UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-13-60
ANNUAL REPORT
For the Period
Beginning January 1, 1998 and Ending December 31, 1998
to the
U.S. SECURITIES AND EXCHANGE COMMISSION
of
Cinergy Services, Inc.
(Exact Name of Reporting Company)
A Subsidiary SERVICE COMPANY
Date of Incorporation: February 23, 1994
State or Sovereign Power under which Incorporated or Organized: Delaware
Location of Principal Executive Offices of Reporting Company: Cincinnati, Ohio
Name, title, and address of officer to whom correspondence concerning this
report should be addressed:
Bernard F. Roberts, Vice President and Comptroller,
139 East Fourth Street, Cincinnati, Ohio 45202
Name of Principal Holding Company Whose Subsidiaries are served by Reporting
Company: Cinergy Corp.
<PAGE>
INSTRUCTIONS FOR USE OF FORM U-13-60
1. Time of Filing. Rule 94 provides that on or before the first day of May in
each calendar year, each mutual service company and each subsidiary service
company as to which the Commission shall have made a favorable finding
pursuant to Rule 88, and every service company whose application for
approval or declaration pursuant to Rule 88 is pending shall file with the
Commission an annual report on Form U-13-60 and in accordance with the
Instructions for that form.
2. Number of Copies. Each annual report shall be filed in duplicate. The
company should prepare and retain at least one extra copy for itself in
case correspondence with reference to the report becomes necessary.
3. Period Covered by Report. The first report filed by any company shall cover
the period from the date the Uniform System of Accounts was required to be
made effective as to that company under Rules 82 and 93 to the end of that
calendar year. Subsequent reports should cover a calendar year.
4. Report Format. Reports shall be submitted on the forms prepared by the
Commission. If the space provided on any sheet of such form is inadequate,
additional sheets may be inserted of the same size as a sheet of the form
or folded to each size.
5. Money Amounts Displayed. All money amounts required to be shown in
financial statements may be expressed in whole dollars, in thousands of
dollars or in hundred thousands of dollars, as appropriate and subject to
provisions of Regulation S-X (210.3-01(b)).
6. Deficits Displayed. Deficits and other like entries shall be indicated by
the use of either brackets or a parenthesis with corresponding reference in
footnotes. (Regulation S-X, 210.3-01(c)).
7. Major Amendments or Corrections. Any company desiring to amend or correct a
major omission or error in a report after it has been filed with the
Commission shall submit an amended report including only those pages,
schedules, and entries that are to be amended or corrected. A cover letter
shall be submitted requesting the Commission to incorporate the amended
report changes and shall be signed by a duly authorized officer of the
company.
8. Definitions. Definitions contained in Instruction 01-8 to the Uniform
System of Accounts for Mutual Service Companies and Subsidiary Service
Companies, Public Utility Holding Company Act of 1935, as amended February
2, 1979 shall be applicable to words or terms used specifically within this
Form U-13-60.
9. Organization Chart. The service company shall submit with each annual
report a copy of its current organization chart.
10. Methods of Allocation. The service company shall submit with each annual
report a listing of the currently effective methods of allocation being
used by the service company and on file with the Securities and Exchange
Commission pursuant to the Public Utility Holding Company Act of 1935.
11. Annual Statement of Compensation for Use of Capital Billed. The service
company shall submit with each annual report a copy of the annual statement
supplied to each associate company in support of the amount of compensation
for use of capital billed during the calendar year.
<PAGE>
Annual Report of Cinergy Services, Inc.
LISTING OF SCHEDULES AND ANALYSIS OF ACCOUNTS
Schedule or
Description of Schedules and Accounts Account No. Page No.
Comparative Balance Sheets - Assets Schedule I 5
Comparative Balance Sheets - Liabilities Schedule I 6
Service Company Property Schedule II 7
Accumulated Provision for Depreciation and
Amortization of Service Company Property Schedule III 8
Investments Schedule IV 9
Accounts Receivable from Associate Companies Schedule V 10
Fuel Stock Expenses Undistributed Schedule VI 11
Stores Expense Undistributed Schedule VII 12
Miscellaneous Current and Accrued Assets Schedule VIII 13
Miscellaneous Deferred Debits Schedule IX 14
Research, Development, or Demonstration
Expenditures Schedule X 15
Proprietary Capital Schedule XI 16
Long-term Debt Schedule XII 17
Current and Accrued Liabilities Schedule XIII 18
Notes to Financial Statements Schedule XIV 19
Comparative Income Statements Schedule XV 24
Analysis of Billing - Associate Companies Account 457 25
Analysis of Billing - Nonassociate Companies Account 458 26
Analysis of Charges for Service - Associate
and Nonassociate Companies Schedule XVI 27
Schedule of Expense Distribution by Department
or Service Function Schedule XVII 28
Departmental Analysis of Salaries Account 920 31
Outside Services Employed Account 923 32
Employee Pensions and Benefits Account 926 35
General Advertising Expenses Account 930.1 36
Miscellaneous General Expenses Account 930.2 37
Rents Account 931 38
Taxes Other Than Income Taxes Account 408 39
Donations Account 426.1 40
Other Deductions Account 426.5 41
Notes to Statements of Income Schedule XVIII 42
Financial Data Schedule Schedule XIX 43
LISTING OF INSTRUCTIONAL FILING REQUIREMENTS
Description of Reports or Statements Page No.
Organization Chart 44
Methods of Allocation 45
Annual Statement of Compensation for Use of Capital Billed 47
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
As of December 31, 1998 and 1997
Schedule I - COMPARATIVE BALANCE SHEETS Give balance sheet of the Company as of
December 31 of the current and prior year
<S> <C> <C> <C>
REF December 31
ACCOUNT ASSETS AND OTHER DEBITS SCHED 1998 1997
- ------- ----------------------- ----- ---- ----
SERVICE COMPANY PROPERTY
101 Service Company Property II $ 24,287,027 $ 8,943,593
107 Construction Work in Progress II 13,391,702 11,722,791
------------ -----------
Total Property 37,678,729 20,666,384
108 Accumulated Provision for Depreciation and
Amortization of Service Company Property III (4,235,284) (1,103,349)
------------ -----------
Net Service Company Property 33,443,445 19,563,035
INVESTMENTS
123 Investments in Associate Companies IV - -
124 Other Investments IV - -
------------ -----------
Total Investments - -
CURRENT AND ACCRUED ASSETS
131 Cash 34,879 -
134 Special Deposits - -
135 Working Funds 2,842 -
136 Temporary Cash Investments IV - -
141 Notes Receivable (9,350) -
143 Accounts Receivable 131,462 339,601
144 Accumulated Provision for Uncollectible Accounts - -
145 Notes Receivable from Associate Companies 14,766,612 -
146 Accounts Receivable from Associate Companies V 29,344,101 19,533,715
152 Fuel Stock Expenses Undistributed VI - -
154 Materials and Supplies - -
163 Stores Expense Undistributed VII - -
165 Prepayments 50,000 -
174 Miscellaneous Current and Accrued Assets VIII - -
------------ -----------
Total Current and Accrued Assets 44,320,546 19,873,316
DEFERRED DEBITS
181 Unamortized Debt Expense - -
184 Clearing Accounts 85,929 555
186 Miscellaneous Deferred Debits IX 10,165,815 55,441
188 Research, Development, or Demonstration Expenditures X - -
190 Accumulated Deferred Income Taxes 27,600,110 763,671
------------ -----------
Total Deferred Debits 37,851,854 819,667
TOTAL ASSETS AND OTHER DEBITS $115,615,845 $40,256,018
============ ===========
Annual Report of Cinergy Services, Inc.
