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 March 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9941
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 - 57,261,229 shares
outstanding at April 30, 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 . . . . . . . . . . 12
PART II. OTHER INFORMATION
6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . 19
<TABLE>
PSI RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
March 31 December 31
1994 1993
(unaudited)
(thousands)
<S> <C> <C>
Electric Utility Plant - original cost
In service. . . . . . . . . . . . . . . . . $3 480 081 $3 449 127
Accumulated depreciation. . . . . . . . . . 1 482 751 1 455 871
1 997 330 1 993 256
Construction work in progress . . . . . . . 265 769 243 802
Total electric utility plant. . . . . . . 2 263 099 2 237 058
Current Assets
Cash and temporary cash investments . . . . 3 461 6 551
Restricted deposits . . . . . . . . . . . . 40 003 49 111
Accounts receivable . . . . . . . . . . . . 43 470 27 894
Income tax refunds. . . . . . . . . . . . . 9 300 28 900
Fossil fuel - at average cost . . . . . . . 69 390 45 315
Materials and supplies - at average cost. . 35 659 36 411
Other . . . . . . . . . . . . . . . . . . . 2 715 2 940
203 998 197 122
Other Assets
Regulatory assets . . . . . . . . . . . . . 147 676 118 809
Unamortized costs of reacquiring debt . . . 38 890 39 504
Unamortized debt expense. . . . . . . . . . 9 435 9 332
Other . . . . . . . . . . . . . . . . . . . 74 265 62 183
270 266 229 828
$2 737 363 $2 664 008
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
PSI RESOURCES, INC.
CAPITALIZATION AND LIABILITIES
<CAPTION>
March 31 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 - 57,239,912 at March 31,
1994 and 57,039,501 at December 31, 1993. . . $ 562 $ 559
Paid-in capital . . . . . . . . . . . . . . . . 256 657 250 574
Accumulated earnings subsequent to November 30,
1986 quasi-reorganization . . . . . . . . . . 463 040 451 291
Total common stock equity . . . . . . . . . 720 259 702 424
Cumulative Preferred Stock of Subsidiary - Not
Subject to Mandatory Redemption . . . . . . . . 187 979 187 989
Long-term Debt. . . . . . . . . . . . . . . . . . 865 187 816 152
Total capitalization. . . . . . . . . . . . 1 773 425 1 706 565
Current Liabilities
Long-term debt due within one year. . . . . . . 160 160
Notes payable . . . . . . . . . . . . . . . . . 233 256 146 701
Accounts payable. . . . . . . . . . . . . . . . 113 394 145 748
Refund due to customers . . . . . . . . . . . . 47 348 81 832
Litigation settlement . . . . . . . . . . . . . 80 000 80 000
Advance under accounts receivable purchase
agreement . . . . . . . . . . . . . . . . . . - 49 940
Accrued taxes . . . . . . . . . . . . . . . . . 58 422 37 283
Accrued interest and customers' deposits. . . . 15 491 25 831
548 071 567 495
Other Liabilities
Deferred income taxes . . . . . . . . . . . . . 299 509 285 667
Unamortized investment tax credits. . . . . . . 63 656 64 721
Other . . . . . . . . . . . . . . . . . . . . . 52 702 39 560
415 867 389 948
$2 737 363 $2 664 008
</TABLE>
<TABLE>
PSI RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Quarter Ended Twelve Months Ended
March 31 March 31
1994 1993 1994 1993
(thousands) (thousands)
<S> <C> <C> <C> <C>
Operating Revenues. . . . . . . . . . . . . . . . . . . $303 375 $289 954 $1 101 788 $1 098 101
Operating Expenses
Operation
Fuel. . . . . . . . . . . . . . . . . . . . . . . . 107 537 104 619 388 845 399 099
Purchased and exchanged power . . . . . . . . . . . 14 660 2 719 36 214 10 549
Other operation . . . . . . . . . . . . . . . . . . 51 385 50 354 222 462 199 351
Maintenance . . . . . . . . . . . . . . . . . . . . . 20 060 20 053 84 027 86 019
Depreciation. . . . . . . . . . . . . . . . . . . . . 33 432 30 280 129 973 118 750
Post-in-service deferred depreciation . . . . . . . . (2 280) (387) (6 962) (387)
Taxes
Federal and state income. . . . . . . . . . . . . . 19 228 20 146 54 311 68 477
State, local, and other . . . . . . . . . . . . . . 12 825 11 582 47 024 42 710
256 847 239 366 955 894 924 568
Operating Income. . . . . . . . . . . . . . . . . . . . 46 528 50 588 145 894 173 533
Other Income and Expense - Net
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . . . 3 072 2 092 12 153 5 026
Post-in-service carrying costs. . . . . . . . . . . . 2 201 762 7 444 762
Other - net . . . . . . . . . . . . . . . . . . . . . (2 599) (2 050) 6 841 (1 726)
2 674 804 26 438 4 062
Income Before Interest and Other Charges. . . . . . . . 49 202 51 392 172 332 177 595
Interest and Other Charges
Interest on long-term debt. . . . . . . . . . . . . . 16 524 16 775 68 695 64 201
Other interest. . . . . . . . . . . . . . . . . . . . 2 463 1 825 6 112 8 747
Allowance for borrowed funds used during
construction. . . . . . . . . . . . . . . . . . . . (2 534) (2 110) (9 578) (6 560)
Preferred dividend requirement of
subsidiary. . . . . . . . . . . . . . . . . . . . . 3 296 2 301 13 820 7 343
19 749 18 791 79 049 73 731
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 29 453 $ 32 601 $ 93 283 $ 103 864
Average Common Shares Outstanding . . . . . . . . . . . 56 106 55 416 55 782 55 176
Earnings Per Share. . . . . . . . . . . . . . . . . . . $.52 $.59 $1.66 $1.89
Dividends Declared Per Share. . . . . . . . . . . . . . $.31 $.28 $1.18 $1.06
The accompanying notes are an integral part of these consolidated financial
statements.
/TABLE
<PAGE>
<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 March 31, 1994
Balance January 1, 1994 . . . . . . . . $559 $250 574 $451 291
Net income. . . . . . . . . . . . . . . 29 453
Issuance of common stock. . . . . . . . 3 6 103
Costs of retiring preferred stock
of subsidiary . . . . . . . . . . . . (6)
Dividends on common stock (See page 5
for per share amount) . . . . . . . . (17 704)
Other . . . . . . . . . . . . . . . . . (14)
Balance March 31, 1994. . . . . . . . . $562 $256 657 $463 040
Quarter Ended March 31, 1993
Balance January 1, 1993 . . . . . . . . $553 $242 558 $418 703
Net income. . . . . . . . . . . . . . . 32 601
Issuance of common stock. . . . . . . . 2 3 921
Dividends on common stock (See page 5
for per share amount) . . . . . . . . (15 517)
Other . . . . . . . . . . . . . . . . . (3 181)
Balance March 31, 1993. . . . . . . . . $555 $243 298 $435 787
Twelve Months Ended March 31, 1994
Balance April 1, 1993 . . . . . . . . . $555 $243 298 $435 787
Net income. . . . . . . . . . . . . . . 93 283
Issuance of common stock. . . . . . . . 7 15 372
Costs of issuing and retiring
preferred stock of subsidiary . . . . (1 887)
Dividends on common stock (See page 5
for per share amount) . . . . . . . . (66 106)
Other . . . . . . . . . . . . . . . . . (126) 76
Balance March 31, 1994. . . . . . . . . $562 $256 657 $463 040
Twelve Months Ended March 31, 1993
Balance April 1, 1992 . . . . . . . . . $548 $234 797 $390 421
Net income. . . . . . . . . . . . . . . 103 864
Issuance of common stock. . . . . . . . 7 11 700
Costs of retiring preferred stock
of subsidiary . . . . . . . . . . . . (18)
Dividends on common stock (See page 5
for per share amount) . . . . . . . . (58 459)
Other . . . . . . . . . . . . . . . . . (3 181) (39)
Balance March 31, 1993. . . . . . . . . $555 $243 298 $435 787
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 Twelve Months Ended
March 31 March 31
1994 1993 1994 1993
(thousands) (thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 29 453 $ 32 601 $ 93 283 $ 103 864
Items providing (using) cash currently:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 33 432 30 280 129 973 118 750
Deferred income taxes and investment tax
credits - net . . . . . . . . . . . . . . . . . . . . . 7 939 (380) 81 154 10 081
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . . . . . (3 072) (2 092) (12 153) (5 026)
Regulatory assets - excluding demand-side
management costs. . . . . . . . . . . . . . . . . . . . (10 508) (6 843) (33 574) (13 559)
Changes in current assets and current
liabilities
Restricted deposits . . . . . . . . . . . . . . . . . (69) (68) (70) (244)
Accounts receivable . . . . . . . . . . . . . . . . . (15 576) (2 317) 629 (14 906)
Income tax refunds. . . . . . . . . . . . . . . . . . 19 600 - (9 300) -
Fossil fuel and materials and supplies. . . . . . . . (23 323) 22 937 12 142 18 534
Accounts payable. . . . . . . . . . . . . . . . . . . (32 354) 3 337 21 465 (7 838)
Refund due to customers . . . . . . . . . . . . . . . (34 484) - (91 786) 2 063
Advance under accounts receivable
purchase agreement. . . . . . . . . . . . . . . . . (49 940) - - -
Accrued taxes and interest. . . . . . . . . . . . . . 10 891 9 472 (7 035) 8 448
Other items - net . . . . . . . . . . . . . . . . . . . . (7 786) (8 088) (11 648) (15 955)
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . . . . . (75 797) 78 839 173 080 204 212
FINANCING ACTIVITIES
Issuance of common stock. . . . . . . . . . . . . . . . . . 6 106 3 923 15 379 11 707
Issuance of preferred stock of subsidiary . . . . . . . . . - 96 850 59 475 96 850
Issuance of long-term debt. . . . . . . . . . . . . . . . . 49 068 78 688 212 084 284 136
Funds on deposit from issuance of long-term
debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 177 (60 372) 38 207 (48 806)
Retirement of preferred stock of subsidiary . . . . . . . . (4) - (60 111) -
Redemption of long-term debt. . . . . . . . . . . . . . . . - - (207 880) (90 000)
Change in short-term debt . . . . . . . . . . . . . . . . . 86 555 (105 652) 194 674 (45 718)
Dividends on common stock . . . . . . . . . . . . . . . . . (17 704) (15 517) (66 106) (58 459)
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . . . 133 198 (2 080) 185 722 149 710
INVESTING ACTIVITIES
Utility plant additions . . . . . . . . . . . . . . . . . . (57 112) (76 548) (342 171) (316 950)
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . . . . . . 3 072 2 092 12 153 5 026
Demand-side management costs. . . . . . . . . . . . . . . . (6 419) (4 324) (32 831) (19 455)
Equity investments in Argentine utilities . . . . . . . . . (32) (191) (47) (20 476)
Net cash provided by (used in) investing
activities. . . . . . . . . . . . . . . . . . . . . (60 491) (78 971) (362 896) (351 855)
Net increase (decrease) in cash and
temporary cash investments. . . . . . . . . . . . . . . . (3 090) (2 212) (4 094) 2 067
Cash and temporary cash investments at
beginning of period . . . . . . . . . . . . . . . . . . . 6 551 9 767 7 555 5 488
Cash and temporary cash investments at
end of period . . . . . . . . . . . . . . . . . . . . . . $ 3 461 $ 7 555 $ 3 461 $ 7 555
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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 (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 the 60-day, FERC-sponsored settlement procedure and
other collaborative discussions, Resources, Energy, CINergy, the Indiana
Utility Consumer Counselor, 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 by the IURC in its entirety 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.
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. A public hearing was held on May 10, 1994, and the KPSC is
expected to complete action on the application by mid-May.
4. The following pro forma condensed consolidated financial information
combines the historical 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 three months and twelve months ended March 31, 1994, give effect to
the Mergers as if the Mergers had occurred at April 1, 1993. The
unaudited Pro Forma Condensed Consolidated Balance Sheet at March 31,
1994, gives effect to the Mergers as if the Mergers had occurred at March
31, 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>
Three Months Ended March 31, 1994 Twelve Months Ended March 31, 1994
Historical Pro Forma Historical Pro Forma
Resources CG&E CINergy Resources CG&E CINergy
<S> <C> <C> <C> <C> <C> <C>
Operating revenues. . . . . . . . $303 $562 $865 $1 102 $1 821 $2 923
Operating expenses. . . . . . . . 256 456 712 956 1 485 2 441
Operating income. . . . . . . . . 47 106 153 146 336 482
Other income and
expense - net . . . . . . . . . 2 10 12 26 (180)* (154)
Interest charges - net. . . . . . 17 40 57 65 157 222
Preferred dividend
requirement of
subsidiaries. . . . . . . . . . 3 6 9 14 25 39
Net income (loss) . . . . . . . . $ 29 $ 70 $ 99 $ 93 $ (26) $ 67
Average common shares
outstanding 1/. . . . . . . . . 56 88 139/146 56 88 138/145
Earnings (Loss) per
common share 1/ . . . . . . . . $.52 $.79 $.71/.68 $1.66 $(.29) $.49/.46
Dividends declared per
common share 1/ . . . . . . . . $.31 $.43 $.40/.38 $1.18 $1.69 $1.55/1.48
* 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>
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
at March 31, 1994
(unaudited)
<CAPTION>
(in millions)
Historical Pro Forma
Resources CG&E CINergy
<S> <C> <C> <C>
ASSETS
Utility plant - original cost
In service . . . . . . . . . . . . . . . . . . . . . . . . $3 480 $5 219 $8 699
Accumulated depreciation . . . . . . . . . . . . . . . . . 1 483 1 506 2 989
1 997 3 713 5 710
Construction work in progress. . . . . . . . . . . . . . . 266 69 335
Total utility plant. . . . . . . . . . . . . . . . . . . 2 263 3 782 6 045
Current assets . . . . . . . . . . . . . . . . . . . . . . . 204 632 836
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 270 782 1 052
Total assets . . . . . . . . . . . . . . . . . . . . . . $2 737 $5 196 $7 933
CAPITALIZATION AND LIABILITIES
Common stock 2/. . . . . . . . . . . . . . . . . . . . . . . $ 1 $ 752 $ 1
Paid-in capital 2/ . . . . . . . . . . . . . . . . . . . . . 256 322 1 330
Retained earnings. . . . . . . . . . . . . . . . . . . . . . 463 488 951
Total common stock equity. . . . . . . . . . . . . . . . 720 1 562 2 282
Cumulative preferred stock of subsidiaries . . . . . . . . . 188 290 478
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 865 1 837 2 702
Total capitalization . . . . . . . . . . . . . . . . . . 1 773 3 689 5 462
Current liabilities. . . . . . . . . . . . . . . . . . . . . 548 466 1 014
Deferred income taxes. . . . . . . . . . . . . . . . . . . . 300 742 1 042
Other liabilities. . . . . . . . . . . . . . . . . . . . . . 116 299 415
Total capitalization and liabilities . . . . . . . . . . $2 737 $5 196 $7 933
Notes to Pro Forma Condensed Consolidated Financial Information
1/ The Pro Forma Condensed Consolidated Statements of Income reflect the conversion of each share of Resources'
common stock outstanding into (a) .909 share and (b) 1.023 shares of CINergy common stock and each share of
CG&E's common stock outstanding into one share of CINergy common stock. The actual Resources conversion ratio
may be lower than 1.023 or higher than .909 depending upon closing sales prices of CG&E's common stock
during a period prior to the consummation of the Mergers. Pro forma dividends declared per common share
reflect the historical dividends declared by Resources and CG&E, divided by the pro forma average number of
CINergy common stock shares outstanding.
