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 June 30, 1998
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) 421-9500
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 421-9500
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) 421-9500
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 July 31, 1998, shares of Common Stock outstanding for each registrant were
as listed:
Company Shares
Cinergy Corp., par value $.01 per share 158,535,278 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 . . . . . . . . . . . . . . . . . . . 3
PART I. FINANCIAL INFORMATION
1 Financial Statements
Cinergy Corp.
Consolidated Balance Sheets . . . . . . . . . . . . . 6
Consolidated Statements of Income (Loss). . . . . . . 8
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . . 9
Consolidated Statements of Cash Flows . . . . . . . . 12
Results of Operations . . . . . . . . . . . . . . . . 13
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . . 24
Consolidated Statements of Income and Comprehensive
Income. . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Cash Flows . . . . . . . . 27
Results of Operations . . . . . . . . . . . . . . . . 28
PSI Energy, Inc.
Consolidated Balance Sheets . . . . . . . . . . . . . 34
Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss) . . . . . . . . . . . . 36
Consolidated Statements of Cash Flows . . . . . . . . 37
Results of Operations . . . . . . . . . . . . . . . . 38
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . . 43
Statements of Income (Loss) . . . . . . . . . . . . . 45
Statements of Cash Flows. . . . . . . . . . . . . . . 46
Results of Operations . . . . . . . . . . . . . . . . 47
Notes to Financial Statements . . . . . . . . . . . . . 50
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 57
3 Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . 62
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 63
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 63
Signatures. . . . . . . . . . . . . . . . . . . . . . . 65
<PAGE>
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
1997 Form Combined 1997 Annual Report on Form 10-K filed separately by
10-K Cinergy, CG&E, PSI, and ULH&P
Apache Apache Corporation
Avon Energy Avon Energy Partners Holdings, an Unlimited Liability
Company and its wholly-owned subsidiary Avon Energy
Partners PLC, a Limited Liability Company
Bcf Billion cubic feet
Beckjord CG&E's W. C. Beckjord Station (steam electric generating
plant)
CC&T Cinergy Capital and Trading, Inc. (a subsidiary of
Investments)
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act
CFC National Rural Utilities Cooperative Finance Corporation
CG&E The Cincinnati Gas & Electric Company (a subsidiary of
Cinergy)
Cinergy or Cinergy Corp.
Company
Cinergy Global Cinergy Global Power, Inc., formerly Cinergy Investments
Power MPI, Inc. (a subsidiary of Cinergy Global Resources, Inc.)
Cinergy Global Cinergy Global Resources, Inc. (a subsidiary of Cinergy),
Resources which holds Cinergy's foreign non-regulated business
Committed Lines Unsecured lines of credit
Conesville CG&E's Conesville Station (steam electric generating plant)
Enertech Enertech Associates, Inc., formerly Power International,
Inc. (a subsidiary of Cinergy Investments, Inc.)
EPA United States Environmental Protection Agency
EPS Earnings per share
Exxon Exxon Coal and Minerals Company
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
HB 443 Customer choice bill introduced by the House Chairman of the
Tourism, Development and Energy Committee in Kentucky
HJR 95 House Joint Resolution, which calls for an executive task
force to study electricity restructuring in Kentucky
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
HB 732 and Companion electric restructuring bills introduced into the
SB 237 Ohio legislature during 1998
IDEM Indiana Department of Environmental Management
IGC Indiana Gas Company, Inc., formerly Indiana Gas and Water
Company, Inc.
IRS Internal Revenue Service
IT Information Technology
Investments Cinergy Investments, Inc. (a subsidiary of Cinergy)
kwh Kilowatt-hour
Mcf Thousand cubic feet
MGP Manufactured gas plant
Midlands Midlands Electricity plc, a United Kingdom regional electric
company (a wholly-owned subsidiary of Avon Energy)
MW Megawatts
NIPSCO Northern Indiana Public Service Company
NOx Nitrogen Oxide
Oryx Oryx Energy Company
ProEnergy Producers Energy Marketing, LLC (a subsidiary of CC&T)
PSI PSI Energy, Inc. (a subsidiary of Cinergy)
PUCO Public Utilities Commission of Ohio
RUS Rural Utilities Service
SIP State Implementation Plan
Statement 130 Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income
Statement 133 Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities
Teplarna Teplarna Svit a.s. (a subsidiary of Cinergy Global Power)
ULH&P The Union Light, Heat and Power Company (a wholly-owned
subsidiary of CG&E)
Uncommitted Short-term borrowings with various banks arranged on an "as
Lines offered" basis
WVPA Wabash Valley Power Association, Inc.
Zimmer CG&E's William H. Zimmer Generating Station (steam electric
generating plant)
<PAGE>
CINERGY CORP.
AND SUBSIDIARY COMPANIES
<PAGE>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $9,048,447 $8,981,182
Gas 759,774 746,903
Common 186,236 186,078
---------- ----------
9,994,457 9,914,163
Accumulated depreciation 3,922,498 3,800,322
---------- ----------
6,071,959 6,113,841
Construction work in progress 219,154 183,262
---------- ----------
Total utility plant 6,291,113 6,297,103
Current Assets
Cash and temporary cash investments 86,934 53,310
Restricted deposits 1,507 2,319
Notes receivable 78 110
Accounts receivable less accumulated provision for
doubtful accounts of $14,520 at June 30, 1998,
and $10,382 at December 31, 1997 528,923 413,516
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 72,272 57,916
Gas stored for current use 29,282 29,174
Other materials and supplies 70,475 76,066
Prepayments and other 68,126 38,171
---------- ----------
857,597 670,582
Other Assets
Regulatory assets
Amounts due from customers - income taxes 398,237 374,456
Post-in-service carrying costs and deferred
operating expenses 174,557 178,504
Coal contract buyout costs 112,936 122,485
Deferred merger costs 87,684 90,346
Deferred demand-side management costs 91,793 109,596
Phase-in deferred return and depreciation 82,232 89,689
Unamortized costs of reacquiring debt 64,443 66,242
Other 44,241 45,533
Investments in unconsolidated subsidiaries 589,724 537,720
Other 385,746 275,897
---------- ----------
2,031,593 1,890,468
$9,180,303 $8,858,153
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
<PAGE>
CINERGY CORP.
CAPITALIZATION AND LIABILITIES
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Common Stock Equity
Common stock - $.01 par value; authorized shares - 600,000,000; outstanding
shares - 158,535,278 at June 30, 1998, and
157,744,658 at December 31, 1997 $ 1,585 $ 1,577
Paid-in capital 1,599,435 1,573,064
Retained earnings 905,556 967,420
Accumulated other comprehensive income (3,330) (2,861)
---------- ----------
Total common stock equity 2,503,246 2,539,200
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 92,688 177,989
Long-term Debt 2,192,975 2,150,902
---------- ----------
Total capitalization 4,788,909 4,868,091
Current Liabilities
Long-term debt due within one year 251,569 85,000
Notes payable and other short-term obligations 1,120,559 1,114,028
Accounts payable 655,241 488,716
Accrued taxes 187,197 187,033
Accrued interest 35,420 46,622
Other 88,405 79,193
---------- ----------
2,338,391 2,000,592
Other Liabilities
Deferred income taxes 1,209,293 1,248,543
Unamortized investment tax credits 161,464 166,262
Accrued pension and other postretirement
benefit costs 315,348 297,142
Other 366,898 277,523
---------- ----------
2,053,003 1,989,470
$9,180,303 $8,858,153
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended Year to Date Twelve Months Ended
June 30 June 30 June 30
1998 1997 1998 1997 1998 1997
(in thousands, except per share amounts)
Operating Revenues
Electric $1,021,922 $790,576 $2,180,646 $1,608,490 $4,433,854 $3,041,642
Gas 50,081 74,757 223,142 287,023 427,264 495,782
---------- -------- ---------- ---------- ---------- ----------
1,072,003 865,333 2,403,788 1,895,513 4,861,118 3,537,424
Operating Expenses
Fuel used in electric production 155,547 134,602 336,066 310,348 719,153 668,341
Gas purchased 21,668 35,826 118,279 159,794 224,643 275,730
Purchased and exchanged power 439,920 195,364 911,805 355,956 1,775,207 456,371
Other operation 237,130 158,488 400,158 321,900 716,203 625,574
Maintenance 55,613 51,201 94,679 97,055 174,095 199,157
Depreciation 73,790 72,171 147,095 143,727 292,445 285,698
Amortization of phase-in deferrals 5,540 3,370 11,079 6,741 17,821 13,540
Amortization of post-in-service
deferred operating expenses 1,090 1,090 2,181 2,181 4,362 2,379
Income taxes (10,897) 39,937 59,894 103,856 204,975 215,122
Taxes other than income taxes 68,157 67,841 137,806 136,213 266,617 261,482
---------- -------- ---------- ---------- ---------- ----------
1,047,558 759,890 2,219,042 1,637,771 4,395,521 3,003,394
Operating Income 24,445 105,443 184,746 257,742 465,597 534,030
Other Income and Expenses - Net
Allowance for equity funds used
during construction 111 180 132 371 (141) 748
Post-in-service carrying costs - - - - - 386
Phase-in deferred return 1,811 2,002 3,622 4,004 7,626 8,190
Equity in earnings of
unconsolidated subsidiaries 9,717 12,180 21,571 38,680 43,283 61,677
Income taxes 12,788 3,653 26,130 4,444 57,623 18,433
Other - net (12,684) (8,080) (31,715) (10,707) (52,510) (37,545)
---------- -------- ---------- ---------- ---------- ----------
11,743 9,935 19,740 36,792 55,881 51,889
Income Before Interest and Other
Charges 36,188 115,378 204,486 294,534 521,478 585,919
Interest and Other Charges
Interest on long-term debt 43,835 44,977 87,593 94,252 175,113 187,713
Other interest 18,845 13,430 36,839 27,297 69,489 50,274
Allowance for borrowed funds used
during construction (1,925) (1,754) (3,872) (3,096) (6,176) (6,499)
Preferred dividend requirements
of subsidiaries 1,366 3,236 3,788 6,475 9,882 16,209
---------- -------- ---------- ---------- ---------- ----------
62,121 59,889 124,348 124,928 248,308 247,697
Net Income (Loss) Before
Extraordinary Item $ (25,933) $ 55,489 $ 80,138 $ 169,606 $ 273,170 $ 338,222
Extraordinary Item - Equity Share of
Windfall Profits Tax (Less
Applicable Income Taxes of $0) - - - - (109,400) -
---------- -------- ---------- ---------- ---------- -------
Net Income (Loss) $ (25,933) $ 55,489 $ 80,138 $ 169,606 $ 163,770 $ 338,222
Average Common Shares Outstanding 158,018 157,679 157,892 157,679 157,790 157,679
Earnings Per Common Share
Net income (loss) before
extraordinary item $(.16) $.35 $.51 $1.07 $1.73 $2.02
Net income (loss) $(.16) $.35 $.51 $1.07 $1.04 $2.02
Earnings Per Common Share - Assuming Dilution (Note 13)
Net income (loss) before
extraordinary item $(.16) $.35 $.51 $1.06 $1.72 $2.01
Net income (loss) $(.16) $.35 $.51 $1.06 $1.03 $2.01
Dividends Declared Per Common Share $ .45 $.45 $.90 $ .90 $1.80 $1.78
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Income Income Equity
Quarter Ended June 30, 1998
Balance April 1, 1998 $1,578 $1,574,080 $1,002,495 $(3,279) $2,574,874
Comprehensive income
Net income (loss) (25,933) $(25,933) (25,933)
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (51) (51)
--------
Other comprehensive income
(loss) total (51) (51)
--------
Comprehensive income (loss) total $(25,984)
Issuance of 771,258 shares of
common stock - net 7 26,504 26,511
Treasury shares purchased (1) (3,502) (3,503)
Treasury shares reissued 1 2,329 2,330
Dividends on common stock (see
page 8 for per share amounts) (71,006) (71,006)
Other 24 24
------ ---------- ---------- ------- ----------
Balance June 30, 1998 $1,585 $1,599,435 $ 905,556 $(3,330) $2,503,246
Quarter Ended June 30, 1997
Balance at April 1, 1997 $1,577 $1,579,934 $1,036,643 $(2,419) $2,615,735
Comprehensive income
Net income 55,489 $ 55,489 55,489
Other comprehensive income,
net of tax
Foreign currency translation
adjustment 446 446
--------
Other comprehensive income
total 446 446
--------
Comprehensive income total $ 55,935
========
Treasury shares purchased (4) (13,778) (13,782)
Treasury shares reissued 4 4,325 4,329
Dividends on common stock (see
page 8 for per share amounts) (70,910) (70,910)
Other 52 (12) 40
------ ---------- ---------- ------- ----------
Balance June 30, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED)
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Income Income Equity
Six Months Ended June 30, 1998
Balance January 1, 1998 $1,577 $1,573,064 $ 967,420 $(2,861) $2,539,200
Comprehensive income
Net income 80,138 $ 80,138 80,138
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (418) (418)
Minimum pension liability
adjustment (51) (51)
--------
Other comprehensive income
(loss) total (469) (469)
--------
Comprehensive income total $ 79,669
========
Issuance of 790,620 shares of
common stock - net 8 26,793 26,801
Treasury shares purchased (2) (4,932) (4,934)
Treasury shares reissued 2 4,478 4,480
Dividends on common stock (see
page 8 for per share amounts) (142,000) (142,000)
Other 32 (2) 30
------ ---------- ---------- ------- ----------
Balance June 30, 1998 $1,585 $1,599,435 $ 905,556 $(3,330) $2,503,246
Six Months Ended June 30, 1997
Balance at January 1, 1997 $1,577 $1,590,735 $ 993,526 $(1,384) $2,584,454
Comprehensive income
Net income 169,606 $169,606 169,606
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (589) (589)
--------
Other comprehensive income
(loss) total (589) (589)
--------
Comprehensive income total $169,017
========
Treasury shares purchased (11) (45,725) (45,736)
Treasury shares reissued 11 25,459 25,470
Dividends on common stock (see
page 8 for per share amounts) (141,910) (141,910)
Other 64 (12) 52
------ ---------- ---------- ------- ----------
Balance June 30, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED)
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Income Income Equity
Twelve Months Ended June 30, 1998
Balance July 1, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347
Comprehensive income
Net income 163,770 $163,770 163,770
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (224) (224)
Minimum pension liability
adjustment (1,133) (1,133)
--------
Other comprehensive income
(loss) total (1,357) (1,357)
--------