As of December 31, 1998 and 1997
Schedule I - COMPARATIVE BALANCE SHEETS (Continued)
REF December 31
ACCOUNT LIABILITIES AND PROPRIETARY CAPITAL SCHED 1998 1997
- ------- ----------------------------------- ----- ---- ----
PROPRIETARY CAPITAL
201 Common Stock Issued (Note 2) XI $ 3 $ 3
211 Miscellaneous Paid-In-Capital XI - -
215 Appropriated Retained Earnings XI - -
216 Unappropriated Retained Earnings XI 739,125 -
------------ ------------
Total Proprietary Capital 739,128 3
LONG-TERM DEBT
223 Advances From Associate Companies XII - -
224 Other Long-Term Debt XII - -
225 Unamortized Premium on Long-Term Debt - -
226 Unamortized Discount on Long-Term Debt - -
------------ -----------
Total Long-Term Debt - -
CURRENT AND ACCRUED LIABILITIES
231 Notes Payable - -
232 Accounts Payable 27,630,215 15,910,544
233 Notes Payable To Associate Companies XIII 52,641 20,949,887
234 Accounts Payable to Associate Companies XIII - 2,274,100
236 Taxes Accrued 2,577,318 1,232,047
237 Interest Accrued - -
238 Dividends Declared - -
241 Tax Collections Payable 3,175,117 (363,074)
242 Miscellaneous Current and Accrued Liabilities XIII (4,667) -
------------ -----------
Total Current and Accrued Liabilities 33,430,624 40,003,504
DEFERRED CREDITS
228 Accumulated Provisions for Pensions and Benefits 8,424,032 -
253 Other Deferred Credits 72,734,162 140,000
255 Accumulated Deferred Investment Tax Credits - -
------------ -----------
Total Deferred Credits 81,158,194 140,000
282 ACCUMULATED DEFERRED INCOME TAXES 287,899 112,511
---------------------------------
TOTAL LIABILITIES AND PROPRIETARY CAPITAL $115,615,845 $40,256,018
============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule II - SERVICE COMPANY PROPERTY
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT RETIREMENTS OTHER BALANCE
BEGINNING OR CHANGES AT CLOSE
ACCOUNT DESCRIPTION OF YEAR ADDITIONS SALES (1) OF YEAR
- ------- ----------- ------- --------- ----- --- -------
SERVICE COMPANY PROPERTY
301 Organization $ - $ - $ - $ - $ -
303 Miscellaneous Intangible Plant - - - - -
304 Land and Land Rights - - - - -
305 Structures and Improvements - - - - -
306 Leasehold Improvements - - - - -
307 Equipment (2) - - - - -
308 Office Furniture and Equipment 2,554,905 524,599 - - 3,079,504
309 Automobiles, Other Vehicles and
Related Garage Equipment - - - - -
310 Aircraft and Airport Equipment - - - - -
311 Other Service Company Property (3) 6,388,688 14,818,835 - - 21,207,523
----------- ----------- ------ ------ -----------
Sub-Total 8,943,593 15,343,434 - - 24,287,027
107 Construction Work in Progress (4) 11,722,791 1,668,911 - - 13,391,702
----------- ----------- ------ ------ -----------
Total $20,666,384 $17,012,345 $ - $ - $37,678,729
=========== =========== ====== ====== ===========
<FN>
NOTES
(1) Provide an explanation of those changes considered material: None
(2) Subaccounts are required for each class of equipment owned. The Service
Company shall provide a listing by subaccount of equipment additions during
the year and the balance at the close of the year: None
(3) Describe Other Service Company Property:
BALANCE
AT CLOSE
DESCRIPTION OF YEAR
Computer Software $21,207,523
$21,207,523
(4) Describe Construction Work in Progress: BALANCE
AT CLOSE
DESCRIPTION OF YEAR
Computer Software $13,391,702
$13,391,702
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule III - ACCUMULATED PROVISION FOR DEPRECIATION AND AMORTIZATION OF SERVICE COMPANY PROPERTY
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT BALANCE
BEGINNING OTHER CHANGES AT CLOSE
ACCOUNT DESCRIPTION OF YEAR ADDITIONS RETIREMENTS ADD (DEDUCT) (1) OF YEAR
- ------- ----------- ------- --------- ----------- ---------------- -------
301 Organization $ - $ - $ - $ - $ -
303 Miscellaneous Intangible Plant - - - - -
304 Land and Land Rights - - - - -
305 Structures and Improvements - - - - -
306 Leasehold Improvements - - - - -
307 Equipment - - - - -
308 Office Furniture and Equipment 458,247 363,917 - - 822,164
309 Automobiles, Other Vehicles and
Related Garage Equipment - - - - -
310 Aircraft and Airport Equipment - - - - -
311 Other Service Company Property 645,102 2,768,017 - 1 3,413,120
---------- ---------- ------- -------- ----------
Total $1,103,349 $3,131,934 $ - $ 1 $4,235,284
========== ========== ======= ======== ==========
<FN>
NOTES
(1) Provide an explanation of those changes considered material: None
</FN>
</TABLE>
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule IV - INVESTMENTS
INSTRUCTIONS: Complete the following schedule concerning investments.
Under Account 124, "Other Investments", state each investment separately, with
description, including the name of issuing company, number of shares or
principal amount, etc.
Under Account 136, "Temporary Cash Investments", list each investment
separately.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
Account 123 - Investments in Associate
Companies
None
Total $ - $ -
========= =========
Account 124 - Other Investments
None
Total $ - $ -
========= =========
Account 136 - Temporary Cash Investments
None
Total $ - $ -
========= =========
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule V - ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES
INSTRUCTIONS: Complete the following schedule listing accounts receivable from
each associate company. Where the service company has provided
accommodation or convenience payments for associate companies, a separate
listing of total payments for each associate company by subaccount should
be provided.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
Account 146 - Accounts Receivable
from Associate Companies:
The Cincinnati Gas & Electric
Company (CG&E) $ - $ 8,323,592
PSI Energy, Inc. (PSI) 12,095,900 8,509,459
PSI Energy Argentina, Inc. 8,020 -
Lawrenceburg Gas Company (Lawrenceburg) 114,693 57,008
KO Transmission Company 46 4,344
The Union Light, Heat and Power
Company (ULH&P) 2,142,565 3,061,688
The West Harrison Gas and Electric
Company (WHG&E) 3,789 2,277
Cinergy Corp. (Cinergy) 5,168,702 9,385,733
----------- -----------
Total $19,533,715 $29,344,101
=========== ===========
Analysis Of Convenience Or Accommodation Payments:
None
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule VI - FUEL STOCK EXPENSES UNDISTRIBUTED
INSTRUCTIONS: Report the amount of labor and expenses incurred with respect to
fuel stock expenses during the year and indicate amount attributable to
each associate company. Under the section headed "Summary" listed below
give an overall report of the fuel functions performed by the service
company.
DESCRIPTION LABOR EXPENSES TOTAL
Account 152 - Fuel Stock Expenses
Undistributed
None
Total $ - $ - $ -
======== ======== ========
Summary:
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule VII - STORES EXPENSE UNDISTRIBUTED
INSTRUCTIONS: Report the amount of labor and expenses incurred with
respect to stores expense during the year and indicate
amount attributable to each associate company.
DESCRIPTION LABOR EXPENSES TOTAL
Account 163 - Stores Expense
Undistributed
None
Total $ - $ - $ -
======== ======== ========
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule VIII - MISCELLANEOUS CURRENT AND ACCRUED ASSETS
INSTRUCTIONS: Provide detail of items in this account. Items less than
$10,000 may be grouped, showing the number of items in each group.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
Account 174 - Miscellaneous Current
and Accrued Assets
None
Total $ - $ -
========= =========
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule IX- MISCELLANEOUS DEFERRED DEBITS
INSTRUCTIONS: Provide detail of items in this account. Items less than
$10,000 may be grouped by class showing the number of items
in each class.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
Account 186 - Miscellaneous Deferred
Debits
Items Deferred Pending Investigation $55,441 $ 464,874
Intangible Asset Associated with
Non-qualified Pension Plans - 9,700,941
------- -----------
Total $55,441 $10,165,815
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule X - RESEARCH, DEVELOPMENT, OR DEMONSTRATION EXPENDITURES
INSTRUCTIONS: Provide a description of each material research, development,
or demonstration project which incurred costs by the service
corporation during the year.
DESCRIPTION AMOUNT
Account 188 - Research, Development, or
Demonstration Expenditures
None
Total $ -
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XI - PROPRIETARY CAPITAL
<S> <C> <C> <C> <C> <C>
NUMBER PAR OR
ACCOUNT OF SHARES STATED VALUE OUTSTANDING CLOSE OF PERIOD
NUMBER CLASS OF STOCK AUTHORIZED PER SHARE NO. OF SHARES TOTAL AMOUNT
------ -------------- ---------- --------- ------------- ------------
201 Common Stock Issued 100 $0.05 50 $3
INSTRUCTIONS: Classify amounts in each account with brief explanation, disclosing the general nature of
transactions which gave rise to the reported amounts.
DESCRIPTION AMOUNT
211 Miscellaneous Paid-In-Capital None
215 Appropriated Retained Earnings None
Total $ -
INSTRUCTIONS: Give particulars concerning net income or (loss) during the year, distinguishing between
compensation for the use of capital owed or net loss remaining from servicing nonassociates
per the General Instructions of the Uniform System of Accounts. For dividends paid during
the year in cash or otherwise, provide rate percentage, amount of dividend, date declared,
and date paid.
BALANCE BALANCE
AT BEGINNING NET INCOME DIVIDENDS AT CLOSE
ACCOUNT DESCRIPTION OF YEAR OR (LOSS) PAID OTHER (1) OF YEAR
- ------- ----------- ------- --------- ---- ----- -------
216 Unappropriated Retained Earnings $ - $ - $ - $739,125 $739,125
<FN>
(1) Represents entries related to stock-based compensation plans of $1,532,825
and a $(793,700) adjustment for additional minimum pension liability
recognized pursuant to Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XII - LONG-TERM DEBT
INSTRUCTIONS: Advances from associate companies should be reported separately for advances on notes and advances
on open account. Names of associate companies from which advances were received shall be shown under
the class and series of obligation column. For Account 224 - Other Long-Term Debt, provide the name
of creditor company or organization, terms of the obligation, date of maturity, interest rate, and the
amount authorized and outstanding.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TERMS OF OBLIGATION BALANCE AT BALANCE
CLASS & SERIES DATE OF INTEREST AMOUNT BEGINNING (1) AT CLOSE
NAME OF CREDITOR OF OBLIGATION MATURITY RATE AUTHORIZED OF YEAR ADDITIONS DEDUCTIONS OF YEAR
---------------- ------------- -------- ---- ---------- ------- --------- ---------- -------
Account 223 - Advances from Associate
Companies: None
Total
Account 224 - Other Long-Term
Debt: None
Total
<FN>
NOTES:
(1) Give an explanation of deductions: None
</FN>
</TABLE>
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XIII - CURRENT AND ACCRUED LIABILITIES
INSTRUCTIONS: Provide balance of notes and accounts payable to each associate
company. Give description and amount of miscellaneous current
and accrued liabilities. Items less than $10,000 may be grouped,
showing the number of items in each group.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
Account 233 - Notes Payable to
Associate Companies
CG&E $10,758,000 $ 5,893
PSI 10,150,000 4,861
Cinergy 41,887 41,887
----------- -------
Total $20,949,887 $52,641
Account 234 - Accounts Payable to
Associate Companies
CG&E $ 2,274,100 $ -
----------- -------
Total $ 2,274,100 $ -
Account 242 - Miscellaneous Current and
Accrued Liabilities
Bureau of Support Payments Withheld $ - $(5,817)
Wage Garnishments - 176
Helping Hands - Indiana Payroll Deductions - 974
----------- -------
Total $ - $(4,667)
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XIV - NOTES TO FINANCIAL STATEMENTS
Instructions: The space below is provided for important notes regarding the
financial statements or any account thereof. Furnish particulars as to any
significant contingent assets or liabilities existing at the end of the
year. Notes relating to financial statements shown elsewhere in this report
may be indicated here by reference.
1. Summary of Significant Accounting Policies
(a) Nature of Operations Cinergy Corp., a Delaware corporation ("Cinergy"), is a
registered holding company under the Public Utility Holding Company Act of 1935
("PUHCA"). Cinergy was created in the October 1994 merger of The Cincinnati Gas
& Electric Company ("CG&E") and PSI Resources, Inc. Cinergy Services, Inc.
("Services") is a wholly-owned subsidiary of Cinergy. Cinergy's other
wholly-owned subsidiaries are CG&E, PSI Energy, Inc. (PSI), Cinergy Investments,
Inc., and Cinergy Global Resources.
Services, a Delaware corporation, is the service company for the Cinergy system,
providing member companies with a variety of administrative, management, and
support services.
(b) Presentation The preparation of financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(c) Federal and State Income Taxes Under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("Statement
109"), deferred tax assets and liabilities are recognized for the income tax
consequences of transactions treated differently for financial reporting and tax
return purposes, measured on the basis of statutory tax rates.
(d) Regulation Services is subject to regulation by the Securities and Exchange
Commission ("SEC") under the PUHCA. The accounting policies of Services conform
to GAAP and follow the Uniform System of Accounts for Mutual Service Companies
and Subsidiary Service Companies prescribed by the SEC pursuant to the PUHCA.
(e) Service Company Property Service company property and equipment, including
any interest capitalized during construction, are recorded at cost.
(f) Depreciation Provisions for depreciation are determined by using the
straight-line method applied to the cost of depreciable plant in service. The
effective annual depreciation rate for 1998 was 12.3% and for 1997 was 11.8%.
Software is amortized over a five-year period at an annual rate of 20%.
(g) Income and Expenses Services provided to affiliated companies are provided
at cost. The costs of services are determined on a direct charge basis to the
extent practicable. Indirect costs are charged using the ratios defined in the
service agreements between Services and the client companies. (See "Methods of
Allocation" on pages 45-47.)
2. Common Stock
Services is authorized to issue 100 shares of Common Stock at a par value of
five cents ($.05) per share and had 50 shares outstanding at December 31, 1998.
All of Services' outstanding common stock is held by Cinergy.
3. Notes Payable to Associate Companies
To better manage cash and working capital requirements, Cinergy's utility
subsidiaries and Services participate in a money pooling arrangement. Under this
arrangement, Cinergy system companies with surplus short-term funds, whether
from internal or external sources, provide short-term loans to other system
companies at rates that reflect (1) the actual costs of the external borrowing
and/or (2) the costs of the internal funds which are set at the 30-day Federal
Reserve "AA" industrial commercial paper rate. The SEC's approval of the money
pool, pursuant to the PUHCA, extends through December 31, 2002.
4. Leases
Cinergy and its subsidiaries, including Services, have entered into operating
lease agreements covering various facilities and properties, including computer,
communications, and transportation equipment and office space. Total rental
payments on operating leases for each of the past two years were as follows:
1998 1997
(in millions)
Cinergy and subsidiaries $42 $36
Future minimum lease payments required under operating leases with remaining,
non-cancelable lease terms in excess of one year as of December 31, 1998, are as
follows:
Cinergy and
Subsidiaries
(in millions)
1999 $ 38
2000 31
2001 22
2002 14
2003 10
After 2003 36
----
$151
5. Pension and Other Postretirement Benefits
Cinergy's defined benefit pension plans, of which Services is a participant,
cover substantially all United States ("US") employees meeting certain minimum
age and service requirements. Plan benefits are determined under a final average
pay formula with consideration of years of participation, age at retirement, and
the applicable average Social Security wage base or benefit amount.
Effective January 1, 1998, Cinergy reconfigured its defined benefit pension
plans. The reconfigured plans cover the same employees as the previous plans and
established a uniform final average pay formula for all employees. The
reconfiguration of the pension plans did not have a significant impact on
Cinergy's financial condition or results of operations.
Cinergy's pension plan funding policy for US employees is to contribute annually
an amount which is not less than the minimum amount required by the Employee
Retirement Income Security Act of 1974 and not more than the maximum amount
deductible for income tax purposes. The pension plans' assets consist of
investments in equity and fixed income securities.
Cinergy, including Services, provides certain health care and life insurance
benefits to retired US employees and their eligible dependents, if the retiree
has met minimum age and service requirements. The health care benefits include
medical coverage, dental coverage, and prescription drugs and are subject to
certain limitations, such as deductibles and co-payments. Prior to January 1,
1997, CG&E and PSI employees were covered under separate plans. Effective
January 1, 1997, all Cinergy active US employees are eligible to receive
essentially the same postretirement health care benefits. Certain classes of
employees, based on age, as well as all retirees, have been grandfathered under
benefit provisions in place prior to January 1, 1997. CG&E does not pre-fund its
obligations for these postretirement benefits. PSI is pre-funding its
obligations as authorized by the IURC.
