SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6494
INDIANA GAS COMPANY, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0793669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1630 North Meridian Street, Indianapolis, Indiana 46202
(Address of principal executive offices) (Zip Code)
317-926-3351
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Common Stock - Without par value 9,080,770 January 31, 1994
Class Number of shares Date
TABLE OF CONTENTS
Part I - Financial Information
Consolidated Balance Sheets
at December 31, 1993 and 1992
and September 30, 1993
Consolidated Statements of Income
Three Months Ended December 31, 1993 and 1992,
and Twelve Months Ended December 31, 1993 and 1992
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1993 and 1992,
and Twelve Months Ended December 31, 1993 and 1992
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands - Unaudited)
December 31 September 30
1993 1992 1993
<S> <C> <C> <C>
UTILITY PLANT:
Original cost $786,380 $734,036 $773,174
Less - accumulated depreciation
and amortization 274,366 251,676 267,629
512,014 482,360 505,545
NONUTILITY PLANT - NET 400 243 234
CURRENT ASSETS:
Cash and cash equivalents 20 20 20
Accounts receivable, less reserves of
$2,467, $2,242 and $2,055 respectively 45,836 44,323 14,231
Accrued unbilled revenues 42,768 32,334 10,748
Materials and supplies - at average cost 3,753 4,144 3,710
Liquefied petroleum gas - at average cost 1,154 893 1,019
Gas in underground storage - at last-in,
first-out cost 53,064 46,683 59,534
Recoverable gas costs 616 - 7,453
Prepayments and other 1,585 1,719 296
148,796 130,116 97,011
DEFERRED CHARGES:
Unamortized debt discount and expense 6,489 6,961 6,614
Other 14,970 8,591 12,254
21,459 15,552 18,868
$682,669 $628,271 $621,658
</TABLE>
<TABLE>
<CAPTION>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
SHAREHOLDER'S EQUITY AND LIABILITIES
(Thousands - Unaudited)
December 31 September 30
1993 1992 1993
<S> <C> <C> <C>
CAPITALIZATION:
Common stock and paid-in capital $142,995 $102,995 $142,995
Retained earnings 115,460 107,872 106,104
Total common shareholder's equity 258,455 210,867 249,099
Long-term debt 164,901 174,901 164,901
423,356 385,768 414,000
CURRENT LIABILITIES:
Maturities and sinking fund requirements
of long-term debt 10,000 10,000 20,000
Notes payable 50,250 30,398 10,252
Accounts payable 50,061 55,681 41,602
Refundable gas costs - 15,745 -
Customer deposits and advance payments 14,146 14,710 13,466
Accrued taxes 35,849 26,387 31,579
Accrued interest 5,123 5,331 3,342
Other current liabilities 15,175 11,439 13,441
180,604 169,691 133,682
DEFERRED CREDITS:
Deferred income taxes (See Note 11) 55,542 54,478 56,911
Unamortized investment tax credit 13,731 14,660 13,963
Customer advances for construction 1,021 1,010 998
Regulatory income tax liability (See Note 11) 4,789 - -
Other 3,626 2,664 2,104
78,709 72,812 73,976
COMMITMENTS AND CONTINGENCIES
(See Notes 9 and 10) - - -
$682,669 $628,271 $621,658
</TABLE>
<TABLE>
<CAPTION>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands - Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31
1993 1992 1993 1992
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 151,892 $ 155,537 $ 495,633 $ 432,475
COST OF GAS 93,246 101,514 305,285 266,189
MARGIN 58,646 54,023 190,348 166,286
OPERATING EXPENSES:
Other operation and maintenance 19,533 17,311 86,524 71,397
Depreciation and amortization 6,912 6,580 27,138 25,499
Income taxes 8,998 7,949 16,865 15,085
Taxes other than income taxes 4,309 3,762 15,075 12,719
39,752 35,602 145,602 124,700
OPERATING INCOME 18,894 18,421 44,746 41,586
OTHER INCOME - NET 322 (189) 1,090 1,236
INCOME BEFORE INTEREST
AND OTHER CHARGES 19,216 18,232 45,836 42,822
INTEREST 4,240 4,000 16,880 14,845
OTHER (180) (70) (432) (274)
4,060 3,930 16,448 14,571
NET INCOME 15,156 14,302 29,388 28,251
DIVIDENDS ON PREFERRED STOCK - 285 - 1,567