Comprehensive income total $162,413
Issuance of 856,149 shares of
common stock - net 8 28,859 28,867
Treasury shares purchased (2) (5,406) (5,408)
Treasury shares reissued 2 5,748 5,750
Dividends on common stock (see
page 8 for per share amounts) (283,956) (283,956)
Other (299) 4,532 4,233
------ ---------- ---------- -------- ----------
Balance June 30, 1998 $1,585 $1,599,435 $ 905,556 $(3,330) $2,503,246
Twelve Months Ended June 30, 1997
Balance at July 1, 1996 $1,577 $1,594,920 $ 982,076 $(1,640) $2,576,933
Comprehensive income
Net income 338,222 $338,222 338,222
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (153) (153)
Minimum pension liability
adjustment (180) (180)
--------
Other comprehensive income
(loss) total (333) (333)
--------
Comprehensive income total $337,889
========
Treasury shares purchased (14) (54,070) (54,084)
Treasury shares reissued 14 29,647 29,661
Costs of reacquisition of
preferred stock of subsidiary (18,391) (18,391)
Dividends on common stock (see
page 8 for per share amounts) (280,668) (280,668)
Other 36 (29) 7
------ ---------- ----------- ------- ----------
Balance June 30, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<S> <C> <C> <C> <C>
Year to Date Twelve Months Ended
June 30 June 30
1998 1997 1998 1997
(in thousands)
Operating Activities
Net income $ 80,138 $ 169,606 $ 163,770 $ 338,222
Items providing (using) cash currently:
Depreciation 147,095 143,727 292,445 285,698
Reserves related to electric trading business 67,000 - 71,000 -
WVPA settlement 80,000 - 80,000 -
Deferred income taxes and investment tax
credits - net (61,871) 8,146 (2,379) 23,275
Equity in earnings of unconsolidated subsidiaries (21,571) (38,680) (18,130) (61,677)
Extraordinary item - equity share of windfall
profits tax - - 109,400 -
Allowance for equity funds used during
construction (132) (371) 141 (748)
Regulatory assets - net 36,171 38,881 68,600 57,144
Changes in current assets and current
liabilities
Restricted deposits 812 (224) 438 (270)
Accounts and notes receivable, net of
reserves on receivables sold (1,456) 25,529 (244,142) (37,429)
Materials, supplies, and fuel (4,667) 20,980 (3,830) 52,803
Accounts payable 40,353 7,025 216,624 54,493
Litigation settlement - - - (80,000)
Accrued taxes and interest (11,038) 9,548 (42,000) 20,008
Other items - net 23,850 (56,281) 108,306 (2,345)
--------- --------- --------- ---------
Net cash provided by operating
activities 374,684 327,886 800,243 653,864
Financing Activities
Issuance of common stock 290 - 2,356 -
Issuance of long-term debt 321,921 - 421,983 150,217
Retirement of preferred stock of subsidiaries (85,269) (114) (101,424) (197,487)
Redemption of long-term debt (220,409) (206,312) (350,409) (282,375)
Change in short-term debt 972 182,642 10,141 347,359
Dividends on common stock (141,599) (141,910) (283,555) (280,668)
--------- --------- --------- ---------
Net cash used in financing activities (124,094) (165,694) (300,908) (262,954)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (144,524) (144,372) (328,207) (341,600)
Acquisition of businesses (net of cash acquired) (46,141) - (46,141) -
Deferred demand-side management costs (4,703) (10,783) (13,787) (37,921)
Investments in unconsolidated subsidiaries (21,598) - (50,630) (46,351)
--------- --------- --------- ---------
Net cash used in investing activities (216,966) (155,155) (438,765) (425,872)
Net increase (decrease) in cash and
temporary cash investments 33,624 7,037 60,570 (34,962)
Cash and temporary cash investments at
beginning of period 53,310 19,327 26,364 61,326
--------- --------- --------- ---------
Cash and temporary cash investments at
end of period $ 86,934 $ 26,364 $ 86,934 $ 26,364
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
CINERGY CORP.
Below is information concerning the consolidated results of operations for
Cinergy for the quarter, six months, and twelve months ended June 30, 1998. For
information concerning the results of operations for each of the other
registrants for the quarter and six months ended June 30, 1998, see the
discussion under the heading "Results of Operations" following the financial
statements of each company.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1998
Kwh Sales
Kwh sales increased 25.5% for the quarter ended June 30, 1998, from the
comparable period of last year, primarily reflecting increased activity in
Cinergy's power marketing and trading operations which led to higher non-firm
power sales for resale. Also contributing to the higher kwh sales level was an
increase in residential and commercial sales due to the return to more normal
weather conditions for the quarter ended June 30, 1998, as compared to the same
period last year, and an increase in industrial sales primarily reflecting
growth in the chemicals, transportation equipment, and miscellaneous
manufacturers sectors.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the quarter ended June 30, 1998,
decreased when compared to the same period in 1997. The decline in Mcf sales was
partially offset by an increase in gas transportation volumes as customers
continued the trend of purchasing gas directly from suppliers, using
transportation services provided by Cinergy.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the quarter ended June 30, 1998, increased $231
million (29%), as compared to the same period last year, primarily as a result
of the increased kwh sales discussed above. Also contributing to the increase
was a higher average price received on non-firm power transactions.
An analysis of electric operating revenues is shown below:
Quarter
Ended June 30
(in millions)
Electric operating revenues - June 30, 1997 $ 791
Increase (Decrease) due to change in:
Price per kwh
Retail (3)
Sales for resale
Firm power obligations 2
Non-firm power transactions 89
Total change in price per kwh 88
Kwh sales
Retail 50
Sales for resale
Firm power obligations 10
Non-firm power transactions 80
Total change in kwh sales 140
Other 3
Electric operating revenues - June 30, 1998 $1,022
Gas Operating Revenues
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing CG&E facilities to transport the gas continues to put
downward pressure on gas operating revenues. Since providing transportation
services does not necessitate recovery of the cost of gas purchased, 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 decreased $25 million (33%) in the second quarter of
1998, when compared to the same period last year, primarily due to the decline
in volume sales discussed above and the aforementioned trend toward increased
transportation services.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $21 million (16%) for the quarter ended June 30,
1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $135 Increase (Decrease) due to change in:
Price of fuel (2)
Deferred fuel cost 7
Kwh generation 16
----
Fuel expense - June 30, 1998 $156
Gas Purchased
Gas purchased for the quarter ended June 30, 1998, decreased $14 million (40%),
when compared to the same period last year, primarily due to a decrease in the
volumes of gas purchased, due to lower demand.
Purchased and Exchanged Power
Purchased and exchanged power increased $245 million for the quarter ended June
30, 1998, 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 and trading operations and the
provision of $61 million of reserves for the electric trading business recorded
during the second quarter of 1998 (see Note 9 of the "Notes to Financial
Statements" in "Part I. Financial Information").
Other Operation
Other operation expenses for the quarter ended June 30, 1998, increased $79
million (50%), as compared to the same period of 1997. This increase is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information"). This increase also reflects a provision of $4 million
recorded in the second quarter of 1998 for potential bad debts related to
certain power marketing and trading accounts.
Maintenance
For the quarter ended June 30, 1998, maintenance expenses increased $4 million
(9%), when compared to the quarter ended June 30, 1997. This increase is
primarily due to forced outages at Conesville and Beckjord and an increase in
overhead line maintenance costs resulting from storm damage during the second
quarter of 1998.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiaries
The $2 million (20%) decrease in equity in earnings of unconsolidated
subsidiaries for the quarter ended June 30, 1998, as compared to the same period
of 1997, is primarily attributable to the decrease in earnings of Midlands.
Other - net
The change in other - net of $5 million for the quarter ended June 30, 1998,
from the same period of 1997, is primarily due to an increase in expenses
related to Cinergy Global Power, which was formed in September 1997, a higher
level of expenses associated with PSI's sales of accounts receivable during the
second quarter of 1998, and expenses related to the acquisitions and start-up
costs of other non-regulated entities.
Interest and Other Charges
Other Interest
Other interest increased $5 million (40%) for the second quarter of 1998, as
compared to the same period last year, partially due to increased interest on
the currency swap, interest expense recognized on a settlement agreement between
PSI and WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information"), and increased short-term borrowings.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $2 million
(58%) for the quarter ended June 30, 1998, from the same period of 1997, is
primarily attributable to PSI's redemption of all outstanding shares of its
7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred
Stock on September 1, 1997, and March 1, 1998, respectively.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
Kwh Sales
Kwh sales increased 47.3% for the six months ended June 30, 1998, from the
comparable period of last year, primarily reflecting increased activity in
Cinergy's power marketing and trading operations which led to higher non-firm
power sales for resale. Also contributing to the higher kwh sales levels was an
increase in industrial sales primarily reflecting growth in the transportation
equipment and miscellaneous manufacturers sectors, and increases in the average
number of residential and commercial customers.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the six months ended June 30, 1998,
decreased when compared to the same period in 1997. Decreased Mcf sales reflect,
in part, milder weather during the first quarter of 1998, as compared to the
same period of 1997, and were partially offset by an increase in the average
number of residential and commercial customers. Industrial sales declined and
gas transportation volumes increased as customers continued the trend of
purchasing gas directly from suppliers, using transportation services provided
by CG&E.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the six months ended June 30, 1998, increased
$572 million (36%), as compared to the same period last year, primarily as a
result of the increased kwh sales previously discussed. Also contributing to the
increase was a higher average price received on non-firm power transactions.
An analysis of electric operating revenues is shown below:
Six Months
Ended June 30
(in millions)
Electric operating revenues - June 30, 1997 $1,609
Increase due to change in:
Price per kwh
Retail 13
Sales for resale
Non-firm power transactions 105
Total change in price per kwh 118
Kwh sales
Retail 58
Sales for resale
Firm power obligations 10
Non-firm power transactions 380
Total change in kwh sales 448
Other revenues 6
Electric operating revenues - June 30, 1998 $2,181
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the heading "Gas Operating Revenues" for Cinergy in "Results of Operations for
the Quarter Ended June 30, 1998."
Gas operating revenues decreased $64 million (22%) for the six months ended June
30, 1998, when compared to the same period last year. This decrease is primarily
due to the previously discussed changes in Mcf sales and transportation volumes.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $26 million (8%) for the first six months of 1998,
as compared to the same period last year.
An analysis of these fuel costs is shown below:
Six Months
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $310 Increase (Decrease) due to change in:
Price of fuel (8)
Deferred fuel cost 17
Kwh generation 17
----
Fuel expense - June 30, 1998 $336
Gas Purchased
Gas purchased for the six months ended June 30, 1998, decreased $42 million
(26%) when compared to the same period last year, reflecting a decrease in the
volume of gas purchased, due to lower demand, and a lower average cost per Mcf
purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $556 million for the six months ended
June 30, 1998, 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 and trading operations and the
provision of $63 million of reserves for the electric trading business recorded
during 1998 (see Note 9 of the "Notes to Financial Statements" in "Part I.
Financial Information").
Other Operation
Other operation expenses for the first six months of 1998 increased by $78
million (24%), as compared to the same period of 1997. This increase is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information"). This increase also reflects a provision of $4 million
for potential bad debts related to certain power marketing and trading accounts
recorded during the six months ended June 30, 1998.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiaries
The $17 million (44%) decrease in equity in earnings of unconsolidated
subsidiaries for the six months ended June 30, 1998, as compared to the same
period of 1997, is primarily attributable to the decrease in earnings of
Midlands, which is due to milder weather conditions during the first quarter of
1998, and a penalty imposed on each electric distribution company due to the
delay in opening the electricity supply business to competition.
Other - net
The change in other - net of $21 million for the six months ended June 30, 1998,
from the same period of 1997, is primarily due to a litigation settlement (see
Note 10 of the "Notes to Financial Statements" in "Part I. Financial
Information"), an increase in expenses related to Cinergy Global Power, which
was formed in September 1997, and expenses related to the acquisitions and
start-up costs of other non-regulated entities.