Cinergy's benefit plans' cost for 1998 and 1997 included the following
components:
Other
Pension Postretirement
Benefits Benefits
1998 1997 1998 1997
(in millions)
Service cost $21.8 $19.8 $ 4.1 $ 3.1
Interest cost 71.6 67.8 16.1 16.3
Expected return on plans'
assets (66.9) (62.8) - -
Amortization of transition
obligation/(asset) (1.3) (1.3) 5.0 5.0
Amortization of prior service
cost 4.4 4.4 - -
Recognized actuarial loss - (.3) .4 .3
----- ----- ----- -----
Net periodic benefit cost $29.6 $27.6 $25.6 $24.7
Other
Pension Postretirement
Benefits Benefits
1998 1997 1998 1997
---- ---- ---- ----
Actuarial Assumptions:
Discount rate 6.75% 7.5% 6.75% 7.5%
Rate of future compensation
increase 3.75% 4.5% n/a n/a
Rate of return on plans' assets 9.00% 9.0% n/a n/a
For measurement purposes, a 7% annual rate of increase in the per capita cost of
covered health care benefits was assumed for 1999. The rate was assumed to
decrease gradually to 5% for 2004 and remain at that level thereafter.
The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ended
December 31, 1998, and a statement of the funded status as of December 31 of
both years.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Other
Pension Postretirement
Benefits Benefits
1998 1997 1998 1997
(in millions)
Change in benefit obligation
Benefit obligation at beginning of
period $960.3 $ 877.4 $221.9 $ 211.0
Service cost 21.8 19.8 4.1 3.1
Interest cost 71.6 67.8 16.1 16.3
Amendments 1.0 - - -
Actuarial gain 53.6 65.4 17.4 3.7
Benefits paid (56.2) (70.1) (13.0) (12.2)
------- ------- ------ -------
Benefit obligation at end of period 1 052.1 960.3 246.5 221.9
------- ------- ------ -------
Change in plan assets
Fair value of plan assets at beginning
of period 888.1 764.1 - -
Actual return on plan assets 9.9 186.6 - -
Employer contribution 23.5 7.5 13.0 12.2
Benefits paid (56.2) (70.1) (13.0) (12.2)
------- ------- ------- -------
Fair value of plan assets at end
of period 865.3 888.1 - -
------- ------- ------- -------
Funded status (186.8) (72.2) (246.5) (221.9)
Unrecognized prior service cost 43.3 46.6 - -
Unrecognized net actuarial (gain)/loss (24.1) (134.6) 40.3 22.6
Unrecognized net plan assets (7.1) (8.5) 65.8 70.9
------- ------- ------- -------
Accrued benefit cost at December 31 $(174.7) $(168.7) $(140.4) $(128.4)
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
(in millions)
Effect on total of service and interest
cost components $ 2.8 $(2.4)
Effect on postretirement benefit
obligation 26.7 (23.7)
In addition, Cinergy sponsors non-qualified pension plans that cover officers,
certain other key employees, and non-employee directors. Cinergy's non-qualified
pension plans are not currently funded. Cinergy may begin to fund certain of
these plans through a rabbi trust in 1999.
<PAGE>
The pension benefit obligations and pension expense under these plans were:
1998 1997
(in millions)
Pension benefit obligations $31.4 $24.6
Pension expense 4.5 4.1
6. Income Taxes
Services' net deferred income tax asset at December 31, 1998, and 1997, is as
follows:
1998 1997
---- ----
Deferred Income Tax Liability $ 287,899 $112,511
Deferred Income Tax Asset
Accrued pension and other
benefit costs 27,467,792 763,671
Other 132,318 -
----------- --------
27,600,110 763,671
Net Deferred Income Tax Asset $27,312,211 $651,160
Services will participate in the filing of a consolidated federal income tax
return with Cinergy for the year ended December 31, 1998. The current tax
liability is allocated among the members of the group pursuant to a tax sharing
agreement consistent with Rule 45(c) of the PUHCA.
A summary of federal and state income taxes charged (credited) to income and the
allocation of such amounts is as follows:
1998 1997
---- ----
Current Income Taxes
Federal $ 5,774,520 $ -
State 1,768,698 -
----------- --------
Total current income taxes 7,543,218 -
Deferred Income Taxes
Federal
Pension and other benefit costs (6,348,836) -
State
Pension and other benefit costs (1,529,396) -
Total deferred income taxes (7,878,232) -
Total Income Taxes $ (335,014) $ -
7. Net Income
The net income for the year ended December 31, 1997, represents the assignment
of expenses not assigned at December 31, 1996.
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XV - COMPARATIVE INCOME STATEMENTS
<S> <C> <C> <C>
December 31
ACCOUNT DESCRIPTION 1998 1997
- ------- ----------- ---- ----
INCOME:
457 Services Rendered to Associate Companies $412,408,919 $483,823,472
458 Services Rendered to Nonassociate Companies - -
415 Jobbing and Contract Work - -
419 Other Interest Income 424,175 34,030
------------ ------------
Total Income 412,833,094 483,857,502
EXPENSES:
920 Salaries and Wages 191,505,681 211,064,421
921 Office Supplies and Expenses 65,215,253 62,784,790
922 Administrative Expenses Transferred - Credit (791,816) (838,673)
923 Outside Services Employed 30,942,281 37,360,393
924 Property Insurance 383,853 1,668,240
925 Injuries and Damages (84,490) (191,042)
926 Employee Pensions and Benefits 39,159,153 72,739,966
928 Regulatory Commission Expense 999,353 1,843,674
930.1 General Advertising Expenses 382,271 53,159
930.2 Miscellaneous General Expenses 38,390,762 33,048,682
931 Rents 26,090,822 43,526,355
932 Maintenance of Structures and Equipment 5,054,406 5,678,703
403,404 Depreciation and Amortization Expense 3,131,934 920,170
408 Taxes Other Than Income Taxes 11,869,493 12,846,806
409 Income Taxes 7,543,218 -
410 Provision for Deferred Income Taxes (11,158) -
411 Provision for Deferred Income Taxes - Credit (7,867,074) -
411.5 Investment Tax Credit - -
421 Miscellaneous Income or Loss - (7,888)
426.1 Donations - -
426.5 Other Deductions - -
427 Interest on Long-term Debt - -
430 Interest on Debt to Associate Companies 1,073,253 1,723,197
431 Other Interest Expense (154,101) (363,454)
------------ ------------
Total Expense 412,833,094 483,857,499
NET INCOME $ 0 $ 3
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
ANALYSIS OF BILLING
ASSOCIATE COMPANIES - ACCOUNT 457
<S> <C> <C> <C> <C>
DIRECT INDIRECT COMPENSATION
COSTS COSTS FOR USE TOTAL
CHARGED CHARGED OF CAPITAL AMOUNT
NAME OF ASSOCIATE COMPANY 457-1 457-2 457-3 BILLED
PSI Energy, Inc. $108,685,365 $ 73,853,667 $ 254,166 $182,793,198
PSI Energy Argentina, Inc. 1,161 6,322 - 7,483
Cinergy Investments, Inc. 3,264,507 648,926 3,163 3,916,596
Cinergy Capital & Trading, Inc. 3,243,789 403,337 1,581 3,648,707
PSI Argentina, Inc. - - 56 56
The Cincinnati Gas & Electric Company 92,160,391 89,920,713 265,462 182,346,566
Enertech Associates, Inc. 122,738 2,853 565 126,156
Lawrenceburg Gas Company 182,623 431,770 791 615,184
KO Transmission Company 23,829 240 - 24,069
Miami Power Corporation 5,504 33 - 5,537
The Union Light, Heat and Power Company 10,927,252 13,133,259 29,935 24,090,446
The West Harrison Gas and Electric Company 9,364 15,225 56 24,645
Tri-State Improvement Company 38,703 6,658 - 45,361
Cinergy Resources, Inc. 335,076 402,120 960 738,156
Cinergy Corp. 2,112,901 334,114 1,243 2,448,258
Cinergy Technology, Inc. 275,385 83,723 395 359,503
Cinergy UK, Inc. 1,156,147 284,194 1,356 1,441,697
Cinergy Solutions, Inc. 6,631,774 1,119,098 4,914 7,755,786
Cinergy Communications, Inc. 924,193 20,182 113 944,488
Cinergy Engineering, Inc. 14,000 6,398 - 20,398
Cinergy Global Power, Inc. 773,875 14,589 - 788,464
Cinergy Supply Network, Inc. 197,412 8 - 197,420
Cinergy Global Resources, Inc. 70,605 83 57 70,745
------------ ------------ --------- ------------
TOTAL $231,156,594 $180,687,512 $ 564,813 $412,408,919
============ ============ ========= ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
ANALYSIS OF BILLING
NONASSOCIATE COMPANIES - ACCOUNT 458
Instructions: Provide a brief description of the services rendered to each
nonassociate company.
<S> <C> <C> <C> <C> <C> <C>
DIRECT INDIRECT COMPENSATION EXCESS
COSTS COSTS FOR USE OR TOTAL
CHARGED CHARGED OF CAPITAL TOTAL DEFICIENCY AMOUNT
NAME OF NONASSOCIATE COMPANY 458-1 458-2 458-3 COST 458-4 BILLED
----- ----- ----- ---- ----- ------
None
TOTAL $ - $ - $ - $ - $ - $ -
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XVI - ANALYSIS OF CHARGES FOR SERVICE - ASSOCIATE AND NONASSOCIATE COMPANIES
INSTRUCTIONS: Total cost of service will equal for associate and nonassociate
companies the total amount billed under their separate analysis
of billing schedules.
<S> <C> <C> <C> <C> <C> <C> <C>
Associate Company Charges Nonassociate Company Charge
--------------------------------------- ---------------------------
Direct Indirect Direct Indirect
Account Description Of Items Cost Cost Total Cost Cost Total
- ------- -------------------- ------ -------- ----- ----- ------- -----
920 Salaries and Wages $116,093,062 $ 75,412,619 $191,505,681 $ - $ - $ -
921 Office Supplies and Expenses 37,082,897 28,132,356 65,215,253 - - -
922 Administrative Expense
Transferred - Credit (573,540) (218,276) (791,816) - - -
923 Outside Services Employed 8,217,798 22,724,483 30,942,281 - - -
924 Property Insurance 383,853 - 383,853 - - -
925 Injuries and Damages (97,661) 13,171 (84,490) - - -
926 Employee Pensions and Benefits 21,973,705 17,185,448 39,159,153 - - -
928 Regulatory Commission Expense 824,601 174,752 999,353 - - -
930.1 General Advertising Expenses 382,271 - 382,271 - - -
930.2 Miscellaneous General Expenses 34,192,248 4,198,514 38,390,762 - - -
931 Rents 4,450,165 21,640,657 26,090,822 - - -
932 Maintenance of Structures
and Equipment 2,651,358 2,403,048 5,054,406 - - -
403,404 Depreciation and Amortization
Expense 439,700 2,692,234 3,131,934 - - -
408 Taxes Other Than Income Taxes 7,022,914 4,846,579 11,869,493 - - -
409 Income Taxes - 7,543,218 7,543,218 - - -
410 Provision for Deferred Income
Taxes - (11,158) (11,158) - - -
411 Provision for Deferred Income
Taxes - Credit - (7,867,074) (7,867,074) - - -
411.5 Investment Tax Credit - - - - - -
421 Miscellaneous Income or Loss - - - - - -
426.1 Donations - - - - - -
426.5 Other Deductions - - - - - -
427 Interest on Long-term Debt - - - - - -
430 Interest on Debt to Associate
Companies - 1,073,253 1,073,253 - - -
431 Other Interest Expense 104,676 (258,777) (154,101) - - -
------------ ------------ ------------ ---- ---- ----
Total Expense $233,148,047 $179,685,047 $412,833,094 $ - $ - $ -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XVI - ANALYSIS OF CHARGES FOR SERVICE - ASSOCIATE AND NONASSOCIATE COMPANIES (CONTINUED)
INSTRUCTIONS: Total cost of service will equal for associate and nonassociate
companies the total amount billed under their separate analysis
of billing schedules.
<S> <C> <C> <C> <C>
Total Charges for Service
----------------------------------------
Direct Indirect
Account Description Of Items Cost Cost Total
- ------- -------------------- ---- ---- -----
920 Salaries and Wages $116,093,062 $ 75,412,619 $191,505,681
921 Office Supplies and Expenses 37,082,897 28,132,356 65,215,253
922 Administrative Expense
Transferred - Credit (573,540) (218,276) (791,816)
923 Outside Services Employed 8,217,798 22,724,483 30,942,281
924 Property Insurance 383,853 - 383,853
925 Injuries and Damages (97,661) 13,171 (84,490)
926 Employee Pensions and Benefits 21,973,705 17,185,448 39,159,153
928 Regulatory Commission Expense 824,601 174,752 999,353
930.1 General Advertising Expenses 382,271 - 382,271
930.2 Miscellaneous General Expenses 34,192,248 4,198,514 38,390,762
931 Rents 4,450,165 21,640,657 26,090,822
932 Maintenance of Structures
and Equipment 2,651,358 2,403,048 5,054,406
403,404 Depreciation and Amortization
Expense 439,700 2,692,234 3,131,934
408 Taxes Other Than Income Taxes 7,022,914 4,846,579 11,869,493
409 Income Taxes - 7,543,218 7,543,218
410 Provision for Deferred Income
Taxes - (11,158) (11,158)
411 Provision for Deferred Income
Taxes - Credit - (7,867,074) (7,867,074
411.5 Investment Tax Credit - - -
421 Miscellaneous Income or Loss - - -
426.1 Donations - - -
426.5 Other Deductions - - -
427 Interest on Long-term Debt - - -
430 Interest on Debt to Associate
Companies - 1,073,253 1,073,253
431 Other Interest Expense 104,676 (258,777) (154,101)
------------ ------------ ------------
Total Expense $233,148,047 $179,685,047 $412,833,094
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XVII - SCHEDULE OF EXPENSE DISTRIBUTION BY DEPARTMENT OR SERVICE FUNCTION
INSTRUCTIONS: Indicate each department or service function. (See Instruction 01-3 General Structure of Accounting System:
Uniform System of Account(s))
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------DEPARTMENT OR SERVICE FUNCTION-------------------------
TOTAL INFORMATION METERS AND ELEC. SYSTEM INTERNAL ELEC. TRANS.
ACCOUNT DESCRIPTION OF ITEMS AMOUNT OVERHEAD SYSTEMS TRANSPORTATION MAINTENANCE AUDITING & DISTRIBUTION ACCOUNTING
920 Salaries and Wages $191,505,681 $ - $16,712,674 $12,141,600 $657,655 $1,329,523 $19,812,131 $ 9,634,895
921 Office Supplies and
Expenses 65,215,253 - 10,518,455 1,965,981 66,769 318,834 1,195,512 4,810,260
922 Administrative Expense
Transferred - Credit (791,816) - (47,481) (15,468) - (68) (136,522) (16,229)
923 Outside Services
Employed 30,942,281 - 15,561,204 81,881 - 10,000 16,265 3,001,559
924 Property Insurance 383,853 - - 376,947 - - - (220,757)
925 Injuries and Damages (84,490) - - - - - - (25)
926 Employee Pensions and
Benefits 39,159,153 - 4,084,950 1,883,312 141,737 324,730 2,844,142 2,024,537
928 Regulatory Commission
Expense 999,353 - - - - - - 61,000
930.1 General Advertising
Expenses 382,271 - 7,794 - - - - -
930.2 Miscellaneous General
Expenses 38,390,762 - 1,773,598 320,595 812 - 591,615 7,181
931 Rents 26,090,822 - 13,966,782 (47,756) - - 26,227 6,266,605
932 Maintenance of Structures
and Equipment 5,054,406 - 2,994,184 960 828 - 1,070 (8,343)
403,404 Depreciation and
Amortization Expense 3,131,934 3,131,934 - - - - - -
408 Taxes Other Than
Income Taxes 11,869,493 - 1,130,418 547,111 42,779 92,589 856,136 669,519
409 Income Taxes 7,543,218 7,543,218 - - - - - -
410 Provision for Deferred
Income Taxes (11,158) (11,158) - - - - - -
411 Provision for Deferred
Income Taxes-Credit (7,867,074) (7,867,074) - - - - - -
411.5 Investment Tax Credit - - - - - - - -
421 Miscellaneous Income or
Loss - - - - - - - -
426.1 Donations - - - - - - - -
426.5 Other Deductions - - - - - - - -
427 Interest on Long-term
Debt - - - - - - - -
430 Interest on Debt to
Associate Companies 1,073,253 1,073,253 - - - - - -
431 Other Interest Expense (154,101) (154,101) - - - - - -
------------ ---------- ----------- ----------- -------- ---------- ----------- ----------
Total Expenses $412,833,094 $3,716,072 $66,702,578 $17,255,163 $910,580 $2,075,608 $25,206,576 $26,230,202
============ ========== =========== =========== ======== ========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XVII - SCHEDULE OF EXPENSE DISTRIBUTION BY DEPARTMENT OR SERVICE FUNCTION
INSTRUCTIONS: Indicate each department or service function. (See Instruction 01-3 General Structure of Accounting System:
Uniform System of Account(s))
-------------------------------DEPARTMENT OR SERVICE FUNCTION--------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HUMAN MATERIALS MARKETING & ENVIRONMENTAL PUBLIC POWER ENG. & INVESTOR
ACCOUNT DESCRIPTION OF ITEMS RESOURCES MANAGEMENT FACILITIES CUST. RELATIONS AFFAIRS AFFAIRS CONSTRUCTION RELATIONS
920 Salaries and Wages $16,540,505 $ 9,463,955 $ 3,489,071 $26,289,347 $1,656,093 $1,925,636 $23,093,783 $ 592,694
921 Office Supplies and
Expenses 2,233,602 1,964,687 4,234,649 6,516,147 3,468,205 1,220,190 2,451,673 222,190
922 Administrative Expense
Transferred - Credit (5,684) (2,114) - (27,384) - - (460,464) -
923 Outside Services
Employed 614,008 475,501 4,679 3,012,183 22,050 171,679 337,021 541,414
924 Property Insurance - 153,888 - 67,599 - - - -
925 Injuries and Damages - - - - - - 253,361 -
926 Employee Pensions and
Benefits 2,982,422 1,571,313 1,200,954 6,287,284 584,623 522,973 3,482,195 163,276
928 Regulatory Commission
Expense - - - - - - - -
930.1 General Advertising
Expenses - - - - - - - -
930.2 Miscellaneous General
Expenses 1,872,309 45,079 216,627 5,354,708 (83,407) 811,894 550,760 306,981
931 Rents 1,958 - 856,729 11,144 - 80,600 - 2,346
932 Maintenance of Structures
and Equipment 7 - 2,056,486 - - 3,930 963 -
403,404 Depreciation and
Amortization Expense - - - - - - - -
408 Taxes other Than Income
Taxes 715,186 472,438 348,052 1,914,809 198,163 149,805 1,012,411 45,271
409 Income Taxes - - - - - - - -
410 Provision for Deferred
Income Taxes - - - - - - - -
411 Provision for Deferred
Income Taxes - Credit - - - - - - - -
411.5 Investment Tax Credit - - - - - - - -
421 Miscellaneous Income
or Loss - - - - - - - -
426.1 Donations - - - - - - - -
426.5 Other Deductions - - - - - - - -
427 Interest on Long-term
Debt - - - - - - - -
430 Interest on Debt to
Associate Companies - - - - - - - -
431 Other Interest Expense - - - - - - - -
----------- ----------- ---------- ----------- ---------- ---------- ----------- ---------
Total Expenses $24,954,313 $14,144,747 $12,407,247 $49,425,837 $5,845,727 $4,886,707 $30,721,703 $1,874,172
=========== =========== =========== =========== ========== ========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XVII - SCHEDULE OF EXPENSE DISTRIBUTION BY DEPARTMENT OR SERVICE FUNCTION
INSTRUCTIONS: Indicate each department or service function. (See Instruction 01-3 General Structure of Accounting System:
Uniform System of Account(s))
-------------------------------------DEPARTMENT OR SERVICE FUNCTION---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
POWER
ACCOUNT DESCRIPTION OF ITEMS LEGAL RATES FINANCE RIGHT OF WAY FUELS PLANNING EXECUTIVE PLANNING
920 Salaries and Wages $ 6,186,899 $1,723,624 $ 5,728,020 $ 795,409 $1,277,573 $ 686,792 $17,509,631 $14,258,171
921 Office Supplies and
Expenses 1,814,502 170,473 3,123,673 195,567 60,717 241,199 4,805,196 13,616,772
922 Administrative Expense
Transferred - Credit - - (5,614) (176) (142) (915) (56,396) (17,159)
923 Outside Services
Employed 1,851,320 2,324 803,258 37,050 268,008 235,462 3,397,701 497,714
924 Property Insurance - - - - - - 6,176 -
925 Injuries and Damages 682 - (339,042) - - - - 534
926 Employee Pensions and
Benefits 1,449,925 449,942 1,322,737 272,434 320,957 162,831 3,140,547 3,941,332
928 Regulatory Commission
Expense 229,005 709,348 - - - - - -
930.1 General Advertising
Expenses - - - - - - 24,477 350,000
930.2 Miscellaneous General
Expenses 1,624,022 - 1,306,221 1,934 16,234 909 1,222,881 22,449,809
931 Rents 336,885 11,492 148,880 3,889,284 - 9,516 87,671 442,459
932 Maintenance of Structures
and Equipment 3,489 - - - - - 75 757
403,404 Depreciation and
Amortization Expense - - - - - - - -
408 Taxes Other Than Income
Taxes 423,012 129,727 450,316 80,043 91,427 52,705 1,139,122 1,308,454
409 Income Taxes - - - - - - - -
410 Provision for Deferred
Income Taxes - - - - - - - -
411 Provision for Deferred
Income Taxes - Credit - - - - - - - -
411.5 Investment Tax Credit - - - - - - - -
421 Miscellaneous Income or
Loss - - - - - - - -
426.1 Donations - - - - - - - -
426.5 Other Deductions - - - - - - - -
427 Interest on Long-term
Debt - - - - - - - -
430 Interest on Debt to
Associate Companies - - - - - - - -
431 Other Interest Expense - - - - - - - -
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
Total Expenses $13,919,741 $3,196,930 $12,538,449 $5,271,545 $2,034,774 $1,388,499 $31,277,081 $56,848,843
=========== ========== =========== ========== ========== ========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
DEPARTMENTAL ANALYSIS OF SALARIES - ACCOUNT 920
<S> <C> <C> <C> <C> <C>
----------- DEPARTMENTAL SALARY EXPENSE -----------
NAME OF DEPARTMENT --- INCLUDED IN AMOUNTS BILLED TO -- NUMBER OF
INDICATE EACH DEPARTMENT TOTAL PARENT OTHER NON- PERSONNEL
OR SERVICE FUNCTION AMOUNT COMPANY ASSOCIATES ASSOCIATES END OF YEAR
------------------- ------ ------- ---------- ---------- -----------
Information Systems $ 16,712,674 $ 727 $ 16,711,947 $ - 300
Meters and Transportation 12,141,600 613 12,140,987 - 203
Electric System Maintenance 657,655 - 657,655 - 9
Marketing and Customer Relations 26,289,347 - 26,289,347 - 535
Electric Transmission and
Distribution Engineering
and Construction 19,812,131 - 19,812,131 - 287
Power Engineering and Construction 23,093,783 75 23,093,708 - 329
Human Resources 16,540,505 14,706 16,525,799 - 123
Materials Management 9,463,955 - 9,463,955 - 137
Facilities 3,489,071 2,369 3,486,702 - 84
Accounting 9,634,895 (580) 9,635,475 - 160
Power Planning 14,258,171 4,145 14,254,026 - 208
Public Affairs 1,925,636 4,036 1,921,600 - 63
Legal 6,186,899 316,247 5,870,652 - 70
Rates 1,723,624 - 1,723,624 - 26
Finance 5,728,020 612,559 5,115,461 - 95
Right of Way 795,409 - 795,409 - 15
Internal Auditing 1,329,523 - 1,329,523 - 21
Environmental Affairs 1,656,093 7,810 1,648,283 - 37
Fuels 1,277,573 - 1,277,573 - 17
Investor Relations 592,694 - 592,694 - 11
Planning 686,792 1,379 685,413 - 20
Executive 17,509,631 255,056 17,254,575 - 98
------------ ---------- ------------ ------- -----
TOTAL
$191,505,681 $1,219,142 $190,286,539 $ - 2,848
============ ========== ============ ======= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
OUTSIDE SERVICES EMPLOYED - ACCOUNT 923
INSTRUCTIONS: Provide a breakdown by subaccount of outside services employed. If
the aggregate amounts paid to any one payee and included within one
subaccount is less than $100,000, only the aggregate number and amount of
all such payments included within the subaccount need be shown. Provide a
subtotal for each type of service.