EARNINGS AVAILABLE FOR COMMON STOCK $ 15,156 $ 14,017 $ 29,388 $ 26,684
</TABLE>
<TABLE>
<CAPTION>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31
1993 1992 1993 1992
<S> <C> <C> <C> <C>
CASH FLOWS FROM (REQUIRED FOR)
OPERATING ACTIVITES:
Net income $ 15,156 $ 14,302 $ 29,388 $ 28,251
Adjustments to reconcile net income to cash
provided from operating activities -
Depreciation and amortization 6,963 6,644 27,382 25,715
Deferred income taxes 643 498 3,076 2,141
Investment tax credit (232) (310) (929) (1,026)
7,374 6,832 29,529 26,830
Changes in assets and liabilities -
Receivables - net (63,625) (54,527) (11,947) (10,651)
Inventories 6,292 1,905 (6,251) (19,766)
Accounts payable, customer deposits,
advance payments and other current
liabilities 10,873 23,997 (2,448) 13,665
Accrued taxes and interest 6,051 7,207 9,254 3,248
Recoverable/refundable gas costs 6,837 6,075 (16,361) 14,818
Prepayments (1,289) (1,493) 134 (146)
Other - net 2,592 (492) (536) (303)
Total adjustments (24,895) (10,496) 1,374 27,695
Net cash flow from (required for)
operations (9,739) 3,806 30,762 55,946
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock - - 40,000 10,000
Redemption of preferred stock - (20,932) - (20,932)
Sale of long-term debt - 35,000 - 35,000
Reduction in long-term debt (10,000) - (10,000) (10,594)
Net change in short-term borrowings 39,998 160 19,852 10,551
Dividends (5,800) (5,336) (21,800) (20,869)
Net cash flow from financing activities 24,198 8,892 28,052 3,156
CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (14,459) (12,900) (58,814) (59,303)
Net cash flow required for investing activities (14,459) (12,900) (58,814) (59,303)
NET DECREASE IN CASH - (202) - (201)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 20 222 20 221
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20 $ 20 $ 20 $ 20
</TABLE>
Indiana Gas Company, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
1. Financial Statements.
Indiana Gas Company, Inc. and its subsidiaries, Terre
Haute Gas Corporation (Terre Haute) and Richmond Gas
Corporation (Richmond) which are doing business as
Indiana Gas Company, Inc. (Indiana Gas), provide
natural gas and transportation services to a
diversified base of customers in 281 communities
within the lower two-thirds of the state of Indiana.
The interim condensed consolidated financial statements
included in this report have been prepared by Indiana
Gas, without audit, as provided in the rules and
regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
omitted as provided in such rules and regulations.
Indiana Gas believes that the information in this report
reflects all adjustments necessary to fairly state the
results of the interim periods reported, that all such
adjustments are of a normally recurring nature, and the
disclosures are adequate to make the information
presented not misleading. These interim financial
statements should be read in conjunction with the
financial statements and the notes thereto included in
Indiana Gas' latest annual report on Form 10-K.
Because of the seasonal nature of Indiana Gas' gas
distribution operations, the results shown on a
quarterly basis are not necessarily indicative of annual
results.
2. Cash Flow Information.
For the purposes of the Consolidated Statements of Cash
Flows, Indiana Gas considers cash investments with an
original maturity of three months or less to be cash
equivalents. Cash paid during the periods reported for
interest and income taxes were as follows:
Three Months Ended Twelve Months Ended
December 31 December 31
Thousands 1993 1992 1993 1992
Interest (net of
amount capitalized) $ 1,820 $ 858 $14,956 $13,537
Income taxes $ 580 $ 1,989 $10,330 $ 9,181
3. Revenues.
To more closely match revenues and expenses, Indiana Gas
records revenues for all gas delivered to customers but
not billed at the end of the accounting period.
