UNITED STATES 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, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9941
PSI RESOURCES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1724168
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 East Main Street
Plainfield, Indiana 46168
(Address of principal executive offices)
Telephone number: (317) 839-9611
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
(APPLICABLE ONLY TO CORPORATE ISSUERS:)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - without par value; $.01 stated value -57,375,595 shares
outstanding at July 31, 1994.
PSI RESOURCES, INC.
TABLE OF CONTENTS
Item Page
Number Number
PART I. FINANCIAL INFORMATION
1 Consolidated Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . 3
Consolidated Statements of Income . . . . . . . . . . . 5
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows . . . . . . . . . 7
Notes to Consolidated Financial Statements. . . . . . . 8
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 14
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 24
6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . 24
Signatures . . . . . . . . . . . . . . . . . . . . . . . 25
PSI RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
1994 1993
(unaudited)
(thousands)
Electric Utility Plant - original cost
In service. . . . . . . . . . . . . . . . . $3 513 891 $3 449 127
Accumulated depreciation. . . . . . . . . . 1 509 759 1 455 871
2 004 132 1 993 256
Construction work in progress . . . . . . . 304 650 243 802
Total electric utility plant. . . . . . . 2 308 782 2 237 058
Current Assets
Cash and temporary cash investments . . . . 6 341 6 551
Restricted deposits . . . . . . . . . . . . 36 860 49 111
Accounts receivable . . . . . . . . . . . . 48 299 27 894
Income tax refunds. . . . . . . . . . . . . 3 800 28 900
Fossil fuel - at average cost . . . . . . . 102 169 45 315
Materials and supplies - at average cost. . 35 375 36 411
Other . . . . . . . . . . . . . . . . . . . 3 037 2 940
235 881 197 122
Other Assets
Regulatory assets . . . . . . . . . . . . . 161 466 118 809
Unamortized costs of reacquiring debt . . . 38 259 39 504
Unamortized debt expense. . . . . . . . . . 9 320 9 332
Other . . . . . . . . . . . . . . . . . . . 84 791 62 183
293 836 229 828
$2 838 499 $2 664 008
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
PSI RESOURCES, INC.
CAPITALIZATION AND LIABILITIES
<CAPTION>
June 30 December 31
1994 1993
(unaudited)
(thousands)
<S> <C> <C>
Common Stock Equity
Common stock - without par value; $.01 stated
value; authorized shares - 100,000,000;
outstanding shares - 57,352,926 at June 30,
1994, and 57,039,501 at December 31, 1993 . . $ 563 $ 559
Paid-in capital . . . . . . . . . . . . . . . . 259 130 250 574
Accumulated earnings subsequent to November 30,
1986 quasi-reorganization . . . . . . . . . . 460 095 451 291
Total common stock equity . . . . . . . . . 719 788 702 424
Cumulative Preferred Stock of Subsidiary - Not
Subject to Mandatory Redemption . . . . . . . . 187 968 187 989
Long-term Debt. . . . . . . . . . . . . . . . . . 877 408 816 152
Total capitalization. . . . . . . . . . . . 1 785 164 1 706 565
Current Liabilities
Long-term debt due within one year. . . . . . . 160 160
Notes payable . . . . . . . . . . . . . . . . . 314 200 146 701
Accounts payable. . . . . . . . . . . . . . . . 124 907 145 748
Refund due to customers . . . . . . . . . . . . 37 608 81 832
Litigation settlement . . . . . . . . . . . . . 80 000 80 000
Advance under accounts receivable purchase
agreement . . . . . . . . . . . . . . . . . . - 49 940
Accrued taxes . . . . . . . . . . . . . . . . . 38 905 37 283
Accrued interest and customers' deposits. . . . 28 605 25 831
624 385 567 495
Other Liabilities
Deferred income taxes . . . . . . . . . . . . . 309 360 285 667
Unamortized investment tax credits . . . . . . 62 591 64 721
Other . . . . . . . . . . . . . . . . . . . . . 56 999 39 560
428 950 389 948
$2 838 499 $2 664 008
/TABLE
<PAGE>
<TABLE>
PSI RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Quarter Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1994 1993 1994 1993 1994 1993
(thousands) (thousands) (thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues . . . . . . . . . . . $281 555 $223 003 $584 930 $512 957 $1 160 340 $1 063 284
Operating Expenses
Operation
Fuel . . . . . . . . . . . . . . . . 96 167 89 863 203 704 194 482 395 149 394 799
Purchased and exchanged power. . . . 13 566 4 575 28 226 7 294 45 205 10 860
Other operation. . . . . . . . . . . 57 409 50 570 108 794 100 924 229 301 198 926
Maintenance. . . . . . . . . . . . . . 22 316 20 925 42 376 40 978 85 418 85 419
Depreciation . . . . . . . . . . . . . 33 771 30 937 67 203 61 217 132 807 120 751
Post-in-service deferred
depreciation . . . . . . . . . . . . (2 342) (550) (4 622) (937) (8 754) (937)
Taxes
Federal and state income . . . . . . 11 868 403 31 096 20 549 65 776 57 269
State, local, and other. . . . . . . 12 778 10 996 25 603 22 578 48 806 42 338
245 533 207 719 502 380 447 085 993 708 909 425
Operating Income . . . . . . . . . . . . 36 022 15 284 82 550 65 872 166 632 153 859
Other Income and Expense - Net
Allowance for equity funds used
during construction. . . . . . . . . 367 2 322 3 439 4 414 10 198 5 105
Post-in-service carrying costs . . . . 2 105 841 4 306 1 603 8 708 1 603
Other - net. . . . . . . . . . . . . . (1 841) 11 124 (4 440) 9 074 (6 124) 9 675
631 14 287 3 305 15 091 12 782 16 383
Income Before Interest and
Other Charges. . . . . . . . . . . . . 36 653 29 571 85 855 80 963 179 414 170 242
Interest and Other Charges
Interest on long-term debt . . . . . . 17 098 17 797 33 622 34 572 67 996 67 218
Other interest . . . . . . . . . . . . 3 694 973 6 157 2 798 8 833 6 137
Allowance for borrowed funds used
during construction. . . . . . . . . (2 243) (2 850) (4 777) (4 960) (8 971) (7 943)
Preferred dividend requirement
of subsidiary. . . . . . . . . . . . 3 295 3 116 6 591 5 417 13 999 8 778
21 844 19 036 41 593 37 827 81 857 74 190
Net Income . . . . . . . . . . . . . . . $ 14 809 $ 10 535 $ 44 262 $ 43 136 $ 97 557 $ 96 052
Average Common Shares Outstanding. . . . 56 285 55 566 56 196 55 491 55 961 55 337
Earnings Per Share . . . . . . . . . . . $.27 $.19 $.79 $.78 $1.74 $1.74
Dividends Declared Per Share . . . . . . $.31 $.28 $.62 $.56 $1.21 $1.09
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
PSI RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(unaudited)
<CAPTION>
Common Paid-in Accumulated
Stock Capital Earnings
(thousands)
<S> <C> <C> <C>
Quarter Ended June 30, 1994
Balance April 1, 1994 . . . . . . . . . $562 $256 657 $463 040
Net income. . . . . . . . . . . . . . . 14 809
Issuance of common stock. . . . . . . . 1 2 472
Gain on retiring preferred stock
of subsidiary . . . . . . . . . . . . 5
Dividends on common stock (See page 5
