August 11, 1995
Securities and Exchange Commission
Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Gentlemen:
We are transmitting herewith Indiana Gas Company, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995, pursuant to the requirements of Section 13 of the
Securities Exchange Act of 1934.
Very truly yours,
Kathleen S. Morris
KSM:rs
Enclosures (8)
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 June 30, 1995
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 July 31, 1995
Class Number of shares Date
TABLE OF CONTENTS
Page
Numbers
Part I - Financial Information
Consolidated Balance Sheets
at June 30, 1995, and 1994
and September 30, 1994
Consolidated Statements of Income
Three Months Ended June 30, 1995 and 1994,
Nine Months Ended June 30, 1995 and 1994,
and Twelve Months Ended June 30, 1995 and 1994
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1995 and 1994,
and Twelve Months Ended June 30, 1995 and 1994
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Part II - Other Information
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands - Unaudited)
June 30 September 30
1995 1994 1994
<S> <C> <C> <C>
UTILITY PLANT:
Original cost $858,570 $810,925 $824,839
Less - accumulated depreciation
and amortization 311,445 286,510 291,823
547,125 524,415 533,016
NONUTILITY PLANT - NET 387 396 393
CURRENT ASSETS:
Cash and cash equivalents 27,620 23,414 20
Accounts receivable, less reserves of
$1,184, $2,137 and $1,238 respectively 12,771 29,413 14,251
Accrued unbilled revenues 5,445 7,913 6,607
Materials and supplies - at average cost 3,956 3,886 3,663
Liquefied petroleum gas - at average cost 877 869 940
Gas in underground storage - at last-in,
first-out cost 43,978 39,210 64,753
Prepayments and other 596 713 244
95,243 105,418 90,478
DEFERRED CHARGES:
Unamortized debt discount and expense 6,915 6,237 6,755
Environmental costs (see Note 9) 1,918 10,545 11,925
Other 9,608 5,453 7,415
18,441 22,235 26,095
$661,196 $652,464 $649,982
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
SHAREHOLDER'S EQUITY AND LIABILITIES
(Thousands - Unaudited)
June 30 September 30
1995 1994 1994
<S> <C> <C> <C>
CAPITALIZATION:
Common stock and paid-in capital $142,995 $142,995 $142,995
Retained earnings 135,567 128,014 117,300
Total common shareholder's equity 278,562 271,009 260,295
Long-term debt 173,693 164,901 156,851
452,255 435,910 417,146
CURRENT LIABILITIES:
Maturities and sinking fund requirements
of long-term debt - 10,000 -
Notes payable - - 30,550
Accounts payable 45,334 37,082 34,808
Refundable gas costs 17,571 32,595 31,595
Customer deposits and advance payments 10,512 2,077 12,594
Accrued taxes 19,683 32,820 20,291
Accrued interest 4,463 5,103 2,815
Other current liabilities 20,089 15,410 14,055
117,652 135,087 146,708
DEFERRED CREDITS:
Deferred income taxes 62,097 56,828 59,887
Unamortized investment tax credit 12,337 13,267 13,033
Customer advances for construction 1,253 1,100 1,162
Regulatory income tax liability 4,787 4,789 4,787
Other 10,815 5,483 7,259
91,289 81,467 86,128
COMMITMENTS AND CONTINGENCIES
(See Note 9) - - -
$661,196 $652,464 $649,982
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands - Unaudited)
Three Months Nine Months
Ended June 30 Ended June 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 83,081 $ 77,827 $ 346,611 $ 425,391
COST OF GAS 43,705 41,468 188,765 256,953
MARGIN 39,376 36,359 157,846 168,438
OPERATING EXPENSES:
Other operation and maintenance 18,252 19,579 55,702 62,356
Depreciation and amortization 7,881 7,384 23,274 21,654
Income taxes 2,378 482 21,582 22,600
Taxes other than income taxes 3,065 3,363 10,228 12,753
31,576 30,808 110,786 119,363
OPERATING INCOME 7,800 5,551 47,060 49,075
OTHER INCOME - NET 464 747 953 2,258
INCOME BEFORE INTEREST
AND OTHER CHARGES 8,264 6,298 48,013 51,333
INTEREST 3,937 3,885 11,760 12,168
OTHER - (1) (14) (145)
3,937 3,884 11,746 12,023
NET INCOME $ 4,327 $ 2,414 $ 36,267 $ 39,310
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands - Unaudited)
Twelve Months
Ended June 30
1995 1994
<S> <C> <C>
OPERATING REVENUES $ 396,517 $ 489,627
COST OF GAS 212,800 295,231
MARGIN 183,717 194,396
