4,415
Other 85 2,201
--------- ---------
(18,015) 1,930
--------- ---------
Deferred investment tax credits,
net (7,418) (6,563)
--------- ---------
Total utility operating income
taxes 100,785 99,762
Income tax applicable to non-
operating activities and income
of non-utility subsidiaries (18,169) (5,603)
--------- ---------
Total income taxes $ 82,616 $ 94,159
========= =========
</TABLE>
A reconciliation of total tax expense to an amount computed by applying
the statutory federal income tax rate to pretax income is as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1995 1994 1995 1994
========= ========= ========= =========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net Income $ 26,948 $ 21,478 $ 87,279 $ 86,519
Add-Income taxes 15,817 13,993 51,335 50,118
Dividend requirements on
preferred stocks of subsidiary 2,265 2,527 4,590 5,096
--------- --------- --------- ---------
Income before preferred dividend
requirements of subsidiary and
income taxes $ 45,030 $ 37,998 $ 143,204 $ 141,733
========= ========= ========= =========
Amount derived by multiplying
pretax income by the statutory
rate $ 15,760 $ 13,300 $ 50,121 $ 49,607
Reconciling items multiplied by
the statutory rate:
Book depreciation over related
tax depreciation 1,005 968 2,009 1,935
Amortization of deferred
investment tax credits (1,868) (1,855) (3,736) (3,783)
State income taxes, net of
federal income tax benefit 1,764 1,428 4,949 4,805
Fair market value of property
donated in excess of book
value 0 0 0 0
Reversal of deferred taxes
provided at rates in excess
of the current federal income
tax rate (1,359) (1,299) (2,719) (2,597)
Other, net 515 1,451 711 151
--------- --------- --------- ---------
Total income taxes $ 15,817 $ 13,993 $ 51,335 $ 50,118
========= ========= ========= =========
<CAPTION>
Twelve Months
Ended June 30,
--------------------
1995 1994
========= =========
(Dollars in thousands)
<S> (C> <C>
Net Income $ 164,747 $ 162,443
Add-Income taxes 82,616 94,159
Dividend requirements on
preferred stocks of subsidiary 9,407 10,247
--------- ---------
Income before preferred dividend
requirements of subsidiary and
income taxes $ 256,770 $ 266,849
========= =========
Amount derived by multiplying
pretax income by the statutory
rate $ 89,869 $ 93,397
Reconciling items multiplied by
the statutory rate:
Book depreciation over related
tax depreciation 4,118 3,870
Amortization of deferred
investment tax credits (7,419) (7,529)
State income taxes, net of
federal income tax benefit 8,979 8,741
Fair market value of property
donated in excess of book
value (7,753) 0
Reversal of deferred taxes
provided at rates in excess
of the current federal income
tax rate (5,929) (4,914)
Other, net 751 594
--------- ---------
Total income taxes $ 82,616 $ 94,159
========= =========
</TABLE>
(8) 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 January 1, 1995, and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
========= =========
(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 January 1,
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 January 1, 1995, and 1994, respectively. The decrease in the
accumulated benefit obligation as of January 1, 1995, 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 three and six month periods ended June 30, 1995:
<TABLE>
<CAPTION>
Three Six
Months Months
========= =========
(Dollars in thousands)
<S> <C> <C>
Service costs $ 3,298 $ 6,597
Interest costs 13,338 26,676
Estimated return on plan assets (12,864) (25,728)
Amortization of transition obligation 1,356 2,711
Other net amortization and deferral 659 1,318
--------- ---------
$ 5,787 $ 11,574
========= =========
</TABLE>
Assumptions used in the valuation and determination of 1995 and 1994
pension expenses were as follows:
<TABLE>
<CAPTION>
1995 1994
===== =====
<S> <C> <C>
Discount rate 8.75% 7.50%
Rate of increase in compensation levels 5.50% 5.50%
Expected long-term rate of return on assets 9.00% 8.25%
</TABLE>
The plans' assets are invested primarily in common stocks, bonds and
notes.
Industries recorded provisions for pension costs as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
========= =========
(Dollars in thousands)
<S> <C> <C>
Three months ended $ 5,787 $ 5,714
Six months ended $ 11,574 $ 11,428
Twelve months ended $ 21,380 $ 22,964
</TABLE>
(9) POSTRETIREMENT BENEFITS: Industries provides certain health care and
life insurance benefits for retired employees. Substantially all of
Industries' employees may become eligible for those benefits if they reach
retirement age while working for Industries. Those and similar benefits
for active employees are provided through insurance plans whose premiums are
based on the benefits to active employees and retirees paid during the year.
Prior to January 1, 1993, the Utilities recognized the cost of providing those
benefits by expensing insurance premiums, which is consistent with current
rate making practices.
Effective January 1, 1993, Industries adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which establishes
accounting and reporting standards for such postretirement benefits. This
standard requires the accrual of the expected cost of such benefits during the
employee's years of service.
The following table sets forth the plans' accumulated postretirement
benefit obligation as of January 1, 1995, and January 1, 1994.