4. Gas in Underground Storage.
Based on the cost of purchased gas during December 1993,
the cost of replacing the current portion of gas in
underground storage exceeded last-in, first-out cost at
December 31, 1993, by approximately $14,379,000.
5. Refundable or Recoverable Gas Costs.
The cost of gas purchased and refunds from suppliers,
which differ from amounts recovered through rates are
deferred and are being recovered or refunded in
accordance with procedures approved by the Indiana
Utility Regulatory Commission (IURC).
6. Allowance For Funds Used During Construction.
An allowance for funds used during construction (AFUDC),
which represents the cost of borrowed and equity funds
used for construction purposes, is charged to
construction work in progress during the period of
construction and included in "Other Income - Net" and
"Other" on the Consolidated Statements of Income. The
current annual AFUDC rate is 7.5 percent, however, prior
to September 30, 1992, a rate of 10 percent was used.
The table below reflects the total interest capitalized
and the portion of which was computed on borrowed funds
and equity funds for all periods reported.
Three Months Twelve Months
Ended December 31 Ended December 31
Thousands 1993 1992 1993 1992
AFUDC - Borrowed Funds $ 231 $ 134 $ 676 $ 490
AFUDC - Equity Funds 189 122 553 463
Total AFUDC Capitalized $ 420 $ 256 $ 1,229 $ 953
7. Long-Term Debt.
On October 15, 1993, $10 million of 9.30% medium-term
notes were redeemed.
8. Cash Management/Accounts Payable.
Indiana Gas participates in a centralized cash
management program with its parent, affiliated
companies and banks which permits funding of checks
as they are presented. Amounts borrowed from
affiliated companies as well as checks written but
not cashed are reflected in accounts payable.
9. Environmental.
In the past, Indiana Gas and others, including its
predecessors, former affiliates and/or previous
landowners, operated facilities for the manufacturing of
gas and storage of manufactured gas. These facilities
are no longer in operation and have not been operated
for many years. In the manufacture and storage of such
gas, various byproducts were produced, some of which may
still be present at the sites where these manufactured
gas plants and storage facilities were located. While
management believes those operations were conducted in
accordance with the then-applicable industry standards,
under currently applicable environmental laws and
regulations, Indiana Gas, and the others, may now be
required to take remedial action if certain materials
are found at these sites.
Indiana Gas has identified the existence, location and
certain general characteristics of 26 gas manufacturing
and storage sites. Indiana Gas has identified two sites
requiring remediation and action is currently being
taken. Indiana Gas' share of remediation and related
costs for these two sites has been accrued. These sites
are currently being reviewed by the Indiana Department
of Environmental Management.
Indiana Gas is assessing, on a site-by-site basis,
whether any of the remaining 24 sites require
remediation, to what extent it is required and the
estimated cost of such action. Indiana Gas' share of the
estimated cost of performing these site-by-site
assessments has also been accrued. Indiana Gas has
completed preliminary assessments (PAs) on these sites
and has completed site work leading to the completion of
site investigations (SIs) at 15 of these sites. Based
upon the site work completed to date, Indiana Gas
believes some level of contamination may be present and
ground water monitoring, at a minimum, will likely be
required. As a result, Indiana Gas has accrued its share
of the estimated costs of ground water monitoring for
all 24 sites. The total costs which may be incurred in
connection with the remediation of these 24 sites, if
remedial action beyond monitoring is required, cannot be
determined at this time.
Indiana Gas has nearly completed the process of
identifying all potentially responsible parties (PRPs)
for each site. Indiana Gas, with the help of outside
counsel, has prepared estimates for its share of
environmental liabilities, if they exist, at each of the
sites. Indiana Gas has accrued only its proportionate
share of the estimated costs, as described above, based
on equitable principles derived from case law or applied
by parties in achieving settlements.
Indiana Gas does not believe it can provide an estimate
of the reasonably possible total remediation costs for
any site, prior to completion of the remedial
investigation/ feasibility study (RI/FS) and developing
some sense of the timing of the resulting potential
remedial alternatives.
Indiana Gas has notified insurance carriers of potential
claims where policies may provide coverage for these
environmental costs. Indiana Gas has not recorded any
receivables related to recovery from insurance carriers
at this time.
In January 1992, Indiana Gas filed a petition with the
IURC seeking regulatory authority for, among other
matters, recovery through rates of all costs Indiana Gas
incurs in complying with federal, state and local
environmental regulations in connection with gas
manufacturing activities. On February 26, 1992, Indiana
Gas received authority from the IURC to employ deferred
accounting for these costs. This authorization will
extend until the IURC rules upon Indiana Gas' pending
request to establish and implement an ongoing ratemaking
mechanism that will be designed and intended to provide
for the recovery of these costs. Indiana Gas has
deferred all environmental costs previously paid or
accrued. These costs are approximately $10.4 million
(including assessment, remediation and related costs) as
of December 31, 1993.
The impact of complying with federal, state and local
environmental regulations related to former manufactured
gas plant sites on Indiana Gas' financial position and
results of operations is contingent upon several
uncertainties. These include the cost of compliance, the
impact of joint and several liability upon the magnitude
of the contingency, the ratemaking treatment authorized
for these items by the IURC, as well as the recovery of
environmental and related costs from insurance carriers.
Indiana Gas believes it will be successful in recovering
the costs which it has incurred and may incur through
rates, from other potentially responsible parties and
from insurance carriers. However, there can be no
assurance as to the amount or timing of any such
recoveries.
10. Postretirement Benefits Other Than Pensions.
Indiana Gas provides postretirement health care and life
insurance benefits. Substantially all employees who
have completed 10 years of service will become eligible
for such benefits if they reach retirement age while
still working for the company. The plan pays stated
percentages of most reasonable and necessary medical
expenses incurred by retirees, after subtracting
payments by other providers and after a stated
deductible has been met. These benefits, as well as
similar benefits for active employees, are principally
self-insured. Currently, Indiana Gas does not fund this
postretirement plan.
Effective October 1, 1993, Indiana Gas adopted Statement
of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than
Pensions (SFAS 106). SFAS 106 requires accounting for
the costs of postretirement health care and life
insurance benefits on the accrual basis. This means the
costs of benefits paid in the future are recognized
during the years that an employee provides service to
Indiana Gas rather than the "pay-as-you-go" (cash)
basis.
Indiana Gas has elected to amortize the unfunded
transition obligation as of October 1, 1993, of
approximately $55 million over a period of 20 years.
The estimated annual provision for postretirement
benefit cost (including transition obligation
amortization) is approximately $8.2 million for fiscal
1994. This compares with the projected pay-as-you-go
cost of approximately $2.9 million for the same period.
Prior to fiscal 1994, Indiana Gas recognized
postretirement benefit costs on the pay-as-you-go (cash)
basis. Postretirement benefit costs recognized for
fiscal years 1993 and 1992 were approximately $2,855,000
and $2,653,000, respectively.