OPERATING EXPENSES
Other operation and maintenance 75,328 81,536
Depreciation and amortization 30,797 28,492
Income taxes 18,449 20,305
Taxes other than income taxes 13,315 15,295
137,889 145,628
OPERATING INCOME 45,828 48,768
OTHER INCOME - NET 1,324 2,555
INCOME BEFORE INTEREST
AND OTHER CHARGES 47,152 51,323
INTEREST 15,629 16,396
OTHER (30) (246)
15,599 16,150
NET INCOME $ 31,553 $ 35,173
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)
Nine Months Twelve Months
Ended June 30 Ended June 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 36,267 $ 39,310 $ 31,553 $ 35,173
Adjustments to reconcile net income to cash
provided from operating activities -
Depreciation and amortization 23,414 21,801 30,984 28,704
Deferred income taxes 2,210 1,930 3,553 3,367
Investment tax credit (697) (697) (930) (929)
24,927 23,034 33,607 31,142
Changes in assets and liabilities -
Receivables - net 2,642 (12,347) 19,110 (7,574)
Inventories 20,545 20,298 (4,846) (6,532)
Accounts payable, customer deposits,
advance payments and other current liabilities 14,478 (13,940) 21,366 (38,785)
Accrued taxes and interest 1,040 3,002 (13,777) 4,877
Recoverable/refundable gas costs (14,024) 40,048 (15,024) 28,674
Prepayments (352) (417) 117 (27)
Other - net 12,361 3,401 11,679 1,191
Total adjustments 61,617 63,079 52,232 12,966
Net cash flow from operations 97,884 102,389 83,785 48,139
CASH FLOWS FROM (REQUIRED FOR)
FINANCING ACTIVITIES:
Issuance of common stock - - - 40,000
Sale of long-term debt 20,000 - 20,000 -
Reduction in long-term debt (3,158) (10,000) (21,208) (10,000)
Net change in short-term borrowings (30,550) (10,252) - -
Dividends (18,000) (17,400) (24,000) (23,200)
Net cash flow from (required for) financing activities (31,708) (37,652) (25,208) 6,800
CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (38,576) (41,343) (54,371) (61,631)
Net cash flow required for investing activities (38,576) (41,343) (54,371) (61,631)
NET INCREASE (DECREASE) IN CASH 27,600 23,394 4,206 (6,692)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 20 20 23,414 30,106
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,620 $ 23,414 $ 27,620 $ 23,414
</TABLE>
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 in 48 of Indiana's 92
counties.
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:
<TABLE>
Nine Months Ended Twelve Months Ended
June 30 June 30
Thousands 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest (net of
amount capitalized) $ 8,891 $ 9,329 $14,754 $14,829
Income taxes $16,326 $15,880 $24,326 $16,580
</TABLE>
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 June 1995, the
cost of replacing the current portion of gas in
underground storage was less than last-in, first-out
cost at June 30, 1995, by approximately $10,595,000.
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. An
annual AFUDC rate of 7.5 percent was used for all
periods reported.
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.
<TABLE>
Three Months Ended Nine Months Ended Twelve Months Ended
June 30 June 30 June 30
Thousands 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C>
AFUDC-Borrowed Funds $ 46 $ 48 $154 $292 $217 $458
AFUDC-Equity Funds 38 39 126 239 177 375
Total AFUDC Capitalized $ 84 $ 87 $280 $531 $394 $833
</TABLE>
7. Long-Term Debt.
On October 28, 1994, $3 million of the outstanding 9
3/8% Series M, First Mortgage Bonds were retired.
During June 1995, Indiana Gas issued $20 million in
aggregate principal amount of its Medium-Term Notes,
Series E (Notes) as follows: $5 million of 7.15% Notes
due March 15, 2015, $5 million of 6.31% Notes due June
10, 2025, and $10 million of 6.53% Notes due June 27,
2025. The net proceeds from the sale of the Notes will
be used to finance, in part, the refunding of long-term
debt, Indiana Gas' continuing construction program and
for other corporate purposes.
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 Costs.
In the past, Indiana Gas and others, including
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, and the IURC has found that, 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 byproducts are
found above a regulatory threshold at these sites.