<TABLE>
<CAPTION>
January 1, January 1,
1995 1994
========== ==========
(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 January 1,
being recognized over 20 years (208,681) (220,274)
Unrecognized actuarial gain (loss) 45,496 (20,737)
---------- ----------
Accrued liability for postretirement benefits $ 59,490 $ 29,355
========== ==========
</TABLE>
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
January 1, 1995, and 1994, 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 benefits costs for the three, six, and
twelve months ended June 30, 1995, and June 30, 1994, include the following
components:
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
---------------- ---------------- ----------------
1995 1994 1995 1994 1995 1994
======= ======= ======= ======= ======= =======
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service costs $ 1,526 $ 2,045 $ 3,052 $ 4,090 $ 7,234 $ 7,551
Interest costs 4,745 4,962 9,490 9,924 19,511 19,084
Amortization of
transition obligation
over 20 years 2,899 2,882 5,798 5,764 11,627 11,598
Amortization of
unrecognized
actuarial (gain) (541) 0 (1,082) 0 (1,082) 0
------- ------- ------- ------- ------- -------
$ 8,629 $ 9,889 $17,258 $19,778 $37,290 $38,233
======= ======= ======= ======= ======= =======
</TABLE>
The net periodic postretirement benefit costs for 1995 were determined
assuming an 8.75% discount rate, a 5% rate of compensation increase and a
pre-Medicare medical trend rate of 11% declining to a long-term rate of 7%.
The effect of a 1% increase in the assumed health care cost trend rates for
each future year would increase the accumulated postretirement benefit
obligation at January 1, 1995, by approximately $32.0 million and increase the
aggregate of the service and interest cost components of plan costs by
approximately $1.2 million and $2.4 million for the three and six month
periods ended June 30, 1995. 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.
(10) POSTEMPLOYMENT BENEFITS: Effective January 1, 1994, Industries adopted
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. Adoption
of SFAS No. 112 did not have a material impact on financial position or
results of operations.
(11) AUTHORIZED CLASSES OF CUMULATIVE PREFERRED AND PREFERENCE STOCKS:
Industries -
20,000,000 shares - Preferred - without par value
Effective March 2, 1990, 2,000,000 shares of Industries' Series A Junior
Participating Preferred Shares were reserved for issuance pursuant to the
Share Purchase Rights Plan described in Note 15, Common Shares.
Northern Indiana -
2,400,000 shares - Cumulative Preferred - $100 par value
3,000,000 shares - Cumulative Preferred - no par value
2,000,000 shares - Cumulative Preference - $50 par value (none
outstanding)
3,000,000 shares - Cumulative Preference - no par value (none
issued)
Note 12 sets forth the preferred stocks which are redeemable solely at
the option of the issuer, and Note 13 sets forth the preferred stocks which
are subject to mandatory redemption requirements or whose redemption is
outside the control of the issuer.
The Preferred shareholders of Industries and Northern Indiana have no
voting rights, except in the event of default on the payment of four
consecutive quarterly dividends, or as required by Indiana law to authorize
additional preferred shares, or by the Articles of Incorporation in the event
of certain merger transactions.
(12) PREFERRED STOCKS, REDEEMABLE SOLELY AT THE OPTION OF THE ISSUER,
OUTSTANDING AT JUNE 30, 1995, AND DECEMBER 31, 1994 (SEE NOTE 11):
<TABLE>
<CAPTION>
Redemption
Price at
June 30, December 31, June 30,
1995 1994 1995
======== =========== ==========
(Dollars in thousands)
<S> <C> <C> <C>
Northern Indiana Public Service Company
Cumulative preferred stock - $100 par
value -
4-1/4% series - 209,206 and
211,266 shares outstanding,
respectively $ 20,921 $ 21,127 $ 101.20
4-1/2% series - 79,996 shares
outstanding 8,000 8,000 100.00
4.22% series - 106,198 and
106,200 shares outstanding,
respectively 10,620 10,620 101.60
4.88% series - 100,000 shares
outstanding 10,000 10,000 102.00
7.44% series - 41,900 shares
outstanding 4,190 4,190 101.00
7.50% series - 34,842 shares
outstanding 3,484 3,484 101.00
Premium on preferred stock 254 254
Cumulative preferred stock -
no par value -
Adjustable rate (6.00% at June 30,
1995), Series A (stated value $50 per
share) - 501,285 and 574,285 shares
outstanding, respectively 25,064 28,714 50.00
-------- -----------
$ 82,533 $ 86,389
======== ===========
</TABLE>
During the period July 1, 1993, to June 30, 1995, there were no
issuances of the above preferred stocks.
The foregoing preferred stocks are redeemable in whole or in part at
any time upon 30 days notice at the option of Northern Indiana at the
redemption prices shown.
