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, 1996
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, 1996, 61,124,419 common shares were outstanding.
<PAGE>
NIPSCO INDUSTRIES, INC.
Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
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,
1996, and December 31, 1995, and the related consolidated statements of
income, common shareholders' equity and cash flows for the three, six, and
twelve month periods ended June 30, 1996 and 1995. 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, 1996, and
December 31, 1995, and the results of their operations and their cash flows
for the three, six, and twelve month periods ended June 30, 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Chicago, Illinois
July 26, 1996
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
June 30, December 31,
ASSETS 1996 1995
============ ============
(Dollars in thousands)
<S> <C> <C>
UTILITY PLANT, AT ORIGINAL COST (INCLUDING
CONSTRUCTION WORK IN PROGRESS OF
$139,763 AND $145,129, RESPECTIVELY)
(Note 2):
Electric $ 3,980,907 $ 3,935,103
Gas 1,318,802 1,301,687
Common 351,104 350,168
------------ ------------
5,650,813 5,586,958
Less - Accumulated provision for
depreciation and amortization 2,469,449 2,373,694
------------ ------------
Total Utility Plant 3,181,364 3,213,264
------------ ------------
OTHER PROPERTY AND INVESTMENTS:
Other property, at cost, less accumulated
provision for depreciation 140,026 136,006
Investments, at equity (Note 2) 51,890 47,565
Investments, at cost 25,071 22,899
Other investments 18,459 17,315
------------ ------------
Total Other Property and Investments 235,446 223,785
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents 31,260 28,496
Accounts receivable, less reserve of
$7,189 and $7,264,respectively (Note 2) 79,833 108,998
Fuel adjustment clause (Note 2) 11,623 10,301
Gas cost adjustment clause (Note 2) 48,946 1,423
Materials and supplies, at average cost 61,966 65,044
Electric production fuel, at average cost 30,897 14,258
Natural gas in storage, at last-in,
first-out cost (Note 2) 29,530 60,884
Prepayments and other 67,998 27,177
------------ ------------
Total Current Assets 362,053 316,581
------------ ------------
OTHER ASSETS:
Regulatory assets (Note 2) 212,933 212,491
Deferred charges and other noncurrent
assets 63,707 33,399
------------ ------------
Total Other Assets 276,640 245,890
------------ ------------
$ 4,055,503 $ 3,999,520
============ ============
<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 1996 1995
============ ============
(Dollars in thousands)
<S> <C> <C>
CAPITALIZATION:
Common shareholders' equity
(See accompanying statement) $ 1,116,228 $ 1,122,215
Cumulative preferred stocks (Note 10) -
Northern Indiana Public Service Company:
Series without mandatory redemption
provisions (Note 11) 81,129 81,325
Series with mandatory redemption
provisions (Note 12) 62,401 63,651
NIPSCO Industries Inc.:
Series with mandatory redemption
provisions (Note 12) 0 35,000
Long-term debt excluding amounts due
within one year (Note 16) 1,254,936 1,175,728
------------ ------------
Total Capitalization 2,514,694 2,477,919
------------ ------------
CURRENT LIABILITIES:
Current portion of long-term debt (Note 17) 90,584 96,855
Short-term borrowings (Note 18) 265,917 260,671
Accounts payable 156,379 151,691
Sinking funds due within one year
(Notes 12 and 16) 2,621 2,621
Dividends declared on common and
preferred stocks 26,976 28,179
Customer deposits 13,172 11,361
Taxes accrued 51,879 28,952
Interest accrued 9,439 8,439
Accrued employment costs 37,666 46,695
Other accruals 24,986 33,753
------------ ------------
Total Current Liabilities 679,619 669,217
------------ ------------
OTHER:
Deferred income taxes (Note 7) 600,514 596,940
Deferred investment tax credits, being
amortized over life of related property
(Note 7) 112,328 115,666
Deferred credits 41,811 45,126
Accrued liability for postretirement
benefits (Note 9) 91,647 75,012
Other noncurrent liabilities 14,890 19,640
------------ ------------
Total Other 861,190 852,384
------------ ------------
COMMITMENTS AND CONTINGENCIES:
(Notes 3, 4, 5, 6, 19, and 20)
$ 4,055,503 $ 3,999,520
============ ============
<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,
---------------------- ----------------------
1996 1995 1996 1995
========== ========== ========== ==========
(Dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues:
(Notes 2, 5, and 22)
Gas $ 120,738 $ 114,559 $ 448,342 $ 399,469
Electric 244,232 245,903 492,656 483,491
---------- ---------- ---------- ----------
364,970 360,462 940,998 882,960
---------- ---------- ---------- ----------
Cost of Energy: (Note 2)
Gas costs 67,438 65,059 266,696 237,358
Fuel for electric
generation 53,184 55,912 110,386 109,697
Power purchased 14,322 11,169 26,283 22,133
---------- ---------- ---------- ----------
134,944 132,140 403,365 369,188
---------- ---------- ---------- ----------
Operating Margin 230,026 228,322 537,633 513,772
---------- ---------- ---------- ----------
Operating Expenses and
Taxes (except income):
Operation 72,127 70,876 151,275 141,677
Maintenance (Note 2) 19,695 18,597 37,491 40,050
Depreciation and
amortization (Note 2) 54,247 49,748 107,703 98,865
Taxes (except income) 17,387 17,137 38,132 37,569
---------- ---------- ---------- ----------
163,456 156,358 334,601 318,161
---------- ---------- ---------- ----------
Operating Income Before
Utility Income Taxes 66,570 71,964 203,032 195,611
---------- ---------- ---------- ----------
Utility Income Taxes
(Note 7) 16,061 18,774 57,528 56,348
---------- ---------- ---------- ----------
Operating Income 50,509 53,190 145,504 139,263
---------- ---------- ---------- ----------
Other Income (Deductions)
(Note 2) 1,492 (143) 1,953 (974)
---------- ---------- ---------- ----------
Income Before Interest
and Other Charges 52,001 53,047 147,457 138,289
---------- ---------- ---------- ----------
Interest and Other Charges:
Interest on long-term debt 21,899 21,448 43,368 41,109
Other interest 3,544 2,680 6,918 6,500
Allowance for borrowed
funds used during
construction and carrying
charges (Note 2) (216) (1,351) (447) (3,291)
Amortization of premium,
reacquisition premium,
discount and expense
on debt, net 1,167 1,057 2,326 2,102
Dividend requirements on
preferred stocks of
subsidiary 2,178 2,265 4,377 4,590
---------- ---------- ---------- ----------
28,572 26,099 56,542 51,010
---------- ---------- ---------- ----------
Net Income 23,429 26,948 90,915 87,279
Dividend requirements on
preferred shares 0 765 119 1,531
---------- ---------- ---------- ----------
Balance available for
common shareholders $ 23,429 $ 26,183 $ 90,796 $ 85,748
========== ========== ========== ==========
Average common shares
outstanding 61,234,350 63,474,328 61,649,509 63,787,171
Earnings per average
common share $ 0.38 $ 0.41 $ 1.47 $ 1.34
========== ========== ========== ==========
Dividends declared per
common share $ 0.42 $ 0.39 $ 0.84 $ 0.78
========== ========== ========== ==========
<CAPTION>
Twelve Months
Ended June 30,
----------------------
1996 1995
========== ==========
(Dollars in thousands,
except for per share amounts)
<S> <C> <C>
Operating Revenues:
(Notes 2, 5, and 22)
Gas $ 740,275 $ 660,157
Electric 1,040,088 985,644
---------- ----------
1,780,363 1,645,801
---------- ----------
Cost of Energy: (Note 2)
Gas costs 428,451 386,230
Fuel for electric
generation 243,026 234,033
Power purchased 47,831 35,794
---------- ----------
719,308 656,057
---------- ----------
Operating Margin 1,061,055 989,744
---------- ----------
Operating Expenses and
Taxes (except income):
Operation 300,549 280,184
Maintenance (Note 2) 75,734 79,061
Depreciation and
amortization (Note 2) 209,975 196,935
Taxes (except income) 74,015 71,820
---------- ----------
660,273 628,000
---------- ----------
Operating Income Before
Utility Income Taxes 400,782 361,744
---------- ----------
Utility Income Taxes
(Note 7) 109,629 100,785
---------- ----------
Operating Income 291,153 260,959
---------- ----------
Other Income (Deductions)
(Note 2) (1,314) 4,163
---------- ----------
Income Before Interest
and Other Charges 289,839 265,122
---------- ----------
Interest and Other Charges:
Interest on long-term debt 84,914 79,177
Other interest 13,199 13,579
Allowance for borrowed
funds used during
construction and carrying
charges (Note 2) (834) (5,977)
Amortization of premium,
reacquisition premium,
discount and expense
on debt, net 4,626 4,189
Dividend requirements on
preferred stocks of
subsidiary 8,833 9,407
---------- ----------
110,738 100,375
---------- ----------
Net Income 179,101 164,747
Dividend requirements on
preferred shares 1,651 3,063
---------- ----------
Balance available for
common shareholders $ 177,450 $ 161,684
========== ==========
Average common shares
outstanding 62,219,569 64,029,078
Earnings per average
common share $ 2.85 $ 2.52
========== ==========
Dividends declared per
common share $ 1.65 $ 1.53
========== ==========
<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, 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
Amortization of unearned
compensation 589
Other (503) 121 (25)
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ 1,116,208 $ 870,930 $ 31,950 $ 482,823
=========== =========== =========== ===========
Balance, April 1, 1996 $ 1,126,350 $ 870,930 $ 32,541 $ 560,401
Net income 23,429 23,429
Dividends:
Preferred shares
Common shares (25,684) (25,684)
Treasury shares acquired (9,548)
Issued:
Employee stock purchase
plan 146 84
Long-term incentive plan 675 30
Amortization of unearned
compensation 574
Unrealized gain (loss) on
available for sale
securities 258
Other 28 19 (70)
----------- ----------- ----------- -----------
Balance, June 30, 1996 $ 1,116,228 $ 870,930 $ 32,674 $ 558,076
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
------------------------------------- -----------
Currency
Three Months Ended Treasury Translation Common
(continued) Shares Adjustment Other Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, April 1, 1995 $ (240,222) $ (882) $ (8,022) 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)
Amortization of unearned
compensation 589
Other (599)
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ (260,485) $ (1,481) $ (7,529) 73,892,109
=========== =========== =========== ===========
Balance, April 1, 1996 $ (330,942) $ (2,070) $ (4,510) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (9,548)
Issued:
Employee stock purchase
plan 62
Long-term incentive plan 755 (110)
Amortization of unearned
compensation 574
Unrealized gain (loss)
on available for sale
securities 258
Other 79
----------- ----------- ----------- -----------
Balance, June 30, 1996 $ (339,673) $ (1,991) $ (3,788) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
-----------
Three Months Ended Treasury
(continued) 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
Amortization of unearned
compensation
Other
-----------
Balance, June 30, 1995 (10,627,573)
===========
Balance, April 1, 1996 (12,503,363)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (266,067)
Issued:
Employee stock purchase
plan 3,920
Long-term incentive plan 28,150
Amortization of unearned
compensation
Unrealized gain (loss)
on available for sale
securities
Other
-----------
Balance, June 30, 1996 (12,737,360)
===========
<CAPTION>
Dollars in Thousands
--------------------------------------------------
Additional
Common Paid-in Retained
Six Months Ended 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
Amortization of unearned
compensation 1,162
Other 324 497 (196)
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ 1,116,208 $ 870,930 $ 31,950 $ 482,823
=========== =========== =========== ===========
Balance, January 1, 1996 $ 1,122,215 $ 870,930 $ 32,210 $ 518,837
Net income 90,915 90,915
Dividends:
Preferred shares (119) (119)
Common shares (51,478) (51,478)
Treasury shares acquired (48,036)
Issued:
Employee stock purchase
plan 449 261
Long-term incentive plan 1,010 184
Amortization of unearned
compensation 1,188
Unrealized gain (loss) on
available for sale
securities 205
Other (121) 19 (79)
----------- ----------- ----------- -----------
Balance, June 30, 1996 $ 1,116,228 $ 870,930 $ 32,674 $ 558,076
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
------------------------------------- -----------
Currency
Six Months Ended Treasury Translation Common