Indiana Gas has identified the existence, location
and certain general characteristics of 26 gas
manufacturing and storage sites. Removal
activities have been conducted at two sites and a
remedial investigation/feasibility study (RI/FS) is
nearing completion at one of the sites under an
agreed order between Indiana Gas and 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. Preliminary assessments (PAs) have been
completed on all but one of the sites and site
investigations (SIs) have been completed at 19
sites. Based upon the site work completed to date,
Indiana Gas believes that a level of contamination
which may require some level of remedial activity
may be present at a number of the 24 sites.
Indiana Gas is currently conducting groundwater
monitoring at many of the sites. Indiana Gas has
not begun an RI/FS at those sites, but expects to
conduct further investigations in the future.
Based upon the work performed to date, Indiana Gas
has accrued remediation and related costs for the
two sites where remedial activities are taking
place. PA/SI and groundwater monitoring costs have
been accrued for the remaining sites where
appropriate. Estimated RI/FS costs and the costs
of certain remedial actions that may likely be
required have also been accrued. Costs associated
with environmental remedial activities are accrued
when such costs are probable and reasonably
estimable. Indiana Gas does not believe it can
provide an estimate of the reasonably possible
total remediation costs for any site prior to
completion of an RI/FS and the development of some
sense of the timing for implementation of the
potential remedial alternatives, to the extent such
remediation is required. Accordingly, the total
costs which may be incurred in connection with the
remediation of all sites, to the extent remediation
is necessary, cannot be determined at this time.
Indiana Gas has been pursuing recovery from three
separate sources for the costs it has incurred and
expects to incur relating to the 26 sites. Those
sources are insurance carriers, potentially
responsible parties (PRPs) and recovery through
rates from retail gas customers. On April 14,
1995, Indiana Gas filed suit against a number of
insurance carriers for payment of claims for
investigation and clean-up costs already incurred,
as well as for a determination that those carriers
are obligated to pay these costs in the future.
Presently, that suit is set for trial to begin
October 21, 1996, in the United States District
Court for the Northern District of Indiana in Fort
Wayne, Indiana. Since the filing of that suit,
Indiana Gas has obtained cash settlements from some
of the defendant insurance carriers and, as a
result, those carriers have been dismissed from the
suit.
Indiana Gas has also completed the process of
identifying PRPs for each site. PRPs include two
financially viable utilities, PSI Energy, Inc.(PSI)
and Northern Indiana Public Service Company
(NIPSCO). PSI has been identified as a PRP at 19
of the sites. NIPSCO has been identified as an
additional PRP at 5 of these 19 sites. Indiana Gas
is presently in negotiations with PSI and NIPSCO to
determine their individual and joint shares.
With the help of outside counsel, Indiana Gas has
prepared cost sharing estimates of environmental
liabilities which may exist at each of the sites
based on equitable principles derived from case law
or applied by parties in achieving settlements.
These cost sharing estimates have been utilized to
record a receivable from PRPs for their share of
the liability for work performed by Indiana Gas to
date. This receivable is reflected as Deferred
Environmental Costs on the Consolidated Balance
Sheet at June 30, 1995. These cost sharing
estimates have also been utilized by Indiana Gas to
accrue only its proportionate share of the
estimated cost related to work not yet performed.
As a result of its pursuit of recovery of costs
from PRPs and insurance carriers, Indiana Gas has
secured cash payments of approximately $11.6
million.
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 past gas manufacturing activities. On May 3,
1995, the IURC concluded that the costs incurred by
Indiana Gas to investigate and, if necessary, clean-
up former manufactured gas plant sites are not
utility operating expenses necessary for the
provision of utility service and, therefore, are
not recoverable as operating expenses from utility
customers. The Commission did indicate that during
Indiana Gas' next rate case it would be appropriate
to quantify the effect of the investigation and
clean-up activities as part of the business risk to
be considered by the Commission in establishing the
overall rate of return to be allowed. Management
believes that the Commission's determination that
these costs are not utility operating expenses
incorrectly interprets and applies Indiana law and
management has appealed the decision to the Indiana
Court of Appeals. Under the schedule of the
Indiana Court of Appeals, briefing of the issues is
expected to occur during the fall of this year.
The May 3, 1995, order of the IURC has had no
immediate impact on Indiana Gas' earnings since
amounts received from insurers and amounts
recoverable from PRPs exceed the $13.5 million
which had been deferred previous to the order.