(13) REDEEMABLE PREFERRED STOCKS OUTSTANDING AT JUNE 30, 1995, AND
DECEMBER 31, 1994 (SEE NOTE 11):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
========== =============
(Dollars in thousands)
<S> <C> <C>
Preferred stocks subject to mandatory redemption
requirements or whose redemption is outside the
control of issuer:
NORTHERN INDIANA PUBLIC SERVICE COMPANY:
Cumulative preferred stock - $100 par value -
8.85% series - 87,500 and 100,000 shares
outstanding, respectively, excluding sinking
fund payments due within one year $ 8,750 $ 10,000
7-3/4% series - 55,568 shares outstanding,
excluding sinking fund payments due within
one year 5,557 5,557
8.35% series - 72,000 and 75,000 shares
outstanding, respectively, excluding sinking
fund payments due within one year 7,200 7,500
Cumulative preferred stock - no par value -
6.50% series - 430,000 shares outstanding 43,000 43,000
---------- -------------
64,507 66,057
---------- -------------
NIPSCO INDUSTRIES, INC.:
Cumulative preferred shares - without par
value - 8.75% series (stated value - $100
per share), 350,000 shares outstanding 35,000 35,000
---------- -------------
$ 99,507 $ 101,057
========== =============
</TABLE>
The redemption prices at June 30, 1995, as well as sinking fund
provisions for the cumulative preferred stock subject to mandatory redemption
requirements, or whose redemption is outside the control of Northern Indiana
and Industries are as follows:
<TABLE>
<CAPTION>
Sinking Fund or
Mandatory Redemption
Series Redemption Price Per Share Provisions
====== ========================== ==============================
<S> <C> <C>
NORTHERN INDIANA PUBLIC SERVICE COMPANY:
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; increasing to
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.
Cumulative preferred stock - no par value -
6.50% $100.00 on October 14, 2002 430,000 shares on October 14,
2002.
NIPSCO INDUSTRIES, INC.:
Cumulative preferred shares - without par
value - 8.75% $100.00 on January 14, 1996 350,000 shares on January 14,
1996.
</TABLE>
Sinking fund requirements with respect to redeemable preferred stocks
outstanding at June 30, 1995, for each of the twelve month periods subsequent
to June 30, 1996, are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended June 30:*
=================================
<S> <C>
1997 $ 1,827,700
1998 $ 1,827,700
1999 $ 1,827,700
2000 $ 1,827,700
<FN>
* Table does not reflect redemptions made after June 30, 1995.
</TABLE>
(14) COMMON SHARE DIVIDEND: During the next few years, Industries expects
that the great majority of earnings available for distribution of dividends
will depend upon dividends paid to Industries by Northern Indiana. Northern
Indiana's Indenture provides that it will not declare or pay any dividends on
any class of capital stock (other than preferred or preference stock) except
out of earned surplus or net profits of Northern Indiana. At June 30, 1995,
Northern Indiana had approximately $147.6 million of retained earnings (earned
surplus) available for the payment of dividends. Future dividends will depend
upon adequate retained earnings, adequate future earnings and the absence of
adverse developments.
(15) COMMON SHARES: Industries has 200,000,000 common shares authorized
without par value.
SHARE PURCHASE RIGHTS PLAN. On February 27, 1990, the Board of
Directors of Industries declared a dividend distribution of one Right for each
outstanding common share of Industries to shareholders of record on March 12,
1990. The Rights are not currently exercisable. Each Right, when
exercisable, would initially entitle the holder to purchase from Industries
one one-hundredth of a share of Series A Junior Participating Preferred
Shares, without par value, of Industries at a price of $60 per one
one-hundredth of a share. In certain circumstances, if an acquirer obtained
25% of Industries' outstanding shares, or merged into Industries or Industries
into the acquirer, the Rights would entitle the holders to purchase
Industries' or the acquirer's common shares for one-half of the market price.
The Rights will not dilute Industries' common shares nor affect earnings per
share unless they become exercisable for common shares. The Plan was not
adopted in response to any specific attempt to acquire control of Industries.
COMMON SHARE REPURCHASES. The Board of Directors of Industries has
authorized the repurchase of approximately 17.5 million common shares which
includes those required in connection with the acquisitions of Kokomo Gas
and NIFL. At June 30, 1995, Industries had purchased approximately 14.9
million shares at an average price of $23.39 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 2.6 million additional
common shares may be repurchased under the Board's authorization.
(16) LONG-TERM INCENTIVE PLAN: Industries' Long-Term Incentive Plan
(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 June 30, 1995,
there were 255,961 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 award have been 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 June 30, 1995.
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. Restrictions on shares awarded in 1995 vest five years from date
of grant and will vest subject to specific earnings per share and stock
appreciation goals. If a participant's employment is terminated other than by
reason of death, disability or retirement, restricted shares are forfeited.
There were 400,500 and 150,500 restricted shares outstanding at June 30, 1995,
and December 31, 1994, respectively.