The following table reconciles the plan's funded status
to the accrued postretirement benefit cost as reflected
on the balance sheet as of October 1, 1993:
Thousands
Accumulated postretirement benefit obligation:
Retirees and dependents $30,313
Other fully eligible participants 6,839
Other active participants 18,288
55,440
Fair value of plan assets -
Accumulated postretirement benefit obligation
in excess of plan assets 55,440
Unrecognized transition obligation 55,440
Accrued postretirement benefit cost $ -
Net postretirement benefit cost for the three months
ended December 31, 1993, consisted of the following
components:
Thousands
Service cost - benefits attributed to service during
the period $ 434
Interest cost on accumulated postretirement obligation 1,255
Amortization of transition obligation 866
Net postretirement benefit cost 2,555
Amounts deferred pending rate recognition 1,717
Actual cash payments through December 31, 1993 $ 838
The assumed health care cost trend rate for medical
gross eligible charges used in measuring the accumulated
postretirement benefit obligation as of October 1, 1993,
was 11% for fiscal 1994. This rate is assumed to
decrease gradually through fiscal 2003 to 4.75% and
remain at that level thereafter. A one percent increase
in the assumed health cost trend rates for each future
year produces approximately a $6.9 million increase in
the accumulated postretirement benefit obligation as of
October 1, 1993, and approximately a $884,000 increase
in the annual aggregate of the service and interest cost
components of net postretirement benefit cost. The
weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.25%.
In January 1992, Indiana Gas filed a petition with the
IURC seeking regulatory authority for, among other
matters, rate recovery of implementation of SFAS 106
relating to postretirement benefits other than
pensions. Through a generic order issued on December
30, 1992, Indiana Gas received authority from the IURC
to employ deferred accounting for these costs. This
authorization will extend until the IURC rules upon
Indiana Gas' pending request to adopt SFAS 106 for
ratemaking purposes. An order is not expected until
late calendar 1994. On November 12, 1993, Indiana
Michigan Power Company (I & M) received an order from
the IURC in its general rate case authorizing SFAS 106
to be adopted for ratemaking purposes. Indiana Gas
continues to pursue full recovery of the costs of
implementation of SFAS 106, however, no assurance can
be given as to the ratemaking treatment for this
issue.
11. Income Taxes.
Effective October 1, 1993, Indiana Gas adopted Statement
of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109). Indiana Gas previously
used the deferred method of accounting for income taxes
as prescribed by Accounting Principles Bulletin Opinion
No. 11. SFAS 109 requires the use of the liability
method, which effectively results in a reduction in
previously provided deferred income taxes to reflect the
current statutory corporate tax rate.
Due to the effects of regulation on Indiana Gas, Indiana
Gas is not permitted to recognize the effect of a tax
rate change as income but is required to reduce tariff
rates to return the "excess" deferred income taxes to
ratepayers over the remaining life of the properties
that give rise to the taxes. Therefore, the cumulative
effect of a change in accounting principle upon the
initial application of SFAS 109 resulted in no impact on
earnings. Under SFAS 109, Indiana Gas has recorded a
net regulatory liability for approximately $4.8 million
on its balance sheet as of October 1, 1993, related to
deferred taxes.
Deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of Indiana Gas' net deferred tax
liability as of October 1, 1993, are as follows:
Thousands
Deferred tax liabilities:
Accelerated depreciation $37,759
Property basis differences 17,347
Deferred fuel costs 9,528
Take-or-pay costs 5,102
Acquisition adjustment 6,904
Other 1,885
Deferred tax assets:
Deferred investment tax credit (5,296)
Regulatory income tax liability (1,815)
Less deferred income taxes related to
current assets and liabilities (16,515)
Balance at October 1, 1993 $54,899
12. Reclassifications.
Certain reclassifications have been made to the prior
periods' financial statements to conform to the current
year presentation. These reclassifications have no
impact on margin or net income previously reported.
Indiana Gas Company, Inc. and Subsidiary Companies
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Earnings
Earnings available for common stock for the three-
and twelve-month periods ended December 31, 1993, when
compared to the same periods one year ago are listed
below.
Periods Ended December 31
(Millions) 1993 1992
Three Months $15.2 $14.0
Twelve Months $29.4 $26.7
The following discussion highlights the factors
contributing to these results.
Margin (Revenues Less Cost of Gas)
Margin for the quarter ended December 31, 1993,
increased $4.6 million compared to the same period last
year. The increase was primarily due to weather 6 percent
colder than the same period last year and 2 percent
colder than normal. Also contributing to the increase was
the impact of the general rate increase for the entire
quarter of this fiscal year as compared to approximately
two months of the same period last year.
Margin for the twelve-month period ended December 31,
1993, increased $24.1 million compared to the same period
last year. The increase for the twelve-month period
reflects weather 10 percent colder than the same period
last year and 1 percent colder than normal. The general
rate increase, which was implemented October 28, 1992,
also contributed to the increase as it was in effect for
the entire twelve months of the current period.
Total system throughput (combined sales and
transportation) increased 5 percent (1,587 MDth) for the
first quarter of fiscal 1994 and 8 percent (8,240 MDth)
for the twelve-month period ended December 31, 1993,
compared to the same periods last year. Indiana Gas'
rates for transportation generally provided the same
margins as would have been earned had it sold the gas
under its sales tariffs. Approximately one-half of total
system throughput represents gas used for space heating
and is affected by weather.
Total average cost per unit of gas purchased remained
about the same for the three-month period ended December
31, 1993, when compared to the same period one year ago.
For the twelve-month period, cost of gas per unit
increased from $2.68 last year to $2.90 in the current
period, primarily due to the influence of weather on the
demand for gas.
Adjustments to Indiana Gas' rates and charges related
to the cost of gas are made quarterly through gas cost
adjustment (GCA) procedures established by Indiana law and
administered by the Indiana Utility Regulatory Commission
(IURC).
Operating Expenses
Operation and maintenance expenses increased
approximately $2.2 million for the three-month period
ended December 31, 1993, when compared to the same period
one year ago. The increase is primarily attributable to
increased labor and related benefits, including
performance-based compensation, and the addition of new
customers.
Operation and maintenance expenses for the twelve-
month period increased approximately $15.1 million
compared to the same period one year ago. Higher levels
of operation and maintenance activity during the last nine
months of fiscal 1993 resulted in increased labor and
related benefits, including performance-based
compensation, services, materials and supplies,
advertising, collection costs and bad debt expenses.
Depreciation and amortization expense increased for
the three- and twelve-month periods ended December 31,
1993, when compared to the same periods one year ago as
the result of additions to utility plant to serve new
customers and to maintain dependable service to existing
customers.
Federal and state income taxes increased for the
three- and twelve-month periods ended December 31, 1993,
when compared to the same periods one year ago due to
higher taxable income and a higher federal tax rate.
Taxes other than income taxes increased for the three-
and twelve-month periods ended December 31, 1993, when
compared to the same periods one year ago primarily due to
increases in property tax expense resulting from higher
property tax rates and higher assessed values. Higher
gross receipts tax expenses as a result of increased
revenue also contributed to the increase in the twelve-
month period.
Interest Expense
Interest expense increased for the three- and twelve-
month periods when compared to the same periods one year
ago primarily as the result of increases in average debt
outstanding slightly offset by decreases in interest
rates.
Other Operating Matters
Environmental Matters
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
location of former manufactured gas plants. (See Note 9.)
Federal Energy Regulatory Commission Matters
In accordance with Federal Energy Regulatory Commission
(FERC) Order No. 636, Indiana Gas' pipeline service
providers have made a number of filings to restructure
services. On May 1, 1993, Panhandle Eastern Pipe Line
Company implemented a restructured services tariff. Texas
Eastern Transmission Company's restructured tariff was
implemented June 1, 1993. Indiana Gas' remaining pipeline
service providers implemented restructured services on
November 1, 1993. Indiana Gas' pipeline service providers
are expected to seek from customers, including Indiana Gas,
recovery of certain costs related to the transition to
restructured services. Those costs will include certain gas
supply realignment costs and are not expected to exceed $25
million.
Indiana Gas does not expect these matters to have a
material effect on its financial position or results of
operation because these costs are expected to be recovered
through the GCA procedure. Indiana Gas continues to monitor
developments concerning these and other pipeline issues, to
participate in related negotiations, and to represent its
interest in pipeline matters before FERC.
Postretirement Benefits Other Than Pensions
Effective October 1, 1993, Indiana Gas adopted
Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other
Than Pensions (SFAS 106). SFAS 106 requires accounting for
the costs of postretirement health care and life insurance
benefits on the accrual basis. This means the costs of
benefits paid in the future are recognized during the years
that an employee provides service to Indiana Gas rather
than the "pay-as-you-go" (cash) basis. (See Note 10.)
In January 1992, Indiana Gas filed a petition with
the IURC seeking regulatory authority for, among other
matters, rate recovery of implementation of SFAS 106
relating to postretirement benefits other than pensions.
Through a generic order issued on December 30, 1992,
Indiana Gas received authority from the IURC to employ
deferred accounting for these costs. This authorization
will extend until the IURC rules upon Indiana Gas' pending
request to adopt SFAS 106 for ratemaking purposes. An
order is not expected until late calendar 1994. On
November 12, 1993, Indiana Michigan Power Company (I & M)
received an order from the IURC in its general rate case
authorizing SFAS 106 to be adopted for ratemaking
purposes. Indiana Gas continues to pursue full recovery
of the costs of implementation of SFAS 106, however, no
assurance can be given as to the ratemaking treatment for
this issue.
Income Taxes
Effective October 1, 1993, Indiana Gas adopted Statement
of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109). Indiana Gas previously used the
deferred method of accounting for income taxes as prescribed
by Accounting Principles Bulletin Opinion No. 11. SFAS 109
requires the use of the liability method, which effectively
results in a reduction in previously provided deferred
income taxes to reflect the current statutory corporate tax
rate.
Due to the effects of regulation on Indiana Gas, Indiana
Gas is not permitted to recognize the effect of a tax rate
change as income but is required to reduce tariff rates to
return the "excess" deferred income taxes to ratepayers over
the remaining life of the properties that give rise to the
taxes. Therefore, the cumulative effect of a change in
accounting principle upon the initial application of SFAS
109 resulted in no impact on earnings.
Liquidity and Capital Resources
New construction to provide service to a growing
customer base and normal system maintenance and
improvements will continue to require substantial capital
expenditures. For the twelve months ended December 31,
1993, Indiana Gas' capital expenditures totaled $58.8
million. Of this amount, 63 percent was provided by funds
generated internally (net income plus charges not requiring
funds less dividends). Capital expenditures for fiscal
1994 are estimated at $51.4 million of which $14.5 million
have been expended during the three-month period ended
December 31, 1993.
Indiana Gas' goal is to fund internally approximately
75 percent of its construction program. Capitalization
objectives for Indiana Gas are 55-65 percent common equity
and 35-45 percent long-term debt. This will help Indiana
Gas to maintain its high creditworthiness. The senior debt
of Indiana Gas is currently rated Aa3 by Moody's Investors
Service and AA- by Standard & Poor's Corporation and Duff &
Phelps.
On October 15, 1993, $10 million of 9.30% medium-term
notes were redeemed.
The nature of Indiana Gas' business creates large short-
term cash working capital requirements primarily to finance
customer accounts receivable, unbilled utility revenues
resulting from cycle billing, gas in underground storage
and construction expenditures until permanently financed.
Short-term borrowings tend to be greatest during the
heating season when accounts receivable and unbilled
utility revenues are at their highest. Depending on cost,
commercial paper or bank lines of credit are used as
sources of short-term financing. Indiana Gas' commercial
paper is rated P-1 by Moody's and A-1+ by Standard &
Poor's. Long-term financial strength and flexibility
require maintaining throughput volumes, controlling costs
and, if absolutely necessary, securing timely increases in
rates to recover costs and provide a fair and reasonable
return to shareholders.
Indiana Gas Company, Inc. and Subsidiary Companies
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
INDIANA GAS COMPANY, INC.
Registrant
Dated February 10, 1994 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
Senior Vice President
and Chief Financial Officer
Dated February 10, 1994 /s/Jerome A. Benkert
Jerome A. Benkert
Controller