2/ The pro forma "Common stock" and "Paid-in capital" amounts reflected in the Pro Forma Condensed Consolidated
Balance Sheet are based on the conversion of each share of Resources' common stock outstanding into 1.023
shares of CINergy common stock ($.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".
3/ 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.
4/ 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 filed with the Public Utilities Commission of Ohio, CG&E has agreed to, among other things, amortize its
portion of merger-related transaction costs over a period ending by January 1, 1999. CG&E will be permitted to
retain all of its non-fuel savings from the Mergers until 1999.
</TABLE>
<PAGE>
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),
Resources' principal subsidiary, 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 (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 the 60-day, FERC-sponsored settlement procedure and other
collaborative discussions, Resources, Energy, CINergy, the Indiana Utility
Consumer Counselor, 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 by the IURC in
its entirety 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.
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. A public
hearing was held on May 10, 1994, and the KPSC is expected to complete action
on the application by mid-May.
CAPITAL RESOURCES
In February 1994, Energy issued $50 million of long-term debt (see Note 2 on
page 8).
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1994
Kilowatt-hour Sales
Kilowatt-hour (kwh) sales for the quarter ended March 31, 1994, increased 12%
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 power sales to other utilities. In addition, increased
firm power sales were primarily driven by the colder weather conditions
experienced in the first quarter of 1994. Also contributing to increased kwh
sales were increased retail sales. Sales to domestic and commercial customers
increased as a result of the colder weather conditions and 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 and transportation equipment sectors.
Revenues
Total operating revenues increased $13 million (5%) in the first quarter as
compared to the same period last year. This increase primarily reflects the
changes in kwh sales, as previously discussed. Partially offsetting the
increase in revenues due to kwh sales were Energy's lower average realization
arising from the increased levels of kwh usage, the 1.5% retail rate reduction
as a result of the IURC's December 1993 order, which resolved the outstanding
issues related to the appeals of the IURC's April 1990 order and June 1987
order, and decreased activities in Resources' subsidiary, Wholesale Power
Services, Inc.
An analysis of operating revenues is shown below:
Quarter
Ended March 31
(millions)
Operating revenues - March 31, 1993 $290
Increase (Decrease) due to change in:
Price per kwh
Retail (9)
Sales for resale
Firm power obligations (1)
Non-firm power transactions 2
Total change in price per kwh (8)
Kwh sales
Retail 12
Sales for resale
Firm power obligations 4
Non-firm power transactions 8
Total change in kwh sales 24
Other (3)
Operating revenues - March 31, 1994 $303
Operating Expenses
Fuel
Fuel costs, Energy's largest operating expense, increased $3 million (3%) for
the quarter as compared to the same period last year.
An analysis of fuel costs is shown below:
Quarter
Ended March 31
(millions)
Fuel expense - March 31, 1993 $105
Increase (Decrease) due to change in:
Price of fuel (1)
Kwh generation 4
Fuel expense - March 31, 1994 $108
Purchased and Exchanged Power
Purchased and exchanged power for the quarter increased $12 million as
compared to the same period last year. Increased third party power sales to
other utilities through Energy's system contributed to this increase.
Depreciation
Primarily as a result of additions to electric utility plant, depreciation
expense for the quarter ended March 31, 1994, increased $3 million (10%) as
compared to the same period last year.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED MARCH 31, 1994
Kilowatt-hour Sales
Kwh sales for the twelve months ended March 31, 1994, increased 7% as compared
to the same period last year. This increase was primarily the result of
increased retail sales. Sales to domestic and commercial customers increased
as a result of the more normal weather experienced during the second and third
quarters of 1993 and the colder weather experienced in the first quarter of
1994, in addition to the increased number of both domestic and commercial
customers in Energy's service territory. Industrial kwh sales also increased,
reflecting growth primarily in the primary metals and transportation equipment
sectors. In addition, firm power sales for resale increased primarily as a
result of the weather conditions previously discussed.