Interest and Other Charges
Interest on Long-term Debt
Interest on long-term debt decreased $7 million (7%) for the six months ended
June 30, 1998, as compared to the same period last year, primarily due to the
net redemption of approximately $190 million of long-term debt by CG&E and ULH&P
during the period from March 1997 through June 1998.
Other Interest
Other interest increased $10 million (35%) for the first half of 1998, as
compared to the same period last year, primarily due to increased interest
expense on the currency swap, which was initiated in mid-February 1997, interest
expense recognized on a settlement agreement between PSI and WVPA (see Note 14
of the "Notes to Financial Statements" in "Part I. Financial Information"), and
increased short-term borrowings.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $3 million
(41%) for the six months ended June 30, 1998, from the same period of 1997, is
primarily attributable to PSI's redemption of all outstanding shares of its
7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred
Stock on September 1, 1997, and March 1, 1998, respectively.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 1998
Kwh Sales
Kwh sales increased 71.5% for the twelve months ended June 30, 1998, from the
comparable period of last year, primarily reflecting increased activity in
Cinergy's power marketing and trading operations which led to higher non-firm
power sales for resale. Also contributing to the higher kwh sales levels was an
increase in residential and commercial sales due to an increase in the average
number of residential and commercial customers, and an increase in industrial
sales primarily reflecting growth in the miscellaneous manufacturers and primary
metals sectors.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the twelve months ended June 30,
1998, decreased when compared to the same period in 1997. Decreased Mcf sales
reflect, in part, milder weather during the period, as compared to the same
period a year ago and were partially offset by an increase in the average number
of residential and commercial customers. Industrial sales declined and gas
transportation volumes increased as customers continued the trend of purchasing
gas directly from suppliers, using transportation services provided by CG&E.
Operating Revenues
Electric Operating Revenues
Compared to the same period last year, electric operating revenues for the
twelve months ended June 30, 1998, increased $1.4 billion (46%), reflecting the
increased kwh sales discussed above.
An analysis of electric operating revenues is shown below:
Twelve Months
Ended June 30
(in millions)
Electric operating revenues - June 30, 1997 $3,042
Increase (Decrease) due to change in:
Price per kwh
Retail 14
Sales for resale
Firm power obligations (2)
Non-firm power transactions 231
Total change in price per kwh 243
Kwh sales
Retail 91
Sales for resale
Firm power obligations 22
Non-firm power transactions 1,026
Total change in kwh sales 1,139
Other 10
Electric operating revenues - June 30, 1998 $4,434
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the caption "Gas Operating Revenues" for Cinergy in "Results of Operations for
the Quarter Ended June 30, 1998."
Gas operating revenues decreased $69 million (14%) for the twelve months ended
June 30, 1998, when compared to the same period last year. This decrease was
largely the result of the previously discussed changes in Mcf sales and
transportation volumes.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $51 million (8%) for the twelve months ended June
30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Twelve Months
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $668
Increase due to change in:
Price of fuel 4
Kwh generation 47
Fuel expense - June 30, 1998 $719
Gas Purchased
Gas purchased for the twelve months ended June 30, 1998, decreased $51 million
(19%) when compared to the same period last year, reflecting a lower volume of
gas purchased, due to lower demand, and a decrease in the average cost per Mcf
purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $1.3 billion for the twelve months ended
June 30, 1998, 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 and trading operations
and the provision of $67 million of reserves for the electric trading business
recorded during the period (see Note 9 of the "Notes to Financial Statements" in
"Part I. Financial Information").
Other Operation
Other operation expenses increased $91 million (14%) for the twelve months ended
June 30, 1998, as compared to the same period last year, primarily due to the
one-time charge of $80 million recorded during the second quarter of 1998,
reflecting the implementation of a 1989 settlement of a dispute with the WVPA
(see Note 14 of the "Notes to Financial Statements" in "Part I. Financial
Information"). This increase also reflects a provision of $4 million recorded in
the second quarter of 1998 for potential bad debts related to certain power
marketing and trading accounts.
Maintenance
Maintenance expenses decreased $25 million (13%) for the twelve months ended
June 30, 1998, as compared to the twelve months ended June 30, 1997, primarily
due to decreased outage-related expenses at PSI's and CG&E's production
facilities.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Amortization of Post-in-service Deferred Operating Expenses
Amortization of post-in-service deferred operating expenses reflects the
amortization and related recovery in rates of various deferrals of depreciation,
operation and maintenance expenses (exclusive of fuel costs), and property taxes
on certain generating units and other utility plant from the in-service date
until the related plant was reflected in retail rates.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiaries
The $18 million (30%) decrease in equity in earnings of unconsolidated
subsidiaries for the twelve months ended June 30, 1998, as compared to the same
period of 1997, is partially attributable to the decrease in earnings of
Midlands, which is due to milder weather conditions and a penalty imposed on
each electric distribution company due to the delay in opening the electricity
supply business to competition. The decrease also reflects losses recognized on
several non-utility subsidiaries.
Other - net
The change in other - net of $15 million for the twelve months ended June 30,
1998, from the same period of 1997, is primarily due to a litigation settlement
(see Note 10 of the "Notes to Financial Statements" in "Part I. Financial
Information"). Additionally, the change also reflects a gain in 1996 related to
the sale of certain CG&E assets.
Interest and Other Charges
Interest on Long-term Debt
Interest on long-term debt decreased $13 million (7%) for the twelve months
ended June 30, 1998, as compared to the same period last year, primarily due to
the net redemption of approximately $190 million of long-term debt by CG&E and
ULH&P during the period from March 1997 through June 1998.
Other Interest
Other interest increased $19 million (38%) for the twelve months ended June 30,
1998, as compared to the same period last year, partially due to increased
interest expense on the currency swap, which was initiated in mid-February 1997,
interest expense recognized on a settlement agreement between PSI and WVPA (see
Note 14 of the "Notes to Financial Statements" in "Part I. Financial
Information"), and increased short-term borrowings.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $6 million
(39%) for the twelve months ended June 30, 1998, from the same period of 1997,
is primarily attributable to the September 1996 reacquisition and retirement of
approximately 90 percent of the outstanding preferred stock of CG&E.
Additionally, PSI redeemed all outstanding shares of its 7.15% Series Cumulative
Preferred Stock and 7.44% Series Cumulative Preferred Stock on September 1,
1997, and March 1, 1998, respectively.
<PAGE>
THE CINCINNATI GAS &
ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $4,729,327 $4,700,631
Gas 759,774 746,903
Common 186,236 186,078
---------- ----------
5,675,337 5,633,612
Accumulated depreciation 2,082,014 2,008,005
---------- ----------
3,593,323 3,625,607
Construction work in progress 143,734 118,133
---------- ----------
Total utility plant 3,737,057 3,743,740
Current Assets
Cash and temporary cash investments 12,673 2,349
Restricted deposits 1,173 1,173
Notes receivable from affiliated companies 73,442 27,193
Accounts receivable less accumulated
provision for doubtful accounts of $11,799
at June 30, 1998, and $9,199 at
December 31, 1997 173,035 193,549
Accounts receivable from affiliated
companies 32,216 35,507
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 26,867 29,682
Gas stored for current use 25,734 29,174
Other materials and supplies 40,193 49,111
Prepayments and other 52,130 31,827
---------- ----------
437,463 399,565
Other Assets
Regulatory assets
Amounts due from customers - income taxes 372,567 350,515
Post-in-service carrying costs and
deferred operating expenses 131,261 134,672
Deferred merger costs 16,090 16,557
Deferred demand-side management costs 37,573 38,318
Phase-in deferred return and depreciation 82,233 89,689
Unamortized costs of reacquiring debt 36,051 36,575
Other 4,575 1,439
Other 90,118 103,368
---------- ----------
770,468 771,133
$4,944,988 $4,914,438
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
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Common Stock Equity
Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding
shares - 89,663,086 at June 30, 1998, and
December 31, 1997 $ 762,136 $ 762,136
Paid-in capital 534,668 534,649
Retained earnings 312,799 314,553
Accumulated other comprehensive income (904) (750)
---------- ----------
Total common stock equity 1,608,699 1,610,588
Cumulative Preferred Stock
Not subject to mandatory redemption 20,735 20,793
Long-term Debt 1,219,487 1,324,432
---------- ----------
Total capitalization 2,848,921 2,955,813
Current Liabilities
Long-term debt due within one year 110,000 -
Notes payable and other short-term
obligations 214,000 289,000
Notes payable to affiliated companies 11,362 12,253
Accounts payable 267,277 249,538
Accounts payable to affiliated companies 13,339 10,821
Accrued taxes 167,240 149,129
Accrued interest 18,094 25,430
Other 28,009 29,950
---------- ----------
829,321 766,121
Other Liabilities
Deferred income taxes 815,233 794,396
Unamortized investment tax credits 113,898 116,966
Accrued pension and other postretirement
benefit costs 156,796 180,566
Other 180,819 100,576
---------- ----------
1,266,746 1,192,504
$4,944,988 $4,914,438
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended Year to Date
June 30 June 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
Electric
Non-affiliated companies $521,198 $404,117 $1,096,039 $ 799,742
Affiliated companies 18,444 7,785 36,908 13,860
Gas
Non-affiliated companies 50,082 74,757 223,142 287,023
Affiliated companies 388 1 790 2
-------- -------- ---------- ----------
590,112 486,660 1,356,879 1,100,627
Operating Expenses
Fuel used in electric production 77,642 60,358 165,705 130,597
Gas purchased 21,657 35,826 118,245 159,794
Purchased and exchanged power
Non-affiliated companies 230,665 93,909 460,159 164,771
Affiliated companies 10,133 3,065 17,747 4,637
Other operation 77,266 79,897 158,913 159,172
Maintenance 27,901 23,957 47,659 51,293
Depreciation 41,588 40,878 82,886 81,282
Amortization of phase-in deferrals 5,540 3,370 11,079 6,741
Amortization of post-in-service
deferred operating expenses 822 822 1,645 1,645
Income taxes 8,806 27,037 53,419 70,837
Taxes other than income taxes 53,712 52,507 108,395 106,021
-------- -------- ---------- ----------
555,732 421,626 1,225,852 936,790
Operating Income 34,380 65,034 131,027 163,837
Other Income and Expenses - Net
Allowance for equity funds used
during construction 97 87 107 206
Phase-in deferred return 1,811 2,002 3,622 4,004
Income taxes 3,844 3,730 7,672 6,736
Other - net (2,273) (4,261) (6,588) (9,036)
-------- -------- ---------- ----------
3,479 1,558 4,813 1,910
Income Before Interest 37,859 66,592 135,840 165,747
Interest
Interest on long-term debt 24,415 27,831 50,467 57,876
Other interest 2,269 2,562 4,370 4,258
Allowance for borrowed funds
used during construction (1,511) (1,231) (2,875) (2,140)
-------- -------- ---------- ----------
25,173 29,162 51,962 59,994
Net Income $ 12,686 $ 37,430 $ 83,878 $ 105,753
Preferred Dividend Requirement 215 217 430 436
-------- -------- ---------- ----------
Net Income Applicable to Common
Stock $ 12,471 $ 37,213 $ 83,448 $ 105,317
Other Comprehensive Income, Net
of Tax - - (155) -
-------- -------- ---------- -------
Comprehensive Income $ 12,471 $ 37,213 $ 83,293 $ 105,317
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
June 30
1998 1997
(in thousands)
Operating Activities
Net income $ 83,878 $ 105,753
Items providing (using) cash currently:
Depreciation 82,886 81,282
Reserves related to electric trading
business 59,000 -
Deferred income taxes and investment tax
credits - net (14,433) 15,055
Allowance for equity funds used during
construction (107) (206)
Regulatory assets - net 15,541 15,011
Changes in current assets and current
liabilities
Restricted deposits - (2)
Accounts and notes receivable, net of
reserves on receivables sold (22,325) 45,703
Materials, supplies, and fuel 15,173 10,429
Accounts payable 20,257 (4,353)
Accrued taxes and interest 10,775 (2,802)
Other items - net (4,146) (29,645)
--------- ---------
Net cash provided by operating
activities 246,499 236,225
Financing Activities
Retirement of preferred stock (39) (113)
Issuance of long-term debt 223,020 -
Redemption of long-term debt (220,409) (160,612)
Change in short-term debt (75,891) 87,398
Dividends on preferred stock (430) (438)
Dividends on common stock (85,200) (85,200)
--------- ---------
Net cash used in financing
activities (158,949) (158,965)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (75,571) (67,963)
Deferred demand-side management costs (1,655) (4,708)
Net cash used in investing
activities (77,226) (72,671)
Net increase in cash and temporary cash
investments 10,324 4,589
Cash and temporary cash investments at
beginning of period 2,349 5,120
--------- ---------
Cash and temporary cash investments at
end of period $ 12,673 $ 9,709
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
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1998
Kwh Sales
Kwh sales for the quarter ended June 30, 1998, increased 25.2%, as compared to
the second quarter of 1997, primarily due to higher non-firm power sales for
resale resulting from increased activity in Cinergy's power marketing and
trading operations, increased residential and commercial sales due to a return
to more normal weather in the second quarter of 1998, as compared to the
relatively mild weather during the second quarter of 1997, and an increase in
the average number of residential and commercial customers, and an increase in
industrial sales primarily reflecting growth in the chemicals and the
miscellaneous manufacturers sectors. Nonsystem kwh sales (and related revenues
and expenses) resulting from Cinergy's power marketing and trading operations
are allocated 50%/50% between CG&E and PSI pursuant to the operating agreements
filed with the companies' regulators.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the quarter ended June 30, 1998,
decreased when compared to the same period in 1997. The decline in Mcf sales was
partially offset by an increase in gas transportation volumes as customers
continued the trend of purchasing gas directly from suppliers, using
transportation services provided by CG&E.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $128 million (31%) for the quarter ended
June 30, 1998, from the comparable period of 1997. This increase is primarily a
result of the increased kwh sales previously discussed, higher average price
received on non-firm power transactions, and the operation of fuel adjustment
clauses reflecting a higher average cost per kwh.
An analysis of electric operating revenues is shown below:
Quarter
Ended June 30
(in millions)
Electric operating revenues - June 30, 1997 $412
Increase due to change in:
Price per kwh
Retail 11
Sales for resale
Non-firm power transactions 49
Total change in price per kwh 60
Kwh sales
Retail 25
Sales for resale
Firm power 1
Non-firm power transactions 41
Total change in kwh sales 67
Other 1
Electric operating revenues - June 30, 1998 $540
Gas Operating Revenues
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing CG&E facilities to transport the gas continues to put
downward pressure on gas operating revenues. Since providing transportation
services does not necessitate recovery of the cost of gas purchased, 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 decreased $24 million (32%) in the second quarter of
1998, when compared to the same period last year, primarily due to the decline
in volume sales discussed above and the aforementioned trend toward increased
transportation services.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $17 million (29%) for the quarter ended June 30,
1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $60
Increase due to change in:
Deferred fuel cost 14
Kwh generation 3
Fuel expense - June 30, 1998 $77
Gas Purchased
Gas purchased for the quarter ended June 30, 1998, decreased $14 million (40%),
when compared to the same period last year, primarily due to a decrease in the
volumes of gas purchased, due to lower demand.
Purchased and Exchanged Power
Purchased and exchanged power for the quarter ended June 30, 1998, increased
$144 million over the comparable period of 1997, primarily reflecting increased
purchases of non-firm power for resale to others as a result of increased
activity in Cinergy's power marketing and trading operations and the provision
of additional reserves of $56 million for the electric trading business recorded
during the second quarter of 1998 (see Note 9 of the "Notes to Financial
Statements" in "Part I. Financial Information").
Maintenance
The $4 million (16%) increase in maintenance expenses for the quarter ended June
30, 1998, as compared to the same period of 1997, is primarily due to forced
outages at Conesville and Beckjord and an increase in overhead line maintenance
costs resulting from storm damage during the second quarter of 1998.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for
Zimmer.
Interest
Interest on Long-term Debt
Interest on long-term debt decreased $3 million (12%) for the quarter ended June
30, 1998, as compared to the same period of 1997, primarily due to the net
redemption of approximately $174 million of long-term debt during the period
from April 1997 through June 1998.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
Kwh Sales
Kwh sales for the six months ended June 30, 1998, increased 50.4%, as compared
to the six months ended June 30, 1997, primarily due to higher non-firm power
sales for resale resulting from increased activity in Cinergy's power marketing
and trading operations, increased residential and commercial sales due to an
increase in the average number of residential and commercial customers, and
increased industrial sales primarily reflecting growth in the chemicals,
miscellaneous manufacturers and primary metals sectors. Nonsystem kwh sales (and
related revenues and expenses) resulting from Cinergy's power marketing and
trading operations are allocated 50%/50% between CG&E and PSI pursuant to the
operating agreements filed with the companies' regulators.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the six months ended June 30, 1998,
decreased when compared to the same period in 1997. Decreased Mcf sales reflect,
in part, milder weather during the first quarter of 1998, as compared to the
same period of 1997, and were partially offset by an increase in the average
number of residential and commercial customers. Industrial sales declined and
gas transportation volumes increased as customers continued the trend of
purchasing gas directly from suppliers, using transportation services provided
by CG&E.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $319 million (39%) for the six months
ended June 30, 1998, from the comparable period of 1997. This increase is
primarily a result of the increased kwh sales previously discussed, a higher
average price received on non-firm power transactions, and the operation of fuel
adjustment clauses reflecting a higher average cost per kwh.
An analysis of electric operating revenues is shown below:
Six Months
Ended June 30
(in millions)
Electric operating revenues - June 30, 1997 $ 814
Increase (Decrease) due to change in:
Price per kwh
Retail 32
Sales for resale
Firm power (1)
Non-firm power transactions 71
Total change in price per kwh 102
Kwh sales
Retail 23
Sales for resale
Non-firm power transactions 192
Total change in kwh sales 215
Other 2
Electric operating revenues - June 30, 1998 $1,133
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the caption "Gas Operating Revenues" for CG&E in "Results of Operations for the
Quarter Ended June 30, 1998."
Gas operating revenues decreased $63 million (22%) for the six months ended June
30, 1998, when compared to the same period last year. This decrease is primarily
due to the previously discussed changes in Mcf sales and transportation volumes.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $35 million (27%) for the six months ended June
30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Six Months
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $131 Increase (Decrease) due to change in:
Price of fuel (1)
Deferred fuel cost 35
Kwh generation 1
---
Fuel expense - June 30, 1998 $166
Gas Purchased
Gas purchased for the six months ended June 30, 1998, decreased $42 million
(26%) when compared to the same period last year, reflecting a decrease in the
volumes of gas purchased, due to lower demand, and a lower average cost per Mcf
purchased.
Purchased and Exchanged Power
Purchased and exchanged power for the six months ended June 30, 1998, increased
$308 million over the comparable period of 1997, primarily reflecting increased
purchases of non-firm power for resale to others as a result of increased
activity in Cinergy's power marketing and trading operations and the provision
of reserves of $57 million for the electric trading business recorded in 1998
(see Note 9 of the "Notes to Financial Statements" in "Part I. Financial
Information").
Maintenance
The $4 million (7%) decrease in maintenance expenses for the six months ended
June 30, 1998, as compared to the same period of 1997, is primarily due to
decreased outage-related expenses. These decreases were offset in part by
overhead line maintenance costs resulting from storm damage during the second
quarter of 1998.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for
Zimmer.
Other Income and Expenses - Net
Other - net
The change in other - net of $2 million for the six months ended June 30, 1998,
as compared to the same period of 1997, is due, in part, to a higher level of
expenses in the prior year associated with CG&E's and ULH&P's sales of accounts
receivable, an increase in interest revenue related to an increase in the
balance of short-term loans to affiliated companies through Cinergy's money pool
arrangement, and an adjustment recorded in the prior year related to the sale of
certain assets.
Interest
Interest on Long-term Debt
Interest on long-term debt decreased $7 million (13%) for the six months ended
June 30, 1998, as compared to the same period of 1997, primarily due to the net
redemption of $190 million of long-term debt during the period from March 1997
through June 1998.
<PAGE>
PSI ENERGY, INC.
AND SUBSIDIARY COMPANY
<PAGE>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Electric Utility Plant - Original Cost
In service $4,319,120 $4,280,551
Accumulated depreciation 1,840,484 1,792,317
---------- ----------
2,478,636 2,488,234
Construction work in progress 75,420 65,129
---------- ----------
Total electric utility plant 2,554,056 2,553,363
Current Assets
Cash and temporary cash investments 36,744 18,169
Restricted deposits 334 1,146
Notes receivable 84 110
Notes receivable from affiliated companies 11,367 21,998
Accounts receivable less accumulated
provision for doubtful accounts of $2,676
at June 30, 1998, and $1,183 at
December 31, 1997 227,227 197,898
Accounts receivable from affiliated companies 621 4,516
Materials, supplies, and fuel - at average cost
Fuel 45,405 28,234
Other materials and supplies 29,161 26,955
Prepayments and other 11,619 4,405
---------- ----------
362,562 303,431
Other Assets
Regulatory assets
Amounts due from customers - income taxes 25,670 23,941
Post-in-service carrying costs and
deferred operating expenses 43,296 43,832
Coal contract buyout costs 112,936 122,485
Deferred merger costs 71,594 73,789
Deferred demand-side management costs 54,220 71,278
Unamortized costs of reacquiring debt 28,391 29,667
Other 39,666 44,094
Other 114,753 127,945
---------- ----------
490,526 537,031
$3,407,144 $3,393,825
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Common Stock Equity
Common stock - without par value; $0.01 stated value; authorized shares -
60,000,000; outstanding shares - 53,913,701
at June 30, 1998, and December 31, 1997 $ 539 $ 539
Paid-in capital 400,904 390,188
Retained earnings 577,438 636,519
Accumulated other comprehensive income (642) (1,586)
---------- ----------
Total common stock equity 978,239 1,025,660
Cumulative Preferred Stock
Not subject to mandatory redemption 71,953 157,196
Long-term Debt 950,425 826,470
---------- ----------
Total capitalization 2,000,617 2,009,326
Current Liabilities
Long-term debt due within one year 141,569 85,000
Notes payable and other short-term obligations 106,500 190,600
Notes payable to affiliated companies 88,919 16,435
Accounts payable 265,035 212,833
Accounts payable to affiliated companies 40,254 40,714
Accrued taxes 48,350 69,310
Accrued interest 18,026 21,369
Other 2,473 2,560
---------- ----------
711,126 638,821
Other Liabilities
Deferred income taxes 381,598 403,535
Unamortized investment tax credits 47,566 49,296
Accrued pension and other postretirement
benefit costs 108,196 116,576
Other 158,041 176,271
---------- ----------
695,401 745,678
$3,407,144 $3,393,825
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
<S> <C> <C> <C> <C>
Quarter Ended Year to Date
June 30 June 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
Non-affiliated companies $500,723 $386,459 $1,084,607 $808,748
Affiliated companies 10,807 3,079 19,048 4,645
-------- -------- ---------- --------
511,530 389,538 1,103,655 813,393
Operating Expenses
Fuel 77,905 74,244 170,361 179,751
Purchased and exchanged power
Non-affiliated companies 209,255 101,455 451,645 191,185
Affiliated companies 17,932 7,799 35,832 13,868
Other operation 160,983 78,078 243,360 161,787
Maintenance 27,712 27,244 47,020 45,762
Depreciation 32,202 31,293 64,209 62,445
Amortization of post-in-service
deferred operating expenses 268 268 536 536
Income taxes (19,543) 13,067 6,718 33,292
Taxes other than income taxes 14,507 15,323 29,474 30,180
-------- -------- ---------- --------
521,221 348,771 1,049,155 718,806
Operating Income (Loss) (9,691) 40,767 54,500 94,587
Other Income and Expenses - Net
Allowance for equity funds used
during construction 14 93 25 165
Income taxes 1,358 117 1,675 (328)
Other - net 199 (133) 1,906 2,713
-------- -------- ---------- --------
1,571 77 3,606 2,550
Income (Loss) Before Interest (8,120) 40,844 58,106 97,137
Interest
Interest on long-term debt 19,420 17,146 37,126 36,376
Other interest 3,892 2,075 9,667 6,532
Allowance for borrowed funds
used during construction (414) (523) (997) (956)
-------- -------- ---------- --------
22,898 18,698 45,796 41,952
Net Income (Loss) $(31,018) $ 22,146 $ 12,310 $ 55,185
Preferred Dividend Requirement 1,150 3,019 3,358 6,039
-------- -------- ---------- --------
Net Income (Loss) Applicable to
Common Stock $(32,168) $ 19,127 $ 8,952 $ 49,146
Other comprehensive income,
net of tax - - 944 -
-------- -------- ---------- -----
Comprehensive Income (Loss) $(32,168) $ 19,127 $ 9,896 $ 49,146
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
June 30
1998 1997
(in thousands)
Operating Activities
Net income $ 12,310 $ 55,185
Items providing (using) cash currently:
Depreciation 64,209 62,445
Reserves related to electric trading business 8,000 -
WVPA settlement 80,000 -
Deferred income taxes and investment tax
credits - net (32,596) (6,916)
Allowance for equity funds used during
construction (25) (165)
Regulatory assets - net 20,630 23,870
Changes in current assets and current
liabilities
Restricted deposits 812 (222)
Accounts and notes receivable, net of
reserves on receivables sold (19,676) (52,661)
Materials, supplies, and fuel (19,377) 10,552
Accounts payable 51,742 32,054
Accrued taxes and interest (24,303) (11,516)
Other items - net (1,142) (5,203)
-------- --------
Net cash provided by operating
activities 140,584 107,423
Financing Activities
Issuance of long-term debt 98,901 -
Retirement of preferred stock (85,230) (1)
Redemption of long-term debt - (45,700)
Change in short-term debt (11,616) 73,844
Dividends on preferred stock (3,887) (6,039)
Dividends on common stock (56,800) (56,800)
-------- --------
Net cash used in financing activities (58,632) (34,696)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (60,329) (60,320)
Deferred demand-side management costs (3,048) (6,075)
Net cash used in investing activities (63,377) (66,395)
Net increase in cash and temporary cash
investments 18,575 6,332
Cash and temporary cash investments at
beginning of period 18,169 2,911
-------- --------
Cash and temporary cash investments at
end of period $ 36,744 $ 9,243
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
<PAGE>
PSI ENERGY, INC.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1998
Kwh Sales
Kwh sales for the second quarter of 1998 increased 29.5%, as compared to the
same period last year, primarily due to higher non-firm power sales for resale
resulting from increased activity in Cinergy's power marketing and trading
operations. An increase in retail sales reflects higher industrial sales and a
higher average number of customers in all retail customer classes. The increased
industrial sales primarily reflect growth in the primary metals and
transportation equipment sectors. Also contributing to the higher kwh sales
levels was a return to more normal weather conditions when compared to the same
period last year. Nonsystem kwh sales (and related revenues and expenses)
resulting from Cinergy's power marketing and trading operations are allocated
50%/50% between CG&E and PSI pursuant to the operating agreements filed with the
companies' regulators.
Operating Revenues
Operating revenues increased $122 million (31%) for the quarter ended June 30,
1998, when compared to the same period last year, primarily as a result of the
increased kwh sales previously discussed and a higher average price on non-firm
power transactions.
An analysis of operating revenues is shown below:
Quarter
Ended June 30
(in millions)
Operating revenues - June 30, 1997 $390 Increase (Decrease) due to change in:
Price per kwh
Retail (13)
Sales for resale
Firm power obligations 2
Non-firm power transactions 46
Total change in price per kwh 35
Kwh sales
Retail 25
Sales for resale
Firm power obligations 9
Non-firm power transactions 50
Total change in kwh sales 84
Other 3
Operating revenues - June 30, 1998 $512
Operating Expenses
Fuel
Fuel costs increased $4 million (5%) for the second quarter of 1998, as compared
to the same period last year.
An analysis of fuel costs is shown below:
Quarter
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $74 Increase (Decrease) due to change in:
Price of fuel (2)
Deferred fuel cost (7)
Kwh generation 13
---
Fuel expense - June 30, 1998 $78
Purchased and Exchanged Power
For the quarter ended June 30, 1998, purchased and exchanged power increased
$118 million, as compared to the same period last year, due primarily to
increased purchases of non-firm power for resale to others as a result of
increased activity in Cinergy's power marketing and trading operations. In
addition, a provision of $5 million of reserves for the electric trading
business was recorded during the second quarter of 1998 (see Note 9 of "Notes to
Financial Statements" in "Part I. Financial Information").
Other Operation
Other operation expenses increased $83 million for the quarter ended June 30,
1998, as compared to the same period last year. This increase is primarily due
to the one-time charge of $80 million recorded during the second quarter of
1998, reflecting the implementation of a 1989 settlement of a dispute with the
WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I. Financial
Information"). This increase also reflects a provision of $2 million recorded
during the second quarter of 1998 for potential bad debts related to certain
power marketing and trading accounts.
Interest
Interest on Long-term Debt
Interest on long-term debt increased $2 million (13%) for the quarter ended June
30, 1998, as compared to the same period of 1997, primarily due to the net
issuance of $65 million of long-term debt during the period from March 1997
through March 1998.
Other Interest
Other interest increased $2 million (88%) for the quarter ended June 30, 1998,
as compared to the same period last year, primarily due to interest expense
recognized on a settlement agreement between PSI and WVPA (see Note 14 of the
"Notes to Financial Statements" in "Part I. Financial Information").
Preferred Dividend Requirement
The preferred dividend requirement decreased $2 million (62%) for the second
quarter of 1998, as compared to the same period of 1997. This decrease is
attributable to the redemption of all of the 7.15% Series Cumulative Preferred
Stock and 7.44% Series Cumulative Preferred Stock on September 1, 1997, and
March 1, 1998, respectively.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
Kwh Sales
For the six months ended June 30, 1998, kwh sales increased 47.7% when compared
to the same period last year, primarily due to increased activity in Cinergy's
power marketing and trading operations, which led to higher non-firm power sales
for resale. An increase in retail sales reflects higher industrial sales and a
higher average number of customers in all retail customer classes. The increased
industrial sales primarily reflect growth in the primary metals sector.
Nonsystem kwh sales (and related revenues and expenses) resulting from Cinergy's
power marketing and trading operations are allocated 50%/50% between CG&E and
PSI pursuant to the operating agreements filed with the companies' regulators.
Operating Revenues
Total operating revenues increased $291 million (36%) for the six months ended
June 30, 1998, when compared to the same period last year. This increase
primarily reflects the increase in kwh sales previously discussed and a higher
average price on non-firm power transactions, partially offset by the operation
of fuel adjustment clauses reflecting a lower average cost of fuel used in
electric production.
An analysis of operating revenues is shown below:
Six Months
Ended June 30
(in millions)
Operating revenues - June 30, 1997 $ 813
Increase (Decrease) due to change in:
Price per kwh
Retail (18)
Sales for resale
Firm power obligations 1
Non-firm power transactions 49
Total change in price per kwh 32
Kwh sales
Retail 33
Sales for resale
Firm power obligations 10
Non-firm power transactions 209
Total change in kwh sales 252
Other 7
Operating revenues - June 30, 1998 $1,104
Operating Expenses
Fuel
Fuel costs for the six months ended June 30, 1998, decreased $10 million (5%)
when compared to the same period last year.
An analysis of fuel costs is shown below:
Six Months
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $180 Increase (Decrease) due to change in:
Price of fuel (8)
Deferred fuel cost (19)
Kwh generation 17
----
Fuel expense - June 30, 1998 $170
Purchased and Exchanged Power
For the six months ended June 30, 1998, purchased and exchanged power increased
$282 million, as 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 and trading operations and a
provision of $6 million of reserves for the electric trading business recorded
during 1998 (see Note 9 of the "Notes to Financial Statements" in "Part I.
Financial Information").
Other Operation
Other operation expenses increased $82 million (50%) for the six months ended
June 30, 1998, as compared to the same period last year. This increase is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information"). This increase also reflects a provision of $2 million
for potential bad debts related to certain power marketing and trading accounts
recorded during the second quarter of 1998.
Interest
Other Interest
Other interest increased $3 million (48%) for the six months ended June 30,
1998, as compared to the same period last year, primarily due to interest
expense recognized on a settlement agreement between PSI and WVPA (see Note 14
of the "Notes to Financial Statements" in "Part I. Financial Information").
Additionally, the increase is due to interest resulting from an IRS audit of the
1989 and 1990 tax years.
Preferred Dividend Requirement
The preferred dividend requirement decreased $3 million (44%) for the first half
of 1998, as compared to the same period of 1997. This decrease is attributable
to the redemption of all of the 7.15% Series Cumulative Preferred Stock and
7.44% Series Cumulative Preferred Stock on September 1, 1997, and
March 1, 1998, respectively.
<PAGE>
THE UNION LIGHT, HEAT
AND POWER COMPANY
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $207,160 $204,111
Gas 159,155 155,167
Common 19,057 19,073
-------- --------
385,372 378,351
Accumulated depreciation 138,999 133,213
-------- --------
246,373 245,138
Construction work in progress 21,387 14,346
-------- --------
Total utility plant 267,760 259,484
Current Assets
Cash and temporary cash investments 885 546
Accounts receivable less accumulated provision
for doubtful accounts of $1,038 at
June 30, 1998, and $996 at December 31, 1997 4,694 7,308
Accounts receivable from affiliated companies 11 446
Materials, supplies, and fuel - at average cost
Gas stored for current use 5,552 5,401
Other materials and supplies 944 693
Prepayments and other 100 385
-------- --------
12,186 14,779
Other Assets
Regulatory assets
Deferred merger costs 5,214 5,213
Unamortized costs of reacquiring debt 3,608 3,590
Other 2,275 2,262
Other 4,069 6,262
-------- --------
15,166 17,327
$295,112 $291,590
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
CAPITALIZATION AND LIABILITIES
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Common Stock Equity
Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding
shares -
585,333 at June 30, 1998, and December 31, 1997 $ 8,780 $ 8,780
Paid-in capital 18,683 18,683
Retained earnings 94,595 95,450
-------- --------
Total common stock equity 122,058 122,913
Long-term Debt 54,516 44,671
-------- --------
Total capitalization 176,574 167,584
Current Liabilities
Notes payable to affiliated companies 27,323 23,487
Accounts payable 7,504 11,097
Accounts payable to affiliated companies 18,158 19,712
Accrued taxes 216 6,332
Accrued interest 1,361 1,286
Other 4,077 4,364
-------- --------
58,639 66,278
Other Liabilities
Deferred income taxes 27,474 26,211
Unamortized investment tax credits 4,400 4,516
Accrued pension and other postretirement benefit
costs 12,458 14,044
Amounts due to customers - income taxes 7,362 6,566
Other 8,205 6,391
-------- --------
59,899 57,728
$295,112 $291,590
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME (LOSS)
(unaudited)
<S> <C> <C> <C> <C>
Quarter Ended Year to Date
June 30 June 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
Electric $41,536 $47,314 $ 88,535 $ 95,894
Gas
Non-affiliated companies 8,564 10,825 36,939 44,788
Affiliated companies 62 69 167 190
------- ------- -------- --------
50,162 58,208 125,641 140,872
Operating Expenses
Electricity purchased from parent
company for resale 34,421 34,626 68,511 69,755
Gas purchased 4,167 6,555 20,520 27,004
Other operation 7,527 8,203 15,662 16,737
Maintenance 1,375 1,496 2,670 3,059
Depreciation 3,209 3,111 6,441 6,181
Income taxes (1,013) 903 3,204 5,645
Taxes other than income taxes 1,029 1,115 2,034 2,214
------- ------- -------- --------
50,715 56,009 119,042 130,595
Operating Income (Loss) (553) 2,199 6,599 10,277
Other Income and Expenses - Net
Allowance for equity funds used
during construction 24 27 10 23
Income taxes 254 206 482 298
Other - net (404) (514) (886) (961)
------- ------- -------- --------
(126) (281) (394) (640)
Income (Loss) Before Interest (679) 1,918 6,205 9,637
Interest
Interest on long-term debt 951 881 1,834 1,762
Other interest 197 333 548 634
Allowance for borrowed funds
used during construction (179) (7) (298) (37)
------- ------- -------- --------
969 1,207 2,084 2,359
Net Income (Loss) $(1,648) $ 711 $ 4,121 $ 7,278
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
June 30
1998 1997
(in thousands)
Operating Activities
Net income $ 4,121 $ 7,278
Items providing (using) cash currently:
Depreciation 6,441 6,181
Deferred income taxes and investment tax
credits - net 1,192 438
Allowance for equity funds used during
construction (10) (23)
Regulatory assets (13) (68)
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 4,671 6,513
Materials, supplies, and fuel (402) 1,604
Accounts payable (5,147) (1,877)
Accrued taxes and interest (6,041) 3,421
Other items - net 1,481 3,334
-------- --------
Net cash provided by operating
activities 6,293 26,801
Financing Activities
Issuance of long-term debt 20,127 -
Redemption of long-term debt (10,118) -
Change in short-term debt 3,836 (9,721)
Dividends on common stock (4,975) (4,975)
-------- --------
Net cash provided by (used in)
financing activities 8,870 (14,696)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (14,824) (8,758)
Net cash used in investing
activities (14,824) (8,758)
Net increase in cash and temporary cash
investments 339 3,347
Cash and temporary cash investments at
beginning of period 546 1,197
-------- --------
Cash and temporary cash investments at
end of period $ 885 $ 4,544
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1998
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the quarter ended June 30, 1998,
decreased when compared to the same period in 1997. The decrease in Mcf gas
sales was due, in part, to the continued trend of customers purchasing gas
directly from suppliers, using transportation services provided by ULH&P.
Operating Revenues
Electric Operating Revenues
Electric operating revenues decreased $6 million (12%) for the quarter ended
June 30, 1998, from the comparable period of 1997. This decrease primarily
reflects a revision of ULH&P's estimate of unbilled revenue in the third quarter
of 1997. This adjustment, which was recorded in the second quarter of 1998,
resulted in a decrease in electric operating revenues of $3.6 million and a
corresponding decrease to operating income and net income of $1.7 million.
Gas Operating Revenues
The 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. Since providing transportation
services does not necessitate recovery of the cost of gas purchased, 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 decreased $2 million (21%) in the second quarter of 1998,
when compared to the same period last year, primarily due to the decline in
volume sales discussed above.
Operating Expenses
Gas Purchased
Gas purchased for the quarter ended June 30, 1998, decreased $2 million (36%)
from the second quarter of last year, reflecting a decrease in the average cost
per Mcf purchased and a decrease in the volumes of gas purchased.
Other Operation
The $.7 million (8%) decrease in other operation expenses for the second quarter
of 1998, as compared to the same period of 1997, is primarily due to lower
distribution expenses.
Maintenance
The $.1 million (8%) decrease in maintenance expenses for the second quarter of
1998, as compared to 1997, is primarily due to a decrease in overhead line
maintenance.
Taxes Other Than Income Taxes
The $.1 million (8%) decrease in taxes other than income taxes for the second
quarter of 1998, as compared to the same period of 1997, is primarily due to a
decrease in property taxes.
Other Income and Expenses - Net
Other - net
The change in other - net of $.1 million (21%) for the quarter ended June 30,
1998, as compared to the same period of 1997, is partially attributable to a
higher level of expenses associated with the sales of accounts receivable in the
prior year.