<S> <C> <C>
FROM WHOM PURCHASED 1/ DESCRIPTION AMOUNT
Auditing Services:
Arthur Andersen LLP Audit of Cinergy and subsidiaries Consolidated
Financial Statements; audit of the financial
statements of Cinergy's or its subsidiaries
deferred compensation and stock plans; audit of
fuel cost recovery clauses; research and consultation
on various accounting and tax matters; and assistance
in the analysis and resolution of miscellaneous
accounting issues $1,342,353
----------
1,342,353
Legal Services:
Baker & Daniels Regulatory and Benefits Matters 124,597
Bracewell & Patterson Legal Services 126,692
Chadbourke & Parke Legal Services 104,571
Latham & Watkins Ozone Issues Consulting 129,260
McDermott, Will & Emery Legal Issues 160,512
Oppenheimer, Wolf & Donnelly Legal Services 102,580
Skadden, Arps, Slate, Meagher Litigation; Wholesale Power Sales; Trigen; General
& Flom, LLP Corporate Advice and Regulatory Issues 238,888
---------
987,100
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
OUTSIDE SERVICES EMPLOYED - ACCOUNT 923 (Continued)
FROM WHOM PURCHASED 1/ DESCRIPTION AMOUNT
Other Services
Alexander & Associates Machine & Tool Design 233,114
Alternative Resources Corp. Information Technology Consulting 203,382
Analysts International Corp. Contract Programming 120,960
Applied Psychological Techniques Benchmarking Survey & Analysis 162,187
Aragon Consulting Group Market Research Services 141,834
Barr Devlin Associates Inc. Financial Advisory Services 100,781
Bates USA Advertising, Marketing Services 298,327
Bonforte Company Strategic Planning Consultants 219,527
Ciber Information Technology Consulting 778,163
Client Server Associates, Inc. Information Technology Consulting 152,213
Computer Associates Information Technology Consulting 681,469
Coopers & Lybrand Capital Investment Planning 243,732
CSC Consulting Information Technology Consulting 2,767,046
Eclipse Consulting, Inc. Information Technology Consulting 193,159
Edu-Tech Industries Strategic Training Program 564,200
Entex Information Services Information Technology Consulting 346,652
Heidrick & Struggles, Inc. Executive Search Consultants 232,684
Hewitt Associates LLC Benefits Consulting & Administration 1,856,610
Howard Systems International Information Technology Consulting 267,865
Hybrid Consulting Group LTD Marketing/Trading Consulting 428,154
Indus International Inc. Contract Programming 230,570
Infotech Consulting, Inc. Information Technology Consulting 980,929
Laurits R. Christensen Assoc. Genco & Billing Consulting 140,983
McKinsey & Company, Inc. Management Consulting 1,712,650
Metro Information Services Information Technology Consulting 113,032
Nitin Nohria Strategic Planning Consultant 151,046
The Northbridge Group Forecasting & Valuation Consulting 650,439
Peoplesoft, Inc. Contract Programming 189,210
Price Waterhouse LLP Financial Services 748,339
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
OUTSIDE SERVICES EMPLOYED - ACCOUNT 923 (Continued)
FROM WHOM PURCHASED 1/ DESCRIPTION AMOUNT
Other Services (Continued):
Professional Computer Consultants, Inc. Information Technology Consulting 666,503
Richard's Consulting, Inc. Information Technology Consulting 617,758
Software Synergy Inc. Information Technology Consulting 146,926
Strategic Marketing & Research, Inc. Market Research Services 242,435
Sybase, Inc. Information Technology Consulting 175,376
Towers Perrin Financial Services 125,141
Utilities International Information Technology &
Programming Consultants 2,350,521
Valcom, Inc. Information Technology 285,226
Other _2/ 9,093,685
28,612,828
Total Outside Services $30,942,281
<FN>
(1) All companies from which Services purchased outside services were
non-associated companies, unless otherwise noted.
(2) Outside services performed that did not meet the $100,000 amount are
totaled in this line item.
</FN>
</TABLE>
<PAGE>
Annual Report of Cinergy Services, Inc. For the
Year Ended December 31, 1998
EMPLOYEE PENSIONS AND BENEFITS - ACCOUNT 926
INSTRUCTIONS: Provide a listing of each pension plan and benefit program
provided by the service company. Such listing should be limited to $25,000.
DESCRIPTION AMOUNT
Pension $13,337,608
Medical/Dental insurance 16,423,349
401(k) contributions 3,958,990
Life insurance 1,965,789
Others 3,473,417
TOTAL $39,159,153
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
GENERAL ADVERTISING EXPENSES - ACCOUNT 930.1
INSTRUCTIONS: Provide a listing of the amounts included in Account 930.1,
"General Advertising Expenses", classifying the items according to the
nature of the advertising and as defined in the account definition. If a
particular class includes an amount in excess of $3,000 applicable to a
single payee, show separately the name of the payee and the aggregate
amount applicable thereto.
DESCRIPTION NAME OF PAYEE AMOUNT
Advertising Fees -
Customer Education Bates USA $ 24,477
Others 7,794
Promotional Items Rainbow Energy Marketing 350,000
TOTAL $382,271
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
MISCELLANEOUS GENERAL EXPENSES - ACCOUNT 930.2
INSTRUCTIONS: Provide a listing of the amount included in Account 930.2,
"Miscellaneous General Expenses", classifying such expenses according to
their nature. Payments and expenses permitted by Section 321 (b)(2) of the
Federal Election Campaign Act, as amended by Public Law 94-283 in 1976 (2
U.S.C. 441 (b)(2)) shall be separately classified.
DESCRIPTION AMOUNT
Company Membership Fees and Dues 2,235,614
Miscellaneous Materials and Supplies Purchased 20,955
Customer Incentive/Rebates - Demand-side Management 106,131
Directors' Fees 1,321,966
Advertising 670,308
Customer Records and Collections 3,890,014
Technical, General, Computer and Engineering Services 370,392
Labor, Materials and Supplies 7,324,468
Miscellaneous Stores and Transportation Expenses 21,371,519
Other Miscellaneous Items 1,079,395
TOTAL $38,390,762
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
RENTS - ACCOUNT 931
INSTRUCTIONS: Provide a listing of the amount included in Account 931, "Rents",
classifying such expenses by major groupings of property, as defined in the
account definition of the Uniform System of Accounts.
TYPE OF PROPERTY AMOUNT
Computer Equipment Rent $14,723,355
Facilities Rent 11,311,830
Operating and Work Equipment Rent 55,637
TOTAL $26,090,822
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
TAXES OTHER THAN INCOME TAXES - ACCOUNT 408
INSTRUCTIONS: Provide an analysis of Account 408, "Taxes Other Than Income
Taxes". Separate the analysis into two groups: (1) Other than U.S.
Government taxes, and (2) U.S. Government taxes. Specify each of the
various kinds of taxes and show the amounts thereof. Provide a subtotal for
each class of tax.
KIND OF TAX AMOUNT
Other Than U.S. Government Taxes:
Ohio Property Tax $ 53,253
Delaware Franchise Tax 50
Kentucky License Tax 285
Pennsylvania Franchise Tax 600
Washington D.C. Franchise Tax 1,350
Indiana Property Tax 456
California Property Tax 327
New Jersey Corporation Tax 175
Miscellaneous General Tax 1,194
State Unemployment 437,038
----------
Sub-total 494,728
U.S. Government Taxes:
Social Security Taxes 11,162,153
Federal Unemployment 212,612
Sub-total 11,374,765
TOTAL $11,869,493
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
DONATIONS - ACCOUNT 426.1
INSTRUCTIONS: Provide a listing of the amount included in Account 426.1,
"Donations", classifying such expenses by its purpose. The aggregate number
and amount of all items of less than $3,000 may be shown in lieu of
details.
NAME OF RECIPIENT PURPOSE OF DONATION AMOUNT
None
TOTAL
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
OTHER DEDUCTIONS - ACCOUNT 426.5
INSTRUCTIONS: Provide a listing of the amount included in Account 426.5, "Other
Deductions", classifying such expenses according to their nature.
DESCRIPTION NAME OF PAYEE AMOUNT
None
TOTAL
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XVIII - NOTES TO STATEMENTS OF INCOME
INSTRUCTIONS: The space below is provided for important notes regarding the
statement of income or any account thereof. Furnish particulars as to any
significant increase in services rendered or expenses incurred during the
year. Notes relating to financial statements shown elsewhere in this report
may be indicated here by reference.
See Schedule XIV - Notes to Financial Statements.
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
Schedule XIX - FINANCIAL DATA SCHEDULE
ITEM NO. CAPTION HEADING
1 Net Service Company Property $ 33,443,445
2 Total Investments -
3 Total Current and Accrued Assets 44,320,546
4 Total Deferred Debits 37,851,854
5 Balancing Amount for Total Assets
and Other Debits -
6 Total Assets and Other Debits 115,615,845
7 Total Proprietary Capital 739,128
8 Total Long-Term Debt -
9 Notes Payable -
10 Notes Payable to Associate Companies 52,641
11 Balancing Amount for Total Current
and Accrued Liabilities 33,377,983
12 Total Deferred Credits 81,158,194
13 Accumulated Deferred Income Taxes 287,899
14 Total Liabilities and Proprietary Capital 115,615,845
15 Services Rendered to Associate Companies 412,408,919
16 Services Rendered to Nonassociate Companies -
17 Miscellaneous Income or Loss 424,175
18 Total Income 412,833,094
19 Salaries and Wages 191,505,681
20 Employee Pensions and Benefits 39,159,153
21 Balancing Amount for Total Expenses 182,168,260
22 Total Expenses 412,833,094
23 Net Income (Loss) -
24 Total Expenses (Direct Costs) 233,148,047
25 Total Expenses (Indirect Costs) 179,685,047
26 Total Expenses (Total) 412,833,094
27 Number of Personnel End of Year 2,848
<PAGE>
<TABLE>
<CAPTION>
Annual Report of Cinergy Services, Inc.
ORGANIZATION CHART
Chairman
- Executive
- Internal Auditing
|
Vice Chairman, President, and Chief Executive Officer
- Executive
|
---------
<S> <C> <C> <C> <C> <C> <C>
Vice President Vice President, Vice President, President, President, President, President,
& Chief Corporate Corporate Energy Energy International Cinergy
Financial Services Communications Commodities Delivery Business Unit Investments
Officer & President, Business Business & Secretary Business
Cinergy Foundation Unit Unit Unit
- - Investor - Information - Facilities - Fuels - Materials - Legal
Relations Systems - Public Affairs - Power Management
- - Finance - Planning Engineering & - Meters and
- - Accounting - Environmental Construction Transportation
- - Materials Affairs - Power Planning - Electric System
Management - Rates Maintenance
- - Human - Electric Transmission
Resources and Distribution
- - Planning Engineering and
Construction
- Power Planning
- Right of Way
- Marketing and
Customer Relations
</TABLE>
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
METHODS OF ALLOCATION
The allocation of expenses not directly attributable to a particular Client
Company are based on the following factors:
1. Sales Ratio
A ratio, based on domestic firm kilowatt-hour electric sales (and/or the
equivalent cubic feet of gas sales, where applicable), excluding
intra-system sales, for the immediately preceding twelve consecutive
calendar months, the numerator of which is for a Client Company and the
denominator of which is for all domestic utility Client Companies. This
ratio will be determined annually, or at such times as may be required due
to a significant change.
2. Electric Peak Load Ratio
A ratio, based on the sum of the monthly domestic firm electric maximum
system demands for the immediately preceding twelve consecutive calendar
months, the numerator of which is for a Client Company and the denominator
of which is for all domestic utility Client Companies. This ratio will be
determined annually, or at such time as may be required due to a
significant change.
3. Number of Customers Ratio
A ratio, based on the sum of the firm domestic electric customers (and/or
gas customers where applicable) at the end of each month for the
immediately preceding twelve consecutive calendar months, the numerator of
which is for a Client Company and the denominator of which is for all
domestic utility Client Companies. This ratio will be determined annually,
or at such time as may be required due to a significant change.
4. Number of Employees Ratio
A ratio, based on the sum of the number of employees at the end of each
month for the immediately preceding twelve consecutive calendar months, the
numerator of which is for a Client Company or Service Company Function and
the denominator of which is for all Client Companies (and Cinergy Corp.'s
non-utility and non-domestic utility affiliates, where applicable) and/or
the Service Company. This ratio will be determined annually, or at such
time as may be required due to a significant change.
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
METHODS OF ALLOCATION - continued
5. Construction Expenditure Ratio
A ratio, based on construction expenditures, net of reimbursements, for the
immediately preceding twelve consecutive calendar months, the numerator of
which is for a Client Company and the denominator of which is for all
Client Companies. Separate ratios will be computed for total construction
expenditure and appropriate functional plant (i.e., production,
transmission, distribution, and general) classifications. This ratio will
be determined annually, or at such time as may be required due to a
significant change.
6. Circuit Miles of Electric Distribution Lines Ratio
A ratio, based on installed circuit miles of domestic electric distribution
lines at the end of the immediately preceding calendar year, the numerator
of which is for a Client Company and the denominator of which is for all
domestic utility Client Companies. This ratio will be determined annually,
or at such time as may be required due to a significant change.
7. Number of Central Processing Unit Seconds Ratio
A ratio, based on the sum of the number of central processing unit seconds
expended to execute mainframe computer software applications for the
immediately preceding twelve consecutive calendar months, the numerator of
which is for a Client Company or Service Company Function, and the
denominator of which is for all Client Companies, (and Cinergy Corp.'s
non-utility and non-domestic utility affiliates, where applicable) and/or
the Service Company. This ratio will be determined annually, or at such
time as may be required due to a significant change.
8. Direct Cost Ratio
Services submitted a letter to the Securities and Exchange Commission on
April 1, 1998, requesting approval of a new allocation method to be used to
allocate general activities cost to the direct and indirect nonutility
subsidiaries of Cinergy Corp. The proposed method would establish a ratio
based on direct costs charged to the individual nonutility client companies
divided by total direct costs charged to all client companies (both utility
and nonutility).
<PAGE>
Annual Report of Cinergy Services, Inc.
For the Year Ended December 31, 1998
ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILLED
The following annual statement was supplied to each associate company in support
of the amount of compensation for use of capital billed during 1998:
In accordance with Instruction 01-12 of the Securities and Exchange Commission's
Uniform System of Accounts for Mutual Service Companies and Subsidiary Service
Companies, Services submits the following information on the billing of interest
on borrowed funds to associated companies for the year 1998:
A. Amount of interest billed to associate companies is contained on page
25, Analysis of Billing.
B. The basis for billing of interest to the associated companies is based
on the ratio of the total expenses charged to each associated company,
exclusive of interest, to the total expenses charged to all associated
companies, exclusive of interest during the previous year.
<PAGE>
ANNUAL REPORT OF Cinergy Services, Inc.
SIGNATURE CLAUSE
Pursuant to the requirements of the Public Utility Holding Company Act of 1935
and the rules and regulations of the Securities and Exchange Commission issued
thereunder, the undersigned company has duly caused this report to be signed on
its behalf by the undersigned officer thereunto duly authorized.
Cinergy Services, Inc.
(Name of Reporting Company)
By: /s/Bernard F. Roberts
(Signature of Signing Officer)
Bernard F. Roberts, Vice President and Comptroller
(Printed Name and Title of Signing Officer)
Date: April 30, 1999