Revenues
Total operating revenues for the twelve months ended March 31, 1994, remained
relatively unchanged when compared to the same period last year, showing less
than a 1% increase. The increase in revenues driven by the increase in kwh
sales previously discussed was substantially offset by the $31 million refund
resulting from the settlement of the IURC's April 1990 order, Energy's lower
average realization arising from the increased levels of kwh usage, the
effects of lower fuel costs, and decreased activities in Resources'
subsidiary, Wholesale Power Services, Inc.
An analysis of operating revenues is shown below:
Twelve Months
Ended March 31
(millions)
Operating revenues - March 31, 1993 $1 098
Increase (Decrease) due to change in:
Price per kwh
Retail (68)
Sales for resale
Firm power obligations (4)
Non-firm power transactions 9
Total change in price per kwh (63)
Kwh sales
Retail 67
Sales for resale
Firm power obligations 8
Non-firm power transactions -
Total change in kwh sales 75
Other (8)
Operating revenues - March 31, 1994 $1 102
Operating Expenses
Fuel
Fuel costs decreased $10 million (3%) for the twelve months ended March 31,
1994, as compared to the same period last year.
An analysis of fuel costs is shown below:
Twelve Months
Ended March 31
(millions)
Fuel expense - March 31, 1993 $399
Increase (Decrease) due to change in:
Price of fuel (17)
Kwh generation 7
Fuel expense - March 31, 1994 $389
Purchased and Exchanged Power
Purchased and exchanged power for the twelve months ended March 31, 1994, as
compared to the same period last year, increased $26 million. This increase
reflects increased purchases of power to meet Energy's own load and to sell to
other utilities.
Other Operation and Maintenance
Increased other operation and maintenance expenses of $21 million (7%) for the
twelve months ended March 31, 1994, as compared to the same period last year,
were attributable to approximately $24 million of costs incurred by Resources
associated with IPALCO Enterprises, Inc.'s failed hostile takeover attempt.
These costs were partially offset by the decreased activities in Resources'
subsidiary, Wholesale Power Services, Inc.
Depreciation Expense
Depreciation expense for the twelve months ended March 31, 1994, increased $11
million (9%) as compared to the same period last year. This increase was
primarily the result of additions to electric utility plant.
Other Income and Expense - Net
Other income and expense increased $22 million in the twelve months ended
March 31, 1994, as compared to the same period last year. Contributing to
this increase was the IURC's December 1993 order, which resulted in a
reduction of the loss previously recognized for the IURC's June 1987 order.
The increase was also due, in part, to the implementation of the January 1993
IURC order authorizing the accrual of post-in-service carrying costs. In
addition, the equity component of the allowance for funds used during
construction increased partially as a result of increased construction.
(Left Blank Intentionally)
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. None.
b. The following reports on Form 8-K were filed during the first quarter of
1994:
Date of Report Items Filed
January 12, 1994 Item 5 - Other Events.
(On January 12, 1994, the Federal Energy
Regulatory Commission issued an order
withdrawing its prior conditional approval
of PSI Resources, Inc.'s merger with The
Cincinnati Gas & Electric Company and
initiating a 60-day, FERC-sponsored
settlement procedure.)
March 28, 1994 Item 7 - Financial Statements and Exhibits.
(The Cincinnati Gas & Electric Company's
Annual Report on Form 10-K for the year ended
December 31, 1993, and Consent of Independent
Public Accountants.)
<PAGE>
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: May 12, 1994 /s/ J. Wayne Leonard
(J. Wayne Leonard)
Senior Vice President and
Chief Financial Officer
Date: May 12, 1994 /s/ Charles J. Winger
(Charles J. Winger)
Comptroller and Principal
Accounting Officer