for per share amount) . . . . . . . . (17 754)
Other . . . . . . . . . . . . . . . . . (4)
Balance June 30, 1994 . . . . . . . . . $563 $259 130 $460 095
Quarter Ended June 30, 1993
Balance April 1, 1993 . . . . . . . . . $555 $243 298 $435 787
Net income. . . . . . . . . . . . . . . 10 535
Issuance of common stock. . . . . . . . 1 2 525
Dividends on common stock (See page 5
for per share amount) . . . . . . . . (15 903)
Other . . . . . . . . . . . . . . . . . (226)
Balance June 30, 1993 . . . . . . . . . $556 $245 597 $430 419
Six Months Ended June 30, 1994
Balance January 1, 1994 . . . . . . . . $559 $250 574 $451 291
Net income. . . . . . . . . . . . . . . 44 262
Issuance of common stock. . . . . . . . 4 8 575
Costs of retiring preferred stock
of subsidiary . . . . . . . . . . . . (1)
Dividends on common stock (See page 5
for per share amount) . . . . . . . . (35 458)
Other . . . . . . . . . . . . . . . . . (18)
Balance June 30, 1994 . . . . . . . . . $563 $259 130 $460 095
Six Months Ended June 30, 1993
Balance January 1, 1993 . . . . . . . . $553 $242 558 $418 703
Net income. . . . . . . . . . . . . . . 43 136
Issuance of common stock. . . . . . . . 3 6 446
Dividends on common stock (See page 5
for per share amount) . . . . . . . . (31 420)
Other . . . . . . . . . . . . . . . . . (3 407)
Balance June 30, 1993 . . . . . . . . . $556 $245 597 $430 419
Twelve Months Ended June 30, 1994
Balance July 1, 1993. . . . . . . . . . $556 $245 597 $430 419
Net income. . . . . . . . . . . . . . . 97 557
Issuance of common stock. . . . . . . . 7 15 319
Costs of issuing and retiring
preferred stock of subsidiary . . . . (1 656)
Dividends on common stock (See page 5
for per share amount) . . . . . . . . (67 957)
Other . . . . . . . . . . . . . . . . . (130) 76
Balance June 30, 1994 . . . . . . . . . $563 $259 130 $460 095
Twelve Months Ended June 30, 1993
Balance July 1, 1992. . . . . . . . . . $550 $236 574 $395 043
Net income. . . . . . . . . . . . . . . 96 052
Issuance of common stock. . . . . . . . 6 12 429
Dividends on common stock (See page 5
for per share amount) . . . . . . . . (60 637)
Other . . . . . . . . . . . . . . . . . (3 406) (39)
Balance June 30, 1993 . . . . . . . . . $556 $245 597 $430 419
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<TABLE>
PSI RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Quarter Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1994 1993 1994 1993 1994 1993
(thousands) (thousands) (thousands)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . $ 14 809 $ 10 535 $ 44 262 $ 43 136 $ 97 557 $ 96 052
Items providing (using) cash currently:
Depreciation. . . . . . . . . . . . . . . . . . . 33 771 30 937 67 203 61 217 132 807 120 751
Deferred income taxes and investment tax
credits - net . . . . . . . . . . . . . . . . . 8 057 54 075 15 996 53 695 35 136 64 044
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . (367) (2 322) (3 439) (4 414) (10 198) (5 105)
Regulatory assets - excluding demand-side
management costs. . . . . . . . . . . . . . . . (1 051) (6 533) (11 559) (13 376) (28 092) (18 293)
Changes in current assets and current
liabilities
Restricted deposits . . . . . . . . . . . . . (81) 194 (150) 126 (345) (349)
Accounts receivable . . . . . . . . . . . . . (4 829) 18 304 (20 405) 15 987 (22 504) (186)
Income tax refunds. . . . . . . . . . . . . . 5 500 (18 000) 25 100 (18 000) 14 200 (18 000)
Fossil fuel and materials and supplies. . . . (32 495) 15 926 (55 818) 38 863 (36 279) 60 609
Accounts payable. . . . . . . . . . . . . . . 11 510 6 735 (20 844) 10 072 26 240 5 311
Refund due to customers . . . . . . . . . . . (9 740) 10 866 (44 224) 10 866 (112 392) 10 866
Advance under accounts receivable
purchase agreement. . . . . . . . . . . . . - - (49 940) - - -
Accrued taxes and interest. . . . . . . . . . (6 321) (48 668) 4 570 (39 196) 35 312 (25 598)
Other items - net . . . . . . . . . . . . . . . . 1 330 (5 990) (6 456) (14 078) (4 328) (21 479)
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . 20 093 66 059 (55 704) 144 898 127 114 268 623
FINANCING ACTIVITIES
Issuance of common stock. . . . . . . . . . . . . . 2 473 2 526 8 579 6 449 15 326 12 435
Issuance of preferred stock of subsidiary . . . . . - - - 96 850 59 475 96 850
Issuance of long-term debt. . . . . . . . . . . . . - - 49 068 78 688 212 084 144 193
Funds on deposit from issuance of long-term
debt. . . . . . . . . . . . . . . . . . . . . . . 3 224 7 308 12 401 (53 064) 34 123 (43 582)
Retirement of preferred stock of subsidiary . . . . (6) - (10) - (60 117) -
Redemption of long-term debt. . . . . . . . . . . . - - - - (207 880) -
Change in short-term debt . . . . . . . . . . . . . 80 944 44 802 167 499 (60 850) 230 816 (33 762)
Dividends on common stock . . . . . . . . . . . . . (17 754) (15 903) (35 458) (31 420) (67 957) (60 637)
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . 68 881 38 733 202 079 36 653 215 870 115 497
INVESTING ACTIVITIES
Utility plant additions . . . . . . . . . . . . . . (77 366) (98 175) (134 478) (174 723) (321 362) (345 372)
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . . 367 2 322 3 439 4 414 10 198 5 105
Demand-side management costs. . . . . . . . . . . . (9 095) (5 730) (15 514) (10 054) (36 196) (22 650)
Equity investments in Argentine utilities . . . . . - (8) (32) (199) (39) (15 944)
Net cash provided by (used in) investing
activities. . . . . . . . . . . . . . . . . (86 094) (101 591) (146 585) (180 562) (347 399) (378 861)
Net increase (decrease) in cash and
temporary cash investments. . . . . . . . . . . . 2 880 3 201 (210) 989 (4 415) 5 259
Cash and temporary cash investments at
beginning of period . . . . . . . . . . . . . . . 3 461 7 555 6 551 9 767 10 756 5 497
Cash and temporary cash investments at
end of period . . . . . . . . . . . . . . . . . . $ 6 341 $ 10 756 $ 6 341 $ 10 756 $ 6 341 $ 10 756
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
<PAGE>
PSI RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. These Consolidated Financial Statements reflect all adjustments (which
include only normal, recurring adjustments) necessary in the opinion of
PSI Resources, Inc. (Resources) for a fair presentation of the interim
results. These statements should be read in conjunction with Resources'
1993 Annual Report on Form 10-K, as amended (1993 Form 10-K) (Commission
File Number 1-9941). Certain amounts in the 1993 Consolidated Financial
Statements have been reclassified to conform to the 1994 presentation.
2. In February 1994, PSI Energy, Inc. (Energy), Resources' principal
subsidiary, issued $50 million, 7 1/8% first mortgage bonds, Series AAA,
due February 1, 2024. These bonds are not redeemable prior to February 1,
2004, and are redeemable thereafter at the option of Energy. The proceeds
from this debt issuance were used to reduce short-term debt incurred to
finance construction.
3. As disclosed in the 1993 Form 10-K, Resources, Energy, and The Cincinnati
Gas & Electric Company (CG&E) entered into an Agreement and Plan of
Reorganization dated as of December 11, 1992, which was subsequently
amended and restated on July 2, 1993, and as of September 10, 1993, and
was further amended as of June 20, 1994, and as of July 26, 1994 (as
amended and restated, the "Merger Agreement"). Under the Merger
Agreement, Resources will be merged with and into a newly formed
corporation named CINergy Corp. (CINergy) and a subsidiary of CINergy will
be merged with and into CG&E (collectively referred to as the "Mergers").
In August 1993, the Federal Energy Regulatory Commission (FERC)
conditionally approved the Mergers. Certain parties petitioned for
rehearing of the FERC's conditional approval. Given the issues raised on
the requests for rehearing and the lack of certainty in the record
regarding state regulatory powers, on January 12, 1994, the FERC issued an
order withdrawing its prior conditional approval of the Mergers and
initiating a 60-day, FERC-sponsored settlement procedure. In connection
with this settlement procedure and other collaborative discussions,
Resources, Energy, CINergy, the Indiana Office of the Utility Consumer
Counselor (UCC), the Citizens Action Coalition of Indiana, Inc., and
industrial customer representatives reached a global settlement agreement
on merger-related issues. This agreement was filed with the Indiana
Utility Regulatory Commission (IURC) on March 2, 1994, and was approved in
its entirety by the IURC on March 29, 1994. On March 4, 1994, CG&E, the
Public Utilities Commission of Ohio (PUCO), and the Ohio Office of
Consumers Counsel reached an agreement substantially similar to the
Indiana agreement. Both settlement agreements were filed with the FERC on
March 4, 1994. Additional settlements were also filed with the FERC
involving other parties that had intervened in the FERC Mergers approval
proceeding.
Initial comments regarding the settlements were filed with the FERC on
April 12, 1994, and reply comments were filed on April 21, 1994. American
Electric Power, Dayton Power and Light Company, Indiana Municipal Power
Agency, and the American Forest and Paper Association opposed acceptance
of the settlements without a hearing on grounds previously raised in their
various pleadings filed with the FERC. In both their initial and reply
comments, the FERC staff recommended acceptance of the settlements and
approval of the Mergers without further hearing. There is no deadline by
which the FERC must rule.
CG&E also filed with the FERC a unilateral offer of settlement addressing
all issues raised in the Kentucky Public Service Commission's (KPSC)
application for rehearing with the FERC. On March 15, 1994, CG&E filed an
application with the KPSC seeking approval of the indirect acquisition of
control of CG&E's Kentucky subsidiary, The Union Light, Heat and Power
Company (ULH&P). A public hearing was held on May 10, 1994, and on May
13, 1994, the KPSC issued an order conditionally approving the indirect
acquisition of control of ULH&P by CINergy. On May 19, 1994, CG&E,
CINergy, and ULH&P accepted the conditions outlined by the KPSC, and on
May 23, 1994, the KPSC accepted the unilateral offer of settlement which
CG&E had filed with the FERC, as modified by mutual agreement to take into
account conditions in the KPSC order regarding the timing of CG&E's next
wholesale rate filing applicable to ULH&P.
The Mergers are also subject to the approval of the Securities and
Exchange Commission (SEC) under the Public Utility Holding Company Act of
1935. An application requesting such SEC approval was filed on May 23,
1994. Certain parties have filed to intervene and have requested a
hearing in the SEC proceeding. These intervenors argue for forced
divestiture of CG&E's gas operations and raise other contractual and
operational issues as to CG&E's and Energy's electric operations. On
August 1, 1994, CINergy filed a response contesting these requests for a
hearing.
While the companies' goal remains to consummate the Mergers by the end of
the third quarter of 1994, closing may be extended into the fourth
quarter. If the settlements are not accepted and a hearing is convened by
the FERC, or SEC approval is delayed, the consummation of the Mergers
would likely be further extended. There can be no assurance that the
Mergers will be consummated. An amendment to the Merger Agreement dated
as of June 20, 1994, extended the date after which the agreement may be
terminated from June 30, 1994, to September 30, 1994.
4. Hearings have been held before the IURC on Energy's case-in-chief
supporting Energy's request for a $103 million, 11.6% retail rate
increase. On July 6, 1994, the UCC filed testimony with the IURC
recommending an $8.5 million retail rate increase. The primary
differences between Energy's case and the UCC's case are the requested
rate of return, proposed depreciation expense, and Energy's request to
include in rates the cost of postretirement benefits other than pensions
on an accrual basis. A final rate order is anticipated in early 1995
following the conclusion of the remaining hearings scheduled for later
this year. Energy cannot predict what action the IURC may take with
respect to this proposed rate increase.
On July 14, 1994, Energy filed a petition with the IURC requesting an
additional retail rate increase of approximately 8% primarily to recover
the costs of two major projects previously approved by the IURC. The
first project is a flue-gas desulfurization unit (scrubber) at Energy's
Gibson Generating Station which is projected to be completed in October
1994. The second project is Energy's clean coal power generating facility
at the Wabash River Generating Station which is planned to go in-service
by the end of the third quarter of 1995. Energy cannot predict what
action the IURC may take with respect to this proposed rate increase.
In addition, on July 14, 1994, in a separate proceeding, Energy filed with
the IURC its plan for the allocation of Energy's portion of the net
benefits of the Mergers. Energy estimates that approximately half of the
CINergy net merger savings will be allocated to Energy. Under Energy's
plan, Energy would recover its share of projected merger transaction costs
and other costs to achieve merger benefits out of merger savings.
Additionally, under Energy's plan, up to 15% of Energy's share of the net
savings would be retained for the benefit of shareholders, depending on
Energy's performance. The hearings on this plan are anticipated to be
completed by the end of January 1995. Energy cannot predict what action
the IURC may take with respect to the proposed net merger savings
allocation.
5. As disclosed in the 1993 Form 10-K, in February 1989, Energy and its
officers reached a settlement with Wabash Valley Power Association, Inc.
(WVPA) which, if approved by judicial and regulatory authorities, will
settle the suit filed by WVPA which seeks $478 million plus interest and
other damages to recover its shares of Marble Hill costs. The settlement
is also contingent on the resolution of WVPA's bankruptcy proceeding.
Alternative plans of reorganization sponsored by WVPA and the Rural
Electrification Administration (REA) incorporate the settlement agreement.
However, REA's proposed plan provides for full recovery of principal and
interest on WVPA's debt to REA, which is substantially in excess of the
amount to be recovered under WVPA's proposed plan. In August 1991, the
United States Bankruptcy Court for the Southern District of Indiana
(Bankruptcy Court) confirmed WVPA's plan of reorganization and denied
confirmation of REA's opposing plan. The Bankruptcy Court's approval of
WVPA's reorganization plan is contingent upon WVPA's receipt of regulatory
approval to increase rates. REA appealed the Bankruptcy Court's decision
to the United States District Court for the Southern District of Indiana
(Indiana District Court). On June 28, 1994, the Indiana District Court
ruled in favor of WVPA's plan. Energy cannot predict whether REA may
appeal this decision, nor is it known whether WVPA can obtain regulatory
approval to increase its rates. If reasonable progress is not made in
satisfying conditions to the settlement by February 1, 1995, either party
may terminate the settlement agreement.