The impact on Indiana Gas' financial position and
results of operations of complying with federal,
state and local environmental regulations related
to former manufactured gas plant sites is
contingent upon several uncertainties. These
include the costs of any compliance activities
which may occur and the timing of the actions
taken, the impact of joint and several liability
upon the magnitude of the contingency, the outcome
of proceedings which challenge the IURC ruling on
recovery of costs from ratepayers, as well as any
additional recoveries of environmental and related
costs from insurance carriers. Although
there can be no assurance of success, to the
extent possible Indiana Gas will continue to manage
the manufactured gas plant remediation program so that
amounts received from insurance carriers and PRPs will
be sufficient to fund all such costs.
10. Order No. 636 Transition Costs
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. Indiana Gas'
pipeline service providers are seeking from
customers, including Indiana Gas, recovery of
certain costs related to the transition to
restructured services.
On April 12, 1995, Indiana Gas received an order
from the IURC allowing full recovery through the
quarterly GCA process of all FERC Order No. 636
transition costs, including those transition costs
previously deferred. Indiana Gas has estimated and
recorded total transition costs of approximately
$12 million. The deferred transition costs now
recoverable in rates have been offset against
Refundable Gas Costs on the Consolidated Balance
Sheet.
11. 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.
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. Through a generic order issued on
December 30, 1992, Indiana Gas received authority
from the IURC to employ deferred accounting for
these costs. On May 3, 1995, the IURC issued an
order authorizing Indiana Gas to recover the costs
related to postretirement benefits other than
pensions under the accrual method of accounting
consistent with SFAS 106. While this order is
consistent with the IURC's rulings for other
utilities within the state of Indiana and with the
ratemaking treatment of the majority of regulatory
jurisdictions outside of Indiana, the Office of
Utility Consumer Counselor is seeking to appeal the
order.
12. Regulatory Assets.
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of. This statement
imposes stricter criteria for regulatory assets by
requiring that such assets be probable of future
recovery at each balance sheet date. Indiana Gas
anticipates adopting this standard on October 1, 1996,
and does not expect that the adoption will have a
material impact on its financial position or results of
operations based on the current regulatory structure in
which it operates. This conclusion may change in the
future as competitive factors influence pricing in this
industry.
13. 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.
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Earnings
Net income for the three-, nine- and twelve-month
periods ended June 30, 1995, when compared to the same
periods one year ago are listed below.
Periods Ended June 30
(Millions) 1995 1994
Three Months $ 4.3 $2.4
Nine Months $36.3 $39.3
Twelve Months $31.6 $35.2
The following discussion highlights the factors
contributing to these results.
Margin (Revenues Less Cost of Gas)
Margin for the quarter ended June 30, 1995, increased
$3.0 million compared to the same period last year. The
increase was primarily due to revenues associated with the
recovery of certain gas cost which had been recognized as
expense in earlier periods, as well as, additional
residential and commercial customers.
Margin for the nine-month period ended June 30, 1995,
decreased $10.6 million compared to the same period last
year. The decrease for the nine-month period reflects
weather 16 percent warmer than the same period last year
and 14 percent warmer than normal, offset somewhat by
additional residential and commercial customers.
Margin for the twelve-month period ended June 30,
1995, decreased $10.7 million compared to the same period
last year. The decrease for the twelve-month period
reflects weather 17 percent warmer than the same period
last year and 14 percent warmer than normal, offset
somewhat by additional residential and commercial
customers.
Total system throughput (combined sales and
transportation) increased 3 percent (.6 MMDth) for the
third quarter of fiscal 1995 compared to last year, due
primarily to an increase in industrial throughput.
Throughput decreased 8 percent (7.8 MMDth) and 7 percent
(7.6 MMDth) for the nine- and twelve-month periods,
respectively, compared to the same periods one year ago.
These decreases are due primarily to lower residential and
commercial space heating sales caused by warmer weather.
Indiana Gas' rates for transportation generally
provide the same margins as are earned on the sale of 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 decreased
to $2.43 for the three-month period ended June 30, 1995,
compared to $2.62 for the same period one year ago. For
the nine-month period, cost of gas per unit decreased to
$2.61 in the current period compared to $2.99 for the same
period last year. For the twelve-month period, cost of
gas per unit decreased to $2.58 in the current period
compared to $2.98 for the same period last year. The
decreases for all periods are due primarily to lower
commodity costs associated with decreased demand for gas
during the very warm winter this fiscal year.