Interest
Allowance for Borrowed Funds Used During Construction
The increase in allowance for borrowed funds used during construction of $.2
million is primarily due to an increase in construction expenditures subject to
allowance during the quarter ended June 30, 1998, as compared to the same period
of 1997.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
Mcf Sales and Transportation
For the six months ended June 30, 1998, Mcf gas sales and transportation volumes
decreased, as compared to the same period in 1997. Decreased Mcf sales
reflecting the milder weather during the first quarter of 1998 were slightly
offset by an increase in the number of residential and commercial customers.
Industrial sales declined and gas transportation volumes increased as customers
continued the trend of purchasing gas directly from suppliers, using
transportation services provided by ULH&P.
Operating Revenues
Electric Operating Revenues
Electric operating revenues decreased $7 million (8%) for the six months ended
June 30, 1998, from the comparable period of 1997. This decrease primarily
reflects a revision of ULH&P's estimate of unbilled revenue in the third quarter
of 1997. This adjustment, which was recorded in the second quarter of 1998,
resulted in a decrease in electric operating revenues of $3.6 million and a
corresponding decrease to operating income and net income of $1.7 million.
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the heading "Gas Operating Revenues" for ULH&P in "Results of Operations for the
Quarter Ended June 30, 1998."
Gas operating revenues decreased $8 million (18%) for the six months ended June
30, 1998, when compared to the same period of last year, primarily due to the
decline in volume sales discussed above and the aforementioned trend toward
increased transportation services.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased decreased $1 million (2%) for the six months ended June
30, 1998, as compared to the same period last year. This decrease reflects lower
volumes purchased from CG&E.
Gas Purchased
Gas purchased for the six months ended June 30, 1998, decreased $6 million
(24%), as compared to the same period in 1997. This decrease reflects a decrease
in the average cost per Mcf purchased and a decrease in the volumes of gas
purchased.
Other Operation
The $1.1 million (6%) decrease in other operation expenses for the six months
ended June 30, 1998, as compared to the same period of 1997, is primarily due to
lower distribution and administrative and general expenses.
Maintenance
The $.4 million (13%) decrease in maintenance expense for the six months ended
June 30, 1998, as compared to the same period of 1997, is primarily due to a
decrease in overhead line maintenance.
Taxes Other Than Income Taxes
The $.2 million (8%) decrease in taxes other than income taxes for the six
months ended June 30, 1998, as compared to the same period of 1997, is primarily
due to a decrease in property taxes.
Interest
Other Interest
Other interest charges decreased $.1 million (14%) for the six months ended June
30, 1998, as compared to the same period of 1997, primarily due to increased
short-term borrowings in the prior year. This decrease was partially offset by
payments to the Kentucky State Treasurer resulting from a sales tax audit and
underpayment of tax year 1996 income taxes.
Allowance for Borrowed Funds Used During Construction
The increase in allowance for borrowed funds used during construction of $.3
million is primarily due to an increase in construction expenditures subject to
allowance during the six months ended June 30, 1998, as compared to the same
period of 1997.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Cinergy, CG&E, PSI, and ULH&P
1. These Financial Statements reflect all adjustments (which include
normal, recurring adjustments and those adjustments discussed in Notes
9 and 14) 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 1997 Form 10-K of the registrants. Certain
amounts in the 1997 Financial Statements have been reclassified to
conform to the 1998 presentation.
Cinergy and CG&E
2. On April 7, 1998, CG&E issued and sold $100 million principal amount of
its 6.40% Debentures due April 1, 2008. Proceeds from the sale were
used to repay short-term indebtedness incurred in connection with
CG&E's March 1998 redemptions of $100 million principal amount of its 8
1/2% Series First Mortgage Bonds due 2022 and $60 million principal
amount of its 7 3/8% Series First Mortgage Bonds due 2001.
3. On May 1, 1998, CG&E redeemed the entire $50 million principal amount
of its 7 3/8% Series First Mortgage Bonds due 1999, at the regular
redemption price of 100.00%. This redemption effectively eliminates the
maintenance and replacement fund provisions of CG&E's First Mortgage
Bond indenture, which provisions required CG&E to make cash payments,
deposit bonds, or pledge unfunded property additions to the trustee
each year based on an amount related to net revenues.
4. On June 15, 1998, CG&E issued and sold $100 million principal amount of
unsecured Reset Put Securities. These debentures will bear interest at
a rate of 6.35% for the first five years, and the interest rate may be
reset every five years thereafter to final maturity in 2038 if the
callholder exercises its option on any reset date to purchase the bonds
and reset the interest rate. If the callholder does not exercise the
option on any reset date, the bonds will be redeemed by CG&E at par.
Proceeds from the sale were used to repay short-term indebtedness
incurred in connection with the redemption of CG&E's 7 3/8% First
Mortgage Bonds referred to above and for general corporate purposes.
Cinergy and PSI
5. On July 23, 1998, PSI redeemed the entire $24 million principal amount
of its 7 5/8% First Mortgage Bonds, Series Y due January 1, 2007, at
the redemption price of 102.11% and the entire $26 million principal
amount of its 7% First Mortgage Bonds, Series S due January 1, 2002, at
the redemption price of 100.73%.
6. On August 5, 1998, PSI issued and sold $50 million principal amount of
unsecured Synthetic Putable Yield Securities. These debentures will
bear interest at a rate of 6.50% for the first seven years, and the
interest rate may be reset every seven years thereafter to final
maturity in 2026 if the callholder exercises its option on any reset
date to purchase the bonds and reset the interest rate. If the
callholder does not exercise the option on any reset date, the bonds
will be redeemed by PSI at par. Proceeds from the sale were used to
repay short-term indebtedness incurred in connection with PSI's July
1998 redemptions of the above-mentioned Series Y and Series S First
Mortgage Bonds.
7. On August 12, 1998, the Indiana Development Finance Authority loaned
the proceeds from the sale of its $23 million principal amount of
Environmental Refunding Revenue Bonds, Series 1998, to PSI. The bonds
will bear interest initially at a daily rate, will mature on August 1,
2028, and are backed by an irrevocable direct-pay letter of credit
through August 1, 2002. Proceeds from the sale will be used to redeem
on September 15, 1998, the $23 million 8 1/4% First Mortgage Bonds
Series QQ, due June 15, 2013 (Pollution Control), at a redemption price
of 102% plus accrued interest.
Cinergy, CG&E, and ULH&P
8. On April 30, 1998, ULH&P issued and sold $20 million principal amount
of its 6.50% Debentures due April 30, 2008. Proceeds from the sale were
used by ULH&P to repay short-term indebtedness incurred in connection
with the redemption, on April 24, 1998, of $10 million principal amount
of its 8% Series First Mortgage Bonds, due 2003, and in connection with
its construction program. The redemption of said First Mortgage Bonds
effectively eliminates the maintenance and replacement fund provisions
of ULH&P's First Mortgage Bond indenture, which provisions required
ULH&P to make cash payments, deposit bonds, or pledge unfunded property
additions to the trustee each year based on an amount related to net
revenues.
Cinergy, CG&E, and PSI
9. Cinergy's power marketing and trading function actively markets and trades
over-the-counter forward and option contracts for the purchase and sale of
electricity. The majority of these contracts are settled via physical
delivery of electricity or netted out in accordance with industry trading
standards. The Company also trades exchange-traded futures contracts.
Option premiums are deferred and included in the Consolidated Balance
Sheets and amortized to "Operating Revenues - Electric" or "Purchased and
exchanged power" in the Consolidated Statements of Income over the term of
the option contract. Cinergy values its portfolio of contracts using the
aggregate lower of cost or market method. To the extent there are net
aggregate losses in the portfolio, Cinergy reserves for such losses. Net
gains are recognized when realized. Due to the lack of liquidity and the
volatility currently experienced in the power markets, significant
assumptions must be made by the Company when estimating current market
values for purposes of the aggregate lower of cost or market comparison. It
is possible that the actual gains and losses from the Company's power
marketing and trading activities could differ substantially from the gains
and losses estimated currently.
Cinergy and its subsidiaries use derivative financial instruments to hedge
exposures to foreign currency exchange rates, lower funding costs, and
manage exposures to fluctuations in interest rates. Instruments used as
hedges must be designated as a hedge at the inception of the contract and
must be effective at reducing the risk associated with the exposure being
hedged. Accordingly, changes in market values of designated hedge
instruments must be highly correlated with changes in market values of the
underlying hedged items at inception of the hedge and over the life of the
hedge contract.
Cinergy utilizes foreign exchange forward contracts and currency swaps to
hedge certain of its net investments in foreign operations. Accordingly,
any translation gains or losses related to the foreign exchange forward
contracts or the principal exchange on the currency swap are recorded in
accumulated other comprehensive income, which is a separate component of
common stock equity. Aggregate translation losses related to these
instruments are reflected in "Current Liabilities Other" in the
Consolidated Balance Sheets.
Interest rate swaps are accounted for under the accrual method.
Accordingly, gains and losses based on any interest differential between
fixed-rate and floating-rate interest amounts, calculated on agreed upon
notional principal amounts, are recognized in the Consolidated Statements
of Income as a component of interest expense as realized over the life of
the agreement.
Cinergy, CG&E, and PSI
10. As discussed in the 1997 Form 10-K, in October 1995, a suit was filed in
the Federal District Court for the Southern District of Ohio by three
former employees of Enertech naming as defendants Enertech, Cinergy,
Investments, CG&E, PSI, James E. Rogers, and William J. Grealis. (Mr.
Rogers and/or Mr. Grealis are officers and/or directors of the foregoing
companies.) The lawsuit, which stemmed from the termination of employment
of the three former employees, alleged that they entered into employment
contracts with Enertech based on the opportunity to participate in
potential profits from future investments in energy projects in central and
eastern Europe. The suit alleged causes of action based upon, among other
theories, breach of contract related to the events surrounding the
termination of their employment and fraud and misrepresentation related to
the level of financial support for future projects. The suit alleged
compensatory damages of $154 million based upon assumed future success of
potential future investments and punitive damages of three times that
amount.
In April 1998, the parties reached a comprehensive settlement and all
claims were dismissed by the Court. The obligations of the Company arising
out of the settlement are not material to its financial condition or its
results of operations.
Cinergy and PSI
11. As discussed in the 1997 Form 10-K, PSI and IGC submitted a proposed
agreed order to the IDEM in 1997 related to the Shelbyville MGP site.
On April 15, 1998, the IDEM signed the proposed agreed order, which
will result in a determination by the IDEM of whether the activities
previously undertaken at the site are sufficient to adequately protect
human health and the environment. Based upon environmental
investigations and remediation completed to date, PSI believes that any
further investigation and remediation required for the Shelbyville site
will not have a material adverse effect on its financial condition or
results of operations.
In August 1997, NIPSCO filed suit against PSI in the United States
District Court for the Northern District of Indiana, South Bend
Division, claiming, pursuant to the CERCLA, recovery from PSI of
NIPSCO's past and future costs of investigating and remediating MGP
related contamination at the Goshen MGP site. Recently, NIPSCO
increased its estimate of the cost of remediating the Goshen site from
$2.7 million to about $3.0 million.
As also discussed in the 1997 Form 10-K, PSI previously placed its
insurance carriers on notice of IGC's, NIPSCO's and the IDEM's claims
related to MGP sites. In April 1998, PSI filed suit in Hendricks
County Circuit Court against its general liability insurance carriers,
seeking, among other matters, a declaratory judgment that its
insurance carriers are obligated to defend MGP claims against PSI or
pay PSI's costs of defense and to indemnify PSI for its costs of
investigating, preventing, mitigating and remediating damage to
property and paying claims associated with MGP sites. PSI cannot
predict the outcome of this litigation.
Cinergy, CG&E, PSI, and ULH&P
12. Effective with the first quarter of 1998, Cinergy and its subsidiaries
adopted Statement 130. Statement 130 establishes standards for
reporting and displaying comprehensive income and its components in a
full set of general-purpose financial statements. Comprehensive income
is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from
nonowner sources.
During the second quarter of 1998, the FASB issued Statement 133. The
new standard requires companies to record derivative instruments, as
defined in Statement 133, as assets or liabilities, measured at fair
value. The Statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. The standard is effective
for fiscal years beginning after June 15, 1999, and Cinergy expects to
adopt Statement 133 effective for the year beginning January 1, 2000.
The Company has not yet quantified the impacts of adopting Statement
133 on its consolidated financial statements. However, the Statement
could increase volatility in earnings and other comprehensive income.
Cinergy
13. Presented below is a reconciliation of earnings per common share (basic
EPS) and earnings per common share assuming dilution (diluted EPS).