Changes in outstanding shares under option and SARs for the three,
six, and twelve month periods ended June 30, 1995, and 1994, are as follows:
<TABLE>
<CAPTION>
NONQUALIFIED STOCK OPTIONS
----------------------------------------------------
Three Months Ended Option Option
June 30, 1995 Price 1994 Price
================== ======================== ==========================
<S> <C> <C>
Balance beginning
of period 1,059,700 $10.94-$33.19 864,250 $10.94-$33.19
Granted 0 0
Exercised (63,300) $10.94-$33.19 (21,550) $17.06-$26.06
Canceled 0 (10,000) $33.19
--------- ---------
Balance end of
period 996,400 $10.94-$33.19 832,700 $10.94-$33.19
========= =========
Shares exercisable 702,600 $10.94-$33.19 562,500 $10.94-$26.06
<CAPTION>
NONQUALIFIED STOCK OPTIONS
----------------------------------------------------
Six Months Ended Option Option
June 30, 1995 Price 1994 Price
================== ======================== ==========================
<S> <C> <C>
Balance beginning
of period 1,097,550 $10.94-$33.19 890,800 $10.94-$33.19
Granted 5,000 $30.31 0
Exercised (103,550) $10.94-$33.19 (39,800) $10.94-$26.06
Canceled (2,600) $28.75-$33.19 (18,300) $33.19
--------- ---------
Balance end of
period 996,400 $10.94-$33.19 832,700 $10.94-$33.19
========= =========
Shares exercisable 702,600 $10.94-$33.19 562,500 $10.94-$26.06
<CAPTION>
NONQUALIFIED STOCK OPTIONS
---------------------------------------------------
Twelve Months Ended Option Option
June 30, 1995 Price 1994 Price
================== ======================== =========================
<S> <C> <C>
Balance beginning
of period 832,700 $10.94-$33.19 706,050 $10.94-$26.06
Granted 299,650 $28.75-$30.31 288,500 $33.19
Exercised (125,600) $10.94-$33.19 (143,550) $10.94-$26.06
Canceled (10,350) $28.75-$33.19 (18,300) $33.19
--------- ---------
Balance end of
period 996,400 $10.94-$33.19 832,700 $10.94-$33.19
========= =========
Shares exercisable 702,600 $10.94-$33.19 562,500 $10.94-$26.06
<CAPTION>
NONQUALIFIED STOCK OPTIONS
WITH SARs
----------------------------------------------------
Three Months Ended Option Option
June 30, 1995 Price 1994 Price
================== ======================== =========================
<S> <C> <C>
Balance beginning
of period 9,900 $10.94 9,900 $10.94
Granted 0 0
Exercised (4,300) $10.94 0
Canceled 0 0
--------- --------
Balance end of
period 5,600 $10.94 9,900 $10.94
========= ========
Shares exercisable 5,600 $10.94 9,900 $10.94
<CAPTION>
NONQUALIFIED STOCK OPTIONS
WITH SARs
----------------------------------------------------
Six Months Ended Option Option
June 30, 1995 Price 1994 Price
================== ======================== =========================
<S> <C> <C>
Balance beginning
of period 9,900 $10.94 9,900 $10.94
Granted 0 0
Exercised (4,300) $10.94 0
Canceled 0 0
--------- --------
Balance end of
period 5,600 $10.94 9,900 $10.94
========= ========
Shares exercisable 5,600 $10.94 9,900 $10.94
<CAPTION>
NONQUALIFIED STOCK OPTIONS
WITH SARs
----------------------------------------------------
Twelve Months Ended Option Option
June 30, 1995 Price 1994 Price
================== ======================== =========================
<S> <C> <C>
Balance beginning
of period 9,900 $10.94 9,900 $10.94
Granted 0 0
Exercised (4,300) $10.94 0
Canceled 0 0
--------- --------
Balance end of
period 5,600 $10.94 9,900 $10.94
========= ========
Shares exercisable 5,600 $10.94 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 June 30,
1995, 27,750 shares were issued under the Plan.
(17) LONG-TERM DEBT: At June 30, 1995, and December 31, 1994, Industries'
long-term debt, excluding amounts due within one year, issued and not retired
or canceled was as follows:
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
-----------------------------
June 30, December 31,
1995 1994
============= ============
(Dollars in thousands)
<S> <C> <C>
NORTHERN INDIANA PUBLIC SERVICE COMPANY
First mortgage bonds -
Series O, 6-3/8%, due September 1, 1997 $ 25,747 $ 25,747
Series P, 6-7/8%, due October 1, 1998 14,509 14,509
Series T, 7-1/2%, due April 1, 2002 40,543 40,543
Series U, 8-1/8%, due July 15, 2003 55,239 55,239
Series Z, 8-1/8%, due August 15, 2007 39,559 39,569
Series NN, 7.10%, due July 1, 2017 55,000 55,000
----------- -----------
Total 230,597 230,607
----------- -----------
Pollution control notes and bonds -
Series A Note -
City of Michigan City, 5.70% due
October 1, 2003 20,750 20,750
Series 1988 Bonds - Jasper County -
Series A, B and C 3.91% weighted
average at June 30, 1995, due
November 1, 2016 130,000 130,000
Series 1988 Bonds - Jasper County -
Series D 3.95% weighted average at
June 30, 1995, due November 1, 2007 24,000 24,000
Series 1994 Bonds - Jasper County -
Series A - 4.20% weighted average at
June 30, 1995, due August 1, 2010 10,000 10,000
Series 1994 Bonds - Jasper County -
Series B - 4.20% weighted average at
June 30, 1995, due June 1, 2013 18,000 18,000
Series 1994 Bonds - Jasper County -
Series C - 4.20% weighted average at
June 30, 1995, due April 1, 2019 41,000 41,000
----------- -----------
Total 243,750 243,750
----------- -----------
Medium-term notes -
Issued at interest rates between 5.83%
and 7.64% with a weighted average interest
rate of 6.81% and various maturities between
July 25, 1996 and January 19, 2024 764,025 594,750
----------- -----------
Unamortized premium and discount
on long-term debt, net (4,433) (3,756)
----------- -----------
Total long-term debt of
Northern Indiana Public
Service Company 1,233,939 1,065,351
----------- -----------
NIPSCO CAPITAL MARKETS, INC.
Medium-term note - 9.95% - due June 10, 1996 0 7,500
Unamortized discount (6) (9)
Zero coupon notes - 7.57%, $72,500 at
maturity, due December 1, 1997 60,584 58,373
----------- -----------
Total long-term debt of
NIPSCO Capital Markets, Inc. 60,578 65,864
----------- -----------
NIPSCO DEVELOPMENT COMPANY, INC.
LAKE ERIE LAND COMPANY - NOTES PAYABLE -
Interest rates between 8.00% and 9.50%
with a weighted average interest rate
of 9.37% and various maturities between
November 30, 1996 and June 30, 1998 3,221 3,155
ELM ENERGY AND RECYCLING (UK), LTD.
Term Loan Facility - 6.79% - due
December 31, 2004 35,202 34,606
METALS TECHNOLOGY CORPORATION -
Notes Payable -
Mortgage note, 9.50% -
due September 25, 2005 98 98
NDC DOUGLAS PROPERTIES, INC.
Notes Payable -
Interest rates of 6.72% and 7.94% with
a weighted average interest rate of 7.57%
and maturities through January 1, 2005 10,462 11,264
----------- -----------
Total long-term debt of
NIPSCO Development Company,Inc. 48,983 49,123
----------- -----------
Total long-term debt, excluding
amounts due in one year $ 1,343,500 $ 1,180,338
=========== ===========
</TABLE>
The sinking fund requirements of long-term debt outstanding at
June 30, 1995, (including the maturity of Northern Indiana's first mortgage
bonds: Series O, 6-3/8%, due September 1, 1997; and Series P, 6-7/8%, due
October 1, 1998; Northern Indiana's medium-term notes due from April 6, 1998
to June 1,2000; Capital Markets' medium-term note due June 10, 1996, and Zero
Coupon Notes due December 1, 1997; Lake Erie Land Company's notes payable
due November 30, 1996 to June 30, 1998; and NDC Douglas Properties, Inc. notes
payable due December 22, 1999), for each of the twelve month periods
subsequent to June 30, 1996, are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended June 30,
==================================
<S> <C>
1997 $ 97,996,276
1998 $ 182,051,889
1999 $ 22,866,624
2000 $ 163,761,162
</TABLE>
Unamortized debt expense, premium and discount on long-term debt,
applicable to outstanding bonds are being amortized over the lives of such
bonds. Reacquisition premiums are being deferred and amortized.
Northern Indiana's Indenture dated August 1, 1939, as amended and
supplemented, securing the first mortgage bonds issued by Northern Indiana,
constitutes a direct first mortgage lien upon substantially all property and
franchises, other than expressly excepted property, owned by Northern Indiana.
On 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. During 1994, $120.00 million of the Medium-Term Notes,
Series D, were issued to complete the permanent refinancing of those first
mortgage bonds. As of June 30, 1995, the remaining $169,275,000 of
Medium-Term Notes, Series D, were issued and part of the proceeds were used
to redeem all of the outstanding First Mortgage Bonds, Series U and Z
aggregating $94.8 million on July 3, 1995.
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 Notes, 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 $345.0 million at June 30, 1995.
(18) 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 June 30, 1995, 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, 1996. 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 June 30, 1995,
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 June 30, 1995, there were no borrowings outstanding under these
lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
June 30, 1995, there were no borrowings outstanding under this facility.
Northern Indiana uses commercial paper to fund short-term working
capital requirements. As of June 30, 1995, Northern Indiana had no commercial
paper outstanding.
Capital Markets has a $150 million revolving Credit Agreement which
will terminate 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 June 30, 1995, there
were no borrowings outstanding under this agreement.
Capital Markets also has $105 million of money market lines of credit.
As of June 30, 1995, $31.9 million of borrowings were outstanding under these
lines of credit.
As of June 30, 1995, Capital Markets had $43.1 million in commercial
paper outstanding, having a weighted average interest rate of 6.25%.
(19) OPERATING LEASES: On April 1, 1990, Northern Indiana entered into a
20-year agreement for the rental of office facilities from Development at a
current annual rental payment of approximately $3.2 million.
The following is a schedule, by years, of future minimum rental
payments, excluding those to associated companies, required under operating
leases that have initial or remaining noncancelable lease terms in excess of
one year as of June 30, 1995:
<TABLE>
<CAPTION>
Twelve Months Ended June 30,
=============================
(Dollars in thousands)
<S> <C>
1996 $ 7,082
1997 7,341
1998 7,143
1999 5,898
2000 5,644
Later years 79,623
--------
Total minimum
payments required $112,731
========
</TABLE>
The consolidated financial statements include rental expense for all
operating leases as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
========== ==========
(Dollars in thousands)
<S> <C> <C>
Three months ended $ 2,159 $ 2,367
Six months ended $ 3,987 $ 4,224
Twelve months ended $ 7,653 $ 7,995
</TABLE>
(20) 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 approximating $20 million. The agreement provides that,
assuming various performance standards are met by Pure Air, a termination
payment would be due if Northern Indiana terminates the agreement prior to the
end of the 20-year contract period.
Harbor Coal Company (Harbor Coal), a wholly-owned subsidiary of
Development, has invested in a partnership to finance, construct, own and
operate a $65 million pulverized coal injection facility which began
commercial operation in August, 1993. The facility receives raw coal,
pulverizes it and delivers it to Inland Steel Company 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), a wholly-owned subsidiary
of Industries, has entered into a lease for the use of a 75 megawatt energy
facility to be located at Inland Steel Company. The facility will use steam
generated by Inland Steel to produce electricity which will be purchased by
Inland Steel. The facility is expected to begin operations in late summer of
1996. Industries has guaranteed North Lake's obligations relative to the
lease and certain obligations to Inland Steel relative to the project.
(21) FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amount approximates fair
value because of the short maturity of those instruments.
Investments: The fair value of 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 of 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>
June 30, 1995 December 31, 1994
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
=========== =========== =========== ===========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash and
cash equivalents $ 48,670 $ 48,670 $ 40,441 $ 40,441
Investments $ 31,675 $ 34,142 $ 23,683 $ 24,612
Long-term debt
(including current
portion) $ 1,356,964 $ 1,331,890 $ 1,207,936 $ 1,102,019
Preferred stock $ 183,568 $ 162,784 $ 189,274 $ 156,591
</TABLE>
The majority of the long-term debt relates to utility operations.
The Utilities are subject to regulation and gains or losses may be included
in rates over a prescribed amortization period, if in fact settled at amounts
approximating those above.
(22) CUSTOMER CONCENTRATIONS: Northern Indiana is a public utility
operating company supplying natural gas and electrical energy in the northern
third of Indiana. Although Northern Indiana has a diversified base of
residential and commercial customers, a substantial portion of its electric
and gas industrial deliveries are dependent upon the basic steel industry. The
basic steel industry accounted for 4% of gas revenue (including transportation
services) and 24% of electric revenue for the twelve months ended June 30,
1995, as compared to 2% and 25%, respectively, for the twelve months ended
June 30, 1994.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
HOLDING COMPANY -
NIPSCO Industries, Inc. (Industries), an Indiana corporation, became a
holding company on March 3, 1988. Northern Indiana Public Service Company
(Northern Indiana), Northern Indiana Fuel and Light Company, Inc. (NIFL),
Kokomo Gas and Fuel Company (Kokomo Gas), NIPSCO Development Company, Inc.,
(Development), NIPSCO Energy Services, Inc. (Services), and NIPSCO Capital
Markets, Inc. (Capital Markets) are subsidiaries of Industries. NIPSCO Fuel
Company, Inc. (Fuel), NI-TEX Inc. (NI-TEX), NIPSCO Energy Trading Corp.
(NETCO) and Crossroads Pipeline Company (Crossroads) are direct subsidiaries
of Services. The following discussion, except where noted, is attributable to
the utility operations of Northern Indiana, Kokomo Gas, NIFL and Crossroads
(the Utilities).
REVENUES -
Total operating revenues for the twelve months ended June 30, 1995,
decreased $75.2 million as compared to the twelve months ended June 30, 1994.
Gas revenues decreased $69.6 million and electric revenues decreased $5.6
million.
The decrease in gas revenues was largely attributable to decreased
sales to residential and commercial customers due to milder weather, and
decreased purchased gas cost per dekatherm (dth), and was partially offset by
increased deliveries of gas transported to others. Gas transportation
customers purchase much of their gas directly from producers and marketers and
then pay a transportation fee to have their gas delivered over the Utilities'
systems. The Utilities had approximately 695,700 gas customers at June 30,
1995.
The decrease in electric revenues for the twelve months ended June 30,
1995, was mainly due to decreased sales to residential customers as a result
of milder weather, decreased fuel cost per kilowatt-hour (kwh), transitional
rate adjustments to industrial customers signing new five year contracts, and
was partially offset by increased sales to industrial and wholesale customers.
Total operating revenue for the six months ended June 30, 1995
decreased $30.6 million as compared to the six months ended June 30, 1994.
Gas revenues decreased $21.8 million and electric revenues decreased $8.8
million as compared to the same period in 1994. The decrease in gas revenues
was mainly due to decreased sales to residential and commercial customers as a
result of warmer weather during the first quarter of 1995. The decrease in
electric revenue for the six months ended June 30, 1995, was mainly due to
decreased fuel costs per kwh and to transitional rate adjustments to
industrial customers, and was partially offset by increased sales to
commercial and wholesale customers.
Total operating revenue for the three months ended June 30, 1995
increased $12.5 million as compared to the three months ended June 30, 1994.
Gas revenues increased $11.9 million and electric revenues increased $0.6
million as compared to the same period in 1994. The increase in gas revenues
was mainly due to increased sales to residential and commercial customers and
increased revenues per dth of gas transported to others. The increase in
electric revenue for the three months ended June 30, 1995, was mainly due to
increased sales to commercial and wholesale customers, partially offset by
decreased sales to residential customers and transitional rate adjustments to
industrial customers.
The basic steel industry accounted for 36% of natural gas delivered
(including volumes transported) and 39% of electric sales during the twelve
months ended June 30, 1995.
The components of the variations in gas and electric revenues are
shown in the following tables:
<TABLE>
<CAPTION>
Variations from Prior Periods
------------------------------------
June 30, 1995
Compared to
June 30, 1994
Three Six Twelve
Months Months Months
========== ========== ==========
(Dollars in thousands)
<S> <C> <C> <C>
Gas Revenue -
Pass through of net changes
in purchased gas costs, gas
storage and storage
transportation costs $ (9,037) $ (35,398) $ (57,462)
Take-or-pay costs and transition
costs 14,024 34,345 50,340
Changes in sales levels 6,835 (21,260) (64,777)
Gas transport levels 96 561 2,277
---------- ---------- ----------
Gas Revenue Change $ 11,918 $ (21,752) $ (69,622)
---------- ---------- ----------
Electric Revenue -
Pass through of net changes
in fuel $ (5,969) $ (14,224) $ (18,540)
Changes in sales levels 6,504 5,376 12,973
---------- ---------- ----------
Electric Revenue Change $ 535 $ (8,848) $ (5,567)
---------- ---------- ----------
Total Revenue Change $ 12,453 $ (30,600) $ (75,189)
========== ========== ==========
<FN>
See Note 5 to the consolidated financial statements (Rate Matters),
regarding gas take-or-pay and FERC Order No. 636 transition costs.
</TABLE>
GAS COSTS -
The Utilities' gas costs decreased $49.7 million for the twelve
month period ended June 30, 1995, due to decreased purchases due to lower
sales and lower gas costs per dth. The average cost for the Utilities
purchased gas for the three, six, and twelve month periods ended June 30,
1995, after adjustment for take-or-pay and transition charges billed to
transport customers, was $2.76, $2.87 and $2.85 per dth, respectively, as
compared to $2.94, $3.04 and $3.12 per dth for the same periods in 1994.
FUEL AND PURCHASED POWER -
The cost of fuel for electric generation decreased for the three, six,
and twelve month periods ended June 30, 1995, compared to 1994 periods, mainly
as a result of lower cost for coal.
Power purchased increased $1.4, $3.3 and $6.4 million for the three,
six, and twelve month periods ended June 30, 1995, respectively, as a result
of increased bulk power purchases with other utilities due to increased sales.
OPERATING MARGINS -
Operating margins decreased $15.5 million for the twelve months ended
June 30, 1995, from the same period a year ago. The operating margin from gas
deliveries decreased $20.0 million, due to decreased sales to residential and
commercial customers as a result of milder weather and decreased sales to
industrial customers which were partially offset by increased deliveries of
gas transported to others, compared to the twelve month period ended June 30,
1994. The operating margins from electric sales increased $4.5 million, due
to increased sales to commercial and industrial customers, partially offset by
decreased sales to residential customers due to milder weather.
Operating margins decreased $3.6 million for the six months ended
June 30, 1995, from the same period a year ago. Gas operating margin
decreased $4.6 million due to decreased sales to residential and commercial
customers due to warmer weather during the first quarter of 1995. Operating
margins on electric sales increased $1.0 million due to increased sales to
commercial customers, partially offset by transitional rate adjustments to
industrial customers.
Operating margins increased $6.0 million for the three months ended
June 30, 1995, over the same period a year ago. The operating margins from
gas increased $3.1 million due to increased sales to residential and
commercial customers as a result of colder weather, and increased deliveries
to industrial customers. Operating margins on electric sales increased $2.9
million reflecting increased sales to commercial customers, partially offset
by transitional rate adjustments to industrial customers.
OPERATING EXPENSES AND TAXES -
Operation expenses decreased $1.9, $7.6, and $11.9 million for the
three, six, and twelve month periods ended June 30, 1995, respectively.
Operation expenses decreased for the twelve month period mainly due to
decreased employee related costs.
Maintenance expenses decreased $2.2, $1.1 and $3.4 million for the
three, six, and twelve month periods ended June 30, 1995, respectively, mainly
reflecting decreased maintenance activity at the electric production
facilities.
Depreciation and amortization expense increased for the three, six,
and twelve month periods ended June 30, 1995, as a result of net plant
additions.
Utility income taxes increased for the three and six month periods
ended June 30, 1995, as a result of higher pre-tax income.
The after tax effects of the Northern Indiana land donation to the
Shafer and Freeman Lakes Environmental Conservation Corporation are included
in "Other Income (Deductions)" for the twelve month period ended June 30,
1995. The operating results of all non-utility subsidiaries are included in
"Other Income (Deductions)."
Interest charges (net) decreased for the twelve month period ended
June 30, 1995, reflecting Northern Indiana's continued refinancing to reduce
interest rates on long-term debt outstanding and deferred carrying charges on
FERC Order No. 636 transition costs.
See Note 2 to Notes to Consolidated Financial Statements (Summary of
Significant Accounting Policies) for a discussion of Carrying Charges and
Deferred Depreciation and Allowance for Funds Used During Construction. Also,
see Notes 5, 7, 9, and 10 for a discussion of FERC Order No. 636, Income
Taxes, Postretirement Benefits, and Postemployment Benefits, respectively.
NET INCOME-
Industries' net income for the twelve month period ended June 30,
1995, was $164.7 million compared to $162.4 million for the twelve month
period ended June 30, 1994.
Net income for the six months ended June 30, 1995, was $87.3 million
compared to $86.5 million for the six months ended June 30, 1994.
Net income for the three months ended June 30, 1995, was $26.9 million
compared to $21.5 million for the three months ended June 30, 1994.
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 the 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 sites
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
eleven 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 has placed the Elkhart site in the IDEM
Voluntary Remediation Program (VRP). The goal of placing the site in the VRP
will be to obtain IDEM approval of the determination and subsequent
implementation of what remedial measures, if any, may be needed.
Northern Indiana was notified by the 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 and Indiana Gas Company, Inc. (Indiana Gas) have each
notified the other about five former manufactured gas plants at which both
companies or their predecessors were former owners or operators. Northern
Indiana is discussing various matters with Indiana Gas, including past and
future steps to further investigate or remediate these sites and potential
cost allocation for this activity. One of these sites was the Lafayette site
which Indiana Gas had previously notified Northern Indiana was being
investigated and remediated pursuant to an administrative order with IDEM.
Northern Indiana also notified PSI Energy, Inc. that it was a former owner or
operator of seven former manufactured gas plants at which Northern Indiana had
conducted or was planning investigation or remediation activities.
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 Note 14 to Notes to Consolidated
Financial Statements for a discussion of the Common Share Dividend.
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. During 1994, $120.0 million of the Medium-Term Notes,
Series D, were issued to complete the permanent refinancing of those first
mortgage bonds. As of June 30, 1995, the remaining $169,275,000 of
Medium-Term Notes, Series D, were issued and part of the proceeds were used
to redeem all of the outstanding First Mortgage Bonds, Series U and Z
aggregating $94.8 million on July 3, 1995.
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 Notes, 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 at the holding company level and
also serves as the back-up instrument for a commercial paper program. As of
June 30, 1995, there were no borrowings outstanding under this agreement.
Capital Markets also has $105 million of money market lines of credit.
As of June 30, 1995, $31.9 million of borrowings were outstanding under these
lines of credit.
As of June 30, 1995, Capital Markets had $43.1 million in commercial
paper outstanding, having a weighted average interest rate of 6.25%.
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 $345.0
million at June 30, 1995.
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 June 30,
1995, Northern Indiana had no commercial paper outstanding.
Northern Indiana has a $250 million revolving Credit Agreement with
several banks which terminates August 19, 1997, unless extended by its terms.
As of June 30, 1995, 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, 1996. 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 June 30, 1995, 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 June 30, 1995, there were no borrowings outstanding under these
lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
June 30, 1995, there were no borrowings outstanding under this facility.
During recent years, Northern Indiana has been able to finance its
construction program with internally generated funds and expects to be able to
meet future commitments through such funds.
The Utilities do not expect the effects of inflation at current levels
to have a significant impact on their results of operations, ability to
contain cost increases or need to seek timely and adequate rate relief. The
Utilities do not anticipate the need to file for gas or electric base rate
increases in the near future.
COMPETITION
The Energy Policy Act of 1992 (Energy Act) allows FERC to order
electric utilities to grant access to transmission systems by third party
power producers. The Energy Act specifically prohibits federally mandated
wheeling of power for retail customers. That authority lies with the
individual states, several of which are considering opening the transmission
network to retail customers. The Energy Act will stimulate greater competition
in the wholesale electric markets. This competition will create opportunities
to compete for new customers and revenues, as well as increase the risk of the
loss of customers. Although wholesale customers represent a relatively small
portion of Northern Indiana's sales (4% 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.
Industries's management has taken steps to make the company more
competitive and profitable in the changing utility environment, including
partnering on energy projects with major industrial customers and conversions
of some of its generating units to allow use of lower cost low-sulfur coal.
FERC Order No. 636 effective in late 1993 shifted primary
responsibility for gas acquisition, transportation and peak days' supply from
pipelines to local gas distribution companies, such as the Utilities. Although
pipelines continue to transport gas, they no longer provide sale service. The
Utilities believe they have taken appropriate steps to insure the continued
acquisition of adequate gas supplies at reasonable prices.
The mix of gas revenues from retail sales, interruptible retail sales,
firm transportation service, and interruptible transportation services, has
changed significantly over the past several years. The deregulation of the gas
industry, since the mid-1980's, allows large industrial and commercial
customers to purchase their gas supplies directly from producers and use the
Utilities' facilities to transport the gas. Transportation customers pay the
Utilities only for transporting their gas from the pipeline to the customers'
premises.
To date, the Utilities' system has not been materially affected by
competition, and management does not foresee substantial adverse effect in the
near future, unless the current regulatory structure is substantially altered.
Northern Indiana believes the steps it is taking to deal with increased
competition will have significant, positive effects in the next few years.
<PAGE>
Item 1. LEGAL PROCEEDINGS.
Industries and Northern Indiana are parties to various legal or
administrative proceedings before courts and agencies with respect to matters
occurring in the ordinary course of business. Although management of
Industries cannot predict the ultimate outcome of these matters,it believes
the final disposition of these matters will not have a material adverse effect
on the financial position or results of operations of Industries.
Information regarding various matters involving federal and state
environmental laws and regulations and a pending tax matter is included in
Notes 6 and 3, respectively, of Industries' financial statements under Part I,
Item 1 of this Report on Form 10-Q.
Item 2. CHANGES IN SECURITIES.
None
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
Item 5. OTHER INFORMATION.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 23-Consent of Arthur Andersen LLP
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NIPSCO Industries, Inc.
(Registrant)
Jerry M. Springer,
Controller
and Chief Accounting Officer
Date August 11, 1995
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-Q into 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
August 11, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of NIPSCO Industries, Inc. for the three months ended
June 30, 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
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