Adjustments to Indiana Gas' rates and charges related
to the cost of gas are made through gas cost adjustment
(GCA) procedures established by Indiana law and
administered by the Indiana Utility Regulatory Commission
(IURC). The GCA passes through increases and decreases in
cost of gas to Indiana Gas' customers dollar for dollar.
Operating Expenses
Operation and maintenance expenses decreased $1.3
million for the third quarter of fiscal 1995, $6.7 million
for the nine-month period and $6.2 million for the twelve-
month period ended June 30, 1995, compared to the same
periods one year ago. The decreases are primarily
attributable to lower expenses for labor and related
benefits, distribution mains and services, uncollectible
accounts, outside services, telephone and advertising.
The declining operation and maintenance expenses reflect
management's efforts to control costs considering the
impact of warmer weather.
Depreciation and amortization expense increased for
the three-, nine- and twelve-month periods ended June 30,
1995, 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-
month period ended June 30, 1995, when compared to the
same period one year ago due to higher taxable income.
The decreases for the nine- and twelve-month periods
reflect lower taxable income during those periods.
Taxes other than income taxes remained approximately
the same for the three-month period ended June 30, 1995,
when compared to the same period one year ago. Lower
gross receipts tax expenses due to decreased revenue
resulted in the decreases for the nine- and twelve-month
periods.
Interest Expense
Interest expense remained approximately the same for
the three-month period ended June 30, 1995, when compared
to the same period one year ago. Interest expense
decreased for the nine- and twelve-month periods due to a
decrease in average debt outstanding slightly offset by an
increase in interest rates.
Other Operating Matters
1995 Settlement Agreement
During 1994, Indiana Gas, the Office of Utility
Consumer Counselor (OUCC) and a group of large-volume
users entered a series of negotiations designed to
increase Indiana Gas' opportunity to earn on its recent
capital investments while avoiding the necessity of a
general rate filing. As a result of these negotiations,
the IURC approved on October 26, 1994, a stipulation
and settlement agreement which provided, among other
things, for the following: (1) an increase in Indiana
Gas' authorized utility operating income from $47.1
million to $51.1 million beginning in fiscal 1995; (2)
with certain specified exceptions, Indiana Gas may not
file a petition to increase its base rates until
September 1, 1995; and (3) an agreement to a number of
operational and other service enhancements for large-
volume customers.
Furthermore, as part of the agreement, the OUCC
agreed to perform another investigation during fiscal
year 1995 to consider an additional increase to Indiana
Gas' authorized utility operating income.
Environmental Matters
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
location of former manufactured gas plants. Through
June 30, 1995, settlements of approximately $11.6 million
have been achieved as a result of Indiana Gas' pursuit of
third parties for environmental costs. On May 3, 1995,
Indiana Gas received an order from the IURC in which the
Commission concluded that the costs incurred by Indiana
Gas to investigate and, if necessary, clean-up former
manufactured gas plant sites are not utility operating
expenses necessary for the provision of service and,
therefore, are not recoverable as operating expenses from
utility customers. Based upon investigation and clean-up
costs of approximately $13.5 million which had been
deferred previous to the order, and recoveries
attributable to those costs from all sources, including
insurance carriers and potentially responsible parties,
the May 3, 1995, order of the IURC has had no immediate
impact on Indiana Gas' earnings. For further information
regarding the status of investigation and remediation of
the sites, financial reporting, ratemaking and other
potentially responsible parties, 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. Indiana Gas' pipeline service
providers are seeking from customers, including Indiana
Gas, recovery of certain costs related to the
transition to restructured services.
On April 12, 1995, Indiana Gas received an order
from the IURC allowing full recovery through the
quarterly GCA process of all FERC Order No. 636
transition costs, including those transition costs
previously deferred. Indiana Gas has estimated and
recorded total transition costs of approximately $12
million. The deferred transition costs now recoverable
in rates have been offset against Refundable Gas Costs
on the Consolidated Balance Sheet.
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.
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.
Through a generic order issued on December 30, 1992,
Indiana Gas received authority from the IURC to employ
deferred accounting for these costs. On May 3, 1995,
the IURC issued an order authorizing Indiana Gas to
recover the costs related to postretirement benefits
other than pensions under the accrual method of
accounting consistent with SFAS 106. While this order
is consistent with the IURC's rulings for other
utilities within the state of Indiana and with the
ratemaking treatment of the majority of regulatory
jurisdictions outside of Indiana, the Office of Utility
Consumer Counselor is seeking to appeal the order.