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Quarter ended June 30, 1998
Earnings per common share:
Net loss $(25,933) 158,018 $(.16)
Effect of dilutive securities:
Common stock options 689
Contingently issuable common stock 113
EPS--assuming dilution:
Net loss plus assumed
conversions $(25,933) 158,820 $(.16)
Quarter ended June 30, 1997
Earnings per common share:
Net income $ 55,489 157,679 $ .35
Effect of dilutive securities:
Common stock options 925
Contingently issuable common stock 204
EPS--assuming dilution:
Net income plus assumed
conversions $ 55,489 158,808 $ .35
<PAGE>
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Six months ended June 30, 1998
Earnings per common share:
Net income $ 80,138 157,892 $ .51
Effect of dilutive securities:
Common stock options 738
Contingently issuable common stock 118
EPS--assuming dilution:
Net income plus assumed
conversions $ 80,138 158,748 $ .51
Six months ended June 30, 1997
Earnings per common share:
Net income $169,606 157,679 $1.07
Effect of dilutive securities:
Common stock options 954
Contingently issuable common stock 204
EPS--assuming dilution:
Net income plus assumed
conversions $169,606 158,837 $1.06
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Twelve months ended June 30, 1998
Earnings per common share:
Net income before extraordinary
item $273,170 157,790 $1.73
Effect of dilutive securities:
Common stock options 827
Contingently issuable common stock 162
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $273,170 158,779 $1.72
Twelve months ended June 30, 1997
Net income $338,222
Less: costs of reacquisition of
preferred stock of subsidiary 18,391
Earnings per common share:
Net income applicable to common
stock 319,831 157,679 $2.02
Effect of dilutive securities:
Common stock options 938
Contingently issuable common st 260
EPS--assuming dilution:
Net income applicable to common
stock plus assumed conversions $319,831 158,877 $2.01
The after-tax impact of the extraordinary item - equity share of
windfall profits tax in the twelve months ended June 30, 1998, was $.69
for both basic and diluted earnings per share.
Options to purchase shares of common stock that were excluded from the
calculation of EPS--assuming dilution because the exercise prices of
these options were greater than the average market price of the common
shares during the period are summarized below:
Quarter Average
Ended Exercise
June 30 Shares Price
1998 930,600 $37.54
1997 10,400 34.50
Six Months Average
Ended Exercise
June 30 Shares Price
1998 694,700 $37.83
1997 8,800 34.50
Twelve Months Average
Ended Exercise
June 30 Shares Price
1998 345,000 $37.82
1997 188,900 33.52
Cinergy and PSI
14. In February 1989, PSI and WVPA entered into a settlement agreement to
resolve all claims related to Marble Hill, a nuclear project canceled in
1984. Implementation of the settlement was contingent upon a number of
events, including the conclusion of WVPA's bankruptcy proceeding,
negotiation of certain terms and conditions with WVPA, the RUS, and the
CFC, and certain regulatory approvals. In December 1996, following the
resolution of issues associated with WVPA's bankruptcy proceeding, PSI, on
behalf of itself and its officers, paid $80 million on behalf of WVPA to
the RUS and the CFC. The $80 million obligation, net of insurance proceeds,
other credits, and applicable income tax effects, was charged to income in
1988. In January 1997, an order dismissing the WVPA litigation against PSI
and its officers with prejudice was entered by the United States District
Court for the Southern District of Indiana and final negotiations to
implement the settlement agreement were begun with WVPA, the RUS and the
CFC. An agreement on substantially all matters has been reached with the
parties. As a result, PSI recorded a liability to the RUS and the CFC and
will repay the obligation with interest over a 35-year term. PSI will use
the net proceeds from a 35-year power sales agreement with WVPA to fund the
principal and interest on the obligation. Assumption of the liability
(recorded as long-term debt in the consolidated balance sheet) resulted in
a charge against second quarter earnings of $80 million ($50 million after
tax or $.32 per share basic and diluted).
Cinergy
15. The Company's Midlands subsidiary (of which the Company owns 50%) has a
40% ownership interest in a 586 MW power project in Pakistan (Uch
project or Uch) which was originally scheduled to begin commercial
operation in late 1998. The Pakistani government-owned utility has
recently issued a notice of intent to terminate certain key project
agreements relative to the Uch project. The notice asserts that various
forms of corruption were involved in the original granting of the
agreements to the Uch investors by a predecessor government. The
Company believes that this notice is similar to notices received by
other independent power projects in Pakistan.
The Uch investors, including a subsidiary of Midlands, strongly deny
the allegations and intend to pursue all available legal options to
enforce their contractual rights under the project agreements. At
present, the Uch investors continue to explore remedies to the
situation with officials of the Pakistani government.
Through its ownership of Midlands, the Company's current investment in
the Uch project is approximately $30 million. In addition, project
lenders could require investors to make additional capital
contributions to the project under certain conditions. The Company's
share of these additional contributions is approximately $14 million.
At the present time, the Company cannot predict the ultimate outcome of
this matter.
Cinergy and PSI
16. As discussed in the 1997 Form 10-K, PSI filed a petition with the FERC
for recovery, through the fuel adjustment clause, of the wholesale
jurisdictional portion of the costs resulting from the Exxon contract
buyout. During July 1998, the FERC accepted PSI's request to recover
these buyout costs from its wholesale customers for the period August
1996 through December 2002.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in
this Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in "Part I. Financial Information" reflect and elucidate
Cinergy's corporate vision of the future and, as a part of that, outline goals
and aspirations, as well as specific projections. These goals and projections
are considered forward-looking statements and are based on management's beliefs,
as well as certain assumptions made by management. In addition to any
assumptions and other factors that are referred to specifically in connection
with these statements, other factors that could cause actual results to differ
materially from those indicated in any forward-looking statements include, among
others: factors generally affecting utility operations--such as unusual weather
conditions, unusual maintenance or repairs, or unanticipated changes in fuel
costs; increased competition in the electric and gas utility environment;
regulatory factors, including the failure to obtain anticipated regulatory
approvals; changes in accounting principles or policies; adverse economic
conditions; changing market conditions; availability or cost of capital;
employee workforce factors; costs and effects of legal and administrative
proceedings; changes in legislative requirements; and other risks. The
Securities and Exchange Commission's rules do not require forward-looking
statements to be revised or updated, and Cinergy does not intend to do so.
FINANCIAL CONDITION
Recent Developments
Cinergy, CG&E, and PSI
Ambient Air Standards As discussed in the 1997 Form 10-K, during 1997, the EPA
revised the National Ambient Air Quality Standards for ozone and fine
particulate matter. EPA has also proposed, but not finalized, new rules for both
ozone transport and regional haze. Relative to ozone transport, during May 1998,
the EPA supplemented its proposed rule to reduce utility NOx emissions by
approximately 85% by 2003 by proposing a model NOx trading program for 22 states
in the eastern half of the United States. On June 25, 1998, 13 midwestern and
southern states and numerous industry groups within those states, including
Cinergy, filed comments in opposition to the EPA proposed NOx rules. These 13
states and utility commentors proposed alternative reduction strategies that
would generally phase in NOx reduction by 65 percent by 2002-2004, would
determine by 2002 if additional reductions are needed, and then implement
necessary controls between 2005-2007. Commentors also generally opposed EPA's 22
state trading program in favor of smaller and more flexible multi-state
programs. The EPA is expected to finalize its ozone transport rulemaking in the
fall of 1998 and states would then have 12 to 18 months to incorporate utility
NOx reductions into their SIPs. The EPA is scheduled to finalize new regional
haze rules in the summer of 1998. Congress, as part of the funding bill for the
Surface Transportation Act, combined the schedules for fine particulates and
regional haze implementation. The impact of the particulate standards and
regional haze rules cannot be determined at this time. Since EPA guidance and
technical studies concerning these new regulations have not been provided,
Cinergy cannot predict the outcome or effect of the new rulemakings.
Air Toxics As discussed in the 1997 Form 10-K, the EPA was to announce, by April
15, 1998, its conclusions regarding the need for additional air toxics
regulations. In April 1998, the EPA announced that it would make its regulatory
determination on the need for additional air toxics regulation by November 15,
1998. If more air toxics regulations are issued, the compliance cost could be
significant. Cinergy cannot predict the outcome or effects of the EPA's
determination.
Cinergy, CG&E, and ULH&P
Competitive Pressures - State Developments As discussed in the 1997 Form
10-K, competition legislation was to be introduced in the Ohio legislature
during 1998. This legislation, SB 237 and HB 732, "companion" electric
restructuring bills that propose to afford choice to all retail electric
customers in Ohio beginning January 1, 2000, was introduced in 1998. Legislative
hearings on these bills occurred in the spring. In addition, legislation to
provide for securitization of transition costs through issuance of rate
reduction bonds has been pending in Ohio since 1997. It is uncertain whether
these pieces of legislation will be passed in Ohio in 1998.
As also discussed in the 1997 Form 10-K, HB 443 was introduced into the Kentucky
General Assembly in January 1998. HB 443 was not brought to a vote during the
1998 legislative session. Rather, HJR 95, which calls for the formation of an
executive task force comprised of members from the governor's office and the
General Assembly to further study electricity restructuring, was passed by the
General Assembly. HJR 95 was signed by the governor during April 1998.
Kentucky's General Assembly does not reconvene until the year 2000.
Cinergy
Acquisitions In June 1998, Cinergy, through its subsidiaries, acquired ProEnergy
and Teplarna. Through CC&T, Cinergy acquired ProEnergy from Apache and Oryx.
ProEnergy has had and will continue to have exclusive marketing rights to North
American gas production owned or controlled by Apache and Oryx, which represents
approximately 1.1 Bcf per day of dedicated natural gas supply. These supplies,
combined with the active marketing of third party gas, are geographically
diverse and are spread through the Southwest, Rocky Mountains, Gulf Coast, Gulf
of Mexico, and Michigan. The acquisition was funded with cash and the issuance
of 771,258 new shares of Cinergy common stock.
A subsidiary of Cinergy Global Power acquired Teplarna, a 410 MW district
heating plant in the Czech Republic. In addition to hot water and steam, the
plant produces 36 MW of electric capacity.
The purchase prices for ProEnergy and Teplarna were not material to Cinergy's
financial condition or results of operations.
Regulatory Matters
Cinergy and PSI Coal Contract Buyout Costs See Note 16 of the "Notes to
Financial Statements" in "Part I. Financial Information."
Market Risk Sensitive Instruments and Positions
Cinergy, CG&E, PSI, and ULH&P
The following discussions about Cinergy's market risk sensitive instruments and
positions and risk management activities include forward-looking information and
statements that involve risks and uncertainties. The forward-looking information
and statements presented are only estimates of what may occur in the future,
assuming certain adverse market conditions, due to their dependence on model
characteristics and assumptions. As a result, actual future results may differ
materially from those presented. These disclosures are not precise indicators of
expected future losses, rather they merely present indications of reasonably
possible losses.
Cinergy, CG&E, and PSI
Energy Commodities Sensitivity The Company markets and trades over-the-counter
forward and option contracts for the purchase and sale of electricity. The
Company also trades exchange-traded futures contracts. See Note 9 of the "Notes
to Financial Statements" in "Part I. Financial Information" for the Company's
accounting policies for certain derivative instruments.
During a few days late in the second quarter, wholesale electric power markets
in the Midwest exhibited unprecedented price volatility due to several market
factors including an extended period of unseasonably hot weather, scheduled and
unplanned generating unit outages, transmission constraints, and defaults by
certain power marketers on their supply obligations. The simultaneous
culmination of these events resulted in temporary but extreme price spikes in
the hourly and daily markets and very little trading liquidity and price
transparency in the term markets. During this period of extreme price volatility
and trading illiquidity, Cinergy's power marketing and trading function
maintained its ability to provide trading-based services, including the physical
delivery of power to fulfill all of its contractual obligations. As of June 30,
1998, Cinergy's daily value-at-risk for its power marketing and trading
activities increased by 80% from December 31, 1997. The daily value-at-risk as
of June 30, 1998 was less than 3% of Cinergy's "Income Before Interest And Other
Charges" for the twelve months then ended. The value-at risk model utilizes a
95% confidence interval and uses the variance-covariance statistical modeling
technique and historical volatilities and correlations over the past 200 day
period. The estimated market prices used to value these transactions for
value-at-risk purposes reflect the use of established pricing models and various
factors including quotations from exchanges and over-the-counter markets, price
volatility factors, the time value of money, and location differentials. The
variables used for value-at-risk purposes at June 30, 1998, reflect the impacts
of the events which transpired in the Midwestern electric power markets during
late June 1998.
The Company provided reserves of $65 million ($41 million after tax), or $.26
per share (basic and diluted), in the second quarter for its electric power
marketing and trading business. The reserve represents potential unrealized
losses in the fair value of its portfolio of open forward and option contract
positions and potential unrealized losses due to nonperformance of certain
counterparties pursuant to contractual supply obligations. Despite the volatile
activity at the end of June, the Company experienced modest net realized gains
from its electric power marketing and trading operations during the second
quarter. Due to the basic lack of liquidity, price transparency, and extreme
price volatility currently experienced in the electric power markets,
significant assumptions regarding estimated market prices and potential
counterparty credit risk must be made by the Company for the purposes of
providing appropriate reserves. It is possible that actual realized results from
the Company's power marketing and trading activities could differ substantially
from those currently estimated.
As of June 30, 1998, approximately 62% of Cinergy's power marketing and trading
activity represents commitments with 10 counterparties. The majority of these
contracts are for terms of one year or less. The temporary but extreme price
volatility and trading illiquidity exhibited in the Midwestern electric power
markets late in the second quarter resulted in a few power marketers defaulting
on contractual supply obligations and industry-wide uncertainty as to whether
others will be able to fulfill existing contractual supply obligations for
future delivery of electricity. As of June 30, 1998, Cinergy believes it has
adequately reserved for credit exposure relating to its portfolio of existing
contracts.
Cinergy remains committed to being a long-term participant in the evolving
competitive wholesale electric power market and will continue to manage its
power marketing and trading portfolio to maximize its existing value while
creating additional value. The New York Mercantile Exchange electricity futures
contracts for delivery into Cinergy's transmission grid, which started trading
on July 10, 1998, should provide additional liquidity and greater price
transparency as well as additional risk management capabilities in Cinergy's
core service territory and trading region. Cinergy continues to review and
enhance its current risk management practices to ensure their responsiveness to
evolving and changing market and business conditions. In addition, efforts are
ongoing to develop and enhance systems to improve the timeliness and quality of
market and credit risk information.
Cinergy
Exchange Rate Sensitivity Cinergy utilizes foreign exchange forward contracts
and currency swaps to hedge certain of its net investments in foreign
operations. See Note 9 of the "Notes to Financial Statements" in "Part I.
Financial Information" for Cinergy's accounting policies for certain derivative
instruments. Cinergy's market risks have not changed materially from the market
risks reported in the 1997 Form 10-K.
Cinergy, CG&E, PSI, and ULH&P
Interest Rate Sensitivity The Company's net exposure to changes in interest
rates primarily consists of debt instruments with floating interest rates that
are benchmarked to various market indices. To manage the Company's exposure to
fluctuations in interest rates and to lower funding costs, the Company
constantly evaluates the use of, and has entered into, interest rate swaps. See
Note 9 of the "Notes to Financial Statements" in "Part I. Financial Information"
for the Company's accounting policies for certain derivative instruments. The
Company's market risks have not changed materially from the market risks
reported in the 1997 Form 10-K.
Accounting Issues
Cinergy, CG&E, PSI, and ULH&P New Accounting Standards See Note 12 of the "Notes
to Financial Statements" in "Part I. Financial Information."
Other Commitments
Cinergy, CG&E, and PSI Enertech See Note 10 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Cinergy, CG&E, and PSI MGP Sites See Note 11 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Cinergy and PSI WVPA See Note 14 of the "Notes to Financial Statements" in "Part
I. Financial Information."
CAPITAL RESOURCES AND REQUIREMENTS
Cinergy, CG&E, PSI, and ULH&P Long-term Debt For information regarding recent
issuances and redemptions of long-term debt securities, see Notes 2, 3, 4, 5, 6,
7, and 8 of the "Notes to Financial Statements" in "Part I. Financial
Information."
Cinergy, CG&E, PSI, and ULH&P
Short-term Debt Obligations representing notes payable and other short-term
obligations (excluding notes payable to affiliated companies) at June 30, 1998,
were as follows:
Cinergy
Established
Lines Outstanding
(in millions)
Cinergy
Committed lines
Acquisition line $ 350 $ 350
Revolving line 400 160
Commercial paper - 189
Utility subsidiaries
Committed lines 300 10
Uncommitted lines 360 67
Pollution control notes 244 244
Non-utility subsidiaries 118 101
Total $1,772 $1,121
CG&E
Established
Lines Outstanding
(in millions)
Committed lines $100 $ -
Uncommitted lines 190 30
Pollution control notes 184 184
Total $474 $214
PSI
Established
Lines Outstanding
(in millions)
Committed lines $200 $ 10
Uncommitted lines 170 37
Pollution control notes 60 60
Total $430 $107
Cinergy, CG&E, and PSI
Cinergy's committed lines are comprised of an acquisition line and a revolving
line. The established revolving line (as shown in the above table) also provides
credit support for Cinergy's commercial paper program. As of June 30, 1998, this
program was limited to a maximum outstanding principal amount of $200 million.
During July 1998, the commercial paper program was increased to a maximum
principal amount of $400 million. This increase is supported by an additional
revolving line of $200 million, which was also established in July 1998. The
majority of the proceeds from the commercial paper sales were used to reduce the
acquisition line to the year-end level of $350 million. CG&E and PSI also have
the capacity to issue commercial paper that must be supported by committed lines
(unsecured lines of credit) of the respective company. Neither CG&E nor PSI
issued commercial paper during the second quarter of 1998.
Cinergy, CG&E, PSI, and ULH&P
Cinergy's utility subsidiaries had regulatory authority to borrow up to $853
million ($453 million for CG&E and its subsidiaries, including $50 million for
ULH&P, and $400 million for PSI) as of June 30, 1998. In connection with this
authority, committed lines, as well as uncommitted lines, have been arranged.
The established committed lines (as shown in the above table) include $100
million designated as backup for certain of the uncommitted lines at June 30,
1998. Further, the committed lines are maintained by commitment fees.
Cinergy, CG&E, PSI, and ULH&P
Year 2000 Cinergy, like most owners and users of IT systems, will be impacted by
what has become known as Year 2000 issues. Cinergy is currently working to
resolve the potential impact of the Year 2000 on the processing of
date-sensitive information by the Company's computerized information systems.
The Year 2000 issues are the result of computer programs being written using two
digits, rather than four, to define the applicable year. Any of Cinergy's
programs which have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in system
malfunctions. The Year 2000 issue impacts not only IT systems but also non-IT
systems (i.e., systems incorporating "embedded processors").
Cinergy is addressing the impacts of the Year 2000 issues by focusing on IT
systems, non-IT systems associated with its generating stations and its
transmission and distribution systems, and an assessment of the ability of its
critical vendors to provide an uninterrupted supply of goods and/or services to
Cinergy.
Cinergy anticipates that its Year 2000 plan will be completed by June 1999. As
of July 31, 1998, the extent of completion ranged from approximately 75% for IT
systems to approximately 25% regarding assessment of critical vendors.
Cinergy estimates the total cost related to the Year 2000 plan will be
approximately $13 million, of which approximately $10 million has been incurred
through June 30, 1998. These costs are being funded through operating cash
flows.
The Company is in the process of developing a Year 2000 contingency plan.
Cinergy
Other Commitments In connection with its energy marketing and trading
activities, Cinergy has issued performance guarantees to numerous counterparties
totaling approximately $170 million.
RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
Reference is made to "Item 1. Financial Statements" in "Part I. Financial
Information."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cinergy, CG&E, PSI, and ULH&P Reference is made to the "Market Risk Sensitive
Instruments and Positions" section in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" in "Part I. Financial
Information."
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cinergy, CG&E, and PSI
See Notes 10, 11, 14, and 15 of the "Notes to Financial Statements" in "Part
I. Financial Information."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits identified with a pound sign (#) are being filed herewith
by the registrant identified in the exhibit discussion below and are
incorporated herein by reference with respect to any other
designated registrant. Exhibits not so identified are filed
herewith:
Exhibit
Designation Nature of Exhibit
Cinergy and CG&E
4-A #Fifth Supplemental Indenture dated as of June 9,
1998, between CG&E and The Fifth Third Bank, as
Trustee. (Exhibit to CG&E's June 30, 1998, Form
10-Q in File No. 1-1232.)
Cinergy and PSI
4-B #Fourth Supplemental Indenture dated as of August
5, 1998, between PSI and The Fifth Third Bank, as
Trustee. (Exhibit to PSI's June 30, 1998, Form
10-Q in File No. 1-3543.)
4-C #Loan Agreement between PSI and the Indiana
Department Finance Authority dated as of July 15,
1998. (Exhibit to PSI's June 30, 1998, Form 10-Q
in File No. 1-3543.)
Cinergy, CG&E, and PSI
10-A #Third Amendment to Employment Agreement dated May
1, 1998, between Cinergy, Cinergy Services, Inc.,
CG&E, PSI and Larry E. Thomas. (Exhibit to
Cinergy's June 30, 1998, Form 10-Q in File No. 1-
11377.)
Cinergy, CG&E, PSI, and ULH&P
27 Financial Data Schedules (included in
electronic submission only).
The following reports on Form 8-K were filed during the quarter or prior to
the filing of the Form 10-Q for the quarter ended June 30, 1998.
Date of Report Item Filed
Cinergy
July 15, 1998 Item 5. Other Events
Item 7. Financial Statements and Exhibits
CG&E
July 15, 1998 Item 5. Other Events
PSI
July 15, 1998 Item 5. Other Events
<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: August 13, 1998 /s/John P. Steffen
---------------------------------------
John P. Steffen
Duly Authorized Officer
and
Chief Accounting Officer
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
This Third Amendment to Employment Agreement (the "Third Amendment") dated
effective May 1, 1998, is by and among Cinergy Corp., a Delaware corporation
("Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy
Services"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"),
PSI Energy, Inc., an Indiana corporation ("PSI"), and Larry E. Thomas (the
"Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be
referred to in this Third Amendment collectively as the "Corporation".
WHEREAS, the Executive has been employed by the Corporation since October
5, 1967;
WHEREAS, the Executive has been employed by the Corporation pursuant to an
Employment Agreement dated effective as of October 24, 1994 (the "Employment
Agreement"), as amended by a First Amendment to Employment Agreement dated
effective as of October 24, 1994 (the "First Amendment") and a Second Amendment
to Employment Agreement dated effective as of January 29, 1997 (the "Second
Amendment");
WHEREAS, the parties desire to amend the retirement and relocation
provisions of the Employment Agreement;
NOW, THEREFORE, the parties have agreed to enter into this Third Amendment
which amends the Employment Agreement, as previously amended, as follows:
1. The substantive provisions of Section 3 (b) are deleted in their entirety
and replaced with the following:
"b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits.
During the Employment Period and so long as the Executive is employed
by the Corporation, the Executive shall be eligible, and the
Corporation shall take
Page 1 of 3
<PAGE>
such actions as may be necessary or required to cause the Executive to
become eligible, to participate in all short-term and long-term
incentive, stock option, restricted stock, savings, retirement and
welfare plans, practices, policies and programs applicable generally
to employees and/or other senior executives of the Corporation who are
considered Tier II executives for compensation purposes, including,
but not limited to, the Annual Incentive Plan, the 1996 Long-Term
Incentive Compensation Plan, the Executive Supplemental Life Insurance
Program, the Nonqualified Deferred Incentive Compensation Plan, the
Excess 401(k) Plan, the NonUnion Employees' 401(k) Plan, the Non-Union
Employees' Pension Plan and the Excess Benefit Plan, or any successors
thereto, except with respect to any plan, practice, policy or program
to which the Executive has waived his rights in writing.
With regard to the Executive's retirement benefits, the Executive
shall be entitled to a 'Contractual Retirement Supplement' (paid from
the Corporation's general assets) which extends to the Executive upon
retirement on or after age fifty-five (55) a non-qualified benefit
that, when added to the Executive's benefit under the Pension Plan and
the Excess Benefit Plan, or any successor thereto, will provide total
retirement income equivalent to a full career employee with equal
annual earnings. For purposes of the preceding sentence, a 'full
career employee' shall mean an employee with thirty-five (35) full
years of 'service' under the Pension Plan."
2. The substantive provisions of Section 3 (e) are deleted in their entirety
and replaced with the following:
"e. Relocation Benefits. The Executive shall be entitled to
reimbursement from the Corporation pursuant to the terms of the
Corporation's Relocation Program in
Page 2 of 3
<PAGE>
effect as of the day and year first written above, as well as actual
expenses for temporary housing until such time as he has moved into a
new primary residence in the general area of the Corporation's
principal corporate office located in Cincinnati, Ohio. In addition,
following termination of the Executive's employment for any reason,
the Corporation shall reimburse the Executive for the reasonable costs
of relocating from the Cincinnati, Ohio, area to a new primary
residence in a manner that is consistent with the Corporation's
Relocation Program in effect as of May 1, 1998. The expenses described
in this Section shall be 'grossed-up' to provide for adverse tax
consequences to the Executive."
3. All other provisions of the Employment Agreement, First Amendment, and
Second Amendment remain unchanged by this Third Amendment.
IN WITNESS WHEREOF, the Executive and the Corporation have caused this
Third Amendment to Employment Agreement to be executed effective as of the day
and year first above written.
CINERGY CORP., CINERGY SERVICES, INC.,
THE CINCINNATI GAS & ELECTRIC COMPANY,
and PSI ENERGY, INC.
By: _________________________
James E. Rogers
Vice Chairman and
Chief Executive Officer
EXECUTIVE
- -----------------------------
Larry E. Thomas
Page 3 of 3
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAR-01-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,291,113
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 857,597
<TOTAL-DEFERRED-CHARGES> 1,645,847
<OTHER-ASSETS> 385,746
<TOTAL-ASSETS> 9,180,303
<COMMON> 1,585
<CAPITAL-SURPLUS-PAID-IN> 1,599,435
<RETAINED-EARNINGS> 902,226
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,503,246
0
92,688
<LONG-TERM-DEBT-NET> 2,192,975
<SHORT-TERM-NOTES> 1,120,559
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 251,569
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,019,266
<TOT-CAPITALIZATION-AND-LIAB> 9,180,303
<GROSS-OPERATING-REVENUE> 1,072,003
<INCOME-TAX-EXPENSE> (10,897)
<OTHER-OPERATING-EXPENSES> 1,058,455
<TOTAL-OPERATING-EXPENSES> 1,047,558
<OPERATING-INCOME-LOSS> 24,445
<OTHER-INCOME-NET> 11,743
<INCOME-BEFORE-INTEREST-EXPEN> 36,188
<TOTAL-INTEREST-EXPENSE> 62,121
<NET-INCOME> (25,933)
0
<EARNINGS-AVAILABLE-FOR-COMM> (25,933)
<COMMON-STOCK-DIVIDENDS> 71,006
<TOTAL-INTEREST-ON-BONDS> 43,835
<CASH-FLOW-OPERATIONS> 374,684
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