6. As disclosed in the 1993 Form 10-K, Energy was involved in litigation with
Exxon Coal USA, Inc. and Exxon Corporation (Exxon) regarding the price for
coal delivered under a coal supply contract. On June 20, 1994, the United
States Supreme Court denied Energy's request for review of a ruling by the
United States Court of Appeals for the Seventh Circuit, which established
the contract price at $30 per ton and reversed the trial court's decision
holding that the price should be $23.266 per ton. The IURC has authorized
Energy to recover the additional cost through the fuel adjustment clause
process. In addition, on August 3, 1994, Energy announced that it had
resolved the two remaining lawsuits with Exxon related to coal quality,
price and price components, and Exxon's claims against Energy for Energy's
failure to take coal after Energy terminated its contract pursuant to a
December 1992 court decision. This August 1994 settlement concludes all
outstanding litigation between Energy and Exxon with no significant effect
on Energy's financial condition.
7. As disclosed in the 1993 Form 10-K, Energy has IURC authority to borrow up
to $200 million under short-term credit arrangements. As of July 31,
1994, Energy had $174.9 million outstanding under these arrangements.
Energy may also arrange for additional short-term borrowings in accordance
with FERC authority. As discussed in the 1993 Form 10-K, such additional
borrowings were limited by Energy's Board of Directors to a maximum of
$100 million. On July 26, 1994, the Board of Directors authorized Energy
to arrange for additional short-term borrowings in accordance with the
maximum allowed under FERC authority. As a result of this authorization,
Energy may establish short-term borrowing arrangements of up to $126
million as of July 31, 1994. Energy had $124 million outstanding under
these arrangements as of July 31, 1994.
8. The following pro forma condensed consolidated financial information
combines the historical unaudited Consolidated Statements of Income and
Consolidated Balance Sheets of Resources and CG&E after giving effect to
the Mergers. The unaudited Pro Forma Condensed Consolidated Statements of
Income for the quarter, six months, and twelve months ended June 30, 1994,
give effect to the Mergers as if the Mergers had occurred at July 1, 1993.
The unaudited Pro Forma Condensed Consolidated Balance Sheet at June 30,
1994, gives effect to the Mergers as if the Mergers had occurred at June
30, 1994. These statements are prepared on the basis of accounting for
the Mergers as a pooling of interests and are based on the assumptions set
forth in the notes thereto. In addition, the following pro forma
condensed consolidated financial information should be read in conjunction
with the historical consolidated financial statements and related notes
thereto of Resources and CG&E. The following information is not
necessarily indicative of the operating results or financial position that
would have occurred had the Mergers been consummated at the beginning of
the periods, or on the date, for which the Mergers are being given effect,
nor is it necessarily indicative of future operating results or financial
position.
(left blank intentionally)
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in millions, except per share amounts)
<CAPTION>
Quarter Ended Six Months Ended Twelve Months Ended
June 30, 1994 June 30, 1994 June 30, 1994
Historical Pro Forma Historical Pro Forma Historical Pro Forma
Resources CG&E CINergy Resources CG&E CINergy Resources CG&E CINergy
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues . . . $282 $391 $673 $585 $954 $1 539 $1 161 $1 845 $3 006
Operating expenses . . . 246 321 567 502 778 1 280 994 1 502 2 496
Operating income . . . . 36 70 106 83 176 259 167 343 510
Other income and
expense - net. . . . . 1 6 7 3 16 19 13 (189)* (176)
Interest charges - net . 19 37 56 35 77 112 68 156 224
Preferred dividend
requirement of
subsidiaries . . . . . 3 5 8 7 11 18 14 24 38
Net income (loss). . . . $ 15 $ 34 $ 49 $ 44 $104 $ 148 $ 98 $ (26) $ 72
Average common shares
outstanding <F1> . . . 56 89 140/146 56 89 140/146 56 88 139/145
Earnings (Loss) per
common share <F1> . . . $.27 $.38 $.35/.33 $.79 $1.17 $1.06/1.01 $1.74 $(.29) $.52/.49
Dividends declared per
common share <F1> . . . $.31 $.43 $.40/.38 $.62 $.86 $.80/.76 $1.21 $1.70-1/2 $1.57/1.50
* Reflects write-off of a portion of Wm. H. Zimmer Generating Station ($223 million net of tax).
See Notes to Pro Forma Condensed Consolidated Financial Information.
</TABLE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
at June 30, 1994
(unaudited)
<CAPTION>
(in millions)
Historical Pro Forma
Resources CG&E CINergy
<S> <C> <C> <C>
ASSETS
Utility plant - original cost
In service . . . . . . . . . . . . . . . . . . . . . . $3 514 $5 257 $8 771
Accumulated depreciation . . . . . . . . . . . . . . . 1 510 1 538 3 048
2 004 3 719 5 723
Construction work in progress. . . . . . . . . . . . . 305 65 370
Total utility plant. . . . . . . . . . . . . . . . . 2 309 3 784 6 093
Current assets. . . . . . . . . . . . . . . . . . . . . 236 565 801
Other assets. . . . . . . . . . . . . . . . . . . . . . 293 775 1 068
Total assets . . . . . . . . . . . . . . . . . . . . $2 838 $5 124 $7 962
CAPITALIZATION AND LIABILITIES
Common stock <F2> . . . . . . . . . . . . . . . . . . . $ 1 $ 757 $ 1
Paid-in capital <F2>. . . . . . . . . . . . . . . . . . 259 330 1 346
Retained earnings . . . . . . . . . . . . . . . . . . . 460 483 943
Total common stock equity. . . . . . . . . . . . . . 720 1 570 2 290
Cumulative preferred stock of subsidiaries. . . . . . . 188 290 478
Long-term debt. . . . . . . . . . . . . . . . . . . . . 877 1 838 2 715
Total capitalization . . . . . . . . . . . . . . . . 1 785 3 698 5 483
Current liabilities . . . . . . . . . . . . . . . . . . 624 374 998
Deferred income taxes . . . . . . . . . . . . . . . . . 309 743 1 052
Other liabilities . . . . . . . . . . . . . . . . . . . 120 309 429
Total capitalization and liabilities . . . . . . . . $2 838 $5 124 $7 962
Notes to Pro Forma Condensed Consolidated Financial Information
<F1> The Pro Forma Condensed Consolidated Statements of Income reflect the conversion of each share of
Resources' common stock outstanding into (a) .909 share and (b) 1.023 shares of CINergy common stock and
each share of CG&E's common stock outstanding into one share of CINergy common stock. The actual
Resources conversion ratio may be lower than 1.023 or higher than .909 depending upon closing sales prices
of CG&E's common stock during a period prior to the consummation of the Mergers. Pro forma dividends
declared per common share reflect the historical dividends declared by Resources and CG&E, divided by the
pro forma average number of CINergy common stock shares outstanding.
<F2> The pro forma "Common stock" and "Paid-in capital" amounts reflected in the Pro Forma Condensed
Consolidated Balance Sheet are based on the conversion of each share of Resources' common stock
outstanding into 1.023 shares of CINergy common stock ($.01 par value) and each share of CG&E's common
stock outstanding into one share of CINergy common stock ($.01 par value). Any Resources conversion ratio
lower than 1.023 would result in a reallocation of amounts between "Common stock" and "Paid-in capital".
However, any such reallocation would have no effect on "Total common stock equity".
<F3> Intercompany transactions (including purchased and exchanged power transactions) between Resources and
CG&E during the periods presented were not material and accordingly no pro forma adjustments were made to
eliminate such transactions.
<F4> Transaction costs, estimated to be approximately $47 million, are being deferred by Resources and CG&E.
Resources' portion of the costs are being deferred for post-Mergers recovery through customers' rates. In
a settlement agreement approved by the PUCO, CG&E has agreed to, among other things, amortize its portion
of merger-related transaction costs by January 1, 1999. CG&E will be permitted to retain all of its non-
fuel savings from the Mergers until 1999.
</TABLE>
PSI RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Merger Agreement with The Cincinnati Gas & Electric Company
As disclosed in PSI Resources, Inc.'s (Resources) 1993 Annual Report on Form
10-K, as amended (1993 Form 10-K), Resources, PSI Energy, Inc. (Energy), and
The Cincinnati Gas & Electric Company (CG&E) entered into an Agreement and
Plan of Reorganization dated as of December 11, 1992, which was subsequently
amended and restated on July 2, 1993, and as of September 10, 1993, and was
further amended as of June 20, 1994, and as of July 26, 1994 (as amended and
restated, the "Merger Agreement"). Under the Merger Agreement, Resources will
be merged with and into a newly formed corporation named CINergy Corp.
(CINergy) and a subsidiary of CINergy will be merged with and into CG&E
(collectively referred to as the "Mergers").
In August 1993, the Federal Energy Regulatory Commission (FERC) conditionally
approved the Mergers. Certain parties petitioned for rehearing of the FERC's
conditional approval. Given the issues raised on the requests for rehearing
and the lack of certainty in the record regarding state regulatory powers, on
January 12, 1994, the FERC issued an order withdrawing its prior conditional
approval of the Mergers and initiating a 60-day, FERC-sponsored settlement
procedure. In connection with this settlement procedure and other
collaborative discussions, Resources, Energy, CINergy, the Indiana Office of
the Utility Consumer Counselor (UCC), the Citizens Action Coalition of
Indiana, Inc., and industrial customer representatives reached a global
settlement agreement on merger-related issues. This agreement was filed with
the Indiana Utility Regulatory Commission (IURC) on March 2, 1994, and was
approved in its entirety by the IURC on March 29, 1994. On March 4, 1994,
CG&E, the Public Utilities Commission of Ohio, and the Ohio Office of
Consumers Counsel reached an agreement substantially similar to the Indiana
agreement. Both settlement agreements were filed with the FERC on March 4,
1994. Additional settlements were also filed with the FERC involving other
parties that had intervened in the FERC Mergers approval proceeding.
Initial comments regarding the settlements were filed with the FERC on April
12, 1994, and reply comments were filed on April 21, 1994. American Electric
Power, Dayton Power and Light Company, Indiana Municipal Power Agency, and the
American Forest and Paper Association opposed acceptance of the settlements
without a hearing on grounds previously raised in their various pleadings
filed with the FERC. In both their initial and reply comments, the FERC staff
recommended acceptance of the settlements and approval of the Mergers without
further hearing. There is no deadline by which the FERC must rule.
CG&E also filed with the FERC a unilateral offer of settlement addressing all
issues raised in the Kentucky Public Service Commission's (KPSC) application
for rehearing with the FERC. On March 15, 1994, CG&E filed an application
with the KPSC seeking approval of the indirect acquisition of control of
CG&E's Kentucky subsidiary, The Union Light, Heat and Power Company (ULH&P).
A public hearing was held on May 10, 1994, and on May 13, 1994, the KPSC
issued an order conditionally approving the indirect acquisition of control of
ULH&P by CINergy. On May 19, 1994, CG&E, CINergy, and ULH&P accepted the
conditions outlined by the KPSC, and on May 23, 1994, the KPSC accepted the
unilateral offer of settlement which CG&E had filed with the FERC, as modified
by mutual agreement to take into account conditions in the KPSC order
regarding the timing of CG&E's next wholesale rate filing applicable to ULH&P.
The Mergers are also subject to the approval of the Securities and Exchange
Commission (SEC) under the Public Utility Holding Company Act of 1935. An
application requesting such SEC approval was filed on May 23, 1994. Certain
parties have filed to intervene and have requested a hearing in the SEC
proceeding. These intervenors argue for forced divestiture of CG&E's gas
operations and raise other contractual and operational issues as to CG&E's and
Energy's electric operations. On August 1, 1994, CINergy filed a response
contesting these requests for a hearing.
While the companies' goal remains to consummate the Mergers by the end of the
third quarter of 1994, closing may be extended into the fourth quarter. If
the settlements are not accepted and a hearing is convened by the FERC, or SEC
approval is delayed, the consummation of the Mergers would likely be further
extended. There can be no assurance that the Mergers will be consummated. An
amendment to the Merger Agreement dated as of June 20, 1994, extended the date
after which the agreement may be terminated from June 30, 1994, to September
30, 1994.
Regulatory Matters
Hearings have been held before the IURC on Energy's case-in-chief supporting
Energy's request for a $103 million, 11.6% retail rate increase. On July 6,
1994, the UCC filed testimony with the IURC recommending an $8.5 million
retail rate increase. The primary differences between Energy's case and the
UCC's case are the requested rate of return, proposed depreciation expense,
and Energy's request to include in rates the cost of postretirement benefits
other than pensions on an accrual basis. A final rate order is anticipated in
early 1995 following the conclusion of the remaining hearings scheduled for
later this year. Energy cannot predict what action the IURC may take with
respect to this proposed rate increase. Delayed rate relief will continue to
put downward pressure on earnings.
On July 14, 1994, Energy filed a petition with the IURC requesting an
additional retail rate increase of approximately 8% primarily to recover the
costs of two major projects previously approved by the IURC. The first
project is a flue-gas desulfurization unit (scrubber) at Energy's Gibson
Generating Station which is projected to be completed in October 1994. The
second project is Energy's clean coal power generating facility at the Wabash
River Generating Station which is planned to go in-service by the end of the
third quarter of 1995. Energy cannot predict what action the IURC may take
with respect to this proposed rate increase.
In addition, on July 14, 1994, in a separate proceeding, Energy filed with the
IURC its plan for the allocation of Energy's portion of the net benefits of
the Mergers. Net savings as a result of the Mergers, computed based upon
customer revenue requirements, are estimated to be approximately $1.5 billion
over 10 years. Energy estimates that approximately half of the CINergy net
merger savings will be allocated to Energy. Under Energy's plan, Energy would
recover its share of projected merger transaction costs and other costs to
achieve merger benefits out of merger savings. Additionally, under Energy's
plan, up to 15% of Energy's share of the net savings would be retained for the
benefit of shareholders, depending on Energy's performance. The hearings on
this plan are anticipated to be completed by the end of January 1995. Energy
cannot predict what action the IURC may take with respect to the proposed net
merger savings allocation.
1994 Voluntary Workforce Reduction Plan
In June 1994, Energy announced a voluntary workforce reduction plan which
provides severance benefits to eligible employees who timely elect to
terminate their employment with Energy by resignation or retirement. The plan
is designed to help realize efficiencies and cost reductions in preparation
for the formation of CINergy. Plan costs will not be available until after
the participation election period ends on August 31, 1994. In its merger
savings allocation plan filed with the IURC, Energy has requested authority to
defer the costs associated with this voluntary workforce reduction and to
amortize such costs over a 10 year period as an offset against merger savings.
CAPITAL RESOURCES
As disclosed in the 1993 Form 10-K, Energy has IURC authority to borrow up to
$200 million under short-term credit arrangements. As of July 31, 1994,
Energy had $174.9 million outstanding under these arrangements. Energy may
also arrange for additional short-term borrowings in accordance with FERC
authority. As discussed in the 1993 Form 10-K, such additional borrowings
were limited by Energy's Board of Directors to a maximum of $100 million. On
July 26, 1994, the Board of Directors authorized Energy to arrange for
additional short-term borrowings in accordance with the maximum allowed under
FERC authority. As a result of this authorization, Energy may establish
short-term borrowing arrangements of up to $126 million as of July 31, 1994.
Energy had $124 million outstanding under these arrangements as of July 31,
1994.
As disclosed in the 1993 Form 10-K, Resources has an effective shelf
registration statement for the sale of up to eight million shares of
Resources' common stock. A public offering of Resources' common stock is
currently anticipated to occur in the third quarter of 1994. The net proceeds
from the issuance and sale of this common stock may be used by Resources to
reduce its short-term indebtedness, with the balance contributed to the equity
capital of Energy. Energy will use this contributed capital for general
purposes, including construction expenditures.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1994
Kilowatt-hour Sales
For the quarter ended June 30, 1994, kilowatt-hour (kwh) sales increased 14%
when compared to the same period last year. This increase was primarily
attributable to increased sales for resale. Non-firm power sales increased as
a result of increased third party short-term power sales to other utilities
through Energy's system and increased direct power sales to other utilities.
The increase in firm power sales for resale was primarily driven by the warmer
weather conditions experienced particularly during the month of June. Also
contributing to increased kwh sales were increased domestic and commercial
sales due to the warmer weather conditions previously discussed and the
increased number of both domestic and commercial customers in Energy's service
territory. In addition, growth primarily in the transportation equipment,
rubber and miscellaneous plastic products, and fabricated metal products
sectors contributed to increased industrial sales.
Revenues
Total operating revenues increased $59 million (26%) in the second quarter of
1994 as compared to the same period last year. This increase is primarily due
to the effects of the $31 million refund accrued in June 1993, which resulted
from the settlement of the IURC's April 1990 retail rate order (April 1990
Order) and the changes in kwh sales, as previously discussed. Partially
offsetting increased operating revenues was the 1.5% retail rate reduction as
a result of the IURC's December 1993 order, which approved the settlement
agreement resolving outstanding issues related to the appeals of the April
1990 Order and the IURC's June 1987 order (June 1987 Order).
An analysis of operating revenues is shown below:
Quarter
Ended June 30
(millions)
Operating revenues - June 30, 1993 $223
Increase (Decrease) due to change in:
Price per kwh
Retail 33
Sales for resale
Firm power obligations 1
Non-firm power transactions 2
Total change in price per kwh 36
Kwh sales
Retail 13
Sales for resale
Firm power obligations 2
Non-firm power transactions 8
Total change in kwh sales 23
Operating revenues - June 30, 1994 $282
Operating Expenses
Fuel
Fuel expense, Energy's largest operating expense, increased $6 million (7%)
for the quarter ended June 30, 1994, as compared to the same period last year.
An analysis of fuel expense is shown below:
Quarter
Ended June 30
(millions)
Fuel expense - June 30, 1993 $90
Increase (Decrease) due to change in:
Price of fuel (1)
Kwh generation 7
Fuel expense - June 30, 1994 $96
Purchased and Exchanged Power
Purchased and exchanged power for the quarter ended June 30, 1994, increased
$9 million over the comparable prior year period. This increase was primarily
driven by the increased third party short-term power sales to other utilities
through Energy's system, as previously discussed.
Other Operation and Maintenance
When compared to the same period last year, other operation and maintenance
expenses for the quarter ended June 30, 1994, increased $8 million (12%). For
the same period, Energy's other operation and maintenance expenses increased
$10 million (15%). Energy's increase was primarily due to a $6 million
increase in fuel litigation expenses. In addition, Energy's increase reflects
the general inflationary effects on operating costs.
Depreciation
As a result of increased plant additions, depreciation expense for the quarter
ended June 30, 1994, increased $3 million (9%) as compared to the same period
last year.
Federal and State Income Taxes
Federal and state income taxes for the quarter ended June 30, 1994, increased
$11 million over the comparable prior year period reflecting the effect of the
settlement of the April 1990 Order on 1993 operating income.
Other Income and Expense - Net
Other income and expense decreased $14 million (96%) for the quarter ended
June 30, 1994, as compared to the same period last year. This decrease was
due primarily to the June 1993 reduction of the loss related to the June 1987
Order.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1994
Kwh Sales
Kwh sales for the six months ended June 30, 1994, increased 13% when compared
to the same period last year. This increase was primarily the result of
increased sales for resale. Increased third party short-term power sales to
other utilities through Energy's system and increased direct power sales to
other utilities contributed to increased non-firm power sales. The more
extreme weather conditions experienced during the first and second quarters of
1994 resulted in increased firm power sales for resale. In addition to the
weather conditions previously discussed, retail sales increased as a result of
the increased number of both domestic and commercial customers in Energy's
service territory. Increased industrial sales occurred due to growth
primarily in the primary metals, transportation equipment, and rubber and
miscellaneous plastic products sectors.
Revenues
Total operating revenues increased $72 million (14%) for the six months ended
June 30, 1994, as compared to the same period last year. This increase
primarily reflects the changes in kwh sales, as previously discussed, in
addition to the effects of the $31 million refund accrued in June 1993 as a
result of the settlement of the April 1990 Order. Partially offsetting these
increases were the 1.5% retail rate reduction resulting from the IURC's
December 1993 order, as previously discussed, and decreased activities in
Resources' subsidiary, Wholesale Power Services, Inc.
An analysis of operating revenues is shown below:
Six Months
Ended June 30
(millions)
Operating revenues - June 30, 1993 $513
Increase (Decrease) due to change in:
Price per kwh
Retail 23
Sales for resale
Firm power obligations -
Non-firm power transactions 4
Total change in price per kwh 27
Kwh sales
Retail 25
Sales for resale
Firm power obligations 6
Non-firm power transactions 17
Total change in kwh sales 48
Other (3)
Operating revenues - June 30, 1994 $585
Operating Expenses
Fuel
Fuel costs for the six months ended June 30, 1994, increased $9 million (5%)
when compared to the same period last year.
An analysis of fuel expense is shown below:
Six Months
Ended June 30
(millions)
Fuel expense - June 30, 1993 $195
Increase (Decrease) due to change in:
Price of fuel (1)
Kwh generation 10
Fuel expense - June 30, 1994 $204
Purchased and Exchanged Power
For the six months ended June 30, 1994, purchased and exchanged power
increased $21 million when compared to the same period last year. This
increase was due to increased purchases of power by Energy to sell to other
utilities and to meet Energy's own load.
Other Operation and Maintenance
Other operation and maintenance expenses for the six months ended June 30,
1994, increased $9 million (7%) as compared to the same period last year. For
the same period, Energy's operation and maintenance expenses increased $10
million (8%). Energy's increase was primarily a result of a $6 million
increase in fuel litigation expenses, as previously discussed. Also
contributing to this increase were the general inflationary effects on
operating costs. Energy's increases were partially offset by the decreased
activities in Resources' subsidiary, Wholesale Power Services, Inc.
Depreciation
Depreciation expense for the six months ended June 30, 1994, increased $6
million (10%) when compared to the same period last year due to increased
plant additions.
Federal and State Income Taxes
Federal and state income taxes for the six months ended June 30, 1994, as
compared to the same period last year, increased $11 million (51%) primarily
reflecting the effect of the settlement of the April 1990 Order on 1993
operating income.
State, Local, and Other Taxes
State, local, and other taxes for the six months ended June 30, 1994, as
compared to the same period last year, increased $3 million (13%). This was
primarily attributable to higher property taxes, which reflect plant additions
and increased property tax rates.
Other Income and Expense - Net
For the six months ended June 30, 1994, other income and expense reflected a
$12 million (78%) decrease primarily as a result of the June 1993 reduction of
the loss related to the June 1987 Order, as previously discussed. Amounts
related to the greater number of completed environmental compliance projects
in 1994 which qualify, under IURC authority, for continued accrual of the debt
component of the allowance for funds used during construction (AFUDC) (post-
in-service carrying costs) partially offset this decrease.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 1994
Kwh Sales
Kwh sales for the twelve months ended June 30, 1994, increased 10% as compared
to the same period last year. The increased kwh sales were primarily the
result of increased retail sales. Domestic and commercial sales increased as
a result of increased domestic and commercial customers in Energy's service
territory as well as the more normal weather conditions experienced during the
third quarter of 1993 and the more extreme weather conditions experienced
during the first and second quarters of 1994, as previously discussed. In
addition, growth primarily in the primary metals and transportation equipment
sectors resulted in increased industrial sales. Also contributing to
increased kwh sales were increased sales for resale primarily as a result of
the weather conditions previously discussed.
Revenues
Total operating revenues increased $97 million (9%) for the twelve months
ended June 30, 1994, as compared to the same period last year. In addition to
the increased kwh sales discussed above, this increase in operating revenues
reflects the effects from the $31 million refund accrued in June 1993 as a
result of the settlement of the April 1990 Order. Partially offsetting these
increases in operating revenues were the effects of lower fuel costs, the 1.5%
retail rate reduction resulting from the IURC's December 1993 order, Energy's
lower average realization arising from the increased levels of kwh usage, and
decreased activities in Resources' subsidiary, Wholesale Power Services, Inc.
An analysis of operating revenues is shown below:
Twelve Months
Ended June 30
(millions)
Operating revenues - June 30, 1993 $1 063
Increase (Decrease) due to change in:
Price per kwh
Retail 6
Sales for resale
Firm power obligations (4)
Non-firm power transactions 10
Total change in price per kwh 12
Kwh sales
Retail 67
Sales for resale
Firm power obligations 11
Non-firm power transactions 15
Total change in kwh sales 93
Other (8)
Operating revenues - June 30, 1994 $1 160
Operating Expenses
Purchased and Exchanged Power
Purchased and exchanged power for the twelve months ended June 30, 1994,
increased $34 million as compared to the same period last year. This increase
reflects increased purchases of power by Energy which were necessary to meet
Energy's own load and to sell to other utilities.
Other Operation and Maintenance
Increased other operation and maintenance expenses of $30 million (11%) for
the twelve months ended June 30, 1994, as compared to the same period last
year, were primarily attributable to approximately $23 million of costs
incurred by Resources associated with IPALCO Enterprises, Inc.'s failed
hostile takeover attempt. This increase was also partially attributable to a
$6 million increase in Energy's fuel litigation expenses, as previously
discussed. In addition to the general inflationary effects on operating
costs, this increase also reflects the initial costs of Energy's new
distribution line clearing program. Partially offsetting these increases were
decreased activities in Resources' subsidiary, Wholesale Power Services, Inc.
Depreciation
Due to increased plant additions, depreciation expense increased $12 million
(10%) for the twelve months ended June 30, 1994, as compared to the same
period last year.
Federal and State Income Taxes
Federal and state income taxes for the twelve months ended June 30, 1994,
increased $9 million (15%) as compared to the same period last year. This
increase was primarily the result of the effect of the settlement of the April
1990 Order on the comparable prior period's operating income.
State, Local, and Other Taxes
For the twelve months ended June 30, 1994, state, local, and other taxes
increased $6 million (15%) as compared to the same period last year. This was
primarily attributable to higher property taxes, which reflect plant additions
and increased property tax rates.
Other Income and Expense - Net
Other income and expense for the twelve months ended June 30, 1994, decreased
$4 million (22%) as compared to the same period last year. This decrease was
primarily attributable to the June 1993 reduction of the loss related to the
June 1987 Order, as previously discussed. Partially offsetting this decrease
was the implementation of the January 1993 IURC order authorizing the accrual
of post-in-service carrying costs. In addition, the equity component of AFUDC
increased primarily as a result of increased construction.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to Notes 5 and 6 beginning on page 10 of Part I, Item 1 - Notes to
Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Copies of the documents listed below are filed herewith.
Exhibit
Designation Nature of Exhibit
2-a Amendment dated as of June 20, 1994, to the Amended and
Restated Agreement and Plan of Reorganization by and among
The Cincinnati Gas & Electric Company, PSI Resources, Inc., PSI
Energy, Inc., CINergy Corp., an Ohio corporation, CINergy
Corp., a Delaware corporation, and CINergy Sub, Inc. dated as
of December 11, 1992, as amended and restated on July 2, 1993,
and as of September 10, 1993. This amendment extended the date
after which the agreement may be terminated from June 30, 1994,
to September 30, 1994.
2-b Amendment dated as of July 26, 1994, to the Amended and
Restated Agreement and Plan of Reorganization by and among The
Cincinnati Gas & Electric Company (CG&E), PSI Resources, Inc.
(Resources), PSI Energy, Inc., CINergy Corp., an Ohio
Corporation, CINergy Corp. (CINergy), a Delaware corporation,
and CINergy Sub, Inc. dated as of December 11, 1992, as amended
and restated on July 2, 1993, and as of September 10, 1993, and
as further amended as of June 20, 1994. Among other things,
this amendment provides for CINergy to pay dividends to
shareholders that have not exchanged their Resources or CG&E
stock certificates for CINergy stock certificates.
b. The following reports on Form 8-K were filed subsequent to the first
quarter of 1994:
Items Filed Date of Report
Item 7 - Financial Statements
and Exhibits. (The Cincinnati
Gas & Electric Company's Quarterly
Report on Form 10-Q for the
quarter ended March 31, 1994.) May 20, 1994
SIGNATURES
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although PSI Resources, Inc. (Resources) believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of Resources, these statements reflect all adjustments (which
include only normal, recurring adjustments) necessary to reflect the results
of operations for the respective periods. The unaudited statements are
subject to such adjustments as the annual audit by independent public
accountants may disclose to be necessary.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed by an
officer and the principal accounting officer on its behalf by the undersigned
thereunto duly authorized.
PSI RESOURCES, INC.
Registrant
Date August 11, 1994 J. Wayne Leonard
Senior Vice President and
Chief Financial Officer
Date August 11, 1994 Charles J. Winger
Comptroller and Principal
Accounting Officer
Exhibit 2-a
AMENDMENT
TO
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
This Amendment, dated as of June 20, 1994 (the
"Amendment"), amends to the extent specified herein the Agreement
and Plan of Reorganization, dated as of December 11, 1992, as
amended and restated on July 2, 1993 and as of September 10, 1993
(the "Merger Agreement"), by and among The Cincinnati Gas &
Electric Company, an Ohio corporation ("CG&E"), PSI Resources,
Inc., an Indiana corporation ("PSI"), PSI Energy, Inc., an
Indiana corporation ("Energy"), CINergy Corp., a Delaware
corporation (the "Company") and CINergy Sub, Inc., an Ohio
corporation ("CINergy Sub"). Capitalized terms used in this
Amendment and not otherwise defined in this Amendment shall have
such meanings as are ascribed to such terms in the Merger
Agreement.
W I T N E S S E T H
WHEREAS, the parties to the Merger Agreement are in
the process of obtaining certain regulatory approvals which are
conditions precedent to the consummation of the business
combination transaction contemplated by the Merger Agreement; and
WHEREAS, the parties to the Merger Agreement deem it
to be in their best interest to amend Sections 1A.2(c) and 9.1(b)
of the Merger Agreement in order to allow for additional time to
obtain such required regulatory approvals.
NOW, THEREFORE, in consideration of the premises and
the representatives, warranties, covenants and agreements
contained herein, the parties, each intending to be legally bound
hereby, agree as follows:
1. Section 1A.2(c) of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"(c) The date set forth in Sections 2, 7(a) and
7(d) of each of the PSI Stock Option Agreement and the CG&E Stock
Option Agreement is amended to be September 30, 1994."
2. Section 9.1(b) of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
<PAGE>
"(b) by any party hereto, by written notice to
the other, if the Effective Time shall not have occurred on or
before September 30, 1994; provided, however, that the right to
terminate the Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before this date;"
3. Without limiting in any respect any of the
representations and warranties set forth in the Merger Agreement,
each party represents and warrants with respect to itself that
this Amendment has been duly and validly authorized, executed and
delivered and constitutes a valid and binding obligation of each
such party enforceable against such party in accordance with its
terms.
4. The Merger Agreement is hereby reaffirmed in its
entirety, except to the extent specifically amended hereby.
5. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts, each of which counterparts when executed and
delivered shall be an original, but all of which shall together
constitute one and the same instrument.
6. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
<PAGE>
IN WITNESS WHEREOF, CG&E, PSI, Energy, CINergy Sub and
the Company have caused this Amendment to be signed by their
respective officers thereunto duly authorized as of the date
first written above.
THE CINCINNATI GAS & ELECTRIC
COMPANY
By: Name: Jackson H. Randolph
Title: President and Chief
Executive Officer
PSI RESOURCES, INC.
By: Name: James E. Rogers
Title: Chairman and Chief
Executive Officer
PSI ENERGY, INC.
By: Name: James E. Rogers
Title: Chairman, President and
Chief Executive Officer
CINERGY CORP.
By: Name: Jackson H. Randolph
Title: Chairman and Chief
Executive Officer
CINERGY SUB, INC.
By: Name: Jackson H. Randolph
Title: Chairman and Chief
Executive Officer
Exhibit 2-b
AMENDMENT
TO
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
This Amendment, dated as of July 26, 1994 (the
"Amendment"), amends to the extent specified herein the Agreement
and Plan of Reorganization, dated as of December 11, 1992, as
amended and restated on July 2, 1993 and as of September 10, 1993
and as further amended as of June 20, 1994 (the "Merger
Agreement"), by and among The Cincinnati Gas & Electric Company,
an Ohio corporation ("CG&E"), PSI Resources, Inc., an Indiana
corporation ("PSI"), PSI Energy, Inc., an Indiana corporation
("Energy"), CINergy Corp., a Delaware corporation (the "Company")
and CINergy Sub, Inc., an Ohio corporation ("CINergy Sub").
Capitalized terms used in this Amendment and not otherwise
defined in this Amendment shall have such meanings as are
ascribed to such terms in the Merger Agreement.
W I T N E S S E T H
WHEREAS, the parties to the Merger Agreement deem it to
be in their best interest to amend Sections 2.3(c) and (d) and
6.1 (b), (c) and (h) of the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and
the representations, warranties, covenants and agreements
contained herein, the parties, each intending to be legally bound
hereby, agree as follows:
1. The last sentence of Section 2.3(c) of the Merger
Agreement is hereby amended and restated to read in its entirety
as follows:
"Until surrendered as contemplated by this Section 2.3,
each Certificate shall be deemed at any time after the
Effective Time to represent (i) the right to receive
upon such surrender the certificate representing
Company Shares and cash in lieu of any fractional
shares of Company Common Stock as contemplated by this
Section 2.3 and (ii) all other rights attributable to
the Company Shares including the payment of any
dividend or other distribution declared or made with
respect to Company Shares with a record date after the
Effective Time."
<PAGE>
2. Section 2.3(d) of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"Notwithstanding the last sentence of Section 2.3(c),
at any time after the Effective Time the Board of
Directors of the Company may decide that no dividends
or other distributions declared or made with respect to
Company Shares with a record date after the time of
said decision (the "Decision Time") shall be paid to
the holder of any unsurrendered Certificate with
respect to the Company Shares represented thereby. In
such event, and subject to the effect of unclaimed
property, escheat and other applicable laws, following
surrender of any such Certificate, there shall be paid
to the record holder of the certificates representing
whole Company Shares issued in exchange therefor,
without interest, (i) at the time of such surrender,
the amount of dividends or other distributions with a
record date after the Decision Time theretofore paid
with respect to such whole Company Shares and (ii) at
the appropriate payment date, the amount of dividends
or other distributions with a record date after the
Decision Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such
whole Company Shares, as the case may be."
3. The last sentence of Section 6.1(b) of the Merger
Agreement is hereby amended and restated to read in its entirety
as follows:
"Notwithstanding the foregoing, (i) Energy may redeem
all or any portion of its (x) Energy Preferred Stock,
3.50% Series, of which 42,017 shares are outstanding,
(y) Energy Preferred Stock, 8.52% Series, of which
211,190 shares are outstanding and (z) Energy Preferred
Stock, 8.96% Series, of which 216,900 shares are
outstanding and (ii) CG&E's redemption of 400,000
shares of its CG&E Preferred Stock, 9.28% Series, is
permitted."
4. The first sentence of Section 6.1(c) is hereby
amended to change the number 3,700,000 in clause (ii)(x) to
5,000,000.
<PAGE>
5. Clause (ii) of section 6.1(h) of the Merger
Agreement is hereby amended and restated to read in its entirety
as follows:
"(ii) long-term indebtedness not aggregating
more than (x) in the case of PSI and its
subsidiaries, $550 million and (y) in the
case of CG&E and its subsidiaries, $300
million, in each case other than in
connection with the refunding of outstanding
long-term indebtedness which refunding is at
a lower interest rate than that of the
original indebtedness;"
6. Without limiting in any respect any of the
representations and warranties set forth in the Merger Agreement,
each party represents and warrants with respect to itself that
this Amendment has been duly and validly authorized, executed and
delivered and constitutes a valid and binding obligation of each
such party enforceable against such party in accordance with its
terms.
7. The Merger Agreement is hereby reaffirmed in its
entirety, except to the extent specifically amended hereby.
8. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts, each of which counterparts when executed and
delivered shall be an original, but all of which shall together
constitute one and the same instrument.
9. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
<PAGE>
IN WITNESS WHEREOF, CG&E, PSI, Energy, CINergy Sub and
the Company have caused this Amendment to be signed by their
respective officers thereunto duly authorized as of the date
first written above.
THE CINCINNATI GAS & ELECTRIC
COMPANY
By: Name: Jackson H. Randolph
Title: Chairman, President and
Chief Executive Officer
PSI RESOURCES, INC.
By: Name: James E. Rogers
Title: Chairman and Chief
Executive Officer
PSI ENERGY, INC.
By: Name: James E. Rogers
Title: Chairman, President
and Chief Executive
Officer
CINERGY CORP.
By: Name: Jackson H. Randolph
Title: Chairman and Chief
Executive Officer
CINERGY SUB, INC.
By: Name: Jackson H. Randolph
Title: Chairman and Chief
Executive Officer