(continued) Shares Adjustment Other Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $ (237,193) $ (1,504) $ (970) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (32,239)
Issued:
Employee stock purchase
plan 163
Long-term incentive plan 8,784 (7,721)
Amortization of unearned
compensation 1,162
Other 23
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ (260,485) $ (1,481) $ (7,529) 73,892,109
=========== =========== =========== ===========
Balance, January 1, 1996 $ (293,223) $ (1,930) $ (4,609) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (48,036)
Issued:
Employee stock purchase
plan 188
Long-term incentive plan 1,398 (572)
Amortization of unearned 1,188
compensation
Unrealized gain (loss)
on available for sale
securities 205
Other (61)
----------- ----------- ----------- -----------
Balance, June 30, 1996 $ (339,673) $ (1,991) $ (3,788) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
-----------
Six Months Ended Treasury
(continued) 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
Amortization of unearned
compensation
Other
-----------
Balance, June 30, 1995 (10,627,573)
===========
Balance, April 1, 1996 (11,512,513)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (1,289,744)
Issued:
Employee stock purchase
plan 11,847
Long-term incentive plan 53,050
Amortization of unearned
compensation
Unrealized gain (loss)
on available for sale
securities
Other
-----------
Balance, June 30, 1996 (12,737,360)
===========
<CAPTION>
Dollars in Thousands
--------------------------------------------------
Additional
Common Paid-in Retained
Twelve Months Ended Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, July 1, 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)
Employee stock purchase
plan 598 277
Long-term incentive plan 3,245 1,656
Amortization of unearned
compensation 1,551
Other 2,378 2,192 (224)
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ 1,116,208 $ 870,930 $ 31,950 $ 482,823
----------- ----------- ----------- -----------
Net income 179,101 179,101
Dividends:
Preferred shares (1,651) (1,651)
Common shares
Treasury shares acquired (102,053) (102,053)
Issued: (84,980)
Employee stock purchase
plan 748 420
Long-term incentive plan 5,078 186
Amortization of unearned
compensation 2,439
Unrealized gain (loss) on
available for sale
securities 1,874
Other (536) 118 (144)
----------- ----------- ----------- -----------
Balance, June 30, 1996 $ 1,116,228 $ 870,930 $ 32,674 $ 558,076
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
------------------------------------- -----------
Currency
Twelve Months Ended Treasury Translation Common
(continued) Shares Adjustment Other Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, July 1, 1994 $ (211,790) $ (1,891) $ (1,359) 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)
Amortization of unearned
compensation 1,551
Other 410
----------- ----------- ----------- -----------
Balance, June 30, 1995 $ (260,485) $ (1,481) $ (7,529) 73,892,109
----------- ----------- ----------- -----------
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired
Issued: (84,980)
Employee stock purchase
plan 328
Long-term incentive plan 5,464 (572)
Amortization of unearned
compensation 2,439
Unrealized gain (loss) on
available for sale
securities 1,874
Other (510)
----------- ----------- ----------- -----------
Balance, June 30, 1996 $ (339,673) $ (1,991) $ (3,788) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
-----------
Twelve Months Ended Treasury
(continued) Shares
======================== ===========
<S> <C>
Balance, July 1, 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
Amortization of unearned
compensation
Other
-----------
Balance, June 30, 1995 (10,627,573)
-----------
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired
Issued: (2,344,075)
Employee stock purchase
plan 20,638
Long-term incentive plan 213,650
Amortization of unearned
compensation
Unrealized gain (loss)
on available for sale
securities
Other
-----------
Balance, June 30, 1996 (12,737,360)
===========
<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
Ended June 30,
-----------------------
1996 1995
========= =========
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 23,429 $ 26,948
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH:
Depreciation and amortization 54,247 49,748
Deferred federal and state operating
income taxes, net (2,050) (4,897)
Deferred investment tax credits, net (1,668) (1,868)
Advanced contract payment 475 0
Change in certain assets and liabilities -
Accounts receivable, net 62,940 52,847
Electric production fuel (10,951) 5,217
Materials and supplies 2,412 (129)
Natural gas in storage (17,624) (16,302)
Accounts payable (24,183) (31,170)
Taxes accrued (38,276) (40,946)
Fuel adjustment clause (3,156) (2,553)
Gas cost adjustment clause 151 13,805
Accrued employment costs (236) 1,371
Other accruals (21,074) 6,399
Other, net (20,588) (6,941)
--------- ---------
Net cash provided by operating activities 3,848 51,529
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Utility construction expenditures (45,129) (46,545)
Construction expenditures related to
Crossroads Pipeline Company (279) (718)
Return of capital from equity investments 0
Other, net (652) (399)
--------- ---------
Net cash used in investing activities (46,060) (47,662)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of long-term debt 1,153 169,623
Issuance of short-term debt 258,720 137,278
Net change in commercial paper 79,100 (70,000)
Retirement of long-term debt (7,620) (25,092)
Retirement of short-term debt (263,300) (155,192)
Retirement of preferred shares (1,446) (1,761)
Issuance of common shares 806 1,432
Acquisition of treasury shares (9,548) (21,791)
Cash dividends paid on common shares (25,784) (24,876)
Cash dividends paid on preferred shares 0 (765)
Other, net 139 (210)
--------- ---------
Net cash provided by financing activities 32,220 8,646
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (9,992) 12,513
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 41,252 36,157
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 31,260 $ 48,670
========= =========
<CAPTION>
Six Months
Ended June 30,
-----------------------
1996 1995
========= =========
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 90,915 $ 87,279
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH:
Depreciation and amortization 107,703 98,865
Deferred federal and state operating
income taxes, net 12,941 (21,954)
Deferred investment tax credits, net (3,338) (3,736)
Advanced contract payment (18,050) 0
Change in certain assets and liabilities -
Accounts receivable, net 29,165 21,893
Electric production fuel (16,639) (1,371)
Materials and supplies 3,078 (3,479)
Natural gas in storage 31,354 39,464
Accounts payable 4,688 (43,921)
Taxes accrued 6,180 29,969
Fuel adjustment clause (1,322) (1,306)
Gas cost adjustment clause (47,523) 61,123
Accrued employment costs (9,029) (3,578)
Other accruals (8,767) 28,993
Other, net (22,687) 6,106
------- ---------
Net cash provided by operating activities 158,669 294,347
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Utility construction expenditures (80,158) (96,484)
Construction expenditures related to
Crossroads Pipeline Company (364) (932)
Return of capital from equity investments 0
Other, net (14,569) (8,435)
--------- ---------
Net cash used in investing activities (95,091) (105,851)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of long-term debt 77,450 173,974
Issuance of short-term debt 598,408 408,139
Net change in commercial paper 55,000 (163,000)
Retirement of long-term debt (8,737) (25,956)
Retirement of short-term debt (648,035) (487,592)
Retirement of preferred shares (36,446) (5,331)
Issuance of common shares 1,414 2,828
Acquisition of treasury shares (48,036) (32,239)
Cash dividends paid on common shares (51,993) (50,022)
Cash dividends paid on preferred shares (119) (1,531)
Other, net 280 463
--------- ---------
Net cash used in financing activities (60,814) (180,267)
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,764 8,229
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 28,496 40,441
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 31,260 $ 48,670
========= =========
<CAPTION>
Twelve Months
Ended June 30,
-----------------------
1996 1995
========= =========
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 179,101 $ 164,747
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH:
Depreciation and amortization 209,975 196,935
Deferred federal and state operating
income taxes, net 32,214 (18,015)
Deferred investment tax credits, net (7,117) (7,418)
Advanced contract payment (18,050) 0
Change in certain assets and liabilities -
Accounts receivable, net (15,427) 13,706
Electric production fuel (11,179) 3,123
Materials and supplies 6,943 (2,654)
Natural gas in storage 8,800 7,827
Accounts payable 41,588 (38,206)
Taxes accrued (32,991) 33,174
Fuel adjustment clause (8,703) 4,413
Gas cost adjustment clause (84,097) 9,470
Accrued employment costs (2,567) 1,940
Other accruals (15,037) 22,818
Other, net (27,639) 15,999
--------- ---------
Net cash provided by operating activities 255,814 407,859
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Utility construction expenditures (173,428) (197,395)
Construction expenditures related to
Crossroads Pipeline Company (2,644) (1,511)
Return of capital from equity investments 0 0
Other, net (57,883) (21,022)
--------- ---------
Net cash used in investing activities (233,955) (219,928)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of long-term debt 83,031 369,910
Issuance of short-term debt 1,481,242 982,064
Net change in commercial paper 133,400 (100,800)
Retirement of long-term debt (104,886) (53,983)
Retirement of short-term debt (1,412,693) (1,205,081)
Retirement of preferred shares (38,210) (14,367)
Issuance of common shares 5,975 3,649
Acquisition of treasury shares (84,980) (58,326)
Cash dividends paid on common shares (101,014) (96,398)
Cash dividends paid on preferred shares (1,651) (3,063)
Other, net 517 382
--------- ---------
Net cash used in financing activities (39,269) (176,013)
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (17,410) 11,918
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 48,670 36,752
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 31,260 $ 48,670
========= =========
<FN>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) HOLDING COMPANY STRUCTURE: NIPSCO Industries, Inc. (Industries) is an
Indiana corporation serving as the holding company for a number of
subsidiaries, including four regulated companies: Northern Indiana Public
Service Company (Northern Indiana); Kokomo Gas and Fuel Company (Kokomo Gas);
Northern Indiana Fuel and Light Company, Inc. (NIFL); and Crossroads
Pipeline Company (Crossroads). Northern Indiana is a public utility operating
company supplying natural gas and electric energy to the public. Kokomo Gas
and NIFL are public utility operating companies supplying natural gas to the
public, and Crossroads is an interstate natural gas transmission company.
Industries' major non-utility subsidiaries include NIPSCO Development
Company, Inc. (Development); NIPSCO Energy Services, Inc. (Services); Primary
Energy, Inc. (Primary); and NIPSCO Capital Markets, Inc. (Capital Markets).
Development makes various investments, including real estate and venture
capital investments. Services coordinates the energy-related diversification
ventures of Industries. Primary arranges energy-related projects with large
industrial customers. Capital Markets handles financing for Industries and
its subsidiaries, other than Northern Indiana.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION. The consolidated financial statements include
the accounts of Industries; its regulated subsidiaries Northern Indiana,
Kokomo Gas, NIFL and Crossroads (Utilities); and all non-utility subsidiaries.
Investments for which Industries has at least a 20% interest and certain joint
ventures are accounted for under the equity method of accounting. Investments
with less than a 20% interest are accounted for under the cost method of
accounting. The operating results of the non-utility subsidiaries, as well
as the non-operating results of the utilities, are included under the caption
"Other Income (Deductions)" in the Consolidated Statement of Income. Interest
on long-term debt, other interest, and amortization of debt discount and
expense are reflected as a component of "Interest and Other Charges." All
significant intercompany items have been eliminated in consolidation.
Certain reclassifications were made to conform the prior years' financial
statements to the current presentation.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
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 4.3%, 4.2%, and 4.1% for the
three-month, six-month, and twelve-month periods ended June 30, 1996,
respectively; and 4.0%, 4.0%, and 4.1% for the three-month, six-month, and
twelve-month periods ended June 30, 1995. 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 3.1% for the
three-month, six-month, and twelve-month periods ended June 30, 1996; and 3.2%
for the three-month, six-month, and twelve-month periods ended June 30, 1995.
NIFL provides depreciation on the original cost of utility plant in
service using straight-line rates that averaged approximately 2.75% for the
three-month, six-month, and twelve-month periods ended June 30, 1996 and
June 30, 1995.
Crossroads provides depreciation on the original cost of utility plant
in service using straight-line rates that averaged approximately 2.5% for the
three-month, six-month, and twelve-month periods ended June 30, 1996 and
June 30, 1995.
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.
AMORTIZATION OF SOFTWARE COSTS. Northern Indiana amortizes capitalized
software costs using the straight-line method based on estimated economic
lives.
PLANT ACQUISITION ADJUSTMENTS. Industries' costs in excess of the
underlying book values of the acquired NIFL and Kokomo Gas subsidiaries have
been recorded as plant acquisition adjustments which are being amortized
over forty-year periods from their respective dates of acquisition.
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, 1996, Northern Indiana had sold
$100 million 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,
------------------ ------------------ ------------------
1996 1995 1996 1995 1996 1995
======== ======== ======== ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income taxes $ 55,748 $ 49,600 $ 55,748 $ 49,600 $124,088 $ 95,009
Interest, net
of amounts
capitalized $ 30,544 $ 25,023 $ 40,948 $ 40,932 $ 89,337 $ 78,911
</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-recovery or over-recovery 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-recovery or over-recovery 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-recovery or
over-recovery 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 semi-annual hearings 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-recovery or over-
recovery caused by variances between estimated and actual cost in a given
three-month or six-month period will be included in a future filing. See
Note 5, FERC Order No. 636 for a discussion of gas transition cost charges.
NATURAL GAS IN STORAGE. Northern Indiana's natural gas in storage is
valued using the last-in, first-out (LIFO) inventory methodology. Based on the
average cost of gas purchased in June 1996 and December 1995 the estimated
replacement cost of gas in storage (current and non-current) at June 30,
1996 and December 31, 1995 exceeded the stated LIFO cost by approximately
$36 million and $30 million, respectively. Certain other subsidiaries of
Industries have natural gas in storage valued at average cost.
HEDGING ACTIVITIES. Industries' non-regulated gas subsidiaries use
commodity futures contracts and swaps to hedge the impact of natural gas price
fluctuations related to its business activities. Gains and losses on futures
contracts are deferred and recognized in income concurrent with the related
purchases and sales of natural gas.
As of June 30, 1996, Industries had open futures contracts representing
hedges of natural gas purchases of 0.3 million British thermal units (MMBtu)
and natural gas sales of 2.4 MMBtu. The deferred loss on these open contracts
totalled $0.6 million. This loss will be offset by the margin on the related
natural gas transactions.
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 Utilities
monitor changes in market and regulatory conditions and the resulting impact
of such changes in order to continue to apply the provisions of SFAS No. 71
to some or all of its operations. The regulatory assets identified below
represent probable future revenue to the Utilities associated with certain
incurred costs as these costs are recovered through the rate-making process.
If a portion of the Utilities' operations becomes no longer subject to the
provisions of SFAS No. 71, a write-off of certain of the regulatory assets
identified below might be required. Regulatory assets were comprised of the
following items and were reflected in the Consolidated Balance Sheet as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
============ ============
(Dollars in thousands)
<S> <C> <C>
Unamortized reacquisition premium on
debt (Note 16) $ 52,019 $ 53,776
Unamortized R.M. Schahfer Unit 17 and
Unit 18 carrying charges
and deferred depreciation (See below) 72,872 74,981
Bailly scrubber carrying charges and
deferred depreciation (See below) 11,284 11,517
Deferral of SFAS No. 106 expense not
recovered (Note 9) 76,612 64,834
FERC Order No. 636
transition costs (Note 5) 28,162 25,038
------------ ------------
240,949 230,146
Less: Current portion of regulatory assets 28,016 17,655
------------ ------------
$ 212,933 $ 212,491
============ ============
</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. The Utilities adopted this
standard on January 1, 1996, and adoption did not impact their financial
position or results of operations.
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 has capitalized carrying charges and deferred
depreciation and certain operating expenses relating to its scrubber service
agreement for its Bailly Generating Station in accordance with an order of the
Commission. Pursuant to such order, capitalization of carrying charges and
deferral of depreciation and certain operating expenses ceased on December 31,
1995. The accumulated balance of the deferred costs and related carrying
charges is being amortized over the remaining life of the scrubber service
agreement.
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, 1994, a pre-tax rate of 5.0% for all construction was
being used; effective January 1, 1995 the rate increased to 6.0%; and for 1996
the rate remained at 6.0%.
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.
INVESTMENTS IN REAL ESTATE. Development has invested in a series of
affordable housing projects in the Utilities' service territory. These
investments include certain tax benefits, including low-income housing tax
credits and tax deductions for operating losses of the housing projects.
Development accounts for these investments using the equity method.
Investments, at equity, include $24.3 million and $21.9 million relating to
affordable housing projects at June 30, 1996 and December 31, 1995,
respectively.
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 challenged the assessment in the United States Tax Court (Tax Court)
and the matter was tried in 1994. On November 6, 1995, the Tax Court ruled
in favor of Northern Indiana, finding that the interest paid on the Notes was
not subject to United States tax withholding. On March 13, 1996, the IRS
appealed the Tax Court's decision to the U. S. Court of Appeals for the
Seventh Circuit, and on March 25, 1996 Northern Indiana filed its cross
appeal. Northern Indiana's management and general counsel believe the ruling
of the Tax Court will prevail.
(4) ELM ENERGY AND RECYCLING (UK) LTD.: Development, a wholly-owned
subsidiary of Industries, 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 (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 (Pounds 29.6 million) were to be
reimbursed by TBV to Elm. The certificate issued by the Project engineer was
adjudicated under a procedure provided in the construction contract, and the
adjudicator confirmed the full (Pounds) 29.6 million as owing to Elm. TBV
has filed suit in the English courts to enjoin enforcement of the adjudicator's
decision, to challenge again the Project engineer's decision and to allege
breaches of the underlying construction contract and misrepresentations by Elm.
Elm has counterclaimed and is aggressively pursuing its remedies.
Elm and Development are also seeking 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. In response to the
claims brought by Elm and Development in the United States, Black & Veatch
has brought a counterclaim against Elm and Development alleging breach of
contract, negligence, misrepresentation and promissory estoppel. Development
believes that the claims made against it and Elm are meritless and that its
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.
Development believes that it and Elm have sustainable and adequate
remedies under the construction contract such that rejection will not have
a material adverse effect on Industries. Elm is continuing to operate the
plant. The banks which provided the financing for the plant are continuing to
support its operations and to provide working capital under an uncommitted
loan facility which is repayable on demand or, in any event, May 31, 1997,
(unless extended). However, because of the ongoing defaults under the Project
financing and the demand nature of the uncommitted working loan facility, the
banks have the right to ask that the operation of the plant be terminated
and the assets sold. In that event, some or all of Industries' investments in
Elm may be at risk. Industries' investments in Elm were approximately $14
million at June 30, 1996.
(5) FERC ORDER NO. 636. Pursuant to FERC Order No. 636, interstate
pipeline sales services have been "unbundled" such that gas supplies are being
sold separately from interstate transportation services. The Utilities have
contracted for a mix of transportation and storage services from their
pipeline suppliers which allows them to meet the needs of their customers.
Pipelines are recovering, 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.
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 $91 million of such costs have been recorded, a portion of
which has been paid to the pipeline suppliers, subject to refund. The
Commission has approved the recovery of these FERC-allowed transition costs on
a volumetric basis from sales and transportation customers. Regulatory assets,
in amounts corresponding to the costs recorded but not yet collected, have
been recorded to reflect the ultimate recovery of these costs.
(6) ENVIRONMENTAL MATTERS: The Utilities have an ongoing program to remain
aware of laws and regulations involved with hazardous waste and other
environmental matters. 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. The Utilities have recorded
a reserve of $7.2 million to cover probable corrective actions as of
June 30, 1996; however, environmental regulations and remediation techniques
are subject to future change. The ultimate cost could be significant,
depending on the extent of corrective actions required. Based upon
investigations and management's understanding of current laws and regulations,
the Utilities believe that any corrective actions required, after
consideration of insurance coverages and contributions from other potentially
responsible parties, will not have a significant impact on the financial
position or results of operations of Industries.
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 the 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
pursuing 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 Environmental Protection Agency (EPA) has notified Northern Indiana
that it is a "potentially responsible party" (PRP) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) 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, 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.
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. Initial samplings have been conducted at
seventeen sites. Follow-up investigations have been conducted at five sites
and potential remedial measures are being evaluated. The Utilities will
continue their program to assess sites. 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 is 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 parts 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
entered into an agreement covering cost sharing and management of
investigation and remediation programs at five former manufactured-gas plant
sites at which both companies or their predecessors were former operators or
owners. One of these sites is the Lafayette site which Indiana Gas had
previously notified Northern Indiana is 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 Utilities have met with various companies that provided insurance
coverage which the Utilities believe covers costs related to actions taken at
former manufactured-gas plants. In September 1995, certain insurance
companies initiated a suit in Indiana state court against Northern Indiana to
deny coverage. Later in September 1995, Northern Indiana filed a more
comprehensive suit in Federal Court in Indiana against those insurers and
several other insurance companies, seeking coverage for costs associated with
several former manufactured-gas plant sites. The state court action is stayed
pending resolution of the Northern Indiana suit in Federal Court.
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 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: Industries uses the liability method of accounting for
income taxes under which 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 the extent certain deferred income taxes are recoverable or payable
through future rates, regulatory assets and liabilities have been established.
Regulatory assets are 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. Regulatory
liabilities are primarily attributable to the Utilities' obligation to credit
to ratepayers deferred income taxes provided at rates higher than the
current federal tax rate currently being credited to ratepayers using the
average rate assumption method and unamortized deferred investment tax
credits.
The components of the net deferred income tax liability at
June 30, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
============ ============
(Dollars in thousands)
<S> <C> <C>
Deferred tax liabilities -
Accelerated depreciation
and other property differences $ 714,037 $ 706,715
AFUDC-equity 38,954 40,083
Adjustment clauses 22,595 4,613
Take-or-pay gas costs 1,001 1,550
Other regulatory assets 30,824 28,930
Reacquisition premium on debt 19,731 20,397
Deferred tax assets -
Deferred investment tax credits (42,587) (43,854)
Removal costs (124,059) (118,064)
FERC Order No. 636 transition costs (3,458) (4,400)
Other postretirement/postemployment
benefits (38,026) (32,512)
Other, net (7,808) (12,575)
------------ ------------
611,204 590,883
Less: Deferred income taxes related to
current assets and liabilities 10,690 (6,057)
------------ ------------
Deferred income taxes - noncurrent $ 600,514 $ 596,940
============ ============
</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,
-------------------- --------------------
1996 1995 1996 1995
========= ========= ========= =========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current income taxes -
Federal $ 17,031 $ 22,197 $ 41,405 $ 71,575
State 2,748 3,342 6,520 10,463
--------- --------- --------- ---------
19,779 25,539 47,925 82,038
--------- --------- --------- ---------
Deferred income taxes, net -
Federal (1,970) (4,568) 11,790 (20,358)
State (80) (329) 1,151 (1,596)
--------- --------- --------- ---------
(2,050) (4,897) 12,941 (21,954)
--------- --------- --------- ---------
Deferred investment tax credits,
net (1,668) (1,868) (3,338) (3,736)
--------- --------- --------- ---------
Total utility operating income
taxes 16,061 18,774 57,528 56,348
Income tax applicable to non-
operating activities and income
of non-utility subsidaries (451) (2,957) (2,076) (5,013)
--------- --------- --------- ---------
Total income taxes $ 15,610 $ 15,817 $ 55,452 $ 51,335
========= ========= ========= =========
<CAPTION>
Twelve Months
Ended June 30,
--------------------
1996 1995
========= =========
(Dollars in thousands)
<S> <C> <C>
Current income taxes -
Federal $ 73,054 $ 109,737
State 11,478 16,481
--------- ---------
84,532 126,218
--------- ---------
Deferred income taxes, net -
Federal 29,504 (16,793)
State 2,710 (1,222)
--------- ---------
32,214 (18,015)
--------- ---------
Deferred investment tax credits,
net (7,117) (7,418)
--------- ---------
Total utility operating income
taxes 109,629 100,785
Income tax applicable to non-
operating activities and income
of non-utility subsidiaries (6,313) (18,169)
--------- ---------
Total income taxes $ 103,316 $ 82,616
========= =========
</TABLE>
A reconciliation of total tax expense to an amount computed by applying
the statutory federal income tax rate to pre-tax income is as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1996 1995 1996 1995
========= ========= ========= =========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 23,429 $ 26,948 $ 90,915 $ 87,279
Add-Income taxes 15,610 15,817 55,452 51,335
Dividend requirements on
preferred stocks of subsidiary 2,178 2,265 4,377 4,590
--------- --------- --------- ---------
Income before preferred dividend
requirements of subsidiary and
income taxes $ 41,217 $ 45,030 $ 150,744 $ 143,204
========= ========= ========= =========
Amount derived by multiplying
pre-tax income by the statutory
rate $ 14,426 $ 15,760 $ 52,760 $ 50,121
Reconciling items multiplied by
the statutory rate:
Book depreciation over related
tax depreciation 1,030 1,005 2,013 2,009
Amortization of deferred
investment tax credits (1,668) (1,868) (3,338) (3,736)
State income taxes, net of
federal income tax benefit 1,706 1,764 5,391 4,949
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 (1,145) (1,359) (2,819) (2,719)
Other, net 1,261 515 1,445 711
--------- --------- --------- ---------
Total income taxes $ 15,610 $ 15,817 $ 55,452 $ 51,335
========= ========= ========= =========
<CAPTION>
Twelve Months
Ended June 30,
--------------------
1996 1995
========= =========
(Dollars in thousands)
<S> <C> <C>
Net income $ 179,101 $ 164,747
Add-Income taxes 103,316 82,616
Dividend requirements on
preferred stocks of subsidiary 8,833 9,407
--------- ---------
Income before preferred dividend
requirements of subsidiary and
income taxes $ 291,250 $ 256,770
========= =========
Amount derived by multiplying
pre-tax income by the statutory
rate $ 101,938 $ 89,869
Reconciling items multiplied by
the statutory rate:
Book depreciation over related
tax depreciation 4,022 4,118
Amortization of deferred
investment tax credits (7,117) (7,419)
State income taxes, net of
federal income tax benefit 10,171 8,979
Fair market value of property
donated in excess of book value 0 (7,753)
Reversal of deferred taxes
provided at rates in excess
of the current federal income
tax rate (5,765) (5,929)
Other, net 67 751
--------- ---------
Total income taxes $ 103,316 $ 82,616
========= =========
</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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
========= =========
(Dollars in thousands)
<S> <C> <C>
Vested benefit obligation $ 549,234 $ 449,043
Nonvested benefit 104,814 97,138
--------- ---------
Accumulated benefit obligation $ 654,048 $ 546,181
========= =========
Projected benefit obligation for service
rendered to date $ 759,681 $ 613,094
Plan assets at fair market value 706,320 571,624
--------- ---------
Projected benefit obligation in excess of plan
assets 53,361 41,470
Unrecognized transition obligation at January 1,
being recognized over seventeen years (43,484) (48,906)
Unrecognized prior service cost (27,242) (29,847)
Unrecognized gains 4,217 47,788
--------- ---------
Accrued (prepaid) pension costs $ (13,148) $ 10,505
========= =========
</TABLE>
The accumulated benefit obligation is the present value of future
pension benefit payments and is based on a plan benefit formula without
considering expected future salary increases. The projected benefit
obligation considers estimated future salary increases. Discount rates of
7.25% and 8.75% and rates of increase in compensation levels of 5.5% were used
to determine the accumulated benefit obligation and projected benefit
obligation at January 1, 1996 and 1995, respectively. The increase in the
accumulated benefit obligation as of January 1, 1996 is mainly caused by the
decrease in the discount rate from 8.75% to 7.25%.
The following items are the components of provisions for pensions for
the three-month, six-month, and twelve-month periods ended June 30, 1996 and
June 30, 1995:
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended Ended Ended
June 30, June 30, June 30,
------------------ ------------------ ------------------
1996 1995 1996 1995 1996 1995
======== ======== ======== ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service costs $ 4,321 $ 3,298 $ 10,588 $ 6,597 $ 16,222 $ 13,442
Interest costs 13,078 13,338 32,129 26,676 57,964 50,634
Estimated return
on plan assets (15,499) (12,864) (38,103) (25,728) (147,618) 13,211
Amortization of
transition
obligation 1,321 1,356 3,263 2,711 5,974 5,439
Other net
amortization
and deferral 636 659 1,550 1,318 86,397 (61,346)
-------- -------- -------- -------- -------- --------
$ 3,857 $ 5,787 $ 9,427 $ 11,574 $ 18,939 $ 21,380
======== ======== ======== ======== ======== ========
</TABLE>
Assumptions used in the valuation and determination of 1996 and 1995
pension expenses were as follows:
<TABLE>
<CAPTION>
1996 1995
===== =====
<S> <C> <C>
Discount rate 7.25% 8.75%
Rate of increase in compensation levels 5.50% 5.50%
Expected long-term rate of return on assets 9.00% 9.00%
</TABLE>
The plans' assets are invested primarily in common stocks, bonds, and
notes.
(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. The expected cost of such
benefits is accrued during the employees' years of service.
Northern Indiana's current rate-making includes the cost of providing
these benefits based on the related insurance premiums. On December 30, 1992,
the Commission authorized the accrual method of accounting for postretirement
benefits for rate-making purposes consistent with SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and authorized
the deferral of the differences between the net periodic postretirement
benefits costs and the insurance premiums paid for such benefits as a
regulatory asset until such time as the accrual cost method may be reflected
in the rate-making process. 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 will
request the recovery of such costs within that period and, accordingly, 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 standard. This conclusion could change as
competitive factors influence pricing decisions.
The following table sets forth the plans' accumulated postretirement
benefit obligation as of January 1, 1996 and 1995:
<TABLE>
<CAPTION>
January 1, January 1,
1996 1995
========== ==========
(Dollars in thousands)
<S> <C> <C>
Retirees $ 99,453 $ 96,676
Fully eligible active plan participants 23,084 20,008
Other active plan participants 136,322 105,991
---------- ----------
Accumulated postretirement benefit obligation 258,859 222,675
Unrecognized transition obligation at January 1,
being recognized over twenty years (197,088) (208,681)
Unrecognized actuarial gain 23,439 45,496
---------- ----------
Accrued liability for postretirement benefits $ 85,210 $ 59,490
========== ==========
</TABLE>
A discount rate of 7.25% and a pre-Medicare medical trend rate of 10%
declining to a long-term rate of 6% and a discount rate of 8.75%, and a
pre-Medicare medical trend rate of 11% declining to a long-term rate of 7%
were used to determine the accumulated postretirement benefit obligation at
January 1, 1996 and 1995, respectively.
Net periodic postretirement benefits costs for the three-month, six-
month, and twelve-month periods ended June 30, 1996 and June 30, 1995
include the following components:
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended Ended Ended
June 30, June 30, June 30,
------------------ ------------------ ------------------
1996 1995 1996 1995 1996 1995
======== ======== ======== ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service costs $ 1,620 $ 1,526 $ 3,240 $ 3,052 $ 6,264 $ 7,234
Interest costs 5,079 4,745 10,159 9,490 19,700 19,511
Amortization of
transition
obligation
over twenty
years 3,095 2,899 6,190 5,798 11,985 11,627
Amortization of
unrecognized
actuarial
(gain) (582) (541) (1,165) (1,082) (2,262) (1,082)
-------- -------- -------- -------- -------- --------
$ 9,212 $ 8,629 $ 18,424 $ 17,258 $ 35,687 $ 37,290
======== ======== ======== ======== ======== ========
</TABLE>
The net periodic postretirement benefit costs for 1996 were determined
assuming a 7.25% discount rate, a 5% rate of compensation increase, and a
pre-Medicare medical trend rate of 10% declining to a long-term rate of 6%.
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, 1996 by approximately $40.9 million, and increase the
aggregate of the service and interest cost components of plan costs by
approximately $1.3 million and $2.6 million for the three-month and six-month
period ended June 30, 1996. Amounts disclosed above could be changed
significantly in the future by changes in health care costs, work force
demographics, interest rates, or plan changes.
(10) 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 the Industries' Series A
Junior Participating Preferred Shares were reserved for issuance pursuant to
the Share Purchase Rights Plan described in Note 14, 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 11 sets forth the preferred stocks which are redeemable solely at
the option of the issuer, and Note 12 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.
(11) PREFERRED STOCKS, REDEEMABLE SOLELY AT THE OPTION OF THE ISSUER,
OUTSTANDING AT JUNE 30, 1996 AND DECEMBER 31, 1995 (SEE NOTE 10):
<TABLE>
<CAPTION>
Redemption
Price at
June 30, December 31, June 30,
1996 1995 1996
============ ============ ============
(Dollars in thousands)
<S> <C> <C> <C>
NORTHERN INDIANA PUBLIC
SERVICE COMPANY:
Cumulative preferred stock -
$100 par value -
4-1/4% series - 209,176 and
209,190 shares outstanding,
respectively $ 20,918 $ 20,919 $101.20
4-1/2% series - 79,996 shares
outstanding 8,000 8,000 $100.00
4.22% series - 106,198 shares
outstanding 10,620 10,620 $101.60
4.88% series - 100,000 shares
outstanding 10,000 10,000 $102.00
7.44% series - 41,890 shares
outstanding 4,189 4,189 $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, 1996), Series A
(stated value $50 per share)
473,285 and 477,185 shares
outstanding, respectively 23,664 23,859 $50.00
------------ ------------
$ 81,129 $ 81,325
============ ============
</TABLE>
During the period July 1, 1994 to June 30, 1996, there were no
additional issuances of the above preferred stocks.
The foregoing preferred stocks are redeemable in whole or in part at
any time upon thirty days' notice at the option of Northern Indiana at the
redemption prices shown.
(12) REDEEMABLE PREFERRED STOCKS OUTSTANDING AT JUNE 30, 1996 AND
DECEMBER 31, 1995 (SEE NOTE 10):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
============ ============
(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 - 75,000 and 87,500 shares
outstanding, respectively, excluding sinking
fund payments due within one year $ 7,500 $ 8,750
7-3/4% series - 50,014 shares outstanding,
excluding sinking fund payments due within
one year 5,001 5,001
8.35% series - 69,000 shares outstanding,
excluding sinking fund payments due within
one year 6,900 6,900
Cumulative preferred stock - no par value -
6.50% series - 430,000 shares outstanding 43,000 43,000
------------ ------------
62,401 63,651
------------ ------------
NIPSCO INDUSTRIES, INC.:
Cumulative preferred shares - without par
value - 8.75% series (stated value - $100
per share), 0 and 350,000 shares
outstanding, respectively 0 35,000
------------ ------------
$ 62,401 $ 98,651
============ ============
</TABLE>
Pursuant to mandatory redemption provisions, 350,000 shares of 8.75%
Series Cumulative Preferred Shares were redeemed in whole by Industries on
January 12, 1996 for $100 per share plus accrued dividends.
The redemption prices at June 30, 1996, as well as sinking fund
provisions for the cumulative preferred stock subject to mandatory redemption
requirements, or whose redemption is outside the control of Northern Indiana,
are as follows:
<TABLE>
<CAPTION>
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% $101.85, reduced periodically 12,500 shares on or before
April 1.
8.35% $104.18, 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% $104.58, 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.
</TABLE>
Sinking fund requirements with respect to redeemable preferred stocks
outstanding at June 30, 1996 for each of the twelve-month periods subsequent
to June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended June 30,*
==============================
<S> <C>
1998 $ 1,827,700
1999 $ 1,827,700
2000 $ 1,827,700
2001 $ 1,827,700
<FN>
* Table does not reflect redemptions made after June 30, 1996.
</TABLE>
(13) 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, 1996,
Northern Indiana had approximately $149.6 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.
(14) 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 (Board) 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 Series A Junior Participating Preferred Share, 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 merged 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 has authorized the repurchase of
common shares. At June 30, 1996, Industries had purchased approximately 17.2
million shares at an average price of $25.14 per share. Including 3.5 million
shares authorized on March 26, 1996, approximately 3.8 million additional
common shares may be repurchased under the Board's authorization.
(15) LONG-TERM INCENTIVE PLAN: Industries has two Long-Term Incentive
Plans for key management employees that were approved by shareholders on
April 13, 1988 (1988 Plan) and April 13, 1994 (1994 Plan), each of which
provides for the issuance of up to 2.5 million of Industries' common shares to
key employees through 1998 and 2004, respectively. At June 30, 1996, there
were 140,461 shares and 2,338,550 shares reserved for future awards under the
1988 Plan and 1994 Plan, respectively. 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, 1996. Under both Plans, the
exercise price of each option equals the market price of Industries' stock on
the date of grant. Each option's maximum term is ten years and vests one year
from the date of grant.
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 are subject to forfeiture for specific periods from the date of
grant. Restrictions on the shares awarded during 1991 lapse five years from
date of grant and vest subject to specific share price appreciation
conditions. Restrictions on shares awarded in 1995 lapse five years from date
of grant and vesting is variable from 0% to 200% of the number awarded and are
subject to specific earnings per share and stock appreciation goals.
Restrictions on shares awarded in 1996 lapse two years from date of grant and
are variable from 0% to 100% of the number awarded and are subject to specific
performance goals. If a participant's employment is terminated other than by
reason of death, disability or retirement, restricted shares are forfeited.
There were 342,500 and 330,500 restricted shares outstanding at June 30,
1996 and December 31, 1995, respectively.
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, 1996, 30,750 shares were issued under the Plan.
Industries accounts for these plans under Accounting Principles Board
Opinion No. 25, under which no compensation cost has been recognized for non-
qualified stock options. The compensation cost that has been charged against
income for restricted stock awards was $0.5, $1.1, and $2.8 million for the
three-month, six-month, and twelve-month periods ending June 30, 1996. Had
compensation cost for stock options been determined consistent with SFAS No.
123 "Accounting for Stock-Based Compensation," Industries' net income and
earnings per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended Ended Ended
June 30, June 30, June 30,
1996 1996 1996
============= ============= =============
<S> <C> <C> <C>
Net Income:
(Dollars in thousands)
As reported $ 23,429 $ 90,915 $ 179,101
Pro forma $ 23,267 $ 90,590 $ 178,532
Earnings Per Share:
As reported $ 0.38 $ 1.47 $ 2.85
Pro forma $ 0.38 $ 1.47 $ 2.84
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation costs may not be representative of that to be expected in future
years.
The fair value of each option granted used to determine pro forma
net income is estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants
in the three-month, six-month, and twelve-month periods ended June 30, 1996:
risk-free interest rate of 6.24%, expected dividend yield of $1.56 per share,
expected option term of five years, and expected volatility of 13%.
Changes in outstanding shares under option and SARs for the three-
month, six-month, and twelve-month periods ended June 30, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
NONQUALIFIED STOCK OPTIONS
-------------------------------------------
Weighted Weighted
Average Average
Three Months Ended Option Option
June 30, 1996 Price 1995 Price
=========================== ========= ======== ========= ========
<S> <C> <C> <C> <C>
Balance beginning of period 1,093,850 $ 28.54 1,059,700 $ 26.86
Granted 0 0 $ 0
Exercised (25,150) $ 24.36 (63,300) $ 23.58
Canceled (6,000) $ 32.44 (500) $ 28.75
--------- ---------
Balance end of period 1,062,700 $ 28.62 995,900 $ 27.07
========= =========
Shares exercisable 797,250 $ 27.35 702,600 $ 26.36
========= =========
Weighted average fair value
of options granted N/A N/A
========= =========
<CAPTION>
NONQUALIFIED STOCK OPTIONS
-------------------------------------------
Six Months Ended Option Option
June 30, 1996 Price 1995 Price
=========================== ========= ======== ========= ========
<S> <C> <C> <C> <C>
Balance beginning of period 1,107,750 $ 28.55 1,097,550 $ 26.59
Granted 0 5,000 $ 30.31
Exercised (38,050) $ 25.92 (103,550) $ 22.09
Canceled (7,000) $ 32.44 (3,100) $ 30.18
--------- ---------
Balance end of period 1,062,700 $ 28.62 995,900 $ 27.07
========= =========
Shares exercisable 797,250 $ 27.35 702,600 $ 26.36
========= =========
Weighted average fair value
of options granted N/A $ 4.74
========= =========
<CAPTION>
NONQUALIFIED STOCK OPTIONS
-------------------------------------------
Weighted Weighted
Average Average
Twelve Months Ended Option Option
June 30, 1996 Price 1995 Price
=========================== ========= ======== ========= ========
<S> <C> <C> <C> <C>
Balance beginning of period 995,900 $ 27.07 829,200 $ 25.73
Granted 277,450 $ 32.44 299,650 $ 28.78
Exercised (198,650) $ 25.96 (125,600) $ 22.18
Canceled (12,000) $ 32.44 (7,350) $ 29.35
--------- ---------
Balance end of period 1,062,700 $ 28.62 995,900 $ 27.07
========= =========
Shares exercisable 797,250 $ 27.35 702,600 $ 26.36
========= =========
Weighted average fair value
of options granted $3.87 *
========= =========
<CAPTION>
NONQUALIFIED STOCK OPTIONS WITH SARs
-------------------------------------------
Three Months Ended Option Option
June 30, 1996 Price 1995 Price
=========================== ========= ======== ========= ========
<S> <C> <C> <C> <C>
Balance beginning of period 5,600 $ 10.94 9,900 $ 10.94
Granted 0 0
Exercised 0 (4,300) $ 10.94
Canceled 0 0
--------- ---------
Balance end of period 5,600 $ 10.94 5,600 $ 10.94
========= =========
Shares exercisable 5,600 $ 10.94 5,600 $ 10.94
========= =========
<CAPTION>
NONQUALIFIED STOCK OPTIONS WITH SARs
-------------------------------------------
Six Months Ended Option Option
June 30, 1996 Price 1995 Price
=========================== ========= ======== ========= ========
<S> <C> <C> <C> <C>
Balance beginning of period 5,600 $ 10.94 9,900 $ 10.94
Granted 0 0
Exercised 0 (4,300) $ 10.94
Canceled 0 0
--------- ---------
Balance end of period 5,600 $ 10.94 5,600 $ 10.94
========= =========
Shares exercisable 5,600 $ 10.94 5,600 $ 10.94
========= =========
<CAPTION>
NONQUALIFIED STOCK OPTIONS WITH SARs
-------------------------------------------
Twelve Months Ended Option Option
June 30, 1996 Price 1995 Price
=========================== ========= ======== ========= ========
<S> <C> <C> <C> <C>
Balance beginning of period 5,600 $ 10.94 9,900 $ 10.94
Granted 0 0
Exercised 0 (4,300) $ 10.94
Canceled 0 0
--------- ---------
Balance end of period 5,600 $ 10.94 5,600 $ 10.94
========= =========
Shares exercisable 5,600 $ 10.94 5,600 $ 10.94
========= =========
<FN>
* The weighted average option price of nonqualified stock options granted
in January 1995 is $4.74.
</TABLE>
The following table summarizes information about non-qualified stock
options at June 30, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- --------------------------------------------------------------------------
Number Weighted Average
Range of Outstanding at Remaining Weighted Average
Option Price June 30, 1996 Contractual Life Option Price
================ ============== ================== =================
<S> <C> <C> <C>
$10.94 to $17.73 97,400 3.60 years $16.74
$22.94 to $28.75 456,050 6.82 years $26.53
$30.31 to $33.19 509,250 8.20 years $32.77
- ---------------- --------- ---------- ------
$10.94 to $33.19 1,062,700 7.19 years $28.62
=========
<CAPTION>
OPTIONS EXERCISABLE
- --------------------------------------------------------------------------
Number
Range of Exercisable at Weighted Average
Option Price June 30, 1996 Option Price
================ =============== =================
<S> <C> <C>
$10.94 to $17.73 97,400 $16.74
$22.94 to $28.75 456,050 $26.53
$30.31 to $33.19 243,800 $33.13
- ---------------- ------- ------
$10.94 to $33.19 797,250 $27.35
=======
</TABLE>
(16) LONG-TERM DEBT: At June 30, 1996 and December 31, 1995, 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,
1996 1995
============ ============
(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 40,500 40,500
Series NN, 7.10%, due July 1, 2017 55,000 55,000
------------ ------------
Total 135,756 135,756
------------ ------------
Pollution control notes and bonds -
Series A Note -
City of Michigan City, 5.70% due
October 1, 2003 20,000 20,000
Series 1988 Bonds - Jasper County -
Series A, B, and C - 3.51% weighted
average at June 30, 1996, due
November 1, 2016 130,000 130,000
Series 1988 Bonds - Jasper County -
Series D - 3.37% weighted average at
June 30 1996, due November 1, 2007 24,000 24,000
Series 1994 Bonds - Jasper County -
Series A - 3.80% at June 30, 1996,
due August 1, 2010 10,000 10,000
Series 1994 Bonds - Jasper County -
Series B - 3.80% at June 30, 1996,
due June 1, 2013 18,000 18,000
Series 1994 Bonds - Jasper County -
Series C - 3.80% at June 30, 1996,
due April 1, 2019 41,000 41,000
------------ ------------
Total 243,000 243,000
------------ ------------
Medium-term notes -
Interest rates between 5.81% and 7.64% with
a weighted average interest rate of 6.79%
and various maturities between July 25, 1997
and January 19, 2024 684,025 684,025
------------ ------------
Unamortized premium and discount
on long-term debt, net (3,761) (4,040)
------------ ------------
Total long-term debt of
Northern Indiana Public
Service Company 1,059,020 1,058,741
------------ ------------
NIPSCO CAPITAL MARKETS, INC.
Subordinated Debentures -
Series A, 7-3/4%, due March 31, 2026 75,000 0
Zero Coupon Notes - 7.57%, $72,500 at
maturity, due December 1, 1997 65,259 62,875
------------ ------------
Total long-term debt of
NIPSCO Capital Markets, Inc. 140,259 62,875
------------ ------------
NIPSCO DEVELOPMENT COMPANY, INC.
LAKE ERIE LAND COMPANY -
Notes payable -
8.25% - due June 30, 1998 100 389
ELM ENERGY AND RECYCLING (UK), LTD.
Term Loan Facility-weighted average interest
rate of 7.40% at June 30, 1996, due
December 31, 2004 35,354 34,516
NDC DOUGLAS PROPERTIES, INC.
Notes Payable -
Interest rates between 6.72% and 8.15% with
a weighted average interest rate of 7.77%
and maturities through April 1, 2006 20,203 19,207
------------ ------------
Total long-term debt of
NIPSCO Development Company,Inc. 55,657 54,112
------------ ------------
Total long-term debt, excluding
amounts due in one year $ 1,254,936 $ 1,175,728
============ ============
</TABLE>
The sinking fund requirements of long-term debt outstanding at
June 30, 1996 (including the maturity of Northern Indiana's first
mortgage bonds: Series O, 6-3/8%, due September 1, 1997; Series P, 6-7/8%,
due October 1, 1998; Northern Indiana's medium-term notes due from April 6,
1998 to June 1, 2000; Capital Markets' Zero Coupon Notes due December 1, 1997;
Lake Erie Land Company's notes payable due 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, 1997 are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended June 30,
=============================
<S> <C>
1998 $ 184,545,787
1999 $ 25,458,139
2000 $ 166,126,818
2001 $ 11,600,068
</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 one year to
thirty 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. On June 12, 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 February 13, 1996, Capital Markets issued $75 million of 7-3/4%
Junior Subordinated Deferrable Interest Debentures, Series A, due
March 31, 2026 (Debentures) pursuant to an underwritten public offering.
Proceeds from the sale of the Debentures were used to pay short-term debt
incurred to redeem on January 12, 1996 Industries' $35 million of 8.75%
Preferred Shares, pursuant to mandatory redemption, and to pay other
short-term debt of Capital Markets.
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. 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 $451.4 million at June 30, 1996.
(17) CURRENT PORTION OF LONG-TERM DEBT: At June 30, 1996 and December 31,
1995, Industries' current portion of long-term debt due within one year was as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
============ ============
(Dollars in thousands)
<S> <C> <C>
NORTHERN INDIANA PUBLIC SERVICE COMPANY:
Medium-term notes -
Interest rates of 5.77% and 5.80% with
a weighted average interest rate of
5.78% and maturities of July 25, 1996
and July 26, 1996 $ 80,000 $ 80,000
NIPSCO CAPITAL MARKETS, INC.:
Medium-term notes -
9.95% - due June 10, 1996 0 7,500
LAKE ERIE LAND COMPANY:
Notes payable 3,106 2,961
ELM ENERGY AND RECYCLING (UK), LTD.:
Term loan facility 5,277 4,554
NDC DOUGLAS PROPERTIES, INC.:
Notes payable 2,201 1,840
------------ ------------
Total current portion of long-term debt $ 90,584 $ 96,855
============ ============
</TABLE>
(18) SHORT-TERM BORROWINGS: Northern Indiana has a $250 million revolving
Credit Agreement with several banks which terminates August 19, 1998 unless
extended by its terms. As of June 30, 1996, 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, 1997. 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 fees to a combination of
fees which are mutually satisfactory to both parties. As of June 30, 1996,
there were no borrowings under these lines of credit. The Credit Agreement
and lines of credit are also available to support the issuance of commercial
paper.
Northern Indiana also has $268.5 million of money market lines of
credit. As of June 30, 1996 and December 31, 1995, there were $64.2 million
and $118.8 million of borrowings, respectively, outstanding under these lines
of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
June 30, 1996, there were no borrowings outstanding under this facility.
Northern Indiana and Capital Markets make use of commercial paper to
fund short-term working capital requirements.
Capital Markets has a $150 million revolving Credit Agreement which
will terminate August 19, 1998, unless extended by its terms. This facility
provides short-term financing flexibility to Industries and also serves as the
backup instrument for a commercial paper program. As of June 30, 1996,
there were no borrowings outstanding under this agreement.
Capital Markets also has $105 million of money market lines of credit.
As of June 30, 1996 and December 31, 1995, $22.1 million and $17.4 million,
respectively, of borrowings were outstanding under these lines of credit.
At June 30, 1996 and December 31, 1995, Industries' short-term
borrowings were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
============ ============
(Dollars in thousands)
<S> <C> <C>
NORTHERN INDIANA PUBLIC SERVICE COMPANY:
Commercial paper -
Weighted average interest rate of
5.39% at June 30, 1996 $ 88,400 $ 44,800
Notes payable -
Issued at interest rates between 5.39%
and 5.5% with a weighted average
interest rate of 5.45% and various
maturities between July 3, 1996
and July 29, 1996 64,200 118,800
NIPSCO CAPITAL MARKETS, INC.:
Commercial paper -
Weighted average interest rate of
5.63% at June 30, 1996 88,100 76,700
Notes payable -
Issued at interest rates of 5.63% and
5.65% with a weighted average interest
rate of 5.63% and maturities of
July 5, 1996 and July 26, 1996 22,100 17,400
LAKE ERIE LAND COMPANY:
Notes payable - 0 1,239
ELM ENERGY AND RECYCLING (UK), LTD.:
Standby loan facility 3,117 1,732
------------ ------------
Total short-term borrowings $ 265,917 $ 260,671
============ ============
</TABLE>
(19) OPERATING LEASES: On April 1, 1990, Northern Indiana entered into a
twenty-year agreement for the rental of office facilities from Development at
a current annual rental payment of approximately $3.3 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, 1996:
<TABLE>
<CAPTION>
Twelve Months Ended June 30,
===============================
(Dollars in thousands)
<S> <C>
1997 $ 11,529
1998 8,984
1999 7,268
2000 5,642
2001 5,557
Later years 79,610
--------
Total minimum
payments required $118,590
========
</TABLE>
The consolidated financial statements include rental expense for all
operating leases as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
============ ============
(Dollars in thousands)
<S> <C> <C>
Three months ended $ 1,693 $ 2,159
Six months ended $ 3,724 $ 3,987
Twelve months ended $ 8,187 $ 7,653
</TABLE>
(20) COMMITMENTS: Northern Indiana estimates that approximately $764
million will be expended for construction purposes for the period from
January 1, 1996 to December 31, 2000. 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 provides 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 twenty-year contract period.
Northern Indiana has entered into an agreement with Integrated Systems
Solutions Corporation (ISSC), a wholly-owned subsidiary of IBM, for ISSC to
perform all data center, application development and maintenance, and desktop
management of Northern Indiana.
Primary is the parent of subsidiaries including Harbor Coal
Company (Harbor Coal), North Lake Energy Corporation (North Lake),
Lakeside Energy Corporation (LEC) and Portside Energy Corporation (Portside).
Primary arranges energy-related projects with large industrial customers and
has entered into certain commitments in connection with these projects.
Harbor Coal 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 has entered into a lease for the use of a 75-megawatt
energy facility to be located at Inland Steel Company. The facility uses
steam generated by Inland Steel to produce electricity which is delivered to
Inland Steel. The facility began commercial operation in May 1996.
Industries has guaranteed North Lake's obligations relative to the lease and
certain obligations to Inland Steel relative to the project.
LEC has entered into an agreement with USX Corporation - US Steel
Group to utilize a new 161 megawatt energy facility at USS Gary Works to
process high-pressure steam into electricity and low-pressure process steam
for a fifteen-year period. LEC will lease this facility, once constructed,
from a third party. Additionally, LEC has entered into an interim agreement,
which expires when the lease is established with the third-party lessor, under
which LEC is acting as the agent for the lessor to design, construct, and
start up the energy facility. Industries has guaranteed certain LEC
obligations to the interim lessor. Capital Markets anticipates guaranteeing
LEC's security deposit obligations relative to the anticipated lease and
certain LEC obligations to the lessor during construction. Construction of
the project began in January 1996. The facility is scheduled to be
operational in May 1997.
Portside has entered into an agreement with National Steel Corporation
(National) to utilize a new 63-megawatt energy facility at National's Midwest
Division to process natural gas into electricity, process steam and heated
water for a fifteen-year period. Portside will lease this facility, once
constructed, from a third party. Additionally, Portside has entered into an
interim agreement, which expires when the lease is established with the third-
party lessor, under which Portside is acting as agent for the lessor to
design, construct, and start up the energy facility. Industries has
guaranteed certain Portside obligations to the lessor during construction.
Capital Markets anticipates guaranteeing certain Portside obligations relative
to the anticipated lease. Construction of the project began in June 1996.
The facility is scheduled to be operational in August 1997.
Primary has advanced approximately $45 million and $11 million, at
June 30, 1996 and December 31, 1995, respectively, to the lessors of the
energy related projects discussed above. These advances are included in
"Prepayments and other" in the Consolidated Balance Sheet.
(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 some investments is 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 is estimated based on the quoted market prices
for the same or similar issues or on the rates offered to Industries
for securities of the same remaining maturities. Certain premium
costs associated with the early settlement of long-term debt are not
taken into consideration in determining fair value.
The carrying values and estimated fair values of Industries'
financial instruments are as follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
========== ========== ========== ==========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 31,260 $ 31,260 $ 28,496 $ 28,496
Investments $ 26,853 $ 28,726 $ 25,893 $ 27,045
Long-term debt (including
current portion) $1,346,313 $1,173,301 $1,273,376 $1,274,079
Preferred stock $ 145,358 $ 123,059 $ 181,804 $ 164,306
</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: Industries' public utility subsidiaries
supply natural gas and electrical energy in the northern third of Indiana.
Although these public utilities have a diversified base of residential and
commercial customers, a substantial portion of their electric and gas
industrial deliveries are dependent upon the basic steel industry. The basic
steel industry accounted for 3% of gas revenue (including transportation
services) and 22% of electric revenue for the twelve months ended
June 30, 1996 as compared to 4% and 24%, respectively, for the twelve
months ended June 30, 1995.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
HOLDING COMPANY -
NIPSCO Industries, Inc. (Industries) is an Indiana corporation serving
as the holding company for a number of subsidiaries, including four regulated
companies: Northern Indiana Public Service Company (Northern Indiana); Kokomo
Gas and Fuel Company (Kokomo Gas); Northern Indiana Fuel and Light Company,
Inc. (NIFL); and Crossroads Pipeline Company (Crossroads). Northern Indiana
is a public utility operating company supplying natural gas and electric
energy to the public. Kokomo Gas and NIFL are public utility operating
companies supplying natural gas to the public, and Crossroads is an interstate
natural gas transmission company.
Industries' major non-utility subsidiaries include NIPSCO Development
Company, Inc. (Development); NIPSCO Energy Services, Inc. (Services); Primary
Energy, Inc. (Primary); and NIPSCO Capital Markets, Inc. (Capital Markets).
Development makes various investments, including real estate and
venture capital investments. Services coordinates the energy-related
diversification ventures of Industries. Primary arranges energy-related
projects with large industrial customers. Capital Markets handles financing
for Industries and its subsidiaries, other than Northern Indiana.
The following discussion, except where noted, is attributable to the
operations of Northern Indiana, Kokomo Gas, NIFL, and Crossroads (Utilities).
REVENUES -
Total operating revenues for the twelve months ended June 30, 1996
increased $134.6 million as compared to the twelve months ended June 30,
1995. Gas revenues increased $80.1 million and electric revenues increased
$54.5 million. The increase in gas revenues for the twelve months ended
June 30, 1996 was largely attributable to increased sales to residential and
commercial customers due to colder weather, increased sales to industrial and
wholesale customers, increased deliveries of gas transported for others, and
increased gas transition costs, which were partially offset by decreased gas
costs per dekatherm (dth). The increase in electric revenues for the twelve
months ended June 30, 1996 was mainly due to increased sales to residential
and commercial customers as a result of warmer weather in the third quarter
of 1995, increased sales to wholesale customers, and increased fuel cost per
kilowatt-hour (kwh), partially offset by decreased sales to industrial
customers.
Total operating revenue for the six months ended June 30, 1996
increased $58.0 million as compared to the six months ended June 30, 1995.
Gas revenues increased $48.9 million and electric revenues increased
$9.1 million as compared to the same period in 1995. The increase in gas
revenues was mainly due to increased sales to residential and commercial
customers as a result of colder weather, increased sales to industrial
customers, and increased gas costs per dth, which were partially offset by
decreased gas transition costs. The increase in electric revenues for the six
months ended June 30, 1996 was mainly due to increased sales to residential
and commercial customers, and increased fuel costs per kwh, and was partially
offset by decreased sales to industrial customers.
Total operating revenue for the three months ended June 30, 1996
increased $4.5 million as compared to the three months ended June 30, 1995.
Gas revenues increased $6.2 million and electric revenues decreased $1.7
million as compared to the same period in 1995. The increase in gas
revenues was mainly due to increased sales to residential and commercial
customers, and increased gas costs per dth, which were partially offset by
decreased gas transition costs. The decrease in electric revenues was
primarily caused by several major industrial customers with plant operating
equipment problems during the period.
The basic steel industry accounted for 30% of natural gas delivered
(including volumes transported) and 35% of electric sales during the twelve
months ended June 30, 1996.
The components of the variations in gas and electric revenues are
shown in the following table:
<TABLE>
<CAPTION>
Variations
from
Prior Periods
---------------------------------
June 30, 1996
Compared to
June 30, 1995
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 $ 4,321 $ 12,646 $ (64,130)
Gas transition costs (8,649) (23,632) 40,037
Changes in sales levels 10,856 59,744 105,480
Gas transport levels (349) 115 (1,269)
--------- --------- ---------
Gas Revenue Change 6,179 48,873 80,118
--------- --------- ---------
Electric Revenue -
Pass through of net changes in fuel 2,750 4,222 4,512
Changes in sales levels (4,421) 4,943 49,932
--------- --------- ---------
Electric Revenue Change (1,671) 9,165 54,444
--------- --------- ---------
Total Revenue Change $ 4,508 $ 58,038 $ 134,562
========= ========= =========
</TABLE>
See Note 5 to Notes to Consolidated Financial Statements regarding
FERC Order No. 636 transition costs.
GAS COSTS -
The Utilities' gas costs increased $2.4, $29.3, and $42.2 million for
the three-month, six-month, and twelve-month periods ended June 30, 1996,
respectively. Gas costs increased for the three-month and six-month periods
due to increased purchases and increased gas costs per dth, and were partially
offset by decreased gas transition costs. Gas costs increased for the twelve-
month period due to increased purchases and were partially offset by decreased
gas costs per dth. The average cost for the Utilities' purchased gas for the
three-month, six-month, and twelve-month periods ended June 30, 1996, after
adjustment for gas transition costs billed to transport customers, was $2.85,
$2.94, and $2.73 per dth, respectively, as compared to $2.76, $2.87, and $2.85
per dth for the same periods in 1995.
FUEL AND PURCHASED POWER -
The cost of fuel for electric generation increased for the six-month
and twelve-month periods ended June 30, 1996, compared to 1995 periods, mainly
as a result of increased production of electricity. The cost of fuel for
electric generation decreased for the three-month period ended June 30,
1996, compared to 1995 period, mainly as a result of decreased production of
electricity.
Power purchased increased $12.0 million for the twelve-month period
ended June 30, 1996 as a result of increased bulk power purchases with other
utilities due to increased sales. Purchased power costs increased $3.2 and
$4.2 million for the three-month and six-month periods ended June 30, 1996,
respectively, as a result of increased costs per megawatt-hour purchased.
OPERATING MARGINS -
Operating margins increased $71.3 million for the twelve months ended
June 30, 1996 from the same period a year ago. The operating margin from
gas deliveries increased $37.9 million due to increased sales to residential
and commercial customers reflecting colder weather, increased sales to
industrial and wholesale customers, and increased deliveries of gas
transported for others, compared to the twelve-month period ended June 30,
1995. The operating margin from electric sales increased $33.4 million
reflecting increased sales to residential and commercial customers due to
warmer weather in the third quarter of 1995 and increased sales to wholesale
customers, partially offset by decreased sales to industrial customers.
Operating margins increased $23.9 million for the six months ended
June 30, 1996 from the same period a year ago. Gas operating margin
increased $19.6 million due to increased sales to residential and commercial
customers reflecting colder weather during the period, increased sales to
industrial and wholesale customers, and increased deliveries of gas
transported for others. Operating margins on electric sales increased $4.3
million due to increased sales to residential, commercial, and wholesale
customers, partially offset by decreased sales to industrial customers.
Operating margins increased $1.7 million for the three months ended
June 30, 1996 over the same period a year ago. The operating margin from
gas deliveries increased $3.8 million due to increased sales to residential
and commercial customers reflecting colder weather and increased deliveries of
gas transported for others. Operating margin on electric sales decreased
$2.1 million primarily caused by several major industrial customers with plant
operating equipment problems during the period.
OPERATING EXPENSES AND TAXES -
Operation expenses increased $1.3, $9.6, and $20.4 million for the
three-month, six-month, and twelve-month periods ended June 30, 1996,
respectively. Operation expenses increased for the six-month period
reflecting increased electric production costs of $3.6 million resulting from
increased pollution control facility costs, increased environmental cleanup
costs of $3.9 million, and other various increased operating costs.
Operation expenses increased for the twelve-month period reflecting a
December 1995 Indiana Utility Regulatory Commission (Commission) order to
refund $3.4 million to electric customers related to a 1992 insurance
settlement previously credited to operation and maintenance expenses,
increased electric production costs of $7.6 million mainly resulting from
pollution control facilities costs, increased employee-related costs of $4.6
million, increased environmental cleanup costs of $3.2 million, and various
other increased operation expenses.
Maintenance expenses decreased $2.6 and $3.3 million for the
six-month and twelve-month periods ended June 30, 1996, respectively, mainly
reflecting decreased maintenance activity at the electric production
facilities.
Depreciation and amortization expense increased $4.5, $8.8, and $13.0
million for the three-month, six-month, and twelve-month periods ended
June 30, 1996, respectively, resulting from plant additions, increased
amortization of computer software, and the amortization of previously deferred
costs related to scrubber services provided by Pure Air at the Bailly
Generating Station.
Utility income taxes increased for the six-month and twelve-month
periods ended June 30, 1996 as a result of increased pre-tax income. Utility
income taxes decreased for the three-month period ended June 30, 1996 as a
result of decreased pre-tax income.
OTHER INCOME (DEDUCTIONS) -
Other Income (Deductions) decreased $5.5 million for the twelve-month
period ended June 30, 1996 as the result of the inclusion in the prior period
of a $5.6 million after-tax benefit for the Northern Indiana land donation to
the Shafer and Freeman Lakes Environmental Conservation Corporation. The
operating results of all non-utility subsidiaries are included in "Other
Income (Deductions)."
INTEREST AND OTHER CHARGES -
Interest and other charges increased for the three-month, six-month,
and twelve-month periods ended June 30, 1996 reflecting the issuance of
$169,275,000 of Northern Indiana's Medium-Term Notes, Series D; and $75
million of Capital Markets' Junior Subordinated Deferrable Interest
Debentures, Series A; and the discontinuance of carrying charges on deferred
charges related to the Bailly Generating Station scrubber service agreement.
See Note 2 to Notes to Consolidated Financial Statements (Summary of
Significant Accounting Policies) for a discussion of Regulatory Assets,
Carrying Charges and Deferred Depreciation, and Allowance for Funds Used
During Construction. Also see Notes 5, 7, and 9 for a discussion of FERC
Order No. 636, Income Taxes and Postretirement Benefits.
NET INCOME-
Industries' net income for the twelve-month period ended June 30,
1996 was $179.1 million compared to $164.7 million for the twelve-month
period ended June 30, 1995.
Net income for the six months ended June 30, 1996 was $90.9 million
compared to $87.3 million for the six months ended June 30, 1995.
Net income for the three months ended June 30, 1996 was $23.4
million compared to $26.9 million for the three months ended June 30, 1995.
ENVIRONMENTAL MATTERS -
The Utilities have an ongoing program to remain aware of laws and
regulations involved with hazardous waste and other environmental matters.
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. The Utilities have recorded a reserve of $7.2
million to cover probable corrective actions as of June 30, 1996; however,
environmental regulations and remediation techniques are subject to future
change. The ultimate cost could be significant, depending on the extent of
corrective actions required. Based upon investigations and management's
understanding of current laws and regulations, the Utilities believe that
any corrective actions required, after consideration of insurance coverages
and contributions from other potentially responsible parties, will not have
a significant impact on the financial position or results of operations of
Industries.
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 the 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 pursuing 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 Environmental Protection Agency (EPA) has notified Northern
Indiana that it is a "potentially responsible party" (PRP) under the
Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
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, 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.
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. Initial samplings have been conducted at
seventeen sites. Follow-up investigations have been conducted at five sites
and potential remedial measures are being evaluated. The Utilities will
continue their program to assess sites. 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
is to obtain IDEM approval of the determination and subsequent implementation
of what remedial measures, if any, may be needed.
Northern Indiana was notified by IDEM of the release of a petroleum
substance into the St. Mary's River in Fort Wayne, Indiana, from the site of
a former manufactured-gas plant formerly owned by Northern Indiana. In
cooperation with IDEM, Northern Indiana has taken steps to investigate and
contain the substance. Northern Indiana has remediated parts 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
entered into an agreement covering cost sharing and management of
investigation and remediation programs at five former manufactured-gas plant
sites at which both companies or their predecessors were former operators or
owners. One of these sites is the Lafayette site which Indiana Gas had
previously notified Northern Indiana is 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 Utilities have met with various companies that provided insurance
coverage which the Utilities believe covers costs related to actions taken at
former manufactured-gas plants. In September 1995, certain insurance
companies initiated a suit in Indiana state court against Northern Indiana to
deny coverage. Later, in September 1995, Northern Indiana filed a more
comprehensive suit in Federal Court in Indiana against those insurers and
several other insurance companies, seeking coverage for costs associated with
several former manufactured-gas plant sites. The state court action is stayed
pending resolution of the Northern Indiana suit in Federal court.
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 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 13 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 one year to
thirty 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. On June 12, 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 February 13, 1996, Capital Markets issued $75 million of 7-3/4%
Junior Subordinated Deferrable Interest Debentures, Series A, due March 31,
2026 (Debentures), pursuant to an underwritten public offering. Proceeds from
the sale of the Debentures were used to pay short-term debt incurred to redeem
on January 12, 1996 Industries' $35 million of 8.75% Preferred Shares,
pursuant to mandatory redemption, and to pay other short-term debt of Capital
Markets.
Capital Markets has a $150 million revolving Credit Agreement which
will terminate August 19, 1998, unless extended by its terms. This facility
provides short-term financing flexibility to Industries and also serves as
the backup instrument for a commercial paper program. As of June 30, 1996,
there were no borrowings outstanding under this agreement.
Capital Markets also has $105 million of money market lines of credit.
As of June 30, 1996, $22.1 million of borrowings were outstanding under
these lines of credit.
As of June 30, 1996, Capital Markets had $88.1 million in
commercial paper outstanding, having a weighted average interest rate of
5.63%.
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. 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 $451.4 million at June 30, 1996.
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 to fund short-term working capital requirements. As of
June 30, 1996, Northern Indiana had $88.4 million in commercial paper
outstanding, having a weighted average interest rate of 5.39%.
Northern Indiana has a $250 million revolving Credit Agreement with
several banks which terminates August 19, 1998 unless extended by its terms.
As of June 30, 1996, 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, 1997. 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 fees to a combination of fees which are mutually
satisfactory to both parties. As of June 30, 1996, there were no
borrowings under these lines of credit. The Credit Agreement and lines of
credit are also available to support the issuance of commercial paper.
Northern Indiana also has $268.5 million of money market lines of
credit. As of June 30, 1996, there were $64.2 million of borrowings
outstanding under these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
June 30, 1996, 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 and electric base rate
increases in the near future.
COMPETITION
The Energy Policy Act of 1992 (Energy Act) allowed 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. On April 24, 1996, the FERC issued
its Order No. 888 which opens wholesale power sales to competition and
requires public utilities owning, controlling, or operating transmission lines
to file non-discriminatory open access tariffs that offer others the same
transmission service they provide themselves. Order No. 888 also provides
for the full recovery of stranded costs - that is, costs that were
prudently incurred to serve power customers and that could go unrecovered
if these customers use open access to move to another supplier. FERC expects
this rule will accelerate competition and bring lower prices and more choices
to wholesale energy customers. 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, Northern Indiana will continue its
efforts to retain and add customers by offering competitive rates.
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' 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 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 ensure the continued acquisition of adequate
gas supplies at reasonable prices.
The mix of gas revenues from retail sales, interruptible retail sales,
firm transportation service, and interruptible transportation services has
changed significantly over the past several years. The deregulation of the gas
industry, since the mid-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.
Northern Indiana filed an Alternative Regulatory Plan (ARP) with the
Commission on November 29, 1995. The purpose of the ARP is to create a
business and regulatory environment and structure which will permit increased
choice for gas customers, competition among suppliers, and improved natural
gas service. In its petition, Northern Indiana stated it would propose to
implement new rates and services that would include, but not be limited to,
further unbundling of services for additional customer classes which would
include increased customer choice for sources of natural gas supply,
negotiated services and prices, and incentive gas and storage cost mechanisms.
To date, the Utilities' system has not been materially affected by
competition, and management does not foresee substantial adverse effects in
the near future, unless the current regulatory structure is substantially
altered. The Utilities believe the steps they are taking to deal with
increased competition will have significant, positive effects in the next few
years.
<PAGE>
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Industries and Northern Indiana are parties to various pending
proceedings, including suits and claims against them for personal injury,
death and property damage, but, in the opinion of their counsel, the nature of
such proceedings and suits, and the amounts involved, do not depart from the
ordinary routine litigation and proceedings incidental to the kind of business
conducted by Industries and Northern Indiana, except as described under Note 3
Pending Tax Matter, Note 4 Elm Energy and Recycling (UK) Ltd., and Note 6
Environmental Matters in the Notes to Consolidated Financial Statements under
Part I, Item 1 of this report on Form 10-Q.
To the knowledge of Industries no other material legal proceedings
against Industries, Northern Indiana or their subsidiaries are contemplated by
governmental authorities and other parties.
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 11.1 - Computation of Per Share Earnings
Three-Month, Six-Month, and Twelve-Month Periods
Ended June 30, 1996.
Exhibit 11.2 - Computation of Per Share Earnings
Three-Month, Six-Month, and Twelve-Month Periods
Ended June 30, 1995.
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)
/s/ Jerry M. Springer,
Controller
and Chief Accounting Officer
Date August 13, 1996
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
Three-Month, Six-Month, and Twelve-Month
Periods Ended June 30, 1996
<TABLE>
<CAPTION>
Fully
Three Months Ended June 30, 1996: Primary Diluted
================================= ========== ==========
Weighted Average Number of Shares:
<S> <C> <C>
Average Common Shares Outstanding at
June 30, 1996 61,234,350 61,234,350
Dilutive Effect for Nonqualified
Stock Options at June 30, 1996 342,993 406,438
---------- ----------
Weighted Average Shares at June 30, 1996 61,577,343 61,640,788
========== ==========
<CAPTION>
Net Income to Be Used to Compute
Earnings Per Average Common Share:
(Dollars in thousands)
<S> <C> <C>
Net Income $ 23,429 $ 23,429
Dividend Requirements on Preferred Shares 0 0
---------- ----------
Balance Available for Common Shareholders $ 23,429 $ 23,429
========== ==========
Earnings Per Average Common Share $ 0.38(a) $ 0.38(a)
========== ==========
<CAPTION>
Fully
Six Months Ended June 30, 1996: Primary Diluted
=============================== ========== ==========
Weighted Average Number of Shares:
<S> <C> <C>
Average Common Shares Outstanding at
June 30, 1996 61,649,509 61,649,509
Dilutive Effect for Nonqualified
Stock Options at June 30, 1996 364,434 406,438
---------- ----------
Weighted Average Shares at June 30, 1996 62,013,943 62,055,947
========== ==========
<CAPTION>
Net Income to Be Used to Compute
Earnings Per Average Common Share:
(Dollars in thousands)
<S> <C> <C>
Net Income $ 90,915 $ 90,915
Dividend Requirements on Preferred Shares 119 119
---------- ----------
Balance Available for Common Shareholders $ 90,796 $ 90,796
========== ==========
Earnings Per Average Common Share $ 1.46(a) $ 1.46(a)
========== ==========
<CAPTION>
Fully
Twelve Months Ended June 30, 1996: Primary Diluted
================================== ========== ==========
Weighted Average Number of Shares:
<S> <C> <C>
Average Common Shares Outstanding at
June 30, 1996 62,219,569 62,219,569
Dilutive Effect for Nonqualified
Stock Options at June 30, 1996 278,995 406,438
---------- ----------
Weighted Average Shares at June 30, 1996 62,498,564 62,626,007
========== ==========
<CAPTION>
Net Income to Be Used to Compute
Earnings Per Average Common Share:
(Dollars in thousands)
<S> <C> <C>
Net Income $ 179,101 $ 179,101
Dividend Requirements on Preferred Shares 1,651 1,651
---------- ----------
Balance Available for Common Shareholders $ 177,450 $ 177,450
========== ==========
Earnings Per Average Common Share $ 2.84(a) $ 2.83(a)
========== ==========
<FN>
Note:
(a) This calculation is submitted in accordance with regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
EXHIBIT 11.2
<TABLE>
<CAPTION>
COMPUTATION OF PER SHARE EARNINGS
Three-Month, Six-Month, and Twelve-Month
Periods Ended June 30, 1995
Fully
Three Months Ended June 30, 1995: Primary Diluted
================================= ========== ==========
Weighted Average Number of Shares:
<S> <C> <C>
Average Common Shares Outstanding at
June 30, 1995 63,474,328 63,474,328
Dilutive Effect for Nonqualified
Stock Options at June 30, 1995 297,749 332,072
---------- ----------
Weighted Average Shares at June 30, 1995 63,772,077 63,806,400
========== ==========
<CAPTION>
Net Income to Be Used to Compute
Earnings Per Average Common Share:
(Dollars in thousands)
<S> <C> <C>
Net Income $ 26,948 $ 26,948
Dividend Requirements on Preferred Shares 765 765
---------- ----------
Balance Available for Common Shareholders $ 26,183 $ 26,183
========== ==========
Earnings Per Average Common Share $ 0.41(a) $ 0.41(a)
========== ==========
<CAPTION>
Fully
Six Months Ended June 30, 1995: Primary Diluted
=============================== ========== ==========
Weighted Average Number of Shares:
<S> <C> <C>
Average Common Shares Outstanding at
June 30, 1995 63,787,171 63,787,171
Dilutive Effect for Nonqualified
Stock Options at June 30, 1995 253,571 332,072
---------- ----------
Weighted Average Shares at June 30, 1995 64,040,742 64,119,243
========== ==========
<CAPTION>
Net Income to Be Used to Compute
Earnings Per Average Common Share:
(Dollars in thousands)
<S> <C> <C>
Net Income $ 87,279 $ 87,279
Dividend Requirements on Preferred Shares 1,531 1,531
---------- ----------
Balance Available for Common Shareholders $ 85,748 $ 85,748
========== ==========
Earnings Per Average Common Share $ 1.34(a) $ 1.34(a)
========== ==========
<CAPTION>
Fully
Twelve Months Ended June 30, 1995: Primary Diluted
================================== ========== ==========
Weighted Average Number of Shares:
<S> <C> <C>
Average Common Shares Outstanding at
June 30, 1995 64,029,078 64,029,078
Dilutive Effect for Nonqualified
Stock Options at June 30, 1995 184,118 332,072
---------- ----------
Weighted Average Shares at June 30, 1995 64,213,196 64,361,150
========== ==========
<CAPTION>
Net Income to Be Used to Compute
Earnings Per Average Common Share:
(Dollars in thousands)
<S> <C> <C>
Net Income $ 164,747 $ 164,747
Dividend Requirements on Preferred Shares 3,063 3,063
---------- ----------
Balance Available for Common Shareholders $ 161,684 $ 161,684
========== ==========
Earnings Per Average Common Share $ 2.52(a) $ 2.51(a)
========== ==========
<FN>
Note:
(a) This calculation is submitted in accordance with regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
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; Form S-8 Registration
Statement, No. 33-30621; and Form S-8 Registration Statement, No. 333-08263.
/s/ Arthur Andersen LLP
Chicago, Illinois
August 13, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of NIPSCO Industries, Inc. for three months ended
June 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,181,364
<OTHER-PROPERTY-AND-INVEST> 235,446
<TOTAL-CURRENT-ASSETS> 362,053
<TOTAL-DEFERRED-CHARGES> 63,707
<OTHER-ASSETS> 212,933
<TOTAL-ASSETS> 4,055,503
<COMMON> 531,257
<CAPITAL-SURPLUS-PAID-IN> 28,886
<RETAINED-EARNINGS> 556,085
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,116,228
62,401
81,129
<LONG-TERM-DEBT-NET> 429,995
<SHORT-TERM-NOTES> 89,417
<LONG-TERM-NOTES-PAYABLE> 824,941
<COMMERCIAL-PAPER-OBLIGATIONS> 176,500
<LONG-TERM-DEBT-CURRENT-PORT> 91,377
1,828
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,181,687
<TOT-CAPITALIZATION-AND-LIAB> 4,055,503
<GROSS-OPERATING-REVENUE> 364,970
<INCOME-TAX-EXPENSE> 16,061
<OTHER-OPERATING-EXPENSES> 298,400
<TOTAL-OPERATING-EXPENSES> 314,461
<OPERATING-INCOME-LOSS> 50,509
<OTHER-INCOME-NET> 1,492
<INCOME-BEFORE-INTEREST-EXPEN> 52,001
<TOTAL-INTEREST-EXPENSE> 28,572
<NET-INCOME> 23,429
0
<EARNINGS-AVAILABLE-FOR-COMM> 23,429
<COMMON-STOCK-DIVIDENDS> 25,684
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 3,848
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