Indiana Legislative Matters
On April 26, 1995, Indiana Senate Bill 637 was
enacted into law. It provides new flexibility to the
IURC for future regulation of Indiana utilities and
modifies the application of the current earnings test.
The new law recognizes that competition is
increasing in the provision of energy services and that
flexibility in the regulation of energy services
providers is essential to the well-being of the state,
its economy and its citizens. Under the law, an energy
utility can present to the IURC a broad range of
proposals from incentive ratemaking to complete
deregulation of a utility's operations. The law gives
the IURC the authority to adopt alternative regulatory
practices, procedures, and mechanisms and establish
rates and charges that are in the public interest, and
will enhance or maintain the value of the energy
utility's retail energy services or property. It also
provides authority to the IURC to establish rates and
charges based on market or average prices, that use
performance based rewards or penalties, and which are
designed to promote efficiency in the rendering of
retail energy services.
The IURC applies the Indiana statute authorizing
the GCA procedures to reduce rates when necessary so as
to limit utility operating income to the level provided
in the last general rate order. In the case of Indiana
Gas, utility operating income is adjusted to normal
weather. On a quarterly basis, this earnings test is
performed by comparing Indiana Gas' authorized utility
operating income to its actual utility operating income
(weather normalized) for the previous twelve months.
In the past, one-fourth of the amounts over the
authorized utility operating income would be refundable
to Indiana Gas' customers. The new bill revises the
most current earnings test to provide that no refund be
paid to the extent a utility has not earned its
authorized utility operating income over the previous
60 months (or during the period since the utility's
last rate order, if longer). The revised test provides
Indiana Gas a greater opportunity to earn its
authorized utility operating income over the long term.
New Accounting Standard
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed Of. This statement imposes
stricter criteria for regulatory assets by requiring that
such assets be probable of future recovery at each balance
sheet date. Indiana Gas anticipates adopting this standard
on October 1, 1996, and does not expect that the adoption
will have a material impact on its financial position or
results of operations based on the current regulatory
structure in which it operates. This conclusion may change
in the future as competitive factors influence pricing in
this industry.
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 June 30, 1995,
Indiana Gas' capital expenditures totaled $54.4 million.
Of this amount, 76 percent was provided by funds generated
internally (net income less dividends plus charges to net
income not requiring funds). Capital expenditures for
fiscal 1995 are estimated at $54.7 million of which $38.6
million have been expended during the nine-month period
ended June 30, 1995.
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 long-term
debt of Indiana Gas is currently rated Aa3 by Moody's
Investors Service and AA- by Standard & Poor's Corporation.
Indiana Gas' ratio of earnings to fixed charges was 4.0 for
the twelve months ended June 30, 1995 (see Exhibit 12).
On October 28, 1994, $3 million of the outstanding 9
3/8% Series M, First Mortgage Bonds were retired.
On April 5, 1995, Indiana Gas filed with the Securities
and Exchange Commission (SEC) a prospectus supplement for
the offering of its Medium-Term Notes, Series E (Notes)
with an aggregate principal amount of up to $55 million.
The Notes were registered under the existing shelf
registration statement filed November 20, 1992, with the
SEC with respect to the issuance of up to $90 million in
aggregate principal amount of debt securities ($35 million
was previously withdrawn from this shelf as a result of the
December 9, 1992, issuance of 6 5/8%, Series D Notes).
Indiana Gas plans to issue the Notes from time to time
during fiscal years 1995 and 1996. The Notes, when issued,
will be due not less than 9 months and not more than 40
years from the date of issue, and will bear interest at a
fixed or variable rate as negotiated between the purchaser
and Indiana Gas. The net proceeds from the sale of the
Notes will be used to finance, in part, the refunding of
long-term debt, Indiana Gas' continuing construction
program and for other corporate purposes. During June
1995, $20 million in aggregate principal amount of the
Notes were issued as follows: $5 million of the 7.15%
Notes due March 15, 2015, $5 million of 6.31% Notes due
June 10, 2025, and $10 million of 6.53% Notes due June 27,
2025.
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.
Part II - Other Information
Item 1. Legal Proceedings
See Note 9 of the Notes to Consolidated Financial
Statements for litigation matters involving insurance
carriers pertaining to Indiana Gas' former manufactