UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
1-11377 CINERGY CORP. 31-1385023
(A Delaware Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
1-3543 PSI ENERGY, INC. 35-0594457
(An Indiana Corporation)
1000 East Main Street
Plainfield, Indiana 46168
(317) 839-9611
2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080
(A Kentucky Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati
Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company. Information contained herein relating to any individual registrant
is filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
The Union Light, Heat and Power Company meets the conditions set forth in
General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company
specific information with the reduced disclosure format.
As of October 31, 1996, shares of Common Stock outstanding for each registrant
were as listed:
Company Shares
Cinergy Corp., par value $.01 per share 157,679,129
The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086
PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701
The Union Light, Heat and Power Company, par value $15.00 per share 585,333
<PAGE>
TABLE OF CONTENTS
Item Page
Number Number
Glossary of Terms . . . . . . . . . . . . . . . . . . .
PART I. FINANCIAL INFORMATION
1 Financial Statements
Cinergy Corp.
Consolidated Balance Sheets . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . .
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . .
Results of Operations . . . . . . . . . . . . . . . .
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . .
Results of Operations . . . . . . . . . . . . . . . .
PSI Energy, Inc.
Consolidated Balance Sheets . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . .
Results of Operations . . . . . . . . . . . . . . . .
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . .
Statements of Income. . . . . . . . . . . . . . . . .
Statements of Cash Flows. . . . . . . . . . . . . . .
Results of Operations . . . . . . . . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . .
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . .
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . .
4 Submission of Matters to a Vote of Security Holders . .
5 Other Information . . . . . . . . . . . . . . . . . . .
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . .
Signatures. . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION_________________________
1995 Form Combined 1995 Annual Report on Form 10-K filed separately by
10-K Cinergy, as amended, CG&E, PSI, and ULH&P
AEP American Electric Power Company, Inc.
Articles Amended Articles of Incorporation
Avon Energy Avon Energy Partners Holdings, an Unlimited Liability
Company and its wholly-owned subsidiary Avon Energy
Partners PLC, a Limited Liability Company
Bankruptcy Court United States Bankruptcy Court for the Southern District of
Indiana
Bruwabel Beheer-En Belegginsmaatschappij Bruwabel B.V., a subsidiary
of Power International
CAC Citizens Action Coalition of Indiana, Inc.
CG&E The Cincinnati Gas & Electric Company (a subsidiary of
Cinergy)
Cinergy or Cinergy Corp.
Company
Cinergy U.K. Formerly M.E. Holdings, Inc., (a subsidiary of Investments)
which holds Cinergy's 50% investment in Avon Energy
Clean Coal A joint arrangement by PSI and Destec Energy, Inc. for a
Project 262-mw clean coal power generating facility located at
Wabash River Generating Station, which was placed in
service in November 1995
CWIP Construction work in progress
D&P Duff & Phelps Credit Rating Co.
DSM Demand-side management
Eagle Eagle Coal Company
Exxon Exxon Coal and Minerals Company
FASB Financial Accounting Standards Board
February 1995 An IURC order issued in February 1995
Order
FERC Federal Energy Regulatory Commission
FERC Order 888 FERC order which promotes wholesale competition through
open access non-discriminatory transmission services by
public utilities and recovery of stranded costs by public
utilities and transmitting utilities
FERC Order 889 FERC order which provides for open access same-time
information system
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION_________________________
Fitch Fitch Investors Service, Inc.
Gibson Gibson Generating Station
GPU General Public Utilities Corporation
IBEW International Brotherhood of Electrical Workers
Investments Cinergy Investments, Inc. (a subsidiary of Cinergy)
IURC Indiana Utility Regulatory Commission
IUU Independent Utilities Union
KO Transmission KO Transmission Company, a subsidiary of CG&E
KPSC Kentucky Public Service Commission
kwh Kilowatt-hour
May 1992 Order A PUCO order issued in May 1992
Mcf Thousand cubic feet
Mega-NOPR FERC's notice of proposed rulemaking which resulted in FERC
Order 888 and 889
Merger Costs Merger transaction costs and costs to achieve merger savings
Merger Order The FERC's order approving the merger of CG&E and Resources
to form Cinergy
Miami Fort Miami Fort Generating Station
Midlands Midlands Electricity plc
Money Pool Cinergy system companies with surplus short-term funds,
whether from internal or external sources, provide short-
term loans to other system companies at rates that reflect
(1) the actual costs of the external borrowing and/or (2)
the costs of the internal funds which are set at the 30-
day Federal Reserve "AA" industrial commercial paper
composite rate.
Moody's Moody's Investors Service
mw Megawatt
NOPR A FERC Notice of Proposed Rulemaking
Order 636 FERC order regarding gas purchases and transportation
Power
International Power International, Inc., a subsidiary of Investments
PSI PSI Energy, Inc. (a subsidiary of Cinergy)
PSI Recycling PSI Recycling, Inc. (a subsidiary of Investments)
PUCO Public Utilities Commission of Ohio
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION_________________________
PUHCA Public Utility Holding Company Act of 1935
RUS Rural Utilities Service, previously called the Rural
Electrification Administration
S&P Standard & Poor's
SEC Securities and Exchange Commission
September 1996 An IURC order issued in September 1996
Order
Statement 121 Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of", issued in March
1995 by the FASB, is a new accounting standard requiring
impairment losses on long-lived assets to be recognized
when an asset's book value exceeds its expected future
cash flows
UCC The Indiana Office of the Utility Consumer Counselor
ULH&P The Union Light, Heat and Power Company (a wholly-owned
subsidiary of CG&E)
USWA United Steelworkers of America
Woodsdale Woodsdale Generating Station
WVPA Wabash Valley Power Association, Inc.
Zimmer William H. Zimmer Generating Station
<PAGE>
CINERGY CORP.
AND SUBSIDIARY COMPANIES
<PAGE>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
September 30 December 31
1996 1995
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $8 741 872 $8 617 695
Gas 699 566 680 339
Common 185 339 184 694
9 626 777 9 482 728
Accumulated depreciation 3 537 840 3 367 432
6 088 937 6 115 296
Construction work in progress 164 553 135 852
Total utility plant 6 253 490 6 251 148
Current Assets
Cash and temporary cash investments 28 622 35 052
Restricted deposits 1 720 2 336
Accounts receivable less accumulated
provision for doubtful accounts of
$12,415 at September 30, 1996, and
$10,360 at December 31, 1995 105 568 371 150
Materials, supplies, and fuel - at average
cost
Fuel for use in electric production 81 654 122 409
Gas stored for current use 37 215 21 493
Other materials and supplies 86 584 85 076
Property taxes applicable to subsequent year 29 206 116 822
Prepayments and other 26 299 32 347
396 868 786 685
Other Assets
Regulatory assets
Amounts due from customers - income taxes 380 519 423 493
Post-in-service carrying costs and
deferred operating expenses 188 370 187 190
Phase-in deferred return and depreciation 96 469 100 388
Coal contract buyout costs 137 686 -
Deferred DSM costs 134 832 129 400
Deferred merger costs 96 339 56 824
Unamortized costs of reacquiring debt 71 921 73 904
Other 95 393 74 911
Investment in Avon Energy 512 747 -
Other 233 927 136 121
1 948 203 1 182 231
$8 598 561 $8 220 064
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
<PAGE>
CINERGY CORP.
CAPITALIZATION AND LIABILITIES
September 30 December 31
1996 1995
(dollars in thousands)
Common Stock Equity
Common stock - $.01 par value; authorized
shares - 600,000,000; outstanding shares
- 157,679,129 at September 30, 1996, and
157,670,141 at December 31, 1995 $ 1 577 $ 1 577
Paid-in capital 1 592 393 1 597 050
Retained earnings 993 039 950 216
Cumulative foreign currency translation
adjustment (584) -___
Total common stock equity 2 586 425 2 548 843
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 194 235 227 897
Subject to mandatory redemption - 160 000
Long-term Debt 2 383 827 2 530 766
Total capitalization 5 164 487 5 467 506
Current Liabilities
Long-term debt due within one year 140 400 201 900
Notes payable 817 454 165 800
Accounts payable 262 180 268 139
Litigation settlement 80 000 80 000
Accrued taxes 227 728 317 185
Accrued interest 46 269 55 995
Other 60 082 57 202
1 634 113 1 146 221
Other Liabilities
Deferred income taxes 1 120 145 1 120 900
Unamortized investment tax credits 177 959 185 726
Accrued pension and other postretirement
benefit costs 205 112 171 771
Other 296 745 127 940
1 799 961 1 606 337
$8 598 561 $8 220 064
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to
Date Twelve Months Ended
September 30
September 30 September 30
1996 1995 1996
1995 1996 1995
(in thousands,
except per share amounts)
<S> <C> <C> <C>
<C>
Operating Revenues
Electric $ 724 917 $ 731 903 $2 060 471
$1 973 393 $2 699 657 $2 550 913
Gas 40 787 33 591 306 062
265 777 451 137 376 978
765 704 765 494 2 366 533
2 239 170 3 150 794 2 927 891
Operating Expenses
Fuel used in electric production 184 093 190 445 539 350
545 548 710 556 718 907
Gas purchased 17 133 13 155 150 313
130 235 226 328 189 469
Purchased and exchanged power 37 020 15 685 95 443
32 992 110 083 39 346
Other operation 129 009 131 453 423 769
371 983 572 376 550 039
Maintenance 45 903 39 851 137 709
127 834 192 055 184 931
Depreciation 70 811 68 680 211 603
210 351 281 011 286 304
Amortization of phase-in deferrals 3 399 3 409 10 198
5 682 13 607 5 682
Post-in-service deferred operating
expenses - net (930) (71) (2 637)
(2 140) (2 997) (3 500)
Income taxes 65 456 69 952 172 459
173 170 220 718 191 224
Taxes other than income taxes 63 549 64 380 196 095
192 066 259 562 251 241
615 443 596 939 1 934 302
1 787 721 2 583 299 2 413 643
Operating Income 150 261 168 555 432 231
451 449 567 495 514 248
Other Income and Expenses - Net
Allowance for equity funds used
during construction 358 (1 159) 1 206
726 2 444 153
Post-in-service carrying costs 391 602 1 228
3 183 1 231 6 205
Phase-in deferred return 2 093 2 135 6 279
6 403 8 413 8 349
Income taxes 2 677 2 366 7 963
5 950 9 371 10 425
Other - net 4 117 707 (6 815)
(2 224) (7 642) (21 306)
9 636 4 651 9 861
14 038 13 817 3 826
Income Before Interest and Other
Charges 159 897 173 206 442 092
465 487 581 312 518 074
Interest and Other Charges
Interest on long-term debt 46 522 54 154 143 678
160 654 196 935 215 645
Other interest 10 305 5 392 18 497
16 520 22 803 22 989
Allowance for borrowed funds used
during construction (1 455) (2 027) (4 235)
(6 324) (5 976) (9 191)
Preferred dividend requirements of
subsidiaries 6 495 6 770 19 941
24 084 26 710 32 742
61 867 64 289 177 881
194 934 240 472 262 185
Net Income $ 98 030 $ 108 917 $ 264 211
$ 270 553 $ 340 840 $ 255 889
Costs of reacquisition of preferred
stock of subsidiary (Note 6) (18 175) - (18 175)
- - (18 175) -___
Net Income Applicable to Common Stock $ 79 855 $ 108 917 $ 246 036
$ 270 553 $ 322 665 $ 255 889
Average Common Shares Outstanding 157 679 156 945 157 678
156 324 157 633 154 797
Earnings Per Common Share
Net Income $ .63 $.69 $ 1.68
$1.73 $ 2.17 $1.62
Costs of reacquisition of preferred
stock of subsidiary (Note 6) (.12) - (.12)
- - (.12) -__
Net Income Applicable to Common Stock $ .51 $.69 $ 1.56
$1.73 $ 2.05 $1.62
Dividends Declared Per Common Share $ .43 $.43 $ 1.29
$1.29 $ 1.72 $1.65
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(unaudited)
Cumulative
Foreign
Currency
Common Paid-in
Retained Translation Total Common
Stock Capital
Earnings Adjustment Stock Equity
(dollars in
thousands)
<S> <C> <C> <C>
<C> <C>
Quarter Ended September 30, 1996
Balance July 1, 1996 $1 577 $1 594 920 $ 981
003 $(567) $2 576 933
Net income 98
030 98 030
Dividends on common stock (see page 9 for
per share amounts) (67
802) (67 802)
Translation adjustments
(17) (17)
Costs of reacquisition of preferred stock
of subsidiary (Note 6) (18
175) (18 175)
Other ______ (2 527)
(17) _____ (2 544)
Balance September 30, 1996 $1 577 $1 592 393 $ 993
039 $(584) $2 586 425
Quarter Ended September 30, 1995
Balance July 1, 1995 $1 566 $1 570 873 $ 900
094 $ $2 472 533
Net income 108
917 108 917
Issuance of 572,455 shares of common
stock - net 6 14 597
14 603
Common stock issuance expenses (2)
(2)
Dividends on common stock (see page 9 for
per share amounts) (67
359) (67 359)
Other 2
_________ _____ 2
Balance September 30, 1995 $1 572 $1 585 470 $ 941
652 $ $2 528 694
Nine Months Ended September 30, 1996
Balance January 1, 1996 $1 577 $1 597 050 $ 950
216 $ $2 548 843
Net income 264
211 264 211
Issuance of 8,988 shares of common
stock - net 311
311
Dividends on common stock (see page 9 for
per share amounts) (203
402) (203 402)
Translation adjustments
(584) (584)
Costs of reacquisition of preferred stock
of subsidiary (Note 6) (18
175) (18 175)
Other ______ (4 968)
189 _____ (4 779)
Balance September 30, 1996 $1 577 $1 592 393 $ 993
039 $(584) $2 586 425
Nine Months Ended September 30, 1995
Balance January 1, 1995 $1 552 $1 535 658 $ 877
061 $ $2 414 271
Net income 270
553 270 553
Issuance of 1,941,748 shares of common
stock - net 20 48 734
48 754
Common stock issuance expenses (191)
(191)
Dividends on common stock (see page 9 for
per share amounts) (201
251) (201 251)
Other ______ 1 269 (4
711) _____ (3 442)
Balance September 30, 1995 $1 572 $1 585 470 $ 941
652 $ $2 528 694
Twelve Months Ended September 30, 1996
Balance October 1, 1995 $1 572 $1 585 470 $ 941
652 $ $2 528 694
Net income 340
840 340 840
Issuance of 539,343 shares of common
stock - net 5 11 920
11 925
Common stock issuance expenses (38)
(38)
Dividends on common stock (see page 9 for
per share amounts) (271
002) (271 002)
Translation adjustments
(584) (584)
Costs of reacquisition of preferred stock
of subsidiary (Note 6) (18
175) (18 175)
Other ______ (4 959)
(276) _____ (5 235)
Balance September 30, 1996 $1 577 $1 592 393 $ 993
039 $(584) $2 586 425
Twelve Months Ended September 30, 1995
Balance October 1, 1994 $1 473 $1 359 477 $ 945
679 $ $2 306 629
Net income 255
889 255 889
Issuance of 9,705,354 shares of common
stock - net 99 230 000
230 099
Common stock issuance expenses (5 298)
(5 298)
Dividends on common stock (see page 9 for
per share amounts) (255
637) (255 637)
Other 1 291 (4
279) _____ (2 988)
Balance September 30, 1995 $1 572 $1 585 470 $ 941
652 $ $2 528 694
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date Twelve
Months Ended
September 30
September 30
1996 1995 1996
1995
(in thousands)
<S> <C> <C> <C>
<C>
Operating Activities
Net income $ 264 211 $ 270 553 $ 340 840
$ 255 889
Items providing (using) cash currently
Depreciation 211 603 210 351 281 011
286 304
Deferred income taxes and investment
tax credits - net 34 061 27 836 34 636
28 590
Allowance for equity funds used
during construction (1 206) (726) (2 444)
(153)
Regulatory assets - net (27 444) (55) (26 363)
(13 294)
Changes in current assets and
current liabilities
Restricted deposits (357) 8 (1 400)
8 633
Accounts receivable, net of
reserves on receivables sold 227 237 32 034 123 562
(1 880)
Materials, supplies, and fuel 23 525 26 217 48 522
22 677
Accounts payable (5 959) (93 413) 89 126
(28 370)
Accrued taxes and interest (8 734) 28 223 19 678
56 040
Other items - net (43 003) (15 531) (15 336)
(976)
Net cash provided by (used in)
operating activities 673 934 485 497 891 832
613 460
Financing Activities
Issuance of common stock 311 48 563 11 887
224 801
Issuance of long-term debt - 344 280 -
344 280
Funds on deposit from issuance of
long-term debt 973 (75 316) 86 276
(68 630)
Retirement of preferred stock of
subsidiaries (209 559) (93 458) (209 567)
(93 474)
Redemption of long-term debt (207 583) (298 553) (307 863)
(298 988)
Change in short-term debt 651 654 55 100 533 454
(41 514)
Dividends on common stock (203 402) (201 251) (271 002)
(255 637)
Net cash provided by (used in)
financing activities 32 394 (220 635) (156 815)
(189 162)
Investing Activities
Construction expenditures (less
allowance for equity funds used
during construction) (203 977) (231 943) (296 939)
(386 233)
Deferred DSM costs - net (5 432) (17 356) (13 349)
(34 697)
Investment in Avon Energy (503 349) - (503 349)
- -
Equity investment in Argentine
utility - - 19 799
(32)
Net cash provided by (used in)
investing activities (712 758) (249 299) (793 838)
(420 962)
Net increase (decrease) in cash and
temporary cash investments (6 430) 15 563 (58 821)
3 336
Cash and temporary cash investments at
beginning of period 35 052 71 880 87 443
84 107
Cash and temporary cash investments at
end of period $ 28 622 $ 87 443 $ 28 622
$ 87 443
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</TABLE>
<PAGE>
CINERGY CORP.
Below is information concerning the consolidated results of operations for
Cinergy for the quarter, nine months, and twelve months ended September 30,
1996. For information concerning the results of operations for each of the
other registrants for the same quarter and nine months ended, see the
discussion under the heading RESULTS OF OPERATIONS following the financial
statements of each company.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Kwh Sales
Kwh sales increased 2.2% for the quarter ended September 30, 1996, from the
comparable period of last year primarily reflecting increased activity in
Cinergy's power marketing operations which led to higher non-firm power sales
for resale. Also, increased industrial sales primarily reflected growth in
the primary metals sector. These increases were partially offset by a return
to more normal weather for the third quarter of 1996, resulting in decreased
residential and commercial sales.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the third quarter of 1996
increased 13.2% as compared to the same period in 1995. Increased residential
and commercial gas sales reflected, in part, increases in the average number
of customers. Higher gas transportation volumes reflected the continuing
trend of industrial customers purchasing gas directly from suppliers, using
transportation services provided by CG&E. The increase in transportation
volumes mainly reflects demand for gas transportation services in the primary
metals sector.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the quarter ended September 30, 1996,
decreased $7 million (1.0%) as compared to the same period last year primarily
as a result of the decreased residential and commercial kwh sales previously
discussed. This decrease was almost wholly offset by increased activity in
Cinergy's power marketing operations which led to higher non-firm power sales
for resale as previously discussed.
An analysis of electric operating revenues is shown below:
Quarter
Ended September 30
(in millions)
Electric operating revenues - September 30, 1995 $732
Increase (Decrease) due to change in:
Price per kwh
Sales for resale
Firm power obligations (3)
Non-firm power transactions (1)
Total change in price per kwh (4)
Kwh sales
Retail (19)
Sales for resale
Firm power obligations (2)
Non-firm power transactions 17
Total change in kwh sales (4)
Other 1
Electric operating revenues - September 30, 1996 $725
Gas Operating Revenues
Gas operating revenues increased $7 million (21.4%) in the third quarter of
1996, when compared to the same period last year. This increase was primarily
a result of the operation of fuel adjustment clauses reflecting a higher
average cost of gas purchased and the previously discussed changes in gas
sales and transportation volumes.
Operating Expenses
Gas Purchased
Gas purchased for the quarter ended September 30, 1996, increased $4 million
(30.2%) when compared to the same period last year reflecting a higher average
cost per Mcf of gas purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $21 million for the quarter ended
September 30, 1996, when compared to the same period last year, primarily
reflecting increased purchases of non-firm power for resale to others as a
result of increased activity in Cinergy's power marketing operations.
Maintenance
The $6 million (15.2%) increase in maintenance expenses for the third quarter
of 1996 as compared to the same period of 1995 is primarily due to increased
maintenance on CG&E's electric production and transmission facilities.
Other Income and Expenses - Net
Other - net
Other - net increased $3 million for the three months ended September 30,
1996, from the same period of 1995 primarily due to Cinergy's equity in
earnings of Avon Energy. The effects of expenses associated with CG&E's and
ULH&P's sales of accounts receivables in 1996 and interest received in 1995
associated with a refund of an overpayment of Federal income taxes related to
prior years partially offset this increase.
Interest and Other Charges
Interest on Long-term Debt
Interest charges on long-term debt decreased $8 million (14.1%) for the three
months ended September 30, 1996, from the same period of 1995 primarily due to
the redemption of $161.5 million of long-term debt by CG&E and ULH&P during
the period from January 1996 through May 1996 and the redemption of $110
million by PSI during the period from August 1995 through July 1996.
Other Interest
Other interest increased $5 million (91.1%) for the third quarter of 1996, as
compared to the same period last year, primarily reflecting increased interest
expense on short-term borrowings used to fund Cinergy's investment in Avon
Energy.
Costs of Reacquisition of Preferred Stock of Subsidiary
Costs of reacquisition of preferred stock of subsidiary represents the
difference between the par value of preferred stock of CG&E tendered pursuant
to Cinergy's tender offer in September of 1996 and the purchase price paid
(including tender fees paid to dealer managers) by Cinergy for these shares.
(See Note 6 of the "Notes to Financial Statements" in "Part I. Financial
Information.")
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Kwh Sales
Kwh sales increased 8.4% for the nine months ended September 30, 1996, from
the comparable period of last year primarily reflecting increased activity in
Cinergy's power marketing operations which led to higher non-firm power sales
for resale. The higher kwh sales levels reflected increased sales to all
retail customer classes. The increase to retail sales reflects a higher
average number of residential and commercial customers, while industrial sales
increased primarily due to growth in the primary metals sector. These
increases were partially offset by the return to more normal weather in the
third quarter of 1996.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the first nine months of 1996
increased 13.9% as compared to the same period in 1995. Colder weather during
the winter heating season, cooler than normal weather early in the second
quarter of 1996, and increases in the average number of customers led to
increased gas sales to residential and commercial customers. Industrial sales
decreased as customers continued to purchase gas directly from suppliers,
using transportation services provided by CG&E. The increase in
transportation volumes mainly reflects demand for gas transportation services
in the primary metals sector.
.
Operating Revenues
Electric Operating Revenues
Compared to the same period last year, electric operating revenues for the
nine months ended September 30, 1996, increased $87 million (4.4%) reflecting
the increased kwh sales, as previously discussed. In addition, PSI's 4.3%
retail rate increase approved in the February 1995 Order and a 1.9% increase
for carrying costs on CWIP property which was approved by the IURC in March
1995 contributed to the increase. The return of approximately $13 million to
PSI's customers in accordance with the February 1995 Order, which requires all
retail operating income above a certain rate of return to be refunded to
customers, slightly offset these increases.
An analysis of electric operating revenues is shown below:
Nine Months
Ended September 30
(in millions)
Electric operating revenues - September 30, 1995 $1 973
Increase (Decrease) due to change in:
Price per kwh
Retail (14)
Sales for resale
Firm power obligations (5)
Non-firm power transactions 3
Total change in price per kwh (16)
Kwh sales
Retail 51
Sales for resale
Firm power obligations 6
Non-firm power transactions 46
Total change in kwh sales 103
Electric operating revenues - September 30, 1996 $2 060
Gas Operating Revenues
Gas operating revenues increased $40 million (15.2%) in the first nine months
of 1996, when compared to the same period last year. This increase was
primarily a result of the previously discussed changes in gas sales and
transportation volumes. Also contributing to the increase was the operation
of fuel adjustment clauses reflecting a higher cost of gas purchased.
Operating Expenses
Gas Purchased
Gas purchased for the nine months ended September 30, 1996, increased $20
million (15.4%) when compared to the same period last year. This increase was
attributable to an increase in volumes purchased and a higher average cost per
Mcf of gas purchased as previously discussed.
Purchased and Exchanged Power
Purchased and exchanged power increased $62 million for the nine months
ended September 30, 1996, when compared to the same period last year,
primarily reflecting increased purchases of non-firm power for resale to
others as a result of increased activity in Cinergy's power marketing
operations.
Other Operation
Other operation expenses for the nine months ended September 30, 1996,
increased $52 million (13.9%), as compared to the same period last year. This
increase is due to a number of factors, including increased transmission
expenses and higher administrative and general expenses reflecting, in part,
charges of $17.4 million for early retirement and severance programs. Other
factors include the recognition by PSI of postretirement benefit costs on an
accrual basis, an increase in the ongoing level of DSM expenses, and the
amortization of deferred postretirement benefit costs and deferred DSM costs,
which are being recovered in revenues pursuant to the February 1995 Order.
Maintenance
The $10 million (7.7%) increase in maintenance expenses for the nine months
ended September 30, 1996, as compared to the same period last year, is
primarily attributable to increased maintenance on CG&E's electric production
facilities. Maintenance on the Clean Coal Project which began commercial
operation in November 1995 and increased transmission and distribution
expenses also contributed to the higher level of maintenance expenses.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for
Zimmer included in the May 1992 Order. In the first three years of the phase-
in plan, rates charged to customers did not fully recover depreciation expense
and return on investment. This deficiency was deferred and is being recovered
over a seven-year period that began in May 1995.
Other Income and Expenses - Net
Post-in-service Carrying Costs
Post-in-service carrying costs decreased $2 million (61.4%) for the nine
months ended September 30, 1996, from the comparable period of 1995 as a
result of PSI's discontinuing the accrual of post-in-service carrying costs on
qualified environmental projects upon the inclusion in rates of the costs of
the projects pursuant to the February 1995 Order.
Other - net
Other - net decreased $5 million from the same period in 1995 due to a number
of factors, including the effects of interest received in 1995 on an income
tax refund related to prior years and expenses associated with CG&E's and
ULH&P's sales of accounts receivables in 1996, as previously mentioned. These
decreases were partially offset by Cinergy's equity in the earnings of Avon
Energy.
Interest and Other Charges
Interest on Long-term Debt
Interest charges on long-term debt decreased $17 million (10.6%) for the nine
months ended September 30, 1996, from the same period of 1995 primarily due to
the refinancing by CG&E and ULH&P of over $330 million of long-term debt
during the period from March 1995 through November 1995, the redemption of
$161.5 million by CG&E and ULH&P during the period from January 1996 through
May 1996, and the redemption of $110 million by PSI during the period from
August 1995 through July 1996.
Other Interest
Other interest increased $2 million (12.0%) for the nine months ended
September 30, 1996, as compared to the same period of 1995, primarily
reflecting increased interest expense on short-term borrowings used to fund
Cinergy's investment in Avon Energy.
Preferred Dividend Requirements of Subsidiaries
The decrease in the preferred dividend requirement of $4 million (17.2%) for
the nine months ended September 30, 1996, from the same period of 1995 was due
to the early redemption in July 1995 of all 400,000 shares and 500,000 shares
of CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred
stock, respectively.
Costs of Reacquisition of Preferred Stock of Subsidiary
Costs of reacquisition of preferred stock of subsidiary represents the
difference between the par value of preferred stock of CG&E tendered pursuant
to Cinergy's tender offer in September of 1996 and the purchase price paid
(including tender fees paid to dealer managers) by Cinergy for these shares.
(See Note 6 of the "Notes to Financial Statements" in "Part I. Financial
Information.")
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996
Kwh Sales
Kwh sales increased 9.1% for the twelve months ended September 30, 1996, from
the comparable period of last year partially reflecting increased activity in
Cinergy's power marketing operations which led to higher non-firm power sales
for resale. Also contributing to the higher kwh sales levels were increased
sales to residential and commercial customers as a result of colder weather
during the fourth quarter of 1995 and the first quarter of 1996, and cooler
than normal weather during the second quarter of 1996. Additionally, the
increase reflects a higher average number of residential and commercial
customers, while industrial sales increased primarily due to growth in the
primary metals sector. These increases were partially offset by the return to
more normal weather in the third quarter of 1996.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the twelve months ended September
30, 1996, increased 18.8% as compared to the same period in 1995. Colder
weather during the winter heating season and cooler than normal weather early
in the second quarter of 1996 primarily contributed to this increase.
Industrial sales decreased as customers continued to purchase gas directly
from suppliers, using transportation services provided by CG&E. The increase
in transportation volumes, which more than offset the decline in industrial
sales, mainly reflects demand for gas transportation services in the primary
metals sector.
Operating Revenues
Electric Operating Revenues
Compared to the same period last year, electric operating revenues for the
twelve months ended September 30, 1996, increased $149 million (5.8%),
reflecting increased kwh sales and PSI's rate increases, as previously
discussed. The return of approximately $16 million to customers in accordance
with the February 1995 Order, which requires all retail operating income above
a certain rate of return to be refunded to customers, slightly offset these
increases.
An analysis of electric operating revenues is shown below:
Twelve Months
Ended September 30
(in millions)
Electric operating revenues - September 30, 1995 $2 551
Increase (Decrease) due to change in:
Price per kwh
Retail (10)
Sales for resale
Firm power obligations (9)
Non-firm power transactions 7
Total change in price per kwh (12)
Kwh sales
Retail 100
Sales for resale
Firm power obligations 8
Non-firm power transactions 53
Total change in kwh sales 161
Electric operating revenues - September 30, 1996 $2 700
Gas Operating Revenues
Gas operating revenues increased $74 million (19.7%) for the twelve months
ended September 30, 1996, when compared to the same period last year. This
increase was primarily a result of the previously discussed changes in gas
sales and transportation volumes.
Operating Expenses
Gas Purchased
Gas purchased for the twelve months ended September 30, 1996, increased $37
million (19.5%) when compared to the same period last year. This increase
reflects higher volumes purchased and an increase in the average cost per Mcf
of gas purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $71 million for the twelve months
ended September 30, 1996, when compared to the same period of last year,
primarily reflecting increased purchases of non-firm power for resale to
others as a result of increased activity in Cinergy's power marketing
operations.
Amortization of Phase-in Deferrals
As previously discussed, amortization of phase-in deferrals reflect the PUCO-
ordered phase-in plan for Zimmer included in the May 1992 Order.
Other Income and Expenses - Net
Post-in-service Carrying Costs
Post-in-service carrying costs decreased $5 million (80.2%) for the twelve
months ended September 30, 1996, from the comparable period of last year.
This decrease is a result of PSI's discontinuing the accrual of post-in-
service carrying costs on qualified environmental projects upon the inclusion
in rates of the costs of the projects pursuant to the February 1995 Order.
Partially offsetting the decrease is the accrual of the aforementioned costs
on the Clean Coal Project which began commercial operation in November 1995.
Other - net
Other - net increased $14 million (64.1%) for the twelve months ended
September 30, 1996, from the comparable period of 1995, reflecting a $10
million gain on the sale of an Argentine utility, Cinergy's equity in the
earnings of Avon Energy, and charges of $14 million in the fourth quarter of
1994 for merger-related and other expenditures which cannot be recovered from
customers. These items were partially offset by a number of factors,
including the effects of charges associated with winding-down certain non-
utility activities during 1995, interest received in 1995 on an income tax
refund related to prior years, and expenses associated with CG&E's and ULH&P's
sales of accounts receivables in 1996.
Interest and Other Charges
Interest on Long-term Debt
Interest charges on long-term debt decreased $19 million (8.7%) for the twelve
months ended September 30, 1996, from the same period of 1995 primarily due to
the refinancing of over $330 million of long-term debt by CG&E and ULH&P
during the period from March 1995 through November 1995, the redemption of
$161.5 million by CG&E and ULH&P during the period from January 1996 through
May 1996, and the redemption of $110 million by PSI during the period from
August 1995 through July 1996.
Preferred Dividend Requirements of Subsidiaries
The decrease in the preferred dividend requirement of $6 million (18.4%) for
the twelve months ended September 30, 1996, from the same period of 1995 was
due to the early redemption in July 1995 of all 400,000 shares and 500,000
shares of CG&E's 7.44% Series and 9.15% Series $100 par value cumulative
preferred stock, respectively.
Costs of Reacquisition of Preferred Stock of Subsidiary
Costs of reacquisition of preferred stock of subsidiary represents the
difference between the par value of preferred stock of CG&E tendered pursuant
to Cinergy's tender offer in September of 1996 and the purchase price paid
(including tender fees paid to dealer managers) by Cinergy for these shares.
(See Note 6 of the "Notes to Financial Statements" in "Part I. Financial
Information.")
<PAGE>
THE CINCINNATI GAS &
ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
September 30 December 31
1996 1995
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $4 624 135 $4 564 711
Gas 699 566 680 339
Common 184 067 183 422
5 507 768 5 428 472
Accumulated depreciation 1 838 745 1 730 232
3 669 023 3 698 240
Construction work in progress 84 915 77 661
Total utility plant 3 753 938 3 775 901
Current Assets
Cash and temporary cash investments 16 718 6 612
Restricted deposits 1 171 1 144
Notes receivable from affiliated companies 54 480 24 715
Accounts receivable less accumulated
provision for doubtful accounts of
$12,042 at September 30, 1996, and
$9,615 at December 31, 1995 47 531 292 493
Accounts receivable from affiliated companies 5 970 17 162
Materials, supplies, and fuel - at average
cost
Fuel for use in electric production 28 636 40 395
Gas stored for current use 37 215 21 493
Other materials and supplies 53 804 55 388
Property taxes applicable to subsequent year 29 206 116 822
Prepayments and other 22 981 30 572
297 712 606 796
Other Assets
Regulatory assets
Amounts due from customers - income taxes 347 670 397 155
Post-in-service carrying costs and deferred
operating expenses 143 198 148 316
Phase-in deferred return and depreciation 96 469 100 388
Deferred DSM costs 29 628 19 158
Deferred merger costs 18 706 14 538
Unamortized costs of reacquiring debt 39 338 39 428
Other 25 483 41 025
Other 102 695 54 691
803 187 814 699
$4 854 837 $5 197 396
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
CAPITALIZATION AND LIABILITIES
September 30 December 31
1996 1995
(dollars in thousands)
Common Stock Equity
Common stock - $8.50 par value; authorized
shares - 120,000,000; outstanding shares -
89,663,086 at September 30, 1996, and
December 31, 1995 $ 762 136 $ 762 136
Paid-in capital 536 128 339 101
Retained earnings 264 297 427 226
Total common stock equity 1 562 561 1 528 463
Cumulative Preferred Stock
Not subject to mandatory redemption 21 145 40 000
Subject to mandatory redemption - 160 000
Long-term Debt 1 564 868 1 702 650
Total capitalization 3 148 574 3 431 113
Current Liabilities
Long-term debt due within one year 130 000 151 500
Notes payable 82 100 -
Notes payable to affiliated companies 1 500 -
Accounts payable 125 503 138 735
Accounts payable to affiliated companies 91 20 468
Accrued taxes 164 402 250 189
Accrued interest 32 611 31 299
Other 43 836 40 409
580 043 632 600
Other Liabilities
Deferred income taxes 782 084 795 385
Unamortized investment tax credits 124 307 129 372
Accrued pension and other postretirement
benefit costs 142 625 117 641
Other 77 204 91 285
1 126 220 1 133 683
$4 854 837 $5 197 396
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to
Date
September 30
September 30
1996 1995 1996
1995
(in thousands)
<S> <C> <C> <C>
<C>
Operating Revenues
Electric
Non-affiliated companies $ 382 718 $ 399 472 $1 109 300
$1 070 892
Affiliated companies 7 634 1 702 27 889
16 761
Gas
Non-affiliated companies 40 787 33 591 306 062
265 777
Affiliated companies 4 - 5
- -___
431 143 434 765 1 443 256
1 353 430
Operating Expenses
Fuel used in electric production 82 449 84 101 267 007
252 638
Gas purchased 17 133 13 155 150 313
130 235
Purchased and exchanged power
Non-affiliated companies 10 355 4 228 24 021
6 924
Affiliated companies 5 821 10 866 14 576
29 587
Other operation 66 786 69 834 235 513
204 557
Maintenance 22 844 18 994 68 745
63 973
Depreciation 40 322 39 836 120 557
119 060
Amortization of phase-in deferrals 3 399 3 409 10 198
5 682
Amortization of post-in-service
deferred operating expenses 786 823 2 431
2 468
Income taxes 41 675 40 730 115 902
108 293
Taxes other than income taxes 49 820 50 358 154 733
151 345
341 390 336 334 1 163 996
1 074 762
Operating Income 89 753 98 431 279 260
278 668
Other Income and Expenses - Net
Allowance for equity funds used
during construction 358 269 1 206
1 146
Phase-in deferred return 2 093 2 135 6 279
6 403
Income taxes 819 (31) 4 299
2 796
Other - net (1 505) 4 446 (6 095)
4 851
1 765 6 819 5 689
15 196
Income Before Interest 91 518 105 250 284 949
293 864
Interest
Interest on long-term debt 30 304 36 507 93 392
107 108
Other interest 522 679 1 466
2 926
Allowance for borrowed funds used
during construction (813) (894) (2 598)
(2 774)
30 013 36 292 92 260
107 260
Net Income 61 505 68 958 192 689
186 604
Preferred Dividend Requirement (3 475) (3 475) (10 423)
(14 199)
Costs of Reacquisition of Preferred
Stock (Note 6) (18 175) - (18 175)
- -
Net Income Applicable to Common Stock $ 39 855 $ 65 483 $ 164 091
$ 172 405
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1996 1995
(in thousands)
<S> <C> <C>
Operating Activities
Net income $ 192 689 $ 186 604
Items providing (using) cash currently
Depreciation 120 557 119 060
Deferred income taxes and investment tax
credits - net 31 408 24 597
Allowance for equity funds used during
construction (1 206) (1 146)
Regulatory assets - net 21 626 10 260
Changes in current assets and current
liabilities
Restricted deposits (27) (3)
Accounts and notes receivable, net of
reserves on receivables sold 201 972 54 133
Materials, supplies, and fuel (2 379) 9 499
Accounts payable (33 609) (41 110)
Accrued taxes and interest 5 974 25 114
Other items - net (9 326) (30 186)
Net cash provided by (used in)
operating activities 527 679 356 822
Financing Activities
Issuance of long-term debt - 344 280
Funds on deposit from issuance of long-term debt - (84 000)
Retirement of preferred stock - (93 450)
Redemption of long-term debt (157 583) (238 498)
Change in short-term debt 83 600 12 000
Dividends on preferred stock (10 423) (14 199)
Dividends on common stock (327 020) (162 950)
Net cash provided by (used in)
financing activities (411 426) (236 817)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (95 677) (99 661)
Deferred DSM costs - net (10 470) (6 315)
Net cash provided by (used in)
investing activities (106 147) (105 976)
Net increase (decrease) in cash and
temporary cash investments 10 106 14 029
Cash and temporary cash investments at
beginning of period 6 612 52 516
Cash and temporary cash investments at
end of period $ 16 718 $ 66 545
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Kwh Sales
Kwh sales for the quarter ended September 30, 1996, decreased 2.5% from the
same period of 1995. A return to more normal weather for the third quarter of
1996 resulted in decreased residential and commercial sales. These decreases
were partially offset by increased industrial sales reflecting growth in the
primary metals sector and increased activity in Cinergy's power marketing
operations which led to higher non-firm power sales for resale.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the third quarter of 1996
increased 13.2% as compared to the same period in 1995. Increased residential
and commercial gas sales reflected, in part, increases in the average number
of customers. Higher gas transportation volumes reflected the continuing
trend of industrial customers purchasing gas directly from suppliers, using
transportation services provided by CG&E. The increase in transportation
volumes mainly reflects demand for gas transportation services in the primary
metals sector.
Operating Revenues
Electric Operating Revenues
Electric operating revenues decreased $11 million (2.7%) for the quarter ended
September 30, 1996, from the comparable period of 1995. This decrease was
primarily attributable to the lower kwh sales as previously discussed.
An analysis of electric operating revenues is shown below:
Quarter
Ended September 30
(in millions)
Electric operating revenues - September 30, 1995 $401
Increase (Decrease) due to change in:
Price per kwh
Retail (5)
Sales for resale
Non-firm power transactions 6
Total change in price per kwh 1
Kwh sales
Retail (12)
Total change in kwh sales (12)
Electric operating revenues - September 30, 1996 $390
Gas Operating Revenues
Gas operating revenues increased $7 million (21.4%) in the third quarter of
1996, when compared to the same period last year. This increase was primarily
a result of the operation of fuel adjustment clauses reflecting a higher
average cost of gas purchased and the previously discussed changes in gas
sales and transportation volumes.
Operating Expenses
Gas Purchased
Gas purchased for the quarter ended September 30, 1996, increased $4 million
(30.2%) when compared to the same period last year reflecting a higher average
cost per Mcf of gas purchased.
Purchased and Exchanged Power
Purchased and exchanged power for the quarter ended September 30, 1996,
increased $1 million (7.2%) over the comparable period of 1995 reflecting
increased purchases of non-firm power for resale to others as a result of
increased activity in Cinergy's power marketing operations. This increase is
partially offset by decreased power purchases from PSI.
Maintenance
The $4 million (20.3%) increase in maintenance expenses for the third quarter
of 1996, as compared to the same period of 1995, is primarily due to increased
maintenance on electric production and transmission facilities.
Other Income and Expenses - Net
Other - net
Other - net decreased $6 million primarily as a result of the effects of
expenses associated with the CG&E's and ULH&P's sales of accounts receivables
in 1996 and interest received in 1995 associated with a refund of an
overpayment of Federal income taxes related to prior years.
Interest
Interest on Long-term Debt
Interest charges decreased $6 million (17.0%) for the quarter ended September
30, 1996, from the same period of 1995 primarily due to the redemption of
$161.5 million of long-term debt during the period from January 1996 through
May 1996.
Costs of Reacquisition of Preferred Stock
Costs of reacquisition of preferred stock represents the difference between
the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender
offer in September 1996 and the purchase price paid (including tender fees
paid to dealer managers) by Cinergy for these shares. (See Note 6 of the
"Notes to Financial Statements" in "Part I. Financial Information.")
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Kwh Sales
Kwh sales for the nine months ended September 30, 1996, increased 7.3% over
the same period of 1995. This increase reflected higher kwh sales to all
customer classes. Increased activity in Cinergy's power marketing operations
led to higher non-firm power sales for resale, while an increase in the
average number of residential and commercial customers and higher industrial
sales, primarily reflecting growth in the primary metals sector, also
contributed to the increase. These increases were partially offset by the
return to more normal weather in the third quarter of 1996.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the first nine months of 1996
increased 13.9% as compared to the same period in 1995. Colder weather during
the winter heating season, cooler than normal weather early in the second
quarter of 1996, and increases in the average number of customers led to
increased gas sales to residential and commercial customers. Industrial sales
decreased as customers continued to purchase gas directly from suppliers,
using transportation services provided by CG&E. The increase in
transportation volumes mainly reflects demand for gas transportation services
in the primary metals sector.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $49 million (4.6%) for the nine months
ended September 30, 1996, over the comparable period of 1995. This increase
primarily reflects the higher kwh sales discussed above.
An analysis of electric operating revenues is shown below:
Nine Months
Ended September 30
(in millions)
Electric operating revenues - September 30, 1995 $1 088
Increase (Decrease) due to change in:
Price per kwh
Retail (3)
Sales for resale
Firm power transactions (3)
Total change in price per kwh (6)
Kwh sales
Retail 40
Sales for resale
Non-firm power transactions 15
Total change in kwh sales 55
Electric operating revenues - September 30, 1996 $1 137
Gas Operating Revenues
Gas operating revenues increased $40 million (15.2%) in the first nine months
of 1996, when compared to the same period last year. This increase was
primarily a result of the previously discussed changes in gas sales and
transportation volumes. Also contributing to the increase was the operation
of fuel adjustment clauses reflecting a higher cost of gas purchased.
Operating Expenses
Fuel Used in Electric Production
Fuel costs, CG&E's largest operating expense, increased $14 million (5.7%) for
the nine months ended September 30, 1996, when compared to the same period
last year as a result of an increase in kwh generation.
Gas Purchased
Gas purchased for the nine months ended September 30, 1996, increased $20
million (15.4%) when compared to the same period last year. This increase was
attributable to an increase in volumes purchased and a higher average cost per
Mcf of gas purchased as previously discussed.
Purchased and Exchanged Power
Purchased and exchanged power for the nine months ended September 30, 1996,
increased $2 million (5.7%) over the comparable period of 1995. This increase
primarily reflects increased purchases of non-firm power for resale to others
as a result of increased activity in Cinergy's power marketing operations.
This increase is partially offset by a decrease in purchases from PSI.
Other Operation
For the nine months ended September 30, 1996, other operation expenses
increased $31 million (15.1%) due to a number of factors, including higher
administrative and general expenses reflecting, in part, $16.2 million of
early retirement and severance program costs and increased transmission
expenses resulting from the formation of KO Transmission.
Maintenance
The $5 million (7.5%) increase in maintenance expenses for the nine months
ended September 30, 1996, is primarily due to increased maintenance on
electric production facilities.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for
Zimmer included in the May 1992 Order. In the first three years of the phase-
in plan, rates charged to customers did not fully recover depreciation expense
and return on investment. This deficiency was deferred and is being recovered
over a seven-year period that began in May 1995.
Other - net
Other - net decreased $11 million from the same period in 1995 due to a number
of factors, including the effects of expenses associated with the sales of
accounts receivables in 1996 and interest received in 1995 associated with a
refund of an overpayment of Federal income taxes related to prior years, as
previously mentioned.
Interest
Interest on Long-term Debt
Interest charges decreased $14 million (12.8%) for the nine months ended
September 30, 1996, from the same period of 1995 primarily due to the
refinancing of over $330 million of long-term debt during the period from
March 1995 through November 1995 and the redemption of $161.5 million of long-
term debt during the period from January 1996 through May 1996.
Preferred Dividend Requirement
The decrease in the preferred dividend requirement of $4 million (26.6%) for
the nine months ended September 30, 1996, from the same period of 1995 was due
to the early redemption in July 1995 of all 400,000 shares and 500,000 shares
of the 7.44% Series and 9.15% Series $100 par value cumulative preferred
stock, respectively.
Costs of Reacquisition of Preferred Stock
Costs of reacquisition of preferred stock represents the difference between
the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender
offer in September of 1996 and the purchase price paid (including tender fees
paid to dealer managers) by Cinergy for these shares. (See Note 6 of the
"Notes to Financial Statements" in "Part I. Financial Information.")
<PAGE>
PSI ENERGY, INC.
AND SUBSIDIARY COMPANIES
<PAGE>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
September 30 December 31
1996 1995
(dollars in thousands)
Electric Utility Plant - Original Cost
In service $4 117 737 $4 052 984
Accumulated depreciation 1 698 969 1 637 169
2 418 768 2 415 815
Construction work in progress 76 999 58 191
Total electric utility plant 2 495 767 2 474 006
Current Assets
Cash and temporary cash investments 14 202 15 522
Restricted deposits 549 1 187
Notes receivable from affiliated companies 1 400 -
Accounts receivable less accumulated
provision for doubtful accounts of $202
at September 30, 1996, and $468 at
December 31, 1995 53 121 73 419
Accounts receivable from affiliated companies 2 499 20 568
Materials, supplies, and fuel - at average
cost
Fuel 53 018 82 014
Other materials and supplies 32 779 29 462
Prepayments and other 2 871 1 234
160 439 223 406
Other Assets
Regulatory assets
Amounts due from customers - income taxes 32 849 26 338
Post-in-service carrying costs and
deferred operating expenses 45 172 38 874
Coal contract buyout costs 137 686 -
Deferred DSM costs 105 204 110 242
Deferred merger costs 77 633 42 286
Unamortized costs of reacquiring debt 32 583 34 476
Other 69 910 33 886
Other 128 178 92 056
629 215 378 158
$3 285 421 $3 075 570
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
<PAGE>
PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
September 30 December 31
1996 1995
(dollars in thousands)
Common Stock Equity
Common stock - without par value; $.01
stated value; authorized shares -
60,000,000; outstanding shares -
53,913,701 at September 30, 1996, and
December 31, 1995 $ 539 $ 539
Paid-in capital 402 945 403 253
Accumulated earnings subsequent to November
30, 1986, quasi-reorganization 627 354 625 275
Total common stock equity 1 030 838 1 029 067
Cumulative Preferred Stock
Not subject to mandatory redemption 173 090 187 897
Long-term Debt 818 959 828 116
Total capitalization 2 022 887 2 045 080
Current Liabilities
Long-term debt due within one year 10 400 50 400
Notes payable 209 354 165 800
Notes payable to affiliated companies 52 677 32 731
Accounts payable 128 455 116 817
Accounts payable to affiliated companies 5 420 -
Litigation settlement 80 000 80 000
Accrued taxes 65 419 65 851
Accrued interest 12 661 24 696
Other 16 246 16 000
580 632 552 295
Other Liabilities
Deferred income taxes 347 227 331 876
Unamortized investment tax credits 53 652 56 354
Accrued pension and other postretirement
benefit costs 62 487 54 130
Other 218 536 35 835
681 902 478 195
$3 285 421 $3 075 570
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year
to Date
September 30
September 30
1996 1995 1996
1995
(in thousands)
<S> <C> <C> <C>
<C>
Operating Revenues
Non-affiliated companies $342 199 $332 431 $951 171
$902 501
Affiliated companies 5 856 10 866 14 691
29 587
348 055 343 297 965 862
932 088
Operating Expenses
Fuel 101 644 106 344 272 343
292 910
Purchased and exchanged power
Non-affiliated companies 26 665 11 457 71 422
26 068
Affiliated companies 7 669 1 702 28 004
16 761
Other operation 62 434 61 595 188 443
167 354
Maintenance 23 059 20 857 68 964
63 861
Depreciation 30 489 28 844 91 046
91 291
Post-in-service deferred operating
expenses - net (1 716) (894) (5 068)
(4 608)
Income taxes 23 445 29 222 55 597
64 877
Taxes other than income taxes 13 729 14 022 41 361
40 721
287 418 273 149 812 112
759 235
Operating Income 60 637 70 148 153 750
172 853
Other Income and Expenses - Net
Allowance for equity funds used during
construction - (1 428) -
(420)
Post-in-service carrying costs 391 602 1 228
3 183
Income taxes (2 438) 705 (3 332)
751
Other - net 3 280 545 1 420
(1 751)
1 233 424 (684)
1 763
Income Before Interest 61 870 70 572 153 066
174 616
Interest
Interest on long-term debt 16 218 17 647 50 286
53 546
Other interest 3 790 4 162 10 386
12 035
Allowance for borrowed funds used during
construction (642) (1 133) (1 637)
(3 550)
19 366 20 676 59 035
62 031
Net Income 42 504 49 896 94 031
112 585
Preferred Dividend Requirement (3 020) (3 295) (9 518)
(9 885)
Net Income Applicable to Common Stock $ 39 484 $ 46 601 $ 84 513
$102 700
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1996 1995
(in thousands)
<S> <C> <C>
Operating Activities
Net income $ 94 031 $ 112 585
Items providing (using) cash currently:
Depreciation 91 046 91 291
Deferred income taxes and investment tax
credits - net 5 145 5 342
Allowance for equity funds used during
construction - 420
Regulatory assets - net (49 070) (10 315)
Changes in current assets and current
liabilities
Restricted deposits (335) 16
Accounts and notes receivable, net
of reserves on receivables sold 23 039 (35 442)
Materials, supplies, and fuel 25 679 16 310
Accounts payable 17 058 (50 642)
Accrued taxes and interest (12 467) 4 490
Other items - net (810) 12 150
Net cash provided by (used in)
operating activities 193 316 146 205
Financing Activities
Funds on deposit from issuance of long-term debt 973 8 684
Retirement of preferred stock (15 114) (8)
Redemption of long-term debt (50 000) (60 055)
Change in short-term debt 63 500 42 927
Dividends on preferred stock (9 609) (9 885)
Dividends on common stock (82 363) -
Capital contribution from parent company - 12 721
Net cash provided by (used in)
financing activities (92 613) (5 616)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (107 061) (132 282)
Deferred DSM costs - net 5 038 (11 041)
Net cash provided by (used in)
investing activities (102 023) (143 323)
Net increase (decrease) in cash and
temporary cash investments (1 320) (2 734)
Cash and temporary cash investments at
beginning of period 15 522 6 341
Cash and temporary cash investments at
end of period $ 14 202 $ 3 607
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
PSI ENERGY, INC.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Kwh Sales
Kwh sales for the third quarter of 1996 decreased 1.9% as a return to more
normal weather resulted in a decline in residential and commercial kwh sales,
when compared to the same period last year. Partially offsetting the decrease
was increased activity in Cinergy's power marketing operations which led to
higher non-firm power sales for resale. An increase in industrial sales
primarily reflects growth in the transportation equipment, bituminous coal
mining and primary metals sectors.
Operating Revenues
Total operating revenues increased $5 million (1.4%) for the quarter ended
September 30, 1996, when compared to the same period last year, reflecting, in
part, the increased activity in Cinergy's power marketing operations
previously discussed. Partially offsetting this increase was the previously
mentioned decline in residential and commercial sales.
An analysis of operating revenues is shown below:
Quarter
Ended September 30
(in millions)
Operating revenues - September 30, 1995 $343
Increase (Decrease) due to change in:
Price per kwh
Retail 5
Sales for resale
Firm power obligations (3)
Non-firm power transactions 10
Total change in price per kwh 12
Kwh sales
Retail (7)
Sales for resale
Firm power obligations (2)
Non-firm power transactions 1
Total change in kwh sales (8)
Other 1
Operating revenues - September 30, 1996 $348
Operating Expenses
Fuel
Fuel costs, PSI's largest operating expense, decreased $4 million (4.4%) for
the third quarter of 1996 as compared to the same period last year.
An analysis of fuel costs is shown below:
Quarter
Ended September 30
(in millions)
Fuel expense - September 30, 1995 $106
Increase (Decrease) due to change in:
Price of fuel 9
Kwh generation (13)
Fuel expense - September 30, 1996 $102
Purchased and Exchanged Power
For the quarter ended September 30, 1996, purchased and exchanged power
increased $21 million, as compared to the same period last year, due, in part,
to increased purchases of non-firm power for resale to others as a result of
increased activity in Cinergy's power marketing operations and increased
purchases from CG&E as a result of the coordination of PSI's and CG&E's
electric dispatch systems.
Maintenance
The $2 million (10.6%) increase in maintenance expenses for the third quarter
of 1996, as compared to the same period of 1995, is due, in part, to
maintenance on the Clean Coal Project which began commercial operation in
November 1995.
Depreciation
Depreciation expense increased $2 million (5.7%) for the quarter ended
September 30, 1996, as compared to the third quarter of last year. This
increase primarily reflects additions to utility plant in service.
Post-in-service Deferred Operating Expenses - Net
Post-in-service deferred operating expenses - net reflects the deferral of
depreciation on certain major projects, primarily environmental in nature,
from the in-service date until the related projects are reflected in retail
rates, net of amortization of these deferrals as they are recovered.
Other Income and Expenses - Net
Other - net
The increase of $3 million for other - net for the quarter ended September 30,
1996, as compared to the same period of 1995, is primarily attributable to
amounts allowed by the IURC in its September 1996 Order which were not
previously recorded.
Interest
Interest on Long-term Debt
Interest on long-term debt decreased $1 million (8.1%) for the third quarter
of 1996, as compared to the third quarter of 1995, primarily due to the
redemption of $110 million of long-term debt during the period from August
1995 through July 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Kwh Sales
For the nine months ended September 30, 1996, kwh sales increased 8.8% when
compared to the same period last year due, in large part, to increased
activity in Cinergy's power marketing operations which led to higher
non-firm power sales for resale. Also contributing to the total kwh sales
levels were increased sales to all retail customer classes resulting from an
increase in the average number of residential and commercial customers while
increased industrial sales reflects growth in the food products, primary
metals, and transportation equipment sectors. These increases were partially
offset by the return to more normal weather in the third quarter of 1996.
Operating Revenues
Total operating revenues increased $34 million (3.6%) for the nine months
ended September 30, 1996, when compared to the same period last year. This
increase primarily reflects the increase in kwh sales previously discussed.
Also contributing to the increase was a 4.3% retail rate increase approved in
the February 1995 Order and a 1.9% rate increase for carrying costs on CWIP
property which was approved by the IURC in March 1995. Partially offsetting
these increases was the return of approximately $13 million to customers in
accordance with the February 1995 Order which requires all retail operating
income above a certain rate of return to be refunded to customers.
An analysis of operating revenues is shown below:
Nine Months
Ended September 30
(in millions)
Operating revenues - September 30, 1995 $932
Increase (Decrease) due to change in:
Price per kwh
Retail (14)
Sales for resale
Firm power obligations (4)
Non-firm power transactions 3
Total change in price per kwh (15)
Kwh sales
Retail 14
Sales for resale
Firm power obligations 6
Non-firm power transactions 29
Total change in kwh sales 49
Operating revenues - September 30, 1996 $966
Operating Expenses
Fuel
Fuel costs for the nine months ended September 30, 1996, decreased $21 million
(7.0%) when compared to the same period last year.
An analysis of fuel costs is shown below:
Nine Months
Ended September 30
(in millions)
Fuel expense - September 30, 1995 $293
Increase (Decrease) due to change in:
Price of fuel (9)
Kwh generation (12)
Fuel expense - September 30, 1996 $272
Purchased and Exchanged Power
For the nine months ended September 30, 1996, purchased and exchanged power
increased $57 million, as compared to the same period last year, due, in part,
to increased purchases of non-firm power for resale to others as a result of
increased activity in Cinergy's power marketing operations and increased
purchases from CG&E as a result of the coordination of PSI's and CG&E's
electric dispatch systems.
Other Operation
Other operation expenses increased $21 million (12.6%) for the nine months
ended September 30, 1996, as compared to the same period last year. This
increase was due to a number of factors, including the recognition of
postretirement benefit costs on an accrual basis, an increase in the ongoing
level of DSM expenses, and the amortization of deferred postretirement benefit
costs and deferred DSM costs, all of which are being recovered in revenues
pursuant to the February 1995 Order. Increased transmission expenses also
contributed to the higher level of other operation expenses.
Maintenance
Maintenance expenses for the first nine months of 1996, as compared to the
same period last year, increased $5 million (8.0%) partially as a result of
maintenance on the Clean Coal Project which began commercial operation in
November 1995. Increased transmission and distribution expenses also
contributed to the higher level of maintenance expenses.
Other Income and Expenses - Net
Post-in-service Carrying Costs
Post-in-service carrying costs decreased $2 million (61.4%) for the nine
months ended September 30, 1996, from the comparable period of 1995 as a
result of discontinuing the accrual of post-in-service carrying costs on
qualified environmental projects upon the inclusion in rates of the costs of
the projects pursuant to the February 1995 Order.
Other - net
The increase of $3 million for other - net for the nine months ended September
30, 1996, as compared to the same period of 1995, is primarily attributable to
amounts allowed by the IURC in its September 1996 Order which were not
previously recorded.
Interest
Interest on Long-term Debt
Interest on long-term debt decreased $3 million (6.1%) for the nine months
ended September 30, 1996, as compared to the same period of 1995, due in part
to the redemption of $110 million of long-term debt during the period from
August 1995 through July 1996.
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
<PAGE>
THE UNION LIGHT, HEAT & POWER COMPANY
BALANCE SHEETS
(unaudited)
ASSETS
September 30 December 31
1996 1995
(dollars in thousands)
Utility Plant - original cost
In service
Electric $193 903 $188 508
Gas 146 286 140 604
Common 19 026 19 068
359 215 348 180
Accumulated depreciation 120 500 112 812
238 715 235 368
Construction work in progress 7 936 7 863
Total utility plant 246 651 243 231
Current Assets
Cash and temporary cash investments 2 787 1 750
Notes receivable from affiliated companies 1 501 -
Accounts receivable less accumulated
provision for doubtful accounts of
$1,623 at September 30, 1996, and $1,140
at December 31, 1995 3 466 37 895
Accounts receivable from affiliated
companies 14 -
Materials, supplies, and fuel - at average
cost
Gas stored for current use 6 887 4 513
Other materials and supplies 1 462 1 215
Property taxes applicable to subsequent year 587 2 350
Prepayments and other 499 485
17 203 48 208
Other Assets
Regulatory assets
Deferred merger costs 1 785 1 785
Unamortized costs of reacquiring debt 3 803 2 526
Other 2 468 2 548
Other 6 439 1 499
14 495 8 358
$278 349 $299 797
The accompanying notes as they relate to The Union Light, Heat and Power
Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT & POWER COMPANY
CAPITALIZATION AND LIABILITIES
September 30 December 31
1996 1995
(dollars in thousands)
Common Stock Equity
Common stock - $15.00 par value;
authorized shares - 1,000,000;
outstanding shares - 585,333 at
September 30, 1996, and December 31,
1995 $ 8 780 $ 8 780
Paid-in capital 18 839 18 839
Retained earnings 94 621 82 863
Total common stock equity 122 240 110 482
Long-term Debt 44 604 54 377
Total capitalization 166 844 164 859
Current Liabilities
Long-term debt due within one year - 15 000
Notes payable to affiliated companies 21 593 23 043
Accounts payable 5 120 11 057
Accounts payable to affiliated companies 16 139 21 665
Accrued taxes 2 311 1 993
Accrued interest 940 1 549
Other 6 159 5 505
52 262 79 812
Other Liabilities
Deferred income taxes 31 247 23 728
Unamortized investment tax credits 4 867 5 079
Accrued pension and other postretirement
benefit costs 12 915 12 202
Income taxes refundable through rates 5 017 4 717
Other 5 197 9 400
59 243 55 126
$278 349 $299 797
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT & POWER COMPANY
STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year
to Date
September 30
September 30
1996 1995 1996
1995
(in thousands)
<S> <C> <C> <C>
<C>
Operating Revenues
Electric $ 52 704 $ 57 171 $147 970
$144 553
Gas 5 660 5 995 50 794
45 870
58 364 63 166 198 764
190 423
Operating Expenses
Electricity purchased from parent
company for resale 39 850 42 124 109 337
109 099
Gas purchased 2 129 2 168 26 252
23 884
Other operation 7 268 7 428 23 664
22 481
Maintenance 1 093 903 3 445
3 040
Depreciation 3 013 2 907 8 887
8 553
Income taxes 1 067 1 612 7 824
5 573
Taxes other than income taxes 986 986 3 092
2 965
55 406 58 128 182 501
175 595
Operating Income 2 958 5 038 16 263
14 828
Other Income and Expense - Net
Allowance for equity funds used during
construction 42 22 21
78
Income taxes 4 (10) 31
(48)
Other - net (436) (8) (1 079)
59
(390) 4 (1 027)
89
Income Before Interest 2 568 5 042 15 236
14 917
Interest
Interest on long - term debt 881 1 721 3 135
5 674
Other interest 167 157 433
376
Allowance for borrowed funds used during
construction (26) (24) (90)
(120)
1 022 1 854 3 478
5 930
Net Income $ 1 546 $ 3 188 $ 11 758
$ 8 987
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power
Company are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Year to
Date
September 30
1996
1995
(in
thousands)
<S> <C>
<C>
Operating Activities
Net income $ 11 758
$ 8 987
Items providing (using) cash currently
Depreciation 8 887
8 553
Deferred income taxes and investment tax
credits - net 7 607
1 147
Allowance for equity funds used during
construction (21)
(78)
Regulatory assets 80
128
Changes in current assets and current liabilities
Accounts and notes receivable, net of reserves on
receivables sold 29 590
5 066
Materials, supplies, and fuel (2 621)
608
Accounts payable (11 463)
248
Accrued taxes and interest 1 446
(1 515)
Other items - net (3 866)
1 969
Net cash provided by (used in)
operating activities 41 397
25 113
Financing Activities
Issuance of long-term debt -
14 704
Redemption of long-term debt (26 083)
(37 036)
Change in short-term debt (1 450)
12 000
Net cash provided by (used in)
financing activities (27 533)
(10 332)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (12 827)
(14 350)
Net cash provided by (used in)
investing activities (12 827)
(14 350)
Net increase (decrease) in cash and
temporary cash investment 1 037
431
Cash and temporary cash investments at
beginning of period 1 750
1 071
Cash and temporary cash investments at
end of period $ 2 787
$ 1 502
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power
Company are an integral part of these financial
statements.
</TABLE>
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Kwh Sales
Kwh sales for the quarter ended September 30, 1996, decreased 6.4% from the
comparable period of 1995. A return to more normal weather in the third
quarter of 1996 resulted in a decline in residential and commercial sales. An
increase in the average number of residential and commercial customers
partially offset the decline in sales.
Operating Revenues
Electric Operating Revenues
Electric operating revenues decreased $4.5 million (7.8%) for the quarter
ended September 30, 1996, from the comparable period of 1995. This decrease
primarily reflects the previously discussed decline in kwh sales. Also, on
July 3, 1996, the KPSC issued an order authorizing a decrease in electric
rates of approximately $1.8 million annually to reflect a reduction in the
cost of electricity purchased from CG&E.
Gas Operating Revenues
An increasing trend of industrial customers purchasing gas directly from
producers and utilizing ULH&P facilities to transport the gas continues to put
downward pressure on gas operating revenues. When ULH&P sells gas, the sales
price reflects the cost of gas purchased by ULH&P to support the sale plus the
costs to deliver the gas. When gas is transported, ULH&P does not incur any
purchased gas costs but delivers gas the customer has purchased from other
sources. Since providing transportation services does not necessitate
recovery of gas purchased costs, the revenue per Mcf transported is less than
the revenue per Mcf sold. As a result, a higher relative volume of gas
transported to gas sold translates into lower gas operating revenues.
Gas operating revenues declined $.3 million (5.6%) in the third quarter of
1996, when compared to the same period of last year. This decrease was the
result of the aforementioned trend toward increased transportation services.
This decrease was slightly offset by the operation of adjustment clauses
reflecting a higher average cost of gas purchased.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased expense, ULH&P's largest operating expense, decreased
$2.3 million (5.4.%) for the quarter ended September 30, 1996, as compared to
the same period last year. This decrease reflects the aforementioned
reduction in the cost of electricity purchased from CG&E.
Maintenance
The $.2 million (21.0%) increase in maintenance expenses for the third quarter
of 1996, as compared to the same period of 1995, is primarily due to increased
maintenance expenses associated with gas and electric distribution facilities.
Other Income and Expenses - Net
Other - net
The change of $.4 million for other - net for the quarter ended September 30,
1996, as compared to the same period of 1995, is primarily attributable to
expenses associated with the sales of accounts receivables in 1996.
Interest
Interest on Long-term Debt
Interest charges decreased $.8 million (48.8%) for the quarter ended September
30, 1996, as compared to the same period of 1995, primarily due to the
redemption of $25 million of long-term debt from January 1996 to May 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Kwh Sales
Kwh sales for the nine months ended September 30, 1996, increased 5.3% as
compared to the same period of 1995. This increase was due to higher kwh
sales to all customer classes. Residential and commercial sales reflected an
increase in the average number of customers. Industrial sales increased due
to growth in the food products sector. These increases were partially offset
by the return to more normal weather in the third quarter of 1996.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the nine months ended September
30, 1996, increased 13.8% as compared to the same period in 1995. Colder
weather during the winter heating season, cooler than normal weather early in
the second quarter of 1996, and increases in the average number of customers
led to increases in gas sales to residential and commercial customers.
Industrial sales decreased as customers continued to purchase gas directly
from suppliers using transportation services provided by ULH&P. The increase
in transportation volumes, which more than offset the decline in industrial
sales, was primarily a result of growth in the primary metals sector.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $3.4 million (2.4%) for the nine months
ended September 30, 1996, over the comparable period of 1995. This increase
primarily reflects the previously discussed increase in kwh sales. Partially
offsetting this increase is a lower average cost of electricity purchased due,
in part, to the aforementioned reduction in the cost of electricity purchased
from CG&E retroactive to July 3, 1995.
Gas Operating Revenues
Gas operating revenues increased $4.9 million (10.7%) for the first nine
months of 1996 when compared to the same period of last year. This increase
was primarily a result of the previously discussed changes in gas sales
volumes.
Operating Expenses
Gas Purchased
Gas purchased increased $2.4 million (9.9%) for the nine months ended
September 30, 1996, as compared to the prior year. This increase reflects
higher volumes purchased.
Other Operation
The increase in other operation expenses of $1.2 million (5.3%) for the nine
months ended September 30, 1996, from the same period of 1995 is due to a
number of factors, including increased gas distribution expenses and higher
administrative and general expenses.
Maintenance
Maintenance expenses for the nine months ended September 30, 1996, increased
$.4 million (13.3%) when compared to the nine months ended September 30, 1995.
This increase was due, in part, to higher expenses associated with gas
distribution facilities.
Other Income and Expenses - Net
Other - net
The change of $1.1 million for other - net for the nine months ended September
30, 1996, as compared to the same period of 1995, is primarily attributable to
expenses associated with the sales of accounts receivables in 1996.
Interest
Interest on Long-term Debt
Interest charges decreased $2.5 million (44.7%) for the nine months ended
September 30, 1996, from the same period of 1995, primarily due to the
redemption of $25 million during the period from January 1996 to May 1996.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Cinergy, CG&E, PSI, and ULH&P
1. These Financial Statements reflect all adjustments (which include only
normal, recurring adjustments) necessary in the opinion of the
registrants for a fair presentation of the interim results. These
statements should be read in conjunction with the Financial Statements
and the notes thereto included in the combined 1995 Form 10-K of the
registrants. Certain amounts in the 1995 Financial Statements have been
reclassified to conform to the 1996 presentation.
Cinergy, CG&E, and ULH&P
2. In May 1996, ULH&P redeemed the entire $10 million principal amount of
its 9 1/2% Series First Mortgage Bonds due December 1, 2008, at the
redemption price of 104.35%.
Cinergy and PSI
PSI redeemed $50 million principal amount of its 9 3/4% Series First
Mortgage Bonds on the maturity date of August 1, 1996.
Cinergy and PSI
A portion of PSI's 7.44% Series Cumulative Preferred Stock (591,000
shares representing 15%), totaling $15 million, was reacquired by PSI at
per share prices of $25.50 and $25.65 in May 1996.
Cinergy and PSI
3. On September 12, 1996, PSI's shelf registration for $250 million of debt
securities was made effective by the SEC.
On November 7, 1996, the City of Princeton, Indiana loaned the proceeds
from the sale of its $24,600,000 Pollution Control Revenue Refunding
Bonds, 1996 Series to PSI. The purpose of the sale is to refund the
$19,600,000 City of Princeton, Indiana Pollution Control Revenue Bonds,
1973 Series and the $5,000,000 City of Princeton, Indiana Pollution
Control Revenue Bonds, 1979 Series which were originally issued to
finance PSI's costs of acquiring and constructing certain pollution
control facilities at Gibson. These refunded bonds will be redeemed on
December 16, 1996 at a price of 100% of the principal amount thereof,
plus accrued interest to the redemption date.
The 1996 Series bonds bear interest at a variable rate and will mature
March 1, 2019, subject to redemption prior to maturity, including a
mandatory sinking fund redemption of $19,600,000 aggregate principal
amount on January 1, 2014. Pursuant to the loan agreement between PSI
and Princeton, PSI will make loan payments sufficient to pay when due the
principal of and interest on the 1996 Series bonds.
Cinergy and PSI
4. As discussed in Cinergy's and PSI's 1995 Form 10-K, RUS requested a
rehearing on the affirmation by the Seventh Circuit Court of Appeals of
WVPA's plan of reorganization which had been approved by the United
States Bankruptcy Court for the Southern District of Indiana and upheld
by the United States District Court for the Southern District of Indiana.
In April 1996, the Seventh Circuit Court of Appeals denied RUS' request
for rehearing. RUS' request that the United States Supreme Court accept
the appeal of this decision was denied November 4, 1996. There is a
short period for reconsideration of the denial. PSI cannot predict
whether RUS will request reconsideration of the denial or the outcome of
any such request. If the United States Supreme Court denies
reconsideration, or no reconsideration is requested by RUS, then Cinergy
and WVPA will commence implementation of the settlement agreement upon
final certification of the plan of reorganization by the Bankruptcy
Court.
Cinergy, CG&E, PSI, and ULH&P
5. In March 1995, the FASB issued Statement 121, which became effective in
January 1996 for Cinergy and its subsidiaries. Statement 121, which
addresses the identification and measurement of asset impairments for all
enterprises, is particularly relevant for electric utilities as a result
of the potential for deregulation of the generation segment of the
business. Statement 121 requires recognition of impairment losses on
long-lived assets when book values exceed expected future cash flows.
Based on the regulatory environment in which Cinergy's utility
subsidiaries currently operate, compliance with the provisions of
Statement 121 has not had nor is it expected to have an adverse effect on
their financial condition or results of operations. However, this
conclusion may change in the future as competitive pressures and
potential restructuring influence the electric utility industry.
Cinergy and CG&E
6. An amendment to the Articles of CG&E was adopted at a special meeting of
shareholders of CG&E, held on September 18, 1996. The amendment removes
a provision of the Articles that limits CG&E's ability to issue unsecured
debt, including short-term debt. Concurrently with the solicitation of
proxies for the special meeting, Cinergy commenced an offer to purchase,
for cash, any and all outstanding shares of preferred stock of CG&E. The
tender offer, which commenced August 20, 1996, and expired September 18,
1996, was conditioned upon, among other things, the proposed amendment
being approved and adopted at the special meeting. Approximately 90%
(1,788,544 of 2,000,000 shares) of the outstanding shares of preferred
stock of CG&E was tendered pursuant to Cinergy's offer. The source of
funds for Cinergy's purchase of the tendered shares was a special cash
dividend paid by CG&E to Cinergy on September 24, 1996. Cinergy made a
capital contribution to CG&E of all the shares it acquired and CG&E
canceled these shares. The difference between the par value of the
preferred stock tendered and the purchase price paid (including tender
fees paid to dealer managers) by Cinergy totaled $18.2 million, which is
reflected in "Costs of Reacquisition of Preferred Stock of Subsidiaries"
in the Consolidated Statements of Income.
The shares tendered and purchase price paid by Cinergy for each series of
preferred stock are as follows:
Series Shares Price Per
(Par value $100 per share) Tendered Share__
4% Series Cumulative Preferred Stock 100,165 $ 64.00
4.75% Series Cumulative Preferred Stock 88,379 $ 80.00
7.875% Series Cumulative Preferred Stock 800,000 $116.00
7.375% Series Cumulative Preferred Stock 800,000 $110.00
1,788,544
As a result of the tender offer and the subsequent cancellation of shares
by CG&E, CG&E currently has a total of 211,456 shares of preferred stock
outstanding, consisting of 169,835 shares of the 4% Series and 41,621
Shares of the 4.75% Series. The 4.75% Series no longer meets certain
listing requirements of the New York Stock Exchange and has been
delisted. (See "Part II - Other Information" - "Item 4. Submission of
Matters to a Vote of Security Holders.")
Cinergy, CG&E, PSI, and ULH&P
7. During 1996, Cinergy completed voluntary workforce reduction programs.
Under these programs, 418 Cinergy exempt and non-bargaining unit
employees and 201 PSI bargaining unit employees elected to terminate
their employment with Cinergy. These elections resulted in a pre-tax
cost for the non-bargaining unit program of approximately $38.2 million
(allocated $19.1 million to CG&E and its subsidiaries, including ULH&P,
and $19.1 million to PSI) and a pre-tax cost for the PSI bargaining unit
program of approximately $14 million. Consistent with the merger savings
sharing mechanisms previously approved by regulators, Cinergy has
classified these costs as costs to achieve merger savings which resulted
in approximately $14.6 million (pre-tax), allocable to Ohio electric
jurisdictional customers, being charged to earnings in the second quarter
of 1996. The remaining costs have been deferred for future recovery
through rates as an offset against merger savings. A significant portion
of these benefits is eligible for funding from qualified retirement plan
assets.
Additionally, voluntary workforce reduction programs similar to the
programs described above have been announced for bargaining unit
employees of CG&E and its subsidiaries, including ULH&P. Under these
programs, there are 232 bargaining unit employees who meet certain age
and service requirements that are eligible for enhanced retirement
benefits. Eligible employees who do not meet age and service requirements
will receive severance benefits upon resignation from their employment.
Program costs will not be known until after the participation election
periods end in December 1996. The costs will be treated as costs to
achieve merger savings, with the majority being charged to fourth quarter
earnings and the remaining portion being deferred for future recovery.
Cinergy and PSI
8. On September 27, 1996, the IURC approved an overall average retail
electric rate increase for PSI of 7.6% ($75.7 million annually). PSI had
requested a retail rate increase of 10.5% ($104.8 million annually).
Among other things, the IURC authorized a return on equity of 11.0%
(before the 100 basis points additional common equity return allowed as a
merger savings sharing mechanism) with an 8.21% overall rate of return on
net original cost rate base, and the inclusion in rates of the Clean Coal
Project, an ongoing level of DSM costs of $23 million, and a scrubber at
Gibson. Consideration of the Company's requested increase in the ongoing
level of DSM costs to $39 million was deferred to a separate currently
pending proceeding specifically established to review PSI's current and
proposed DSM programs. On October 17, 1996, the UCC and CAC filed with
the IURC a Joint Petition for Reconsideration and Rehearing of the IURC's
September 1996 Order. PSI has filed a response in opposition to the
requested rehearing and reconsideration. PSI cannot predict what action
the IURC may take with respect to the requested rehearing and
reconsideration.
Cinergy and CG&E
9. In October 1996, the PUCO concluded hearings on CG&E's gas rate increase
request of 7.8% ($26.7 million annually). The increase is being
requested, in part, to recover capital investments made since CG&E's last
gas rate increase in 1993. In July 1996, the Staff of the PUCO issued
its Report of Investigation on the rate request recommending that CG&E
receive an annual increase in gas revenues ranging from $3.5 million to
$6.3 million. The differences between the Staff's recommendation and
CG&E's request are primarily attributable to a decrease in working
capital allowance, a lower rate of return, and the disallowance of
certain capitalized information systems development costs and deferred
merger costs. An order in the rate proceeding is anticipated by the end
of the first quarter of 1997; however, Cinergy cannot predict what action
the PUCO may take with respect to the proposed rate increase.
Cinergy and CG&E
10. On November 1, 1996, CG&E entered into a sale-leaseback agreement for
certain equipment at Woodsdale. The lease is a capital lease with an
initial lease term of five years. At the end of the initial lease term,
the lease may be renewed at mutually agreed upon terms or the equipment
may be repurchased by CG&E at the original sale amount. The monthly
lease payment, comprised of interest only, will be based on the
applicable LIBOR rate plus .30% and, therefore, the capital lease
obligation will not be amortized over the initial lease term. The
property under the capital lease will continue to be depreciated at the
same rate as if the property were still owned by CG&E. CG&E will record a
capital lease obligation of $21.6 million.
Cinergy
11. Avon Energy, a 50/50 joint venture between Cinergy and GPU, completed
its acquisition of all of the outstanding common stock of Midlands during
the third quarter of 1996. The total consideration paid by Avon Energy
was approximately $2.6 billion. The funds for the acquisition were
obtained from Cinergy's and GPU's investment in Avon Energy of
approximately $500 million each, with the remainder being obtained by
Avon Energy through the issuance of non-recourse debt. Cinergy has used
debt to fund its entire investment in Avon Energy. Based on a
preliminary allocation of the purchase price, Avon Energy has recorded
goodwill of approximately $1.9 billion in connection with this
acquisition.
Cinergy accounts for its investment in Avon Energy under the equity
method. Avon Energy's results for the quarter ended September 30, 1996,
include 100% of Midlands' results for the quarter as substantially all of
the Midlands' stock had been acquired by Avon Energy as of the beginning
of the quarter. Cinergy's equity in Avon Energy's earnings is 50%, the
same as its ownership share.
The pro forma financial information presented below assumes 100% of
Midlands was acquired on the first day of each respective period. The
pro forma adjustments include recognition of equity in the estimated
earnings of Avon Energy, an adjustment for interest expense on debt
associated with Cinergy's investment in Avon Energy, and related income
taxes. The estimated earnings of Avon Energy include the historical
earnings of Midlands prior to its acquisition by Avon Energy, adjusted
for the estimated effect of purchase accounting (including the
amortization of goodwill) and conversion to United States generally
accepted accounting principles, interest expense on debt issued by Avon
Energy associated with the acquisition, and related income taxes. Sales
of electricity are affected by seasonal weather patterns and, therefore,
the results of Avon Energy/Midlands will not be distributed evenly during
the year. (Equity in earnings of Avon Energy has been converted using
the average exchange rates for the nine month and twelve month periods of
$1.549/, and $1.556/, respectively.)
Nine Months Ended Twelve Months Ended
September 30, 1996 September 30, 1996
Net Earnings Net Earnings
Income Per Share* Income Per Share*
(millions) (millions)
(unaudited)
Cinergy $264 $1.56 (1) $341 $2.05 (1)
Pro forma adjustments:
Equity in Earnings
of Avon Energy 31 54
Interest expense (14) (23)
Income taxes (6) (11)
Pro forma result $275 $1.63 $361 $2.18
* Based on the average number of common shares outstanding for the
period.
(1) Earnings per share after a charge of $.12 per share for the cost of
reacquiring preferred stock of CG&E through a tender offer.
Cinergy and PSI
12. On August 7, 1996, PSI entered into a coal supply agreement with Eagle
for the supply of approximately 3 million tons of coal per year. The
agreement (which runs through
December 31, 2000) provides for the payment by PSI of a buy-out fee of
$179 million (including interest). This represents the fee paid by Eagle
to Exxon to buy out the coal supply agreement between PSI and Exxon.
Pursuant to the terms of the agreements, the price of coal paid by PSI
will include a monthly buy-out charge which will be paid to Eagle through
December 2000.
As a result of the new coal supply agreement with Eagle, on the same
day, PSI and the UCC entered into a settlement agreement which provides,
in part, for PSI to recover the retail electric portion of the buy-out
fee through the quarterly fuel adjustment clause, with carrying costs on
unrecovered amounts, through December 2002. PSI and the UCC have filed a
joint petition with the IURC for approval of this settlement agreement.
In, addition, PSI filed a petition with the FERC for waiver of fuel adjustment
clause
regulations. PSI cannot predict what actions the IURC or the FERC may
take with respect to these petitions.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Recent Developments
Cinergy
Joint Venture In May 1996, Cinergy, GPU, and Midlands announced the terms of
a recommended cash offer for Midlands to be made by Avon Energy. Cinergy and
GPU each own 50% of Avon Energy. Midlands, one of 12 regional electric
companies in the United Kingdom, is headquartered in Birmingham, England.
Midlands' principal business is the distribution of electricity to
approximately 2.2 million customers. Avon Energy commenced the offer to
acquire all of the shares of Midlands on the terms and subject to conditions
set out in an offering document. On June 6, 1996, Cinergy and GPU announced
that Avon Energy declared the cash offer wholly unconditional in all respects
and thereby was committed to purchase all outstanding shares of Midlands.
During the third quarter of 1996, Avon Energy completed the acquisition of all
outstanding shares of Midlands. The total acquisition price of Midlands is
approximately (Pound Sterling) 1.7 billion (or approximately $2.6 billion -
U.S.). For further information, reference is made to Cinergy's Current
Reports on Form 8-K dated May 7, 1996, and June 6, 1996, as amended.
See Note 11 of the "Notes to Financial Statements" in "Part I. Financial
Information" for pro forma financial information relating to the acquisition
of Midlands.
Cinergy, CG&E, PSI, and ULH&P
Securities Ratings Following the announcement of the potential acquisition of
Midlands, major credit rating agencies, D&P, Fitch, and S&P, affirmed the
current ratings of Cinergy's operating subsidiaries, after their consideration
of the effects of the potential acquisition. The other major credit rating
agency, Moody's, placed the credit ratings of Cinergy's operating
subsidiaries, CG&E, PSI, and ULH&P, under review for possible downgrade.
Moody's indicated that its review will focus on the likelihood of the
transaction being completed and will assess the operating strategies of the
combined companies and the anticipated benefits of the transaction. It will
also focus on the financial impact the transaction will have on Cinergy and
its operating subsidiaries, including the credit implications. Cinergy cannot
predict the outcome of this review.
On September 27, 1996, Fitch raised its ratings of PSI's first mortgage bonds,
secured medium-term notes, and secured pollution control revenue bonds to A
from A- and PSI's unsecured pollution control notes to A- from BBB+.
Additionally, the preferred stock ratings were reaffirmed at BBB+. Fitch
stated that these ratings reflect PSI's competitive profile, which is based
upon various factors that has prepared it to compete effectively in an
unregulated electric marketplace.
Cinergy, CG&E, PSI, and ULH&P
Competitive Pressures As discussed in the 1995 Form 10-K, the primary factor
influencing the future profitability of Cinergy is the changing competitive
environment for energy services, including the impact of emerging
technologies, and the related commoditization of electric power markets.
Changes in the industry include increased competition in wholesale power
markets and ongoing pressure for "customer choice" by large industrial
customers, and ultimately, by all retail customers. Cinergy supports
increased competition in the electric utility industry and has chosen to take
a leadership role in state and Federal debates on industry reform.
As the electric utility industry moves toward a competitive environment,
Cinergy is reassessing its corporate structure, including the issue of whether
to remain vertically integrated. As a first step toward "unbundling" the
business for a competitive environment, Cinergy has reorganized into strategic
business units. This functional reorganization separated Cinergy's utility
businesses into an energy services business unit, an energy delivery business
unit, and an energy commodities business unit. Cinergy continues to analyze
what benefits, if any, may exist in the future for its various stakeholders of
separating the business units into different corporations.
Cinergy, CG&E, PSI, and ULH&P
Contract Negotiations As previously reported, members of IBEW Local No. 1393
ratified a new labor agreement with PSI effective May 24, 1996, and expiring
April 30, 1999. Additionally, members of IBEW Local No. 1347, USWA Local Nos.
12049 and 14214, and the IUU approved new contracts with CG&E expiring April
1, 2001, May 15, 2002, and April 1, 2001, respectively.
Regulatory Matters
Cinergy, CG&E, PSI, and ULH&P
FERC Orders 888 and 889 In April 1996, the FERC issued final orders relating
to its previously issued mega-NOPR. The unanimously-passed final rules, which
contain essentially the same provisions as the mega-NOPR, provide for
mandatory filing of open access/comparability transmission tariffs, provide
for functional unbundling of all services, require utilities to use the filed
tariffs for their own bulk power transactions, establish an electronic
bulletin board for transmission availability and pricing information, and
establish a contract-based approach to recovering any potential stranded costs
as a result of customer choice at the wholesale level. The FERC expects the
rules to "accelerate competition and bring lower prices and more choices to
energy customers." The final rules became effective in July 1996. CG&E, PSI,
and ULH&P have made compliance filings with the FERC and are now operating
under open access/comparability tariffs.
Concurrent with the issuance of the final orders, the FERC also issued a
related NOPR which establishes a new system for utilities to use in reserving
capacity on their own and others' transmission systems. Cinergy has filed
formal comments with the FERC which, generally, support several of the broad
policy goals
of the NOPR but raise implementation and prioritization issues. The FERC
proposed in the NOPR that a capacity reservation tariff replace open access
tariffs by December 31, 1997.
Cinergy and CG&E
Legislation On June 18, 1996, House Bill 476 (HB 476) was signed into law by
the Governor of Ohio. HB 476 addresses regulatory reform of the natural gas
industry at the state level and thus, is an extension of Order 636 for local
distribution companies. The Ohio law, among other things, provides that
natural gas commodity sales services may be exempted from PUCO regulation and
that the PUCO allow alternative ratemaking methodologies in connection with
other regulated services. The PUCO has initiated a rulemaking proceeding to
promulgate administrative rules necessary to implement the law.
Cinergy and PSI
PSI's Retail Rate Proceeding See Note 8 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Cinergy and CG&E
CG&E's Gas Rate Proceeding See Note 9 of the "Notes to Financial Statements"
in "Part I. Financial Information."
Accounting Issues
Cinergy, CG&E, PSI, and ULH&P
New Accounting Standard See Note 5 of the "Notes to Financial Statements" in
"Part I. Financial Information."
CAPITAL REQUIREMENTS
Cinergy and CG&E
Preferred Stock Tender Offer See Note 6 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Other Commitments
Cinergy and PSI
WVPA Litigation See Note 4 of the "Notes to Financial Statements" in "Part I.
Financial Information."
Cinergy, CG&E, PSI, and ULH&P
1996 Voluntary Workforce Reduction Programs See Note 7 of the "Notes to
Financial Statements" in "Part I. Financial Information."
CAPITAL RESOURCES
Cinergy, CG&E, PSI, and ULH&P
Long-term Debt and Preferred Stock For information regarding recent
securities redemptions, see Notes 2, 3, and 6 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Cinergy, CG&E, PSI, and ULH&P
Short-term Debt The operating subsidiary companies of Cinergy have the
following short-term debt authorizations and lines of credit:
Committed Unused
Authorized Lines__ Lines
(in millions)
Cinergy & Subsidiaries $838 $280 $64
CG&E & Subsidiaries 435 80 11
PSI 400 200 53
ULH&P 35 - -
Additionally, Cinergy has established a $600 million credit facility, which
expires in May 2001, of which $96 million remained unused as of November 11,
1996. This new credit facility was established, in part, to fund the
acquisition of Midlands through Avon Energy ($500 million has been designated
for this purpose) with the remaining portion available for general corporate
purposes. The prior $100 million credit facility, which would have expired in
September 1997, has been terminated.
In addition, Cinergy U.K. entered into a $40 million non-recourse credit
agreement, of which $27 million is outstanding as of November 11, 1996. This
new credit agreement was also used to fund the acquisition of Midlands.
Cinergy has borrowed approximately $500 million under the two agreements to
fund its equity investment in Avon Energy.
Cinergy, CG&E, PSI, and ULH&P
Sales of Accounts Receivables As discussed in each registrant's 1995 Form 10-
K, in January 1996, CG&E, PSI, and ULH&P entered into an agreement to sell, on
a revolving basis, undivided percentage interests in certain of their accounts
receivables. Under the agreement, the companies have the authority to sell up
to an aggregate maximum of $350 million of which $257 million has been sold as
of October 31, 1996.
RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
Reference is made to "ITEM 1. FINANCIAL STATEMENTS" in "PART I. FINANCIAL
INFORMATION."
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cinergy, CG&E, and PSI
Merger Litigation The United States Court of Appeals for the District of
Columbia Circuit will hear oral arguments in connection with AEP's petition
for review of the FERC's Merger Order. AEP has objected to the Merger Order
alleging that the post-merger operations of Cinergy would require the use of
AEP's transmission facilities on a continuous basis without compensation. AEP
contends that the FERC, in issuing the Merger Order, did not adequately
evaluate the impact on AEP or whether the need to use AEP's transmission
facilities would interfere with Cinergy achieving merger benefits. In
addition, AEP claims that the FERC failed to evaluate the extent to which the
merged facilities' operations would be consistent with the integrated public
utility concept of the PUHCA. CG&E and PSI have intervened in this action.
At this time, Cinergy, CG&E, and PSI cannot predict the outcome of the appeal.
Additionally, see Notes 4, 8, 9, and 12 of the "Notes to Financial
Statements" in "Part I. Financial Information."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
CG&E
(a) A special meeting of shareholders of CG&E was held September 18, 1996
in Cincinnati, Ohio.
(c) An amendment to CG&E's Articles was approved. The amendment removes a
provision of the Articles that limited the amount of unsecured debt,
including short-term debt, that could be incurred by CG&E. There were
89,663,086 common shares that voted for the amendment. There were
1,800,315 affirmative votes of preferred stock, 35,677 negative votes,
and 21,077 abstentions. A two-thirds affirmative vote of both common
and preferred shares, each voting as a separate class, was required to
approve the amendment.
<PAGE>
ITEM 5. OTHER INFORMATION
Cinergy
On June 25, 1996, Power International sold its ownership interest in Bruwabel
and its subsidiaries, including Power Development s.r.o. which owns the
Vytopna Kromeriz Heating Plant. Power International (formerly Enertech
Associates International, Inc.) had acquired Bruwabel and its subsidiaries in
July 1994 for the purpose of pursuing design, engineering, and development
work involving energy privatization projects, primarily in the Czech Republic.
Cinergy, CG&E, and ULH&P
KO Transmission acquired a 32.67% interest in a 90-mile interstate natural gas
pipeline and began flowing gas June 1, 1996, from southeast Kentucky northward
to the service territories of CG&E and ULH&P.
Cinergy, CG&E, and PSI
In August 1996, Cinergy sold its ownership interests in PSI Recycling which
recycled metal from CG&E and paper, metal, and other materials from PSI.
Cinergy and CG&E
In October 1996, Cinergy sold certain electric generating equipment for
removal from Miami Fort.
Cinergy, CG&E, PSI, and ULH&P
Additionally, refer to the "Recent Developments" and "Regulatory Matters"
sections in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in "Part I. Financial Information" for
information concerning new contracts between CG&E (including ULH&P), PSI
and certain of the union organizations, Cinergy's Joint Venture, the status
of the CG&E gas rate proceeding, and the Company's functional
restructuring.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit
Designation Nature of Exhibit
CG&E
3-a Amended Articles of Incorporation of CG&E
effective October 23, 1996.
PSI
3-b By-laws of PSI, as amended on October 22, 1996.
Cinergy and PSI
4-a Loan Agreement between PSI and the City of
Princeton, Indiana dated November 7, 1996.
Cinergy
10-a Amendment to Cinergy's Stock Option Plan, adopted
on October 22, 1996.
10-b Amendment to Cinergy's Performance Shares Plan,
adopted on October 22, 1996.
10-c Amendment to Cinergy's 1996 Long-Term Incentive
Compensation Plan adopted on October 22, 1996.
10-d Amendment to Cinergy's Employee Stock Purchase
and Savings Plan, adopted on October 22, 1996.
10-e Amendment to Cinergy's Directors' Deferred
Compensation Plan, adopted on October 22, 1996.
Cinergy, CG&E, PSI, and ULH&P
27 Financial Data Schedules (included in
electronic submission only).
Cinergy
(b) No reports on Form 8-K were filed during the quarter.
<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 Cinergy, CG&E, PSI, and ULH&P believe that the
disclosures are adequate to make the information presented not misleading. In
the opinion of Cinergy, CG&E, PSI, and ULH&P, 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 Registrants have duly caused this report to be signed by an
officer and the chief accounting officer on their behalf by the undersigned
thereunto duly authorized.
CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANY
Registrants
Date: November 12, 1996 J. Wayne Leonard _________
Duly Authorized Officer
Date: November 12, 1996 Charles J. Winger __
Chief Accounting Officer
LOAN AGREEMENT
between
CITY OF PRINCETON, INDIANA
and
PSI ENERGY, INC.
_______________________________
$24,600,000
City of Princeton, Indiana
Pollution Control
Revenue Refunding Bonds, 1996 Series
(PSI Energy, Inc. Project)
_______________________________
Dated
as of
November 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
Section 1.1. Use of Defined Terms
Section 1.2. Definitions
Section 1.3. Interpretation
Section 1.4. Captions and Headings
ARTICLE II REPRESENTATIONS
Section 2.1. Representations of the Issuer
Section 2.2. No Warranty by Issuer of Condition or
Suitability of the Project
Section 2.3. Representations and Covenants of the Company
ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE
OF THE BONDS
Section 3.1. Acquisition, Construction and Installation
Section 3.2. Project Description
Section 3.3. Issuance of the Bonds; Application of
Proceeds
Section 3.4. Investment of Fund Moneys
Section 3.5. Rebate Fund
ARTICLE IV LOAN BY ISSUER; LOAN PAYMENTS;
ADDITIONAL PAYMENTS; AND CREDIT
FACILITY
Section 4.1. Loan Repayment
Section 4.2. Additional Payments
Section 4.3. Place of Payments
Section 4.4. Obligations Unconditional
Section 4.5. Assignment of Revenues and Agreement
Section 4.6. Credit Facility; Alternate Credit Facility;
Cancellation
Section 4.7. Company's Option to Elect Rate Period
Section 4.8. Company's Obligation to Purchase Bonds
ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS
Section 5.1. Right of Inspection
Section 5.2. Maintenance
Section 5.3. Removal of Portions of the Project
Facilities
Section 5.4. Operation of Project Facilities
Section 5.5. Insurance
Section 5.6. Workers' Compensation Coverage
Section 5.7. Damage; Destruction and Eminent Domain
Section 5.8. Company to Maintain its Corporate
Existence; Conditions Under Which
Exceptions Permitted
Section 5.9. Indemnification
Section 5.10. Company Not to Adversely Affect
Exclusion of Interest on Bonds
From Gross Income For Federal
Income Tax Purposes
Section 5.11. Use of Project Facilities
Section 5.12. Assignment by Company
ARTICLE VI REDEMPTION
Section 6.1. Optional Redemption
Section 6.2. Extraordinary Optional Redemption
Section 6.3. Mandatory Redemption
Section 6.4. Notice of Redemption
Section 6.5. Actions by Issuer
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default
Section 7.2. Remedies on Default
Section 7.3. No Remedy Exclusive
Section 7.4. Agreement to Pay Attorneys' Fees and
Expenses
Section 7.5. No Waiver
Section 7.6. Notice of Default
ARTICLE VIII MISCELLANEOUS
Section 8.1. Term of Agreement
Section 8.2. Amounts Remaining in Funds
Section 8.3. Notices
Section 8.4. Extent of Covenants of the Issuer; No
Personal Liability
Section 8.5. Binding Effect
Section 8.6. Amendments and Supplements
Section 8.7. References to Credit Facility
Section 8.8. Execution Counterparts
Section 8.9. Severability
Section 8.10. Governing Law
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of November 1, 1996
between the CITY OF PRINCETON, INDIANA (the "Issuer"), a municipal corporation
organized and existing under the laws of the State of Indiana, and PSI ENERGY,
INC. (the "Company"), a public utility and corporation duly organized and
validly existing under the laws of the State of Indiana. Capitalized terms
used in the following recitals are used as defined in Article I of this
Agreement.
Pursuant to Indiana Code, Title 36, Article 7, Chapters 11.9 and 12, and
Indiana Code, Title 5, Article 1, Chapter 5 (collectively, the "Act"), the
Issuer has determined to issue, sell and deliver the Bonds, and to lend the
proceeds derived from the sale thereof to the Company to assist in the
refunding of the Refunded Bonds as defined below. The Refunded Bonds were
originally issued to provide funds to make loans to the Company to assist in
the financing of its portion of the costs of the Project as defined below.
The Company and the Issuer each have full right and lawful authority to
enter into this Agreement and to perform and observe the provisions hereof on
their respective parts to be performed and observed.
NOW THEREFORE, in consideration of the premises and the mutual
representations and agreements hereinafter contained, the Issuer and the
Company agree as follows (provided that any obligation of the Issuer or the
State created by or arising out of this Agreement shall never constitute a
general debt of the Issuer or the State or give rise to any pecuniary
liability of the Issuer or the State but shall be payable solely out of
Revenues, including the Loan Payments made pursuant hereto and moneys drawn
under any Credit Facility):
ARTICLE I
DEFINITIONS
Section I.1. Use of Defined Terms. In addition to the words and terms
defined elsewhere in this Agreement or by reference to another document, the
words and terms set forth in Section 1.2 hereof shall have the meanings set
forth therein unless the context or use clearly indicates another meaning or
intent. Such definitions shall be equally applicable to both the singular and
plural forms of any of the words and terms defined therein.
Section I.2. Definitions. As used herein:
"Act" means, collectively, Indiana Code, Title 36, Article 7, Chapters
11.9 and 12, and Title 5, Article 1, Chapter 5 as amended.
"Additional Payments" means the amounts required to be paid by the
Company pursuant to the provisions of Section 4.2 hereof.
"Administration Expenses" means the compensation (which compensation
shall not be greater than that typically charged in similar circumstances) and
reimbursement of reasonable expenses and advances payable to the Trustee, the
Registrar, the Remarketing Agent, any Paying Agent and any Authenticating
Agent.
"Agreement" means this Loan Agreement, as amended or supplemented from
time to time.
"Alternate Credit Facility" means an Alternate Credit Facility as defined
in the Indenture.
"Authenticating Agent" means the Authenticating Agent as defined in the
Indenture.
"Bank" means the Bank as defined in the Indenture.
"Bond Fund" means the Bond Fund created in the Indenture.
"Bond Purchase Fund" means the Bond Purchase Fund as defined in the
Indenture.
"Bond Resolution" means the ordinance of the Issuer providing for the
issuance of the Bonds and approving this Agreement, the Indenture and related
matters, as amended or supplemented from time to time.
"Bond Service Charges" means, for any period or time, the principal of,
premium, if any, and interest due on the Bonds for that period or payable at
that time whether due at maturity or upon acceleration or redemption or
otherwise.
"Bonds" means the $24,600,000 Pollution Control Revenue Refunding Bonds,
1996 Series (PSI Energy, Inc. Project), issued by the Issuer pursuant to the
Bond Resolution and the Indenture.
"Bonds Outstanding" or "Outstanding Bonds" means Outstanding Bonds as
defined in the Indenture.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to the Code and Sections of the Code include relevant
applicable regulations and proposed regulations thereunder and under the
Internal Revenue Code of 1954, as amended, and any successor provisions to
those Sections, regulations or proposed regulations and, in addition, all
applicable official rulings and judicial determinations under the foregoing
applicable to the Bonds.
"Conversion Date" means the Conversion Date as defined in the Indenture.
"Credit Facility" means a Credit Facility as defined in the Indenture.
"Credit Facility Account" means the Credit Facility Account as defined in
the Indenture.
"Credit Facility Issuer" means a Credit Facility Issuer as defined in the
Indenture.
"Eligible Investments" means Eligible Investments as defined in the
Indenture.
"Engineer" means an engineer (who may be an employee of the Company) or
engineering firm qualified to practice the profession of engineering under the
laws of the State and who or which is acceptable to the Trustee.
"EPA" means the Department of Environmental Management of the State and
any successor body, agency, commission or department.
"Event of Default" means any of the events described as an Event of
Default in Section 7.1 hereof.
"Force Majeure" means any of the causes, circumstances or events
described as constituting Force Majeure in Section 7.1 hereof.
"Government Obligations" means Government Obligations as defined in the
Indenture.
"Holder" or "Holder of a Bond" means the Person in whose name a Bond is
registered on the Register.
"Indenture" means the Trust Indenture, dated as of the same date as this
Agreement, between the Issuer and the Trustee, as amended or supplemented from
time to time.
"Interest Rate for Advances" means the interest rate per year payable on
the Bonds.
"Letter of Credit" means the Letter of Credit as defined in the
Indenture.
"Loan" means the loan by the Issuer to the Company of the proceeds
received from the sale of the Bonds.
"Loan Payment Date" means any date on which any Bond Service Charges are
due and payable.
"Loan Payments" means the amounts required to be paid by the Company in
repayment of the Loan pursuant to Section 4.1 hereof.
"1954 Code" means the Internal Revenue Code of 1954 as amended from time
to time through the date of enactment of the Code. References to the 1954
Code and Sections of the 1954 Code include relevant applicable regulations
(including temporary regulations) and proposed regulations thereunder and any
successor provisions to those Sections, regulations or proposed regulations.
"Notice Address" means:
(a) As to the Issuer: City of Princeton, Indiana
City Building
Princeton, Indiana 47670
Attention: Mayor
(b) As to the Company: PSI Energy, Inc.
1000 East Main Street
Plainfield, Indiana 46168
Attention: Treasurer
with a copy to:
PSI Energy, Inc.
139 East Fourth Street
Cincinnati, Ohio 45202
Attention: Treasurer
(c) As to the Trustee: The Fifth Third Bank of Central Indiana
Fifth Third Center
38 Fountain Square
Cincinnati, Ohio 45263
Attention: Corporate Trust Administration
or such additional or different address, notice of which is given under
Section 8.3 hereof.
"Opinion of Bond Counsel" means a written opinion of nationally
recognized bond counsel selected by the Company and acceptable to the Trustee
who is experienced in matters relating to the exclusion from gross income for
federal income tax purposes of interest on obligations issued by states and
their political subdivisions. Bond Counsel may be counsel to the Trustee or
the Company.
"Original Purchaser" means the Original Purchaser as defined in the
Indenture.
"Paying Agent" means the Paying Agent as defined in the Indenture.
"Person" or words importing persons mean firms, associations,
partnerships (including without limitation, general and limited partnerships),
limited liability entities, joint ventures, societies, estates, trusts,
corporations, public or governmental bodies, other legal entities and natural
persons.
"Plant" means the Gibson Generating Station.
"Pollution Control Facility" or "Pollution Control Facilities" means
those facilities which are pollution control facilities as defined in Section
9 of Chapter 11.9 of the Act.
"Project" or "Project Facilities" means the real, personal or real and
personal property, including undivided or other interests therein, identified
in the Project Description, financed with the proceeds of the Series 1973
Bonds and Series 1979 Bonds, respectively.
"Project Description" means collectively the description of the Project
Facilities financed with the proceeds of the Series 1973 Bonds and the Project
Facilities financed with the proceeds of the Series 1979 Bonds, attached
hereto as Exhibit A, as the same may be amended in accordance with this
Agreement.
"Project Purposes" means the purposes of Pollution Control Facilities as
described in the Act and as particularly described in Exhibit A hereto.
"Project Site" means the Gibson Generating Station in Princeton, Indiana.
"Rate Period" means a Rate Period as defined in the Indenture.
"Rebate Fund" means the Rebate Fund created in the Indenture.
"Refunded Bonds" means collectively the Series 1973 Bonds and the Series
1979 Bonds.
"Refunded Bonds Indenture" means collectively the Series 1973 Indenture
for the Series 1973 Bonds and the Series 1979 Indenture for the Series 1979
Bonds.
"Refunded Bonds Loan Agreement" means collectively the Series 1973 Loan
Agreement and the Series 1979 Loan Agreement.
"Refunded Bonds Trustee" means Bank One, Indianapolis, National
Association (as successor to American Fletcher National Bank and Trust
Company), as trustee under the Refunded Bonds Indenture.
"Refunding Fund" means the Refunding Fund created in the Indenture.
"Register" means the books kept and maintained for the registration and
transfer of Bonds pursuant to Section 3.05 of the Indenture.
"Registrar" means the Registrar as defined in the Indenture.
"Reimbursement Agreement" means the Reimbursement Agreement as defined in
the Indenture.
"Remarketing Agent" means the Remarketing Agent as defined in the
Indenture.
"Revenues" means (a) the Loan Payments, (b) all other moneys received or
to be received by the Issuer (excluding the Issuer Fee) or the Trustee in
respect of repayment of the Loan, including without limitation, all moneys and
investments in the Bond Fund, (c) any moneys and investments in the Refunding
Fund, and (d) all income and profit from the investment of the foregoing
moneys. The term "Revenues" does not include any moneys or investments in the
Rebate Fund or the Bond Purchase Fund.
"Series 1973 Bonds" means the City of Princeton, Indiana Pollution
Control Revenue Bonds 1973 Series (Public Service Company of Indiana, Inc.
Project A).
"Series 1979 Bonds" means the City of Princeton, Indiana Pollution
Control Revenue Bonds 1979 Series (Public Service Company of Indiana, Inc.
Project B).
"Series 1973 Indenture" means the Trust Indenture dated as of December
15, 1973 between Bank One, Indianapolis, National Association (as successor to
American Fletcher National Bank and Trust Company) and Public Service Company
of Indiana, Inc.
"Series 1979 Indenture" means the Trust Indenture dated as of March 1,
1979 between Bank One, Indianapolis, National Association (as successor to
American Fletcher National Bank and Trust Company) and Public Service Company
of Indiana, Inc.
"Series 1973 Loan Agreement" means the Loan Agreement dated as of
December 15, 1973 between the City of Princeton, Indiana and Public Service
Company of Indiana, Inc.
"Series 1979 Loan Agreement" means the Loan Agreement dated as of March
1, 1979 between the City of Princeton, Indiana and Public Service Company of
Indiana, Inc.
"State" means the State of Indiana.
"Term Rate Period" means a Term Rate Period as defined in the Indenture.
"Trustee" means The Fifth Third Bank of Central Indiana located in
Indianapolis, Indiana, a corporation duly organized and validly existing under
the laws of the State, until a successor Trustee shall have become such
pursuant to the applicable provisions of the Indenture, and thereafter
"Trustee" shall mean the successor Trustee. "Principal Office" of the Trustee
shall mean the principal corporate trust office of the Trustee, which office
at the date of issuance of the Bonds is located at its Notice Address.
"Unassigned Issuer Rights" means all of the rights of the Issuer to
receive Additional Payments under Section 4.2 hereof, to inspection pursuant
to Section 5.1 hereof, to be held harmless and indemnified under Section 5.9
hereof, to be reimbursed for attorney's fees and expenses under Section 7.4
hereof and to give or withhold consent to amendments, changes, modifications,
alterations and termination of this Agreement under Section 8.6 hereof and its
right to enforce such rights.
"Variable Rate" means a Variable Rate as defined in the Indenture.
Section I.3. Interpretation. Any reference herein to the State, to the
Issuer or to any member or officer of either includes entities or officials
succeeding to their respective functions, duties or responsibilities pursuant
to or by operation of law or lawfully performing their functions.
Any reference to a section or provision of the Constitution of the State
or the Act, or to a section, provision or chapter of the Indiana Code, or to
any statute of the United States of America, includes that section, provision
or chapter as amended, modified, revised, supplemented or superseded from time
to time; provided, that no amendment, modification, revision, supplement or
superseding section, provision or chapter shall be applicable solely by reason
of this provision, if it constitutes in any way an impairment of the rights or
obligations of the Issuer, the State, the Holders, the Trustee, the Registrar,
an Authenticating Agent, a Paying Agent, the Credit Facility Issuer, the
Remarketing Agent, or the Company under this Agreement, the Indenture or the
Bonds.
Unless the context indicates otherwise, words importing the singular
number include the plural number, and vice versa; the terms "hereof",
"hereby", "herein", "hereto", "hereunder" and similar terms refer to this
Agreement; and the term "hereafter" means after, and the term "heretofore"
means before, the date of delivery of the Bonds. Words of any gender include
the correlative words of the other genders, unless the sense indicates
otherwise.
Section I.4. Captions and Headings. The captions and headings in this
Agreement are used solely for convenience of reference and in no way define,
limit or describe the scope or intent of any Articles, Sections, subsections,
paragraphs or subparagraphs or clauses hereof.
(End of Article I)
ARTICLE II
REPRESENTATIONS
Section II.1. Representations of the Issuer. The Issuer represents
that: (a) it is a municipal corporation duly organized and validly existing
under the laws of the State; (b) it has duly accomplished all conditions
necessary to be accomplished by it prior to the issuance and delivery of the
Bonds and the execution and delivery of this Agreement and the Indenture; (c)
it is not in violation of or in conflict with any provisions of the laws of
the State which would impair its ability to carry out its obligations
contained in this Agreement or the Indenture; (d) it is empowered to enter
into the transactions contemplated by this Agreement and the Indenture; (e) it
has duly authorized the execution, delivery and performance of this Agreement
and the Indenture; (f) it will do all things in its power in order to maintain
its existence or assure the assumption of its obligations under this Agreement
and the Indenture by any successor municipal corporation; and (g) following
reasonable notice, a public hearing was held on October 21, 1996 with respect
to the issuance of the Bonds as required by Section 147(f) of the Code.
Section II.2. No Warranty by Issuer of Condition or Suitability of the
Project. The Issuer makes no warranty, either express or implied, as to the
suitability or utilization of the Project for the Project Purposes, or as to
the condition of the Project Facilities or that the Project Facilities are or
will be suitable for the Company's purposes or needs.
Section II.3. Representations and Covenants of the Company. The Company
represents that:
(a) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State, with power and
authority (corporate and other) to own its properties and conduct its business,
to execute and deliver this Agreement and to perform its obligations under this
Agreement.
(b) This Agreement has been duly authorized, executed and delivered by
the Company and this Agreement constitutes a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(c) The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby will not
violate any provision of law or regulation applicable to the Company, or of any
writ or decree of any court or governmental instrumentality, or of the Articles
of Incorporation, as amended, or the Regulations of the Company, or of any
mortgage, indenture, contract, agreement or other undertaking to which the
Company is a party or which purports to be binding upon the Company or upon any
of its assets.
(d) Substantially all (at least 90%) of the proceeds of each of the
Series 1973 Bonds and the Series 1979 Bonds were used to provide "pollution
control facilities" within the meaning of Section 103(b)(4)(F) of the 1954
Code, the original use of which facilities commenced with the Company, and
which facilities were described in inducement resolutions adopted by the Issuer
on August 27, 1973 with respect to those facilities financed with the proceeds
of the Series 1973 Bonds and on January 19, 1976 with respect to those
facilities financed with the proceeds of the Series 1979 Bonds. Construction
of the cooling lake financed with the proceeds of the Series 1973 Bonds was
commenced by the Company prior to August 31, 1972 and such cooling lake was not
placed in service by the Company prior to August 27, 1973. Construction of the
other pollution control facilities financed with the proceeds of the Series
1973 Bonds and the construction of the pollution control facilities financed
with the proceeds of the Series 1979 Bonds was not commenced prior to August
27, 1973 and January 19, 1976, respectively. All of the proceeds of the Series
1973 Bonds have been spent for the Series 1973 Bonds portion of the Project
pursuant to the Series 1973 Loan Agreement or to pay costs of issuance of the
Series 1973 Bonds, and all of the proceeds of the Series 1979 Bonds have been
spent for the Series 1979 Bonds portion of the Project pursuant to the Series
1979 Loan Agreement or to pay costs of issuance of the Series 1979 Bonds. The
proceeds of the Bonds (other than any accrued interest thereon) will be used
exclusively to refund the Refunded Bonds; any investment earnings thereon will
be used to pay principal, premium or interest on the Refunded Bonds; and none
of the proceeds of the Bonds will be used to pay for any costs of issuance of
the Bonds. The Refunded Bonds were issued prior to August 16, 1986. The
principal amount of the Bonds does not exceed the outstanding principal amount
of the Refunded Bonds. The proceeds of the Bonds will be used to retire the
Refunded Bonds not later than 90 days after the date of issuance of the Bonds.
(e) It has caused the Project to be substantially completed. The
Project constitutes Pollution Control Facilities under the Act and is
consistent with the purposes of the Act. The Project is being, and the Company
will cause the Project to be, operated and maintained in such manner to conform
with all applicable zoning, planning, building, environmental and other
applicable governmental regulations and all permits, variances and orders
issued or granted pursuant thereto, including the permit-to-install for the
Project, which permits, variances and orders have not been withdrawn or
otherwise suspended, and to be consistent with the Act.
(f) It has used or operated or has caused to be used or operated, and
presently intends to use or operate or cause to be used or operated the Project
Facilities in a manner consistent with the Project Purposes until the date on
which the Bonds have been fully paid and knows of no reason why the Project
Facilities will not be so operated. The Company does not intend to sell or
otherwise dispose of the Project or any portion thereof.
(g) None of the proceeds of the Refunded Bonds were used and none of
the proceeds of the Bonds will be used to provide any airplane, skybox or other
private luxury box, or health club facility, any facility primarily used for
gambling or any store the principal business of which is the sale of alcoholic
beverages for consumption off premises.
(h) Less than 25% of the proceeds of the Series 1973 Bonds and less
than 25% of the proceeds of the Series 1979 Bonds have been used and less than
25% of the proceeds of the Bonds will be used directly or indirectly to acquire
land or any interest therein, and none of such proceeds has been or will be
used to provide land which is to be used for farming purposes.
(i) No portion of the proceeds of the Refunded Bonds has been used and
no portion of the proceeds of the Bonds will be used to acquire existing
property or any interest therein unless the first use of such property was by
the Company and was pursuant to and followed such acquisition.
(j) After the expiration of any applicable temporary period under
Section 148(d)(3) of the Code, at no time during any bond year will the
aggregate amount of gross proceeds of the Bonds invested in higher yielding
investments (within the meaning of Section 148(b) of the Code) exceed 150
percent of the debt service on the Bonds for such bond year and the aggregate
amount of gross proceeds of the Bonds invested in higher yielding investments,
if any, will be promptly and appropriately reduced as the outstanding amount
of the Bonds is reduced, provided however that the foregoing shall not require
the sale or disposition of any investments in higher yielding investments if
such sale or disposition would result in a loss which exceeds the amount which
would be paid to the United States (but for such sale or disposition) at the
time of such sale or disposition if a payment were due at such time. At no
time will any funds constituting gross proceeds of the Bonds be used in a
manner as would constitute failure of compliance with Section 148 of the Code.
The terms "bond year", "gross proceeds", "higher yielding investments",
"yield", and "debt service" have the meanings assigned to them for purposes of
Section 148 of the Code.
(k) The Refunded Bonds were not, and the Bonds will not be, "federally
guaranteed" within the meaning of Section 149(b) of the Code.
(l) It is not anticipated that as of the date hereof, there will be
created any "replacement proceeds", within the meaning of Section 1.148-1(c) of
the Treasury Regulations, with respect to the Bonds; however, in the event that
any such replacement proceeds are deemed to have been created, such amounts
will be invested in compliance with Section 148 of the Code.
(m) On the dates of issuance and delivery of each of the Series 1973
Bonds and the Series 1979 Bonds, the Company reasonably expected that at least
85% of the spendable proceeds of each of the Series 1973 Bonds and the Series
1979 Bonds would be expended to carry out the respective governmental purpose
of each such issue within the 3-year period beginning on the respective date
each such issue was issued. All of the spendable proceeds of the Refunded
Bonds have been expended as of the date of issuance of the Bonds. None of the
proceeds of either the Series 1973 Bonds or the Series 1979 Bonds were invested
in nonpurpose investments having a substantially guaranteed yield for four
years or more.
(n) The average maturity of the Bonds does not exceed 120% of the
average reasonably expected economic life of the Project Facilities financed by
the proceeds of the Refunded Bonds (determined under Section 147(b) of the
Code).
(o) The information furnished by the Company and used by the Issuer in
preparing the certifications and statements pursuant to Sections 148 and 149(e)
of the Code or their statutory predecessors with respect to the Refunded Bonds
was accurate and complete as of the respective dates of issuance of the
Refunded Bonds, and the information furnished by the Company and used by the
Issuer in preparing the certification pursuant to Section 148 of the Code and
in preparing the information statement pursuant to Section 149(e) of the Code,
both referred to in the Bond Resolution, will be accurate and complete as of
the date of issuance of the Bonds.
(p) The Project Facilities do not include any office except for
offices (i) located on the Project Site and (ii) not more than a de minimis
amount of the functions to be performed at which is not directly related to the
day-to-day operations of the Project Facilities.
(End of Article II)
ARTICLE III
COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS
Section III.1. Acquisition, Construction and Installation. The Company
represents that it has caused the Project Facilities to be acquired,
constructed and installed on the Project Site, substantially in accordance with
the Project Description and in conformance with all applicable zoning,
planning, building and other similar regulations of all governmental
authorities having jurisdiction over the Project and all permits, variances and
orders issued in respect of the Project by EPA, and that the proceeds derived
from the Refunded Bonds, including any investment thereof, were expended in
accordance with the Refunded Bonds Indenture and the Refunded Bonds Loan
Agreement.
Section III.2. Project Description. The Project Description may be
changed from time to time by, or with the consent of, the Company provided that
any such change shall also be filed with the Issuer and provided further that
no change in the Project Description shall materially change the function of
the Project Facilities unless the Trustee shall have received (i) an Engineer's
certificate that such changes will not impair the significance or character of
the Project Facilities as Pollution Control Facilities and (ii) an Opinion of
Bond Counsel or ruling of the Internal Revenue Service to the effect that such
amendment will not adversely affect the exclusion of interest on the Bonds from
gross income for federal income tax purposes.
Section III.3. Issuance of the Bonds; Application of Proceeds. To
provide funds to make the Loan to the Company to assist the Company in the
refunding of the Refunded Bonds, the Issuer will issue, sell and deliver the
Bonds to the Original Purchaser. The Bonds will be issued pursuant to the
Indenture in the aggregate principal amount, will bear interest, will mature
and will be subject to redemption as set forth therein. The Company hereby
approves the terms and conditions of the Indenture and the Bonds, and the terms
and conditions under which the Bonds will be issued, sold and delivered.
The Company hereby requests that the Issuer notify the Refunded Bonds
Trustee (unless the Refunded Bonds Trustee has already received such notice),
pursuant to the Refunded Bonds Indenture, that the entire outstanding principal
amount of the Refunded Bonds is to be redeemed on December 16, 1996 at a
redemption price of 100% of the principal amount thereof plus accrued interest
to that redemption date.
The proceeds from the sale of the Bonds (other than any accrued interest)
shall be loaned to the Company to assist the Company in refunding the Refunded
Bonds in order to reduce the interest cost payable by the Company; those
proceeds shall be deposited in the Refunding Fund. On December 13, 1996 all
moneys on deposit in the Refunding Fund shall be disbursed by the Trustee as
provided in Section 5.02 of the Indenture to the Refunded Bonds Trustee for
deposit in the Bond Fund created in the Series 1973 Indenture and the Series
1979 Indenture and applied by the Refunded Bonds Trustee to the payment of
principal of and interest on the Series 1973 Bonds and the Series 1979 Bonds on
their redemption on December 16, 1996.
Pending disbursement pursuant to this Section, the proceeds so deposited
in the Refunding Fund, together with any investment earnings thereon, shall
constitute a part of the Revenues assigned by the Issuer to the Trustee for the
payment of Bond Service Charges. Any accrued interest shall be deposited in
the Bond Fund.
Section III.4. Investment of Fund Moneys. At the oral (confirmed
promptly in writing) or written request of the Company, any moneys held as part
of the Bond Fund, the Refunding Fund or the Rebate Fund shall be invested or
reinvested by the Trustee in Eligible Investments; provided, that such moneys
shall be invested or reinvested by the Trustee only in Eligible Investments
which shall mature, or which shall be subject to redemption by the holder
thereof at the option of such holder, not later than the date upon which the
moneys so invested are needed to make payments from those Funds. The Issuer
(to the extent it retained or retains direction or control) and the Company
each hereby represents that the investment and reinvestment and the use of the
proceeds of the Refunded Bonds were restricted in such manner and to such
extent as was necessary so that the Refunded Bonds would not constitute
arbitrage bonds under the statutory predecessor of the Code and each hereby
covenants that it will restrict that investment and reinvestment and the use of
the proceeds of the Bonds in such manner and to such extent, if any, as may be
necessary so that the Bonds will not constitute arbitrage bonds under Section
148 of the Code.
The Company shall provide the Issuer with, and the Issuer may base its
certificate and statement, each as authorized by the Bond Resolution, on a
certificate of an appropriate officer, employee or agent of or consultant to
the Company for inclusion in the transcript of proceedings for the Bonds,
setting forth the reasonable expectations of the Company on the date of
delivery of and payment for the Bonds regarding the amount and use of the
proceeds of the Bonds and the facts, estimates and circumstances on which those
expectations are based.
Section III.5. Rebate Fund. To the extent required by Section 5.08 of
the Indenture, within five days after the end of the fifth Bond Year (as
defined in the Indenture) and every fifth Bond Year thereafter, and within five
days after payment in full of all outstanding Bonds, the Company shall
calculate the amount of Excess Earnings (as defined in the Indenture) as of the
end of that Bond Year or the date of such payment and shall notify the Trustee
of that amount. If the amount then on deposit in the Rebate Fund created under
the Indenture is less than the amount of Excess Earnings (computed by taking
into account the amount or amounts, if any, previously paid to the United
States pursuant to Section 5.08 of the Indenture and this Section), the Company
shall, within five days after the date of the aforesaid calculation, pay to the
Trustee for deposit in the Rebate Fund an amount sufficient to cause the Rebate
Fund to contain an amount equal to the Excess Earnings. The obligation of the
Company to make such payments shall remain in effect and be binding upon the
Company notwithstanding the release and discharge of the Indenture. The
Company shall obtain and keep such records of the computations made pursuant to
this Section as are required under Section 148(f) of the Code.
(End of Article III)
ARTICLE IV
LOAN BY ISSUER; LOAN PAYMENTS;
ADDITIONAL PAYMENTS; AND CREDIT FACILITY
Section IV.1. Loan Repayment. Upon the terms and conditions of this
Agreement, the Issuer agrees to make the Loan to the Company. The proceeds of
the Loan shall be deposited with the Trustee pursuant to Section 3.3 hereof.
In consideration of and in repayment of the Loan, the Company shall make, as
Loan Payments, to the Trustee for the account of the Issuer, payments which
correspond, as to time, and are equal in amount as of the Loan Payment Date, to
the corresponding Bond Service Charges payable on the Bonds. All Loan Payments
received by the Trustee shall be held and disbursed in accordance with the
provisions of the Indenture and this Agreement for application to the payment
of Bond Service Charges.
The Company shall be entitled to a credit against the Loan Payments
required to be made on any Loan Payment Date to the extent that the balance of
the Bond Fund is then in excess of amounts required (a) for the payment of
Bonds theretofore matured or theretofore called for redemption, or to be called
for redemption pursuant to Section 6.1 hereof (b) for the payment of interest
for which checks or drafts have been drawn and mailed by the Trustee or Paying
Agent, and (c) to be deposited in the Bond Fund by the Indenture for use other
than for the payment of Bond Service Charges due on that Loan Payment Date.
The Company's obligation to make Loan Payments shall be reduced to the
extent of any payments made by any Credit Facility Issuer to the Trustee in
respect of the principal of, premium, if any, or interest on the Bonds when due
pursuant to any Credit Facility, provided, that the Credit Facility Issuer has
been reimbursed for such payments in accordance with the terms of the
Reimbursement Agreement.
Except for such interest of the Company as may hereafter arise pursuant to
Section 8.2 hereof or Sections 5.06 or 5.07 of the Indenture, the Company and
the Issuer each acknowledge that neither the Company, the State nor the Issuer
has any interest in the Bond Fund or the Bond Purchase Fund, and any moneys
deposited therein shall be in the custody of and held by the Trustee in trust
for the benefit of the Holders.
Section IV.2. Additional Payments. The Company shall pay to the Issuer,
as Additional Payments hereunder, any and all costs and expenses incurred or to
be paid by the Issuer in connection with the issuance and delivery of the Bonds
or otherwise related to actions taken by the Issuer under this Agreement or the
Indenture.
The Company shall pay the Administration Expenses to the Trustee, the
Registrar, the Remarketing Agent, and any Paying Agent or Authenticating Agent,
as appropriate, as Additional Payments hereunder.
The Company may, without creating a default hereunder, contest in good
faith the reasonableness of any such cost or expense incurred or to be paid by
the Issuer and any Administration Expenses claimed to be due to the Trustee,
the Registrar, the Remarketing Agent, any Paying Agent or any Authenticating
Agent.
In the event the Company should fail to pay any Loan Payments, Additional
Payments or Administration Expenses when due, the payment in default shall
continue as an obligation of the Company until the amount in default shall have
been fully paid together with interest thereon during the default period at the
Interest Rate for Advances.
Section IV.3. Place of Payments. The Company shall make all Loan
Payments directly to the Trustee at its Principal Office. Additional Payments
shall be made directly to the person or entity to whom or to which they are
due.
Section IV.4. Obligations Unconditional. The obligations of the Company
to make Loan Payments, Additional Payments and any payments required of the
Company under Section 5.09 of the Indenture shall be absolute and
unconditional, and the Company shall make such payments without abatement,
diminution or deduction regardless of any cause or circumstances whatsoever
including, without limitation, any defense, set-off, recoupment or counterclaim
which the Company may have or assert against the Issuer, the Trustee, the
Registrar, the Remarketing Agent or any other Person.
Section IV.5. Assignment of Revenues and Agreement. To secure the
payment of Bond Service Charges, the Issuer shall, by the Indenture, (a)
absolutely and irrevocably assign to the Trustee, its successors in trust and
its and their assigns forever, (1) all right, title and interest of the Issuer
in and to all moneys and investments (including, without limitation, the
proceeds of the Credit Facility) in the Bond Fund and (2) all of the Issuer's
rights and remedies under this Agreement (except for the Unassigned Issuer
Rights), and (b) grant a security interest to the Trustee, its successors in
trust and its and their assigns forever, in all of its rights to and interest
in the Revenues including, without limitation, all Loan Payments and other
amounts receivable by or on behalf of the Issuer under the Agreement in respect
of repayment of the Loan (other than the Credit Facility Account, all moneys
and investments therein and the proceeds of the Credit Facility). The Company
hereby agrees and consents to those assignments and that grant of a security
interest.
Section IV.6. Credit Facility; Alternate Credit Facility; Cancellation.
(a) The Company agrees to provide for the payment of the principal of and
interest on the Bonds and for payment of the purchase price of Bonds delivered
to the Trustee or Paying Agent pursuant to the Indenture by causing the Letter
of Credit to be delivered to the Trustee on the date of the delivery of the
Bonds. The Company hereby authorizes and directs the Trustee to draw moneys
under the Letter of Credit, in accordance with its terms and the terms of the
Indenture, to the extent necessary to pay the principal of and interest on the
Bonds when due and to pay the purchase price of Bonds as provided in the
Indenture. The Company may, at its election and with the consent of the Bank,
provide for one or more extensions of the Letter of Credit beyond its then
stated date of expiration.
(b) Upon satisfaction of the requirements contained in Section 14.03
of the Indenture, the Company may provide for the delivery of an Alternate
Credit Facility.
(c) Upon satisfaction of the conditions contained in Section 14.02 of
the Indenture, the Company may cancel any Credit Facility in effect at such
time and direct the Trustee in writing to surrender such Credit Facility to
the Credit Facility Issuer by which it was issued in accordance with the
Indenture; provided, that no such cancellation shall become effective and no
such surrender shall take place until all Bonds subject to purchase pursuant to
Section 4.07(d) of the Indenture have been so purchased or redeemed with the
proceeds of such Credit Facility.
Section .1. Company's Option to Elect Rate Period. The Company shall
have, and is hereby granted, the option to elect to convert on any Conversion
Date the interest rate borne by the Bonds to another Variable Rate to be
effective for a Rate Period pursuant to the provisions of Article II of the
Indenture and subject to the terms and conditions set forth therein. To
exercise such options, the Company shall give the written notice required by
the Indenture.
Section .2. Company's Obligation to Purchase Bonds. The Company hereby
agrees to pay or cause to be paid to the Trustee or the Paying Agent, on or
before each day on which Bonds may be or are required to be tendered for
purchase, amounts equal to the amounts to be paid by the Trustee or the Paying
Agent with respect to the Bonds tendered for purchase on such dates pursuant to
Article IV of the Indenture; provided, however, that the obligation of the
Company to make any such payment under this Section shall be reduced by the
amount of (A) moneys paid by the Remarketing Agent as proceeds of the
remarketing of such Bonds by the Remarketing Agent, (B) moneys drawn under any
Credit Facility, for the purpose of paying such purchase price and (C) other
moneys made available by the Company, as set forth in Section 4.08(b)(ii) of
the Indenture.
(End of Article IV)
ARTICLE I
ADDITIONAL AGREEMENTS AND COVENANTS
Section I.1. Right of Inspection. The Company agrees that, subject to
reasonable security and safety regulations and to reasonable requirements as to
notice, the Issuer and the Trustee and their or any of their respective duly
authorized agents shall have the right at all reasonable times to enter upon
the Project Site to examine and inspect the Projects.
Section I.2. Maintenance. The Company shall use its best efforts to keep
and maintain the Project Facilities, including all appurtenances thereto and
any personal property therein or thereon, in good repair and good operating
condition so that the Project Facilities will continue to constitute Pollution
Control Facilities, for the purposes of the operation thereof as required by
Section 5.4 hereof.
So long as such shall not be in violation of the Act or impair the
character of the Project Facilities as Pollution Control Facilities, and
provided there is continued compliance with applicable laws and regulations of
governmental entities having jurisdiction thereof, the Company shall have the
right to remodel the Project Facilities or make additions, modifications and
improvements thereto, from time to time as it, in its discretion, may deem to
be desirable for its uses and purposes, the cost of which remodeling,
additions, modifications and improvements shall be paid by the Company and the
same shall, when made, become a part of the Project Facilities.
Section I.3. Removal of Portions of the Project Facilities. The Company
shall not be under any obligation to renew, repair or replace any inadequate,
obsolete, worn out, unsuitable, undesirable or unnecessary portions of the
Project Facilities, except that, subject to Section 5.4 hereof, it will use its
best efforts to ensure the continued character of the Project Facilities as
Pollution Control Facilities. The Company shall have the right from time to
time to substitute personal property or fixtures for any portions of the
Project Facilities, provided that the personal property or fixtures so
substituted shall not impair the character of the Project Facilities as
Pollution Control Facilities. Any such substituted property or fixtures shall,
when so substituted, become a part of the Project Facilities. The Company
shall also have the right to remove any portion of the Project Facilities,
without substitution therefor; provided, that the Company shall deliver to the
Trustee a certificate signed by an Engineer describing said portion of the
Project Facilities and stating that the removal of such property or fixtures
will not impair the character of the Project Facilities as Pollution Control
Facilities.
Section I.4. Operation of Project Facilities. The Company will, subject
to its obligations and rights to maintain, repair or remove portions of the
Project Facilities, as provided in Sections 5.2 and 5.3 hereof, use its best
efforts to continue operation of the Project Facilities so long as and to the
extent that operation thereof is required to comply with laws or regulations of
governmental entities having jurisdiction thereof or unless the Issuer shall
have approved the discontinuance of such operation (which approval shall not be
unreasonably withheld). The Company agrees that it will, within the design
capacities thereof, use its best efforts to operate and maintain the Project
Facilities in accordance with all applicable, valid and enforceable rules and
regulations of governmental entities having jurisdiction thereof; provided,
that the Company reserves the right to contest in good faith any such laws or
regulations.
Nothing in this Agreement shall prevent or restrict the Company, in its
sole discretion, at any time, from discontinuing or suspending either
permanently or temporarily its use of any facility of the Company served by the
Project Facilities and in the event such discontinuance or suspension shall
render unnecessary the continued operation of the Project Facilities, the
Company shall have the right to discontinue the operation of the Project
Facilities during the period of any such discontinuance or suspension.
Section I.5. Insurance. The Company shall cause the Project Facilities
to be kept insured against fire or other casualty to the extent that property
of similar character is usually so insured by companies similarly situated and
operating like properties, to a reasonable amount by reputable insurance
companies or, in lieu of or supplementing such insurance in whole or in part,
adopt some other method or plan of protection against loss by fire or other
casualty at least equal in protection to the method or plan of protection
against loss by fire or other casualty of companies similarly situated and
operating properties subject to similar or greater fire or other hazards or on
which properties an equal or higher primary fire or other casualty insurance
rate has been set by reputable insurance companies.
Section I.6. Workers' Compensation Coverage. Throughout the term of this
Agreement, the Company shall comply, or cause compliance, with applicable
workers' compensation laws of the State.
Section I.7. Damage; Destruction and Eminent Domain. If, during the term
of this Agreement, the Project Facilities or any portion thereof is destroyed
or damaged in whole or in part by fire or other casualty, or title to, or the
temporary use of, the Project Facilities or any portion thereof shall have been
taken by the exercise of the power of eminent domain, the Company (unless it
shall have exercised its option to prepay the Loan Payments pursuant to Section
6.2 hereof) shall promptly repair, rebuild or restore the portion of the
Project Facilities so damaged, destroyed or taken with such changes,
alterations and modifications (including the substitution and addition of other
property) as may be necessary or desirable for the administration and operation
of the Project Facilities as Pollution Control Facilities and as shall not
impair the character or significance of the Project Facilities as furthering
the purposes of the Act.
Section I.8. Company to Maintain its Corporate Existence; Conditions
Under Which Exceptions Permitted. The Company agrees that, during the term of
this Agreement, it will maintain its corporate existence, will not dissolve or
otherwise dispose of all or substantially all of its assets and will not
consolidate with or merge into another corporation or permit one or more other
corporations to consolidate with or merge into it; provided that the Company
may, without violating its agreement contained in this Section, consolidate
with or merge into another corporation, or permit one or more other
corporations to consolidate with or merge into it, or sell or otherwise
transfer to another corporation all or substantially all of its assets as an
entirety and thereafter dissolve, provided the surviving, resulting or
transferee corporation, as the case may be (if other than the Company), is a
corporation organized and existing under the laws of one of the states of the
United States, and assumes in writing all of the obligations of the Company
herein, and, if not an Indiana corporation, is qualified to do business in the
State.
If consolidation, merger or sale or other transfer is made as provided in
this Section, the provisions of this Section shall continue in full force and
effect and no further consolidation, merger or sale or other transfer shall be
made except in compliance with the provisions of this Section.
Section I.9. Indemnification. The Company releases the Issuer from,
agrees that the Issuer shall not be liable for, and indemnifies the Issuer
against, all liabilities, claims, costs and expenses imposed upon or asserted
against the Issuer on account of: (a) any loss or damage to property or injury
to or death of or loss by any person that may be occasioned by any cause
whatsoever pertaining to the construction, maintenance, operation and use of
the Project Facilities; (b) any breach or default on the part of the Company in
the performance of any covenant or agreement of the Company under this
Agreement or any related document, or arising from any act or failure to act by
the Company, or any of its agents, contractors, servants, employees or
licensees; (c) the authorization, issuance and sale of the Bonds, and the
provision of any information furnished in connection therewith concerning the
Project Facilities or the Company (including, without limitation, any
information furnished by the Company for inclusion in any certifications made
by the Issuer under Section 3.4 hereof or for inclusion in, or as a basis for
preparation of, the Form 8038 information statement to be filed by the Issuer);
and (d) any claim or action or proceeding with respect to the matters set forth
in (a), (b) and (c) above brought thereon.
The Company agrees to indemnify the Trustee, the Paying Agent, the
Remarketing Agent and the Registrar (each hereinafter referred to in this
section as an "indemnified party") for and to hold each of them harmless
against all liabilities, claims, costs and expenses incurred without negligence
or willful misconduct on the part of the indemnified party, on account of any
action taken or omitted to be taken by the indemnified party in accordance with
the terms of this Agreement, the Bonds or the Indenture or any action taken at
the request of or with the consent of the Company, including the costs and
expenses of the indemnified party in defending itself against any such claim,
action or proceeding brought in connection with the exercise or performance of
any of its powers or duties under this Agreement, the Bonds or the Indenture.
In case any action or proceeding is brought against the Issuer or an
indemnified party in respect of which indemnity may be sought hereunder, the
party seeking indemnity promptly shall give notice of that action or proceeding
to the Company, and the Company upon receipt of that notice shall have the
obligation and the right to assume the defense of the action or proceeding;
provided, that failure of a party to give that notice shall not relieve the
Company from any of its obligations under this Section unless that failure
prejudices the defense of the action or proceeding by the Company. At its own
expense, an indemnified party may employ separate counsel and participate in
the defense; provided, however, where it is ethically inappropriate for one
firm to represent the interests of the Issuer and any other indemnified party
or parties, the Company shall pay the Issuer's legal expenses in connection
with the Issuer's retention of separate counsel. The Company shall not be
liable for any settlement made without its consent.
The indemnification set forth above is intended to and shall include the
indemnification of all affected officials, directors, officers and employees of
the Issuer, the Trustee, the Paying Agent, the Remarketing Agent and the
Registrar, respectively. That indemnification is intended to and shall be
enforceable by the Issuer, the Trustee, the Paying Agent, the Remarketing Agent
and the Registrar, respectively, to the full extent permitted by law.
Section I.10. Company Not to Adversely Affect Exclusion of Interest on
Bonds From Gross Income For Federal Income Tax Purposes. The Company hereby
covenants and represents that it has taken and caused to be taken and shall
take and cause to be taken all actions that may be required of it for the
interest on the Bonds to be and remain excluded from the gross income of the
Holders for federal income tax purposes, and that it has not taken or permitted
to be taken on its behalf, and covenants that it will not take, or permit to be
taken on its behalf, any action which, if taken, would adversely affect that
exclusion under the provisions of the Code.
Section I.11. Use of Project Facilities. The Issuer agrees that it will
not take any action, or cause any action to be taken on its behalf, to
interfere with the Company's ownership interest in the Project or to prevent
the Company from having possession, custody, use and enjoyment of the Project
other than pursuant to Article VII of this Agreement or Article VII of the
Indenture.
Section I.12. Assignment by Company. This Agreement may be assigned in
whole or in part by the Company without the necessity of obtaining the consent
of either the Issuer or the Trustee, subject, however, to each of the following
conditions:
(a) No assignment (other than pursuant to Section 5.8 hereof) shall
relieve the Company from primary liability for any of its obligations
hereunder, and in the event of any such assignment the Company shall continue
to remain primarily liable for the payment of the Loan Payments and Additional
Payments and for performance and observance of the agreements on its part
herein provided to be performed and observed by it.
(b) Any assignment by the Company must retain for the Company such
rights and interests as will permit it to perform its obligations under this
Agreement, and any assignee from the Company shall assume the obligations of
the Company hereunder to the extent of the interest assigned.
(c) The Company shall, within 30 days after execution thereof, furnish
or cause to be furnished to the Issuer and the Trustee a true and complete copy
of each such assignment together with any instrument of assumption.
(d) Any assignment from the Company shall not materially impair
fulfillment of the Project Purposes to be accomplished by operation of the
Project as herein provided.
(End of Article V)
ARTICLE II
REDEMPTION
Section II.1. Optional Redemption. Provided no Event of Default shall
have occurred and be subsisting, at any time and from time to time, the Company
may deliver moneys to the Trustee in addition to Loan Payments or Additional
Payments required to be made and direct the Trustee to use the moneys so
delivered for the purpose of calling Bonds for optional redemption in
accordance with the applicable provisions of the Indenture providing for
optional redemption at the redemption price stated in the Indenture. Pending
application for those purposes, any moneys so delivered shall be held by the
Trustee in a special account in the Bond Fund and delivery of those moneys
shall not, except as set forth in Section 4.1 hereof, operate to abate or
postpone Loan Payments or Additional Payments otherwise becoming due or to
alter or suspend any other obligations of the Company under this Agreement.
Section II.2. Extraordinary Optional Redemption. The Company shall have,
subject to the conditions hereinafter imposed, the option during a Term Rate
Period to direct the redemption of the Bonds in whole in accordance with the
applicable provisions of the Indenture upon the occurrence of any of the
following events:
(a) The Project or the Plant shall have been damaged or destroyed to
such an extent that (1) the Project or the Plant cannot reasonably be expected
to be restored, within a period of six consecutive months, to the condition
thereof immediately preceding such damage or destruction or (2) the Company is
reasonably expected to be prevented from carrying on its normal use and
operation of the Project or the Plant for a period of six consecutive months.
(b) Title to, or the temporary use of, all or a significant part of
the Project or the Plant shall have been taken under the exercise of the power
of eminent domain to such an extent (1) that the Project or the Plant cannot
reasonably be expected to be restored within a period of six consecutive months
to a condition of usefulness comparable to that existing prior to the taking or
(2) the Company is reasonably expected to be prevented from carrying on its
normal use and operation of the Project or the Plant for a period of six
consecutive months.
(c) As a result of any changes in the Constitution of the State, the
Constitution of the United States of America or any state or federal laws or as
a result of legislative or administrative action (whether state or federal) or
by final decree, judgment or order of any court or administrative body
(whether state or federal) entered after any contest thereof by the Issuer or
the Company in good faith, this Agreement shall have become void or
unenforceable or impossible of performance in accordance with the intent and
purpose of the parties as expressed in this Agreement.
(d) Unreasonable burdens or excessive liabilities shall have been
imposed upon the Issuer or the Company with respect to the Project or the Plant
or the operation thereof, including, without limitation, the imposition of
federal, state or other ad valorem, property, income or other taxes other than
ad valorem taxes at the rates presently levied upon privately owned property
used for the same general purpose as the Project or the Plant.
(e) Changes in the economic availability of raw materials, operating
supplies, energy sources or supplies or facilities (including, but not limited
to, facilities in connection with the disposal of industrial wastes) necessary
for the operation of the Project or the Plant for the Project Purposes occur or
technological or other changes occur which the Company cannot reasonably
overcome or control and which in the Company's reasonable judgment render the
Project or the Plant uneconomic or obsolete for the Project Purposes.
(f) Any court or administrative body shall enter a judgment, order or
decree, or shall take administrative action, requiring the Company to cease all
or any substantial part of its operations served by the Project or the Plant to
such extent that the Company is or will be prevented from carrying on its
normal operations at the Project or the Plant for a period of six consecutive
months.
(g) The termination by the Company of operations at the Plant.
The amount payable by the Company in the event of its exercise of the
option granted in this Section shall be the sum of the following:
(i) An amount of money which, when added to the moneys and
investments held to the credit of the Bond Fund, will be sufficient pursuant to
the provisions of the Indenture to pay, at 100% of the principal amount thereof
plus accrued interest to the redemption date, and discharge, all Outstanding
Bonds on the earliest applicable redemption date, that amount to be paid to the
Trustee, plus
(ii) An amount of money equal to the Additional Payments relating
to those Bonds accrued and to accrue until actual final payment and redemption
of those Bonds, that amount or applicable portions thereof to be paid to the
Trustee or to the Persons to whom those Additional Payments are or will be due.
The requirement of (ii) above with respect to Additional Payments to accrue may
be met if provisions satisfactory to the Trustee and the Issuer are made for
paying those amounts as they accrue.
The rights and options granted to the Company in this Section may be
exercised whether or not the Company is in default hereunder; provided, that
such default will not relieve the Company from performing those actions which
are necessary to exercise any such right or option granted hereunder.
Section II.3. Mandatory Redemption. The Company shall deliver to the
Trustee the moneys needed to redeem the Bonds in accordance with any mandatory
redemption provisions relating thereto as may be set forth in Sections 4.01(b)
and 4.01(d) of the Indenture.
Section II.4. Notice of Redemption. In order to exercise an option
granted in, or to consummate a redemption required by, this Article VI, the
Company shall, within 180 days following the event authorizing the exercise of
such option, or at any time during the continuation of the condition referred
to in paragraphs (c), (d) or (e) of Section 6.2 hereof, or at any time that
optional redemption of the Bonds is permitted under the Indenture as provided
in Section 6.1 hereof, or promptly upon the occurrence of a Determination of
Taxability (as defined in the Indenture), give written notice to the Issuer and
the Trustee that it is exercising its option to direct the redemption of Bonds,
or that the redemption thereof is required by Section 4.01(b) of the Indenture
due to the occurrence of a Determination of Taxability, as the case may be, in
accordance with the Agreement and the Indenture, and shall specify therein the
date on which such redemption is to be made, which date shall not be more than
180 days from the date such notice is mailed. No notice from the Company will
be required in connection with a redemption of Bonds pursuant to the mandatory
sinking fund redemption pursuant to Section 4.01(d) of the Indenture. The
Company shall make arrangements satisfactory to the Trustee for the giving of
the required notice of redemption to the Holders of the Bonds, in which
arrangements the Issuer shall cooperate.
Section II.5. Actions by Issuer. At the request of the Company or the
Trustee, the Issuer shall take all steps required of it under the applicable
provisions of the Indenture or the Bonds to effect the redemption of all or a
portion of the Bonds pursuant to this Article VI.
(End of Article VI)
ARTICLE III
EVENTS OF DEFAULT AND REMEDIES
Section III.1. Events of Default. Each of the following shall be an
Event of Default:
(a) The occurrence of an event of default as defined in Section 7.01
(a), (b), (c) or (d) of the Indenture;
(b) The Company shall fail to observe and perform any other agreement,
term or condition contained in this Agreement, other than such failure as will
have resulted in an event of default described in (a) above and the
continuation of that failure for a period of 90 days after notice thereof shall
have been given to the Company by the Issuer or the Trustee, or for such longer
period as the Issuer and the Trustee may agree to in writing; provided, that
failure shall not constitute an Event of Default so long as the Company
institutes curative action within the applicable period and diligently pursues
that action to completion within 150 days after the expiration of initial cure
period as determined above, or within such longer period as the Issuer and the
Trustee may agree to in writing; and
(c) By decree of a court of competent jurisdiction the Company shall
be adjudicated a bankrupt, or an order shall be made approving a petition or
answer filed seeking reorganization or readjustment of the Company under the
federal bankruptcy laws or other law or statute of the United States of America
or of the state of incorporation of the Company or of any other state, or, by
order of such a court, a trustee in bankruptcy, a receiver or receivers shall
be appointed of all or substantially all of the property of the Company, and
any such decree or order shall have continued unstayed on appeal or otherwise
and in effect for a period of sixty (60) days; and
(d) The Company shall file a petition in voluntary bankruptcy or shall
make an assignment for the benefit of creditors or shall consent to the
appointment of a receiver or receivers of all or any part of its property, or
shall file a petition seeking reorganization or readjustment under the Federal
bankruptcy laws or other law or statute of the United States of America or any
state thereof, or shall file a petition to take advantage of any debtors' act.
Notwithstanding the foregoing, if, by reason of Force Majeure, the Company
is unable to perform or observe any agreement, term or condition hereof which
would give rise to an Event of Default under subsection (b) hereof, the Company
shall not be deemed in default during the continuance of such inability.
However, the Company shall promptly give notice to the Trustee and the Issuer
of the existence of an event of Force Majeure and shall use its best efforts to
remove the effects thereof; provided that the settlement of strikes or other
industrial disturbances shall be entirely within its discretion.
The term Force Majeure shall mean the following:
(i) acts of God; strikes, lockouts or other industrial
disturbances; acts of public enemies; orders or restraints of any kind of the
government of the United States of America or of the State or any of their
departments, agencies, political subdivisions or officials, or any civil or
military authority; insurrections; civil disturbances; riots; epidemics;
landslides; lightning; earthquakes; fires; hurricanes; tornados; storms;
droughts; floods; arrests; restraint of government and people; explosions;
breakage, nuclear accidents or other malfunction or accident to facilities,
machinery, transmission pipes or canals; partial or entire failure of a
utility serving the Project; shortages of labor, materials, supplies or
transportation; or
(ii) any cause, circumstance or event not reasonably within the
control of the Company.
The exercise of remedies hereunder shall be subject to any applicable
limitations of federal bankruptcy law affecting or precluding that declaration
or exercise during the pendency of or immediately following any bankruptcy,
liquidation or reorganization proceedings.
Section III.2. Remedies on Default. Whenever an Event of Default shall
have happened and be subsisting, either or both of the following remedial steps
may be taken:
(a) The Issuer or the Trustee may have access to, inspect, examine and
make copies of the books, records, accounts and financial data of the Company,
only, however, insofar as they pertain to the Project; or
(b) The Issuer or the Trustee may pursue all remedies now or hereafter
existing at law or in equity to recover all amounts, including all Loan
Payments and Additional Payments and under Section 4.8 hereof the purchase
price of Bonds tendered for purchase, then due and thereafter to become due
under this Agreement, or to enforce the performance and observance of any other
obligation or agreement of the Company under this Agreement.
Notwithstanding the foregoing, the Issuer shall not be obligated to take any
step which in its opinion will or might cause it to expend time or money or
otherwise incur liability unless and until a satisfactory indemnity bond has
been furnished to the Issuer at no cost or expense to the Issuer. Any amounts
collected as Loan Payments or applicable to Loan Payments and any other amounts
which would be applicable to payment of Bond Service Charges collected pursuant
to action taken under this Section shall be paid into the Bond Fund and applied
in accordance with the provisions of the Indenture or, if the outstanding Bonds
have been paid and discharged in accordance with the provisions of the
Indenture, shall be paid as provided in Section 5.07 of the Indenture for
transfers of remaining amounts in the Bond Fund.
The provisions of this Section are subject to the further limitation that
the rescission and annulment by the Trustee of its declaration that all of the
Bonds are immediately due and payable also shall constitute a rescission and
annulment of any corresponding declaration made pursuant to this Section and a
rescission and annulment of the consequences of that declaration and of the
Event of Default with respect to which that declaration has been made, provided
that no such rescission and annulment shall extend to or affect any subsequent
or other default or impair any right consequent thereon.
Section III.3. No Remedy Exclusive. No remedy conferred upon or reserved
to the Issuer or the Trustee by this Agreement is intended to be exclusive of
any other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement, or now or hereafter existing at law, in equity or by statute. No
delay or omission to exercise any right or power accruing upon any default
shall impair that right or power or shall be construed to be a waiver thereof,
but any such right or power may be exercised from time to time and as often as
may be deemed expedient. In order to entitle the Issuer or the Trustee to
exercise any remedy reserved to it in this Article, it shall not be necessary
to give any notice, other than any notice required by law or for which express
provision is made herein.
Section III.4. Agreement to Pay Attorneys' Fees and Expenses. If an
Event of Default should occur and the Issuer or the Trustee should incur
expenses, including attorneys' fees, in connection with the enforcement of this
Agreement or the collection of sums due hereunder, the Company shall be
required, to the extent permitted by law, to reimburse the Issuer and the
Trustee, as applicable, for the expenses so incurred upon demand.
Section III.5. No Waiver. No failure by the Issuer or the Trustee to
insist upon the strict performance by the Company of any provision hereof shall
constitute a waiver of their right to strict performance and no express waiver
shall be deemed to apply to any other existing or subsequent right to remedy
the failure by the Company to observe or comply with any provision hereof.
Section III.6. Notice of Default. The Company shall notify the Trustee
immediately if it becomes aware of the occurrence of any Event of Default
hereunder or of any fact, condition or event which, with the giving of notice
or passage of time or both, would become an Event of Default.
(End of Article VII)
ARTICLE IV
MISCELLANEOUS
Section IV.1. Term of Agreement. This Agreement shall be and remain in
full force and effect from the date of delivery of the Bonds to the Original
Purchaser until such time as (i) all of the Bonds shall have been fully paid
(or provision made for such payment) and the Indenture has been released
pursuant to Section 9.01 thereof and (ii) all other sums payable by the Company
under this Agreement shall have been paid.
Section IV.2. Amounts Remaining in Funds. Any amounts in the Bond Fund
remaining unclaimed by the Holders of Bonds for four years after the due date
thereof (whether at stated maturity, by redemption, upon acceleration or
otherwise), at the option of the Company, shall be deemed to belong to and
shall be paid, subject to Section 5.06 of the Indenture, at the written request
of the Company, to the Company by the Trustee. With respect to that principal
of and any premium and interest on the Bonds to be paid from moneys paid to the
Company pursuant to the preceding sentence, the Holders of the Bonds entitled
to those moneys shall look solely to the Company for the payment of those
moneys. Further, any amounts remaining in the Bond Fund and any other special
funds or accounts created under this Agreement or the Indenture, except the
Rebate Fund, after all of the Bonds shall be deemed to have been paid and
discharged under the provisions of the Indenture and all other amounts required
to be paid under this Agreement and the Indenture have been paid, shall be paid
to the Company to the extent that those moneys are in excess of the amounts
necessary to effect the payment and discharge of the Outstanding Bonds.
Section IV.3. Notices. All notices, certificates, requests or other
communications hereunder shall be in writing, except as provided in Section 3.4
hereof, and shall be deemed to be sufficiently given when mailed by registered
or certified mail, postage prepaid, and addressed to the appropriate Notice
Address. A duplicate copy of each notice, certificate, request or other
communication given hereunder to the Issuer, the Company, any Credit Facility
Issuer or the Trustee shall also be given to the others. The Company, the
Issuer, any Credit Facility Issuer and the Trustee, by notice given hereunder,
may designate any further or different addresses to which subsequent notices,
certificates, requests or other communications shall be sent.
Section IV.4. Extent of Covenants of the Issuer; No Personal Liability.
All covenants, obligations and agreements of the Issuer contained in this
Agreement or the Indenture shall be effective to the extent authorized and
permitted by applicable law. No such covenant, obligation or agreement shall
be deemed to be a covenant, obligation or agreement of any present or future
member, officer, agent or employee of the Issuer in other than his official
capacity, and neither the members of the Issuer nor any official executing the
Bonds shall be liable personally on the Bonds or be subject to any personal
liability or accountability by reason of the issuance thereof or by reason of
the covenants, obligations or agreements of the Issuer contained in this
Agreement or in the Indenture.
Section IV.5. Binding Effect. This Agreement shall inure to the benefit
of and shall be binding in accordance with its terms upon the Issuer, the
Company and their respective permitted successors and assigns provided that
this Agreement may not be assigned by the Company (except as permitted under
Sections 5.8 or 5.12 hereof) and may not be assigned by the Issuer except to
(i) the Trustee pursuant to the Indenture or as otherwise may be necessary to
enforce or secure payment of Bond Service Charges or (ii) any successor public
body to the Issuer.
Section IV.6. Amendments and Supplements. Except as otherwise expressly
provided in this Agreement or the Indenture, subsequent to the issuance of the
Bonds and prior to all conditions provided for in the Indenture for release of
the Indenture having been met, this Agreement may not be effectively amended,
changed, modified, altered or terminated by the parties hereto except with the
consents required by, and in accordance with, the provisions of Article XI of
the Indenture, as applicable.
Section IV.7. References to Credit Facility. During such time or times
as no Credit Facility is in effect, and during the continuation of any event of
default under the Indenture due to a failure by the Credit Facility Issuer to
honor a drawing by the Trustee under the Credit Facility then in effect in
accordance with the terms thereof, references herein to the Credit Facility
Issuer shall be ineffective.
Section IV.8. Execution Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be regarded as an original and
all of which shall constitute but one and the same instrument.
Section IV.9. Severability. If any provision of this Agreement, or any
covenant, obligation or agreement contained herein is determined by a judicial
or administrative authority to be invalid or unenforceable, that determination
shall not affect any other provision, covenant, obligation or agreement, each
of which shall be construed and enforced as if the invalid or unenforceable
portion were not contained herein. That invalidity or unenforceability shall
not affect any valid and enforceable application thereof, and each such
provision, covenant, obligation or agreement shall be deemed to be effective,
operative, made, entered into or taken in the manner and to the full extent
permitted by law.
Section IV.10. Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the State and for all purposes shall be
governed by and construed in accordance with the laws of the State.
(End of Article VIII)
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement
to be duly executed in their respective names, all as of the date hereinbefore
written.
CITY OF PRINCETON, INDIANA
By: /s/ George B. Taylor
Mayor
Attest:
/s/ Shirley Robb
Clerk-Treasurer
PSI ENERGY, INC.
By: /s/ William L. Sheafer
Treasurer
<PAGE>
Exhibit A
DESCRIPTION OF POLLUTION CONTROL FACILITIES
AT
GIBSON GENERATING STATION
Financed by Series 1973 Bonds
Financed by Series 1979 Bonds
Adopted by the Cinergy Corp.
Board of Directors on October 22, 1996
NOVEMBER 1, 1996
AMENDMENT TO THE CINERGY CORP.
1996 LONG-TERM INCENTIVE COMPENSATION PLAN
(Effective November 1, 1996)
The Cinergy Corp. 1996 Long-Term Incentive Compensation
Plan, as adopted on January 25, 1996, is hereby amended effective
November 1, 1996, pursuant to Article 16 thereof, with respect to
the modification of Sections 4.1, 4.2, 5.2, and 8.6, and Articles
7 and 18.
(1) Explanation of Amendments
Currently, Section 4.1, Committee as Administrator, of the
Plan provides that the Plan shall be administered by the
Compensation Committee of Cinergy's Board of Directors which
committee is composed of at least three "disinterested persons"
under Rule 16b-3 under the Securities Exchange Act of 1934 (the
"1934 Act"). The revised Rule 16b-3 regulations have replaced
the concept of at least three "disinterested persons" with the
concept of at least two "non-employee directors." Thus, the Plan
is being amended to substitute "non-employee directors" for
"disinterested persons," and reduced, by one, the minimum number
of required committee members.
Currently, Section 4.2, Committee Authority, confers on the
Committee final authority for making all determinations and
taking all actions under the Plan. The revised Rule 16b-3
permits more flexibility with respect to the administration of
the Plan, and Section 4.2 is amended to enable Cinergy's Board of
Directors to take advantage of this flexibility with respect to
determinations and actions taken under the Plan.
Section 5.2, Designation by Committee, is amended to permit
either the Committee or Cinergy's Board of Directors (and not
solely the Committee, as currently provided) to grant awards
under the Plan.
Article 7, Adjustment in the Number of Shares and in Option
Price, is amended to clarify that if there is a declaration of a
stock dividend, stock split, spin-off or other event that affects
Cinergy's capital structure, then, in addition to adjustments
that the Committee or Cinergy's Board of Directors shall make to
the number of shares available for awards under the Plan and the
number of shares subject to outstanding awards and price thereof,
the Committee or Cinergy's Board of Directors shall also make
adjustments to the maximum number of shares available for grants
of awards of options or stock appreciation rights to any employee
in any calendar year. The Section of the Plan establishing this
maximum already provides that this limitation is subject to
adjustment pursuant to Article 7.
Section 8.6, Payment, is amended to clarify and to provide
additional methods of payment of the purchase price in order
exercise options under the Plan. Currently, the Plan allows
options to be exercised (i) with cash, (ii) with shares of
Cinergy common stock already owned by the optionee (a stock
exchange or stock swap), or a combination of such shares and
cash, or, (iii) except for officers or directors covered by
Section 16 of the 1934 Act, by delivering a properly executed
exercise notice together with irrevocable instructions to a
broker to deliver to Cinergy the total option price in cash and,
if desired, the amount of any taxes to be withheld from the
optionee's compensation as a result of withholding tax
obligations (a broker-financed transaction). The Section would
be modified to allow options to be purchased with (i) cash, (ii)
a stock exchange or stock swap using shares of Cinergy common
stock already owned by the optionee or owned jointly by the
optionee and his or her spouse (with the spouse's permission),
(iii) a broker-financed transaction (for any employee, officer or
director), (iv) by withholding from the shares of Cinergy common
stock issued on exercise, shares of common stock whose value
equals the purchase price, (v) any other legal consideration that
the Compensation Committee deems appropriate, or (vi) any
combination of these methods. Provisions of this Section made
obsolete by the new Rule 16b-3 regulations are deleted.
Article 18, Transferability, is amended to provide that
options or stock appreciation rights are not transferable
otherwise than by will or the laws of descent and distribution
except as otherwise allowed by the Committee. This amendment is
in response to the revised Rule 16b-3 regulations.
(2) Section 4.1 as Amended
Section 4.1, as hereby amended, reads as follows:
"4.1 Committee as Administrator.
The Plan shall be administered by the Committee which shall
be comprised of not fewer than two members of Cinergy's Board of
Directors. Members of the Committee shall be members of
Cinergy's Board of Directors who are non-employee directors
under Rule 16b-3 promulgated under the 1934 Act and successor
rules ("Rule 16b-3") and, with respect to Covered Employees,
outside directors under Code Subsection 162(m). Subject to the
Plan's terms, the Committee shall have the exclusive authority to
grant Awards to Employees under the Plan, to select the Employees
to receive Awards, to determine the type, size and terms of the
Awards to be made to each Employee selected, to determine the
time when Awards to Employees will be granted, and to prescribe
the form of the Award Agreements embodying Awards made under the
Plan. The provisions and conditions of the grants of Awards,
which shall be set forth in Award Agreements, need not be the
same with respect to each Employee selected or with respect to
each Award."
(3) Section 4.2 as Amended
Section 4.2, as hereby amended, reads as follows:
"4.2 Committee Authority.
Unless otherwise determined by Cinergy's Board of Directors,
the Committee is authorized to establish any rules and
regulations and appoint any agent as it deems appropriate for the
Plan's proper administration and to make any determinations under
and to take any steps in connection with the Plan as it deems
necessary or advisable. Each determination or other action made
or taken pursuant to the Plan, including interpretation of the
Plan and the specific conditions and provisions of the Awards
granted under the Plan by the Committee shall be final and
conclusive for all purposes and upon all persons including,
without limitation, each Employer and each Employer's board of
directors, and the affected Employee, beneficiary, legal
representative, and any other interested parties."
(4) Section 5.2 as Amended
Section 5.2, as hereby amended, reads as follows:
"5.2 Designation by Committee or Board.
From time to time, Cinergy's Chief Executive Officer may
recommend to the Committee the granting of Awards to any eligible
Employee. After reviewing the recommendations, and after
considering the duties of each recommended Employee, his or her
present and potential contribution to the success of his or her
Employer, his or her other compensation provided by his or her
Employer and any other factors as it deems relevant, the
Committee or Cinergy's Board of Directors shall determine whether
to grant Awards to the recommended Employee."
(5) Article 7 as Amended
Article 7, as hereby amended, reads as follows:
"ARTICLE 7
ADJUSTMENT IN THE NUMBER OF
SHARES AND IN OPTION PRICE
If there is any change in the shares of Common Stock through
the declaration of stock dividends, stock splits, through
recapitalization, merger, consolidation, combination of shares,
spin-off, other significant distribution assets, or otherwise,
the Committee or Cinergy's Board of Directors shall make an
adjustment, if any, as it may deem appropriate in the number of
shares of Common Stock available for Awards or the number of
shares of Common Stock subject to any outstanding Award and the
Option Price thereof, and the maximum number of shares of Common
Stock subject to Option or Stock Appreciation Rights granted to
any Employee during any calendar year. Any adjustment may
provide for the elimination of any fractional shares that might
otherwise become subject to any Award without payment therefor."
(6) Section 8.6 as Amended
Section 8.6, as hereby amended, reads as follows:
"8.6 Payment.
(a) The Option Price shall be paid in full at the time of
exercise. No share shall be issued or transferred until full payment
has been received therefor. Payment may be in (i) cash, (ii)
nonforfeitable, unrestricted shares of Common Stock that are already
owned by the Optionee or jointly owned by the Optionee and the
Optionee's spouse (provided that the spouse's written consent is
first obtained) and have a value at the time of exercise that is
equal to the Option Price, (iii) by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to Cinergy the total Option price in cash and, if
desired, the amount of any taxes to be withheld from the Optionee's
compensation as a result of the Employer's withholding tax
obligation, as specified in the notice, or (iv) by withholding from
the shares of Common Stock issued on exercise, shares of Common Stock
whose value equals the Option price, and, if desired, the amount of
any taxes to be withheld from the Optionee's compensation as a result
of the Employer's withholding tax obligation, (v) any other legal
consideration that the Committee may deem appropriate, including
without limitation any form of consideration authorized under
Subsection 8.6 (b), on such basis as the Committee may determine in
accordance with the Plan, and (vi) any combination of the foregoing.
Cash payment for the shares purchased under an NSO may be offset by
the amount of any Cash Award, as provided in Article 12 (Cash
Awards), approved by the Committee. If payment is made by the
delivery of shares of Common Stock, the value of the shares delivered
shall be computed upon the basis of the average of the high and low
sales prices at which shares of Common Stock shall have been sold on
the date the Optionee exercises an Option, or on the preceding
trading day if that date was not a trading day as reported on the
"NYSE - Composite Transactions" as reported in The Wall Street
Journal.
(b) Any grant of an NSO shall provide that payment of the
Option Price may also be made in whole or in part in the form of
shares of Restricted Stock or other Common Stock that are subject to
risk of forfeiture or restrictions on transfer. Unless otherwise
determined by the Committee on or after the Date of Grant, whenever
any Option Price is paid in whole or in part by means of any of the
forms of consideration specified in this subsection, the Common Stock
received by the Optionee upon the exercise of the NSO shall be
subject to the same risk of forfeiture or restrictions on transfer as
those that applied to the consideration surrendered by the Optionee.
However, the risks of forfeiture and restrictions on transfer shall
apply only to the same number of shares of Common Stock received by
the Optionee as applied to the forfeitable or restricted Common Stock
surrendered by the Optionee."
(7) Article 18 as Amended
Article 18, as hereby amended, reads as follows:
"ARTICLE 18
TRANSFERABILITY
Except with the prior approval of and upon conditions
established by the Committee, no Option or other derivative security
(as that term is defined in Rule 16b-3) granted pursuant to the Plan
shall be transferable otherwise than by will or by the laws of
descent and distribution. During the lifetime of an Optionee, the
Option and Stock Appreciation Rights shall be exercisable only by the
Optionee personally or, in the event of the Employee's legal
incapacity, by the Employee's guardian or legal representative acting
in a fiduciary capacity on behalf of the Employee under applicable
state law and judicial supervision. The Committee, in its sole
discretion, may provide for the transferability of particular Awards
under the Plan so long as the provisions will not disqualify the
exemption for other Awards under Rule 16b-3. Any grant made under
the Plan may provide that all or any part of the shares of Common
Stock that are to be issued or transferred by Cinergy upon the
exercise of Options or Stock Appreciation Rights or in payment of
Performance Shares on Performance Awards, Dividend Equivalents or
Other Stock-Based Awards, or that are no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred
to in Article 10 (Restricted Stock), shall be subject to further
restrictions upon transfer."
This Amendment is executed and approved by the duly
authorized officers of Cinergy Corp., effective as of November 1,
1996.
CINERGY CORP.
By: _________James E. Rogers________
Vice Chairman, President, and
Chief Executive Officer
Dated: October 25, 1996
APPROVED:
By: ____Jerome A. Vennemann____
Associate General Counsel and
Assistant Corporate Secretary
Dated: October 25, 1996
Adopted by the Cinergy Corp.
Board of Directors on October 22, 1996
NOVEMBER 1, 1996
AMENDMENT TO THE CINERGY CORP.
PERFORMANCE SHARES PLAN
(Effective November 1, 1996)
The Cinergy Corp. Performance Shares Plan, as adopted on
October 18, 1994, is hereby amended effective November 1, 1996,
pursuant to Article 18 thereof, with respect to the modification
of Section 1.27, Articles 9, 12, 15, and 20.
(1) Explanation of Amendments
Section 1.27, the definition of "Performance Period", is
amended to provide that no new Performance Period shall commence
subsequent to January 1, 1996, that the fifth Performance Period
shall be shortened to three years, and that the sixth Performance
Period shall be shortened to one year.
Article 9, Distribution, is amended to provide that upon
Plan termination, Cinergy's Board of Directors may direct that
payment of any performance awards under the Plan be made in such
manner as it deems appropriate under the circumstances, and that,
in this regard, payment with respect to the sixth Performance
Period will be paid in one lump sum. This amendment will
facilitate distribution of performance awards under existing
performance periods that will be truncated in contemplation of
the Plan's termination. This Article is also amended to provide
that the shares of common stock distributed under the Plan shall
be valued for tax purposes as of the date the restrictions, if
any, under Rule 16b-3 under the Securities Exchange Act of 1934
(the "1934 Act") lapse. This amendment is in response to the
revised Rule 16b-3 regulations issued under the 1934 Act.
Article 12, Transferability Restrictions, is amended to
provide that Performance Awards under the Plan are not
transferable except by will or the laws of descent and
distribution or unless otherwise provided by the Compensation
Committee.
Currently, Articles 15, Administration, and 20, Executive
Officers, provide that the Plan shall be administered by the
Compensation Committee of Cinergy's Board of Directors which
Committee is composed of "disinterested persons" under Rule 16b-3
under the 1934 Act. The revised Rule 16b-3 regulations have
replaced the concept of "disinterested persons" with the concept
of "non-employee directors." Thus, the Plan is being amended to
substitute "non-employee directors" for "disinterested persons."
In addition, to take advantage of the flexibility available under
the revised Rule 16b-3 regulations, the Plan is amended to permit
CINergy's Board of Directors, or such other entity as the Board
may determine, to administer the Plan with respect to awards not
intended to be covered under Section 162(m) of the Internal
Revenue Code of 1986, as amended, (i.e., performance based grants
to executives subject to the one million dollar cap on
deductibility).
(2) Section 1.27 as Amended
Section 1.27, as hereby amended, reads as follows:
"1.27 `Performance Period' means the period of time over which
performance with respect to a Corporate Target Goal or an
Individual Goal is measured. The Plan is designed so that
eventually each Performance Period under an Employer's Long-
Term Program shall consist of a four year period and each
Performance Period will eventually overlap each preceding
Performance Period by two years. However, the initial
Performance Period of each Employer's Long-Term Program
shall be a three year Performance Period and the second
Performance Period shall be a two year Performance Period.
Beginning with the third Performance Period, each
Performance Period of an Employer's Long-Term Program shall
be for a four year period with each new Performance Period
beginning on the first day of January and ending four years
later on the 31st day of December so that, beginning with
the fourth Performance Period, each Performance Period will
begin every two years allowing Performance Periods to
overlap by two years. Notwithstanding any provision of the
Plan to the contrary, (a) no Performance Period shall
commence subsequent to January 1, 1996, and (b) the fifth
Performance Period shall be a three year Performance Period,
and the sixth Performance Period shall be a one year
Performance Period. The term `Performance Period' includes
any performance period in effect under the `PSI Resources,
Inc. Performance Shares Plan,' as amended from time to time,
and the `PSI Energy, Inc. Performance Shares Plan,' as
amended from time to time, as of the Effective Time of the
Mergers."
(3) Article 9 as Amended
Article 9, as hereby amended, reads as follows:
"ARTICLE 9
DISTRIBUTION
After the determination and approval have been made under
Article 7 (Contingent Grant and Performance Award) as to the
number of Performance Shares which was in fact vested with
respect to a Participant at the end of an Employer's Performance
Period, the resulting Performance Award shall be paid in a
combination of whole shares of Common Stock and cash. All
payments made in Common Stock shall be made by the Employer
either in shares of Common Stock purchased on the open market or
in shares of Common Stock newly issued for the purpose of meeting
the requirements of the Employer's obligations under the Plan as
determined by the Employer's Board of Directors and with the
approval of CINergy's Committee.
Except as otherwise provided below, no Participant shall be
entitled to receive payment of the Performance Award in one lump
sum. Instead, the Performance Award shall be payable in two
equal installments with the first installment being paid to the
Participant on the first February 1 (or as soon thereafter as
administratively feasible) following the end of the Performance
Period for which the Performance Award was made and the second
installment of the Performance Award being paid on the second
February 1 (or as soon thereafter as administratively feasible)
following the end of the Performance Period for which the
Performance Award was made.
However, in the event the Plan is modified or terminated,
CINergy's Board of Directors may
direct that distribution of any Performance Awards under the Plan
be made in such manner and at such time or times as it deems
appropriate under the circumstances. In that regard, the
Performance Award payable to Participants at the end of the sixth
Performance Period shall be payable in one lump sum payment at
such time in 1999 as the Committee may determine.
The portion of each installment of the Performance Award
allocated to Common Stock shall be made in whole shares.
However, cash shall always be distributed in lieu of any
fractional interest in shares distributable under the Plan. The
portion of the Performance Award allocated to cash shall
approximate the amount needed to pay federal, state, and local
income taxes on each installment of the Performance Award. The
portion of the second installment of the Performance Award which
is payable in cash shall be augmented by the amount of dividends,
if any, which would have been payable on the portion of the
second installment of the Performance Award which is payable in
Common Stock if the Common Stock had, in fact, been distributed
to the Participant on the first February 1 following the end of
the Performance Period for which the Performance Award was made.
If the distribution of shares of Common Stock to a
Participant under the Plan constitutes a transfer of property
pursuant to Code Subsection 83(b), then each Participant will be
notified of his right to elect to have the shares of Common Stock
valued for tax purposes as of the date of distribution. If the
election provided under Code Subsection 83(b) is not made by a
Participant, the shares of Common Stock shall be valued for tax
purposes as of the date the restrictions, if any, under Rule
16b-3 under the 1934 Act lapse. If the fair market value of the
shares of Common Stock on that date is materially different from
the value of shares of Common Stock on the distribution date, an
adjustment to the federal, state, and local income taxes
previously withheld on the distribution date shall be made by the
Employer."
(4) Article 12 as Amended
Article 12, as hereby amended, reads as follows:
"ARTICLE 12
TRANSFERABILITY RESTRICTIONS
Except with the prior approval of and upon conditions
established by the Committee, no Performance Award under the Plan
shall be transferable otherwise than by will or by the laws of
descent and distribution."
(5) Article 15 as Amended
Article 15, as hereby amended, reads as follows:
"ARTICLE 15
ADMINISTRATION
(a) Unless otherwise determined by CINergy's Board of
Directors, the Plan shall be administered by CINergy's Committee
which shall consist of two or more members of CINergy's Board of
Directors who are non-employee directors under Rule 16b-3
promulgated under the 1934 Act and successor rules and, with
respect to Covered Employees, outside directors under Code
Subsection 162(m). CINergy's Committee is authorized to
establish all rules and regulations and to appoint any agents as
it deems appropriate for the Plan's proper administration and to
make any determinations under and to take any steps in connection
with the Plan for the benefits provided under the Plan as it
deems necessary or advisable.
(b) Unless otherwise determined by CINergy's Board of
Directors, CINergy's Committee shall have exclusive discretionary
authority and right to approve eligibility for participation in
the Plan and to interpret, construe, and regulate the Plan. The
decision of CINergy's Committee with respect to any questions
arising as to the Executive Employees selected to participate in
the Plan, the amount, form and time of payment of benefits under
the Plan or any other matters concerning the Plan, including its
interpretation, construction, or regulation shall be final,
conclusive, and binding on each Employer, each Employer's Board
of Directors, Participants, and Beneficiaries."
(6) Article 20 as Amended
Article 20, as hereby amended, reads as follows:
"ARTICLE 20
EXECUTIVE OFFICERS
Notwithstanding any provision of the Plan to the contrary,
this Article will govern the terms of the Performance Awards
granted to Executive Officers. This Article is designed to
comply with Code Subsection 162(m) to the extent applicable. All
provisions in this Article, and any other applicable provision of
the Plan shall be construed in a manner to so comply.
(a) With respect to Executive Officers, the Plan shall be
administered by a committee (the "Performance Shares Plan
Committee") consisting of two or more persons each of whom is an
"outside director" for purposes of Code Subsection 162(m) and a
"non-employee director" for purposes of Rule 16b-3 under the
Exchange Act. The Performance Shares Plan Committee and
CINergy's Committee may be the same committee provided that the
membership of CINergy's Committee satisfies the conditions set
forth in the preceding sentence.
(b) With respect to Participants who are Executive
Officers as of the beginning of a Performance Period, the
Performance Shares Plan Committee shall establish the Corporate
Target Goals for each Performance Period within the time
necessary to satisfy the requirements of Code Subsection 162(m).
Corporate Target Goals shall be based on objective performance
criteria pertaining to an Employer's performance, efficiency, or
profitability including, but without limitation, stock price,
market share, sales, earnings per share, costs, net operating
income, cash flow, fuel cost per million BTU, cost per kilowatt-
hour, retained earnings, or return on equity. Individual Goals
shall be based on objective or, with respect to separate awards
under the Plan, subjective performance criteria pertaining to an
Executive Officer's individual effort as to enhancement of either
individual performance or achievement or attainment of Corporate
Target Goals or other Individual Goals. Further, in the case of
Participants who are Covered Employees as of the end of the
Performance Period, unless otherwise determined by the
Performance Shares Plan Committee, or unless otherwise designated
as separate awards based on subjective performance criteria, such
payments shall be made only after achievement of the applicable
performance goals has been certified by the Performance Shares
Plan Committee. In no event shall payment during any calendar
year with respect to Performance Awards based on Corporate Target
Goals and objective Individual Goals granted with respect to a
Performance Period be made to a Participant who is a Covered
Employee as of a Performance Period in amounts that exceed 150
percent of the Participant's Annual Base Salary."
This Amendment is executed and approved by the duly
authorized officers of Cinergy Corp., effective as of November 1,
1996.
CINERGY CORP.
By: _________James E. Rogers______
Vice Chairman,
President, and
Chief Executive
Officer
Dated: October 25, 1996
APPROVED:
By: ______Jerome A. Vennemann____
Associate General Counsel and
Assistant Corporate Secretary
Dated: October 25, 1996
Adopted by the Cinergy Corp.
Board of Directors on October 22, 1996
NOVEMBER 1, 1996
AMENDMENT TO THE CINERGY CORP.
STOCK OPTION PLAN
(Effective November 1, 1996)
The Cinergy Corp. Stock Option Plan, as adopted on October
18, 1994, is hereby amended effective November 1, 1996, pursuant
to Article 13 thereof, with respect to the modification of
Articles 10 and 15, and Sections 5.1, 6.2, 9.2 and 18.8.
(1) Explanation of Amendments
Currently, Section 5.1, Committee as Administrator, of the
Plan provides that the Plan shall be administered by the
Compensation Committee of Cinergy's Board of Directors which
committee is composed of at least three "disinterested persons"
under Rule 16b-3 under the Securities Exchange Act of 1934 (the
"1934 Act"). The revised Rule 16b-3 regulations have replaced
the concept of at least three "disinterested persons" with the
concept of at least two "non-employee directors." Thus, the Plan
is being amended to substitute "non-employee directors" for
"disinterested persons", and to reduce by one, the minimum number
of required committee members.
Section 6.2, Designation by Committee, is amended to permit
either the Compensation Committee or Cinergy's Board of Directors
(and not solely the Committee as currently provided) to grant
options, cash awards, or stock appreciation rights.
Section 9.2, Payment, is amended to clarify and to provide
additional methods of payment of the purchase price in order to
exercise options under the Plan. Currently, the Plan allows
options to be exercised (i) with cash, (ii) with shares of
Cinergy common stock already owned by the optionee (a stock
exchange or stock swap), or a combination of such shares and
cash, or, (iii) except for officers or directors covered by
Section 16 of the 1934 Act, by delivering a properly executed
exercise notice together with irrevocable instructions to a
broker to deliver to Cinergy the total option price in cash and,
if desired, the amount of any taxes to be withheld from the
optionee's compensation as a result of withholding tax
obligations (a broker-financed transaction). The Section would
be modified to allow options to be purchased with (i) cash, (ii)
a stock exchange or stock swap using shares of Cinergy common
stock already owned by the optionee or owned jointly by the
optionee and his or her spouse (with the spouse's permission),
(iii) a broker-financed transaction (for any employee, officer or
director), (iv) by withholding from the shares of Cinergy common
stock issued on exercise, shares of common stock whose value
equals the purchase price, (v) any other legal consideration that
the Compensation Committee deems appropriate, or (vi) any
combination of these methods. Provisions of this Section made
obsolete by the new Rule 16b-3 regulations are deleted.
Article 10, Stock Appreciation Rights, is amended to delete
provisions made obsolete by the revised Rule 16b-3 regulations.
This involves the deletion of a window period for the exercise of
stock appreciation rights.
Article 15, Nontransferability of Option and Stock
Appreciation Right, is amended to provide that options or stock
appreciation rights are not transferable otherwise than by will
or the laws of descent and distribution except as otherwise
allowed by the Committee. This amendment is in response to the
revised Rule 16b-3 regulations.
Section 18.8, Withholding Taxes, is amended to permit,
without requiring Committee approval, optionees to use shares of
common stock otherwise received upon exercise of options and
stock appreciation rights for the payment of the employer's
withholding tax obligation upon the exercise of options and stock
appreciation rights and to delete the window period applicable
thereto. This amendment is in response to revised Rule 16b-3.
(2) Section 5.1 as Amended
Section 5.1, as hereby amended, reads as follows:
"5.1 Committee as Administrator.
The Plan shall be administered by the Committee which shall
be comprised of not fewer than two members of CINergy's Board of
Directors. Members of the Committee shall be members of
CINergy's Board of Directors who are non-employee directors under
Rule 16b-3 promulgated under the 1934 Act and successor rules
and, with respect to Covered Employees, outside directors under
Code Subsection 162(m). Subject to the Plan's terms, the
Committee shall determine the Eligible Employees to whom, and the
time or times at which, Options, Cash Awards (as defined in
Article 11 (Cash Awards)), and Stock Appreciation Rights will be
granted, the number of shares to be subject to each Option, the
amount of Cash Awards, the Option price of each Option, the
duration of each Option or Stock Appreciation Right, the time or
times within which the Option or Stock Appreciation Right may be
exercised, whether the Option, Cash Award or Stock Appreciation
Right shall be canceled (subject to the terms of the Plan),
whether an Option is an ISO or an NSO, and all other conditions
of the grant of the Option, Cash Award, or Stock Appreciation
Right. The provisions and conditions of the grants of Options,
Cash Awards, and Stock Appreciation Rights, which shall be set
forth in an agreement, need not be the same with respect to each
Optionee or with respect to each Option, Cash Award, or Stock
Appreciation Right."
(3) Section 6.2 as Amended
Section 6.2, as hereby amended, reads as follows:
"6.2 Designation by Committee.
From time to time, CINergy's Chief Executive Officer may
recommend to the Committee the granting of Options, Cash Awards,
or Stock Appreciation Rights to any Eligible Employee. After
reviewing the recommendations, and after considering the duties
of each recommended Eligible Employee, his present and potential
contribution to the success of his Employer, his other
compensation provided by his Employer and any other factors as it
deems relevant, the Committee or CINergy's Board of Directors
shall determine whether to grant Options, Cash Awards, or Stock
Appreciation Rights to the recommended Eligible Employee."
(4) Section 9.2 as Amended
Section 9.2, as hereby amended, reads as follows:
"9.2 Payment.
The Option price shall be paid in full at the time of
exercise. No share shall be issued or transferred until full
payment has been received therefor. Payment may be in (a) cash,
or, (b) nonforfeitable , unrestricted shares of Common Stock that
are already owned by the Optionee or jointly owned by the
Optionee and the Optionee's spouse (provided that the spouse's
written consent is first obtained) and have a value at the time
of exercise that is equal to the Option price, or (c) by
delivering a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to
CINergy the total Option price in cash and, if desired, the
amount of any taxes to be withheld from the Optionee's
compensation as a result of the Employer's withholding tax
obligation, as specified in the notice, or (d) by withholding
from the shares of Common Stock issued on exercise, shares of
Common Stock whose value equals the Option price, and, if
desired, the amount of any taxes to be withheld from the
Optionee's compensation as a result of the Employer's withholding
tax obligation, or (e) any other legal consideration that the
Committee may deem appropriate on such basis as the Committee may
determine in accordance with the Plan, or (f) any combination of
the foregoing. Cash payment for the shares purchased under an
NSO may be offset by the amount of any Cash Award approved by the
Committee. If payment is made by the delivery of shares of
Common Stock, the value of the shares delivered shall be computed
upon the basis of the average of the high and low sales prices at
which shares of Common Stock shall have been sold on the date the
Optionee exercises an Option, or on the preceding trading day if
that date was not a trading day as reported on the `NYSE -
Composite Transactions" as reported in The Wall Street Journal.'
"
(5) Article 10 as Amended
Article 10, as hereby amended, reads as follows:
"ARTICLE 10`
STOCK APPRECIATION RIGHTS
The Committee may, at any time and in its discretion, grant to
any Eligible Employee who is awarded or who holds any outstanding
Option or any other outstanding stock option granted by an Employer
the right to surrender the Option (in whole or in part to the extent
any Option is otherwise exercisable) and to receive from his Employer
a payment equal in value to the excess, if any, of the fair market
value of the Common Stock with respect to which the Option or other
stock option is surrendered on the date of surrender over the Option
price of the Option surrendered. Payment by the Employer of the
amount receivable upon any exercise of a Stock Appreciation Right may
be made by the delivery of Common Stock or cash or any combination of
Common Stock and cash. No fractional shares shall be issued. The
Committee may provide for the elimination of fractional shares of
Common Stock without adjustment or for the payment of the value of
fractional shares in cash. Shares of Common Stock delivered to the
Optionee upon exercise of a Stock Appreciation Right and the
surrender of the Option or stock option shall be valued at the fair
market value of a share of Common Stock on the date the right is
exercised and the Option or stock option is surrendered, which value
shall be the average of the high and low sales prices of a share of
Common Stock, as reported by the `NYSE - Composite Transactions'
published in The Wall Street Journal on the date the Option or the
stock option is surrendered or on the preceding trading day, if that
date is not a trading day. Notwithstanding any other provisions of
the Plan, the Committee shall have the sole discretion either (a) to
determine the form in which payment of the Stock Appreciation Right
will be made (i.e., cash, Common Stock, or any combination thereof),
or (b) to consent to or disapprove the election of the Optionee to
receive cash in full or partial settlement of the Stock Appreciation
Right. The consent or disapproval may be given at any time after the
election to which it relates. The Committee may limit the period or
periods during which the Stock Appreciation Rights may be exercised
and may provide any other terms and conditions (which need not be the
same with respect to each Optionee) under which a Stock Appreciation
Right may be granted and/or exercised. A Stock Appreciation Right
may be exercised only as long as the related Option is exercisable.
In no event may a Stock Appreciation Right be exercised more than ten
years after the date of the grant of the related Option or stock
option. To the extent a Stock Appreciation Right is exercised, the
related Option or stock option shall be deemed to have been
exercised."
(6) Article 15 as Amended
Article 15, as hereby amended, reads as follows:
"ARTICLE 15
NONTRANSFERABILITY OF OPTION AND
STOCK APPRECIATION RIGHT
Except with the prior approval of and upon conditions
established by the Committee, no Option or Stock Appreciation
Right granted pursuant to the Plan shall be transferable
otherwise than by will or by the laws of descent and
distribution. During the lifetime of an Optionee, the Option and
Stock Appreciation Rights shall be exercisable only by the
Optionee personally."
(7) Section 18.8 as Amended
Section 18.8, as hereby amended, reads as follows:
"18.8 Withholding Taxes.
Whenever shares of Common Stock are to be issued in satisfaction
of an Option exercised under the Plan or a Stock Appreciation Right
is exercised, the Employer shall have the power either to withhold
from an Optionee's other cash compensation or require the recipient
of the Common Stock to remit to his Employer an amount sufficient to
satisfy federal, state, and local tax withholding requirements or to
deduct from a cash payment pursuant to a Stock Appreciation Right an
amount sufficient to satisfy any tax withholding requirements.
Notwithstanding the foregoing, an Optionee may make a written
election to have shares of Common Stock having an aggregate fair
market value, as determined by the Committee, consistent with the
requirements of Treasury Regulation Section 20.2031-2, sufficient to
satisfy the applicable withholding taxes, withheld from the shares
otherwise to be received upon the exercise of an NSO or Stock
Appreciation Right. Elections by Optionees to have shares withheld
for this purpose must be made prior to the date as of which the
amount of tax withheld is determined (the `Tax Date'), and will be
irrevocable."
This Amendment is executed and approved by the duly
authorized officers of Cinergy Corp., effective as of November 1,
1996.
CINERGY CORP.
By: ________James E.
Rogers__________
James E.
Rogers
Vice Chairman,
President, and
Chief Executive
Officer
Dated: October 25, 1996
APPROVED:
By: _____Jerome A. Vennemann______
Jerome A. Vennemann
Associate General Counsel and
Assistant Corporate Secretary
Dated: October 25, 1996
Adopted by the Cinergy Corp.
Board of Directors on October 22, 1996
NOVEMBER 1, 1996
AMENDMENT TO THE CINERGY CORP.
DIRECTORS' DEFERRED COMPENSATION PLAN
(Effective November 1, 1996)
The Cinergy Corp. Directors' Deferred Compensation Plan, as
adopted on October 18, 1994, is hereby amended effective November
1, 1996, pursuant to Article 11 thereof, with respect to Article
13.
(1) Explanation of Amendment
Currently, Article 13, Administration, of the Plan
provides that the Plan shall be administered by the
Compensation Committee of Cinergy's board of directors
which committee is composed of "disinterested persons"
under Rule 16b-3 under the Securities Exchange Act of
1934. The revised Rule 16b-3 regulations have replaced
the concept of "disinterested persons" with the concept
of "non-employee directors" and, as revised, provide
additional flexibility as to Plan administration.
Thus, the Plan is being amended to substitute "non-
employee directors" for "disinterested persons" and to
enable Cinergy's board of directors to change the
entity authorized to administer the Plan.
(2) Article 13 as Amended
Article 13, as hereby amended, reads as follows:
"ARTICLE 13
ADMINISTRATION
Unless otherwise determined by CINergy's Board of Directors,
the Plan shall be administered by the Committee. Members of the
Committee shall be members of CINergy's Board of Directors who
are non-employee directors under Rule 16 b-3 promulgated under
the 1934 Act and successor rules. The Committee may employ
agents, attorneys, accountants, or other persons (who also may be
employees of an Employer) and allocate or delegate to them
powers, rights, and duties, all as the Committee may consider
necessary or advisable to properly carry out the administration
of the Plan. The Committee may adopt rules and regulations as it
deems appropriate to assist in administering and enforcing the
Plan.
The Committee shall have the discretionary authority to
regulate and interpret the Plan's provisions. Unless otherwise
determined by CINergy's Board of Directors, the interpretation
and construction by the Committee of any provisions of the Plan,
and any determination by the Committee pursuant to any provision
of the Plan shall be final and conclusive."
This Amendment is executed and approved by the duly
authorized officers of Cinergy Corp., effective as of November 1,
1996.
CINERGY CORP.
By: ________James E.
Rogers________
Vice Chairman,
President, and
Chief Executive
Officer
Dated: October 25, 1996
APPROVED:
By: ____Jerome A. Vennemann______
Associate General Counsel and
Assistant Corporate Secretary
Dated: October 25, 1996
Adopted by the Cinergy Corp.
Board of Directors on October 22, 1996
NOVEMBER 1, 1996
AMENDMENT TO THE CINERGY CORP.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
(Effective November 1, 1996)
The Cinergy Corp. Employee Stock Purchase and Savings Plan,
as adopted on October 18, 1994, and as amended effective as of
January 1, 1995, and January 1, 1996, is hereby further amended
effective November 1, 1996, pursuant to Article 11 thereof, with
respect to the modification of Articles 4 and 6, and Section
9.11.
(1) Explanation of Amendments
Currently, Article 4, Administration, of the Plan provides
that the Plan shall be administered by the Compensation
Committee of Cinergy's board of directors which committee is
composed of "disinterested persons" under Rule 16b-3 under
the Securities Exchange Act of 1934 (the "1934 Act"). The
revised Rule 16b-3 regulations have replaced the concept of
"disinterested persons" with the concept of "non-employee
directors" and, as revised, provide additional flexibility
as to Plan administration. Thus, the Plan is being amended
to substitute "non-employee directors" for "disinterested
persons" and to enable Cinergy's board of directors to
change the entity authorized to administer the Plan.
Article 6, Eligibility, is amended by deleting the
requirement that an employee must have been employed by his
employer for at least nine months immediately prior to the
first date of an offering period in order to participate in
the Plan.
Section 9.11, Restrictions on Transferability, is amended by
deleting the prohibition on transferability of shares
purchased under the plan as to those individuals who may be
subject to liability under Section 16(b) of the 1934 Act.
The revised Rule 16b regulations have deleted this
requirement.
(2) Article 4 as Amended
Article 4, as hereby amended, reads as follows:
"ARTICLE 4
ADMINISTRATION
The Plan shall be administered by the Committee. Unless
otherwise determined by CINergy's Board of Directors, members of
the Committee shall be members of CINergy's Board of Directors
who are non-employee directors under Rule 16 b-3 promulgated
under the 1934 Act and successor rules. The Committee may employ
agents, attorneys, accountants, or other persons (who also may be
Employees of an Employer) and allocate or delegate to them
powers, rights, and duties, all as the Committee may consider
necessary or advisable to properly carry out the administration
of the Plan. The Committee may adopt rules and regulations as it
deems appropriate to assist in administering and enforcing the
Plan.
The Committee shall have the discretionary authority to
regulate and interpret the Plan's provisions. Unless otherwise
determined by CINergy's Board of Directors, the interpretation
and construction by the Committee of any provisions of the Plan,
the terms and conditions of an offering and of Employee
participation, and any determination by the Committee pursuant to
any provisions of the Plan shall be final and conclusive.
No member of CINergy's Board of Directors or the Committee
shall be liable for any action or determination made in good
faith under the Plan."
(3) Article 6 as Amended
Article 6, as hereby amended, reads as follows:
"ARTICLE 6
ELIGIBILITY
All Employees of an Employer shall be eligible to
participate in an offering under the Plan except (a) any Employee
who normally works less than 20 hours a week; (b) any Employee
who normally works less than five months a year; (c) any full
officer of CINergy, CINergy Services, PSI,
CG&E, or any other participating Employer who is a highly
compensated employee within the meaning of Code Subsection 414
(q); and (d) any Employee who receives a grant of an option or a
stock appreciation right under the CINergy Stock Option Plan, any
successor plan, or any other stock option plan sponsored by
CINergy. Service with CG&E prior to the Effective Time of the
Mergers shall be applied in determining eligibility; provided,
however, that notwithstanding the preceding provisions of this
Article 6, unless otherwise determined by CINergy, no person who
was employed by CG&E or any of its subsidiaries immediately prior
to the Effective Time of the Mergers shall be eligible to
participate in the Plan prior to the end of the 90-day period
immediately following the Effective Time of the Mergers. As of
the commencement of his participation in the Plan, an Employee
who was employed by CG&E or any of its subsidiaries as of the
Effective Time of the Mergers shall be eligible to participate in
the remaining period of any offering under the Plan in effect as
of the Effective Time of the Mergers."
(4) Section 9.11 as Amended
Section 9.11, as hereby amended, reads as follows:
"SECTION 9.11
RESTRICTIONS ON TRANSFERABILITY
If, at the time of the purchase of shares under the Plan, in
the opinion of counsel for CINergy, it is necessary or desirable,
in order to comply with any applicable laws or regulations
relating to the sale of securities, that the Eligible Employee
purchasing the shares shall agree not to dispose of the shares
otherwise than in compliance with the Securities Act of 1935, as
amended, and interpretive rulings and regulations, the Employee
will, upon the request of CINergy, execute and deliver to CINergy
an agreement to that effect."
This Amendment is executed and approved by the duly
authorized officers of Cinergy Corp., effective as of November 1,
1996.
CINERGY CORP.
By: _________James E.
Rogers________
Vice Chairman,
President, and
Chief Executive
Officer
Dated: October 25, 1996
APPROVED:
By: ______Jerome A. Vennemann_____
Associate General Counsel and
Assistant Corporate Secretary
Dated: October 25, 1996
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<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<PERIOD-TYPE> 9-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,253,490
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 396,868
<TOTAL-DEFERRED-CHARGES> 1,201,529
<OTHER-ASSETS> 746,674
<TOTAL-ASSETS> 8,598,561
<COMMON> 1,577
<CAPITAL-SURPLUS-PAID-IN> 1,592,393
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,586,425
0
194,235
<LONG-TERM-DEBT-NET> 2,383,827
<SHORT-TERM-NOTES> 817,454
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<LONG-TERM-DEBT-CURRENT-PORT> 140,400
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<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,476,220
<TOT-CAPITALIZATION-AND-LIAB> 8,598,561
<GROSS-OPERATING-REVENUE> 2,366,533
<INCOME-TAX-EXPENSE> 172,459
<OTHER-OPERATING-EXPENSES> 1,761,843
<TOTAL-OPERATING-EXPENSES> 1,934,302
<OPERATING-INCOME-LOSS> 432,231
<OTHER-INCOME-NET> 9,861
<INCOME-BEFORE-INTEREST-EXPEN> 442,092
<TOTAL-INTEREST-EXPENSE> 157,940
<NET-INCOME> 284,152
19,941
<EARNINGS-AVAILABLE-FOR-COMM> 246,036
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<TOTAL-INTEREST-ON-BONDS> 143,678
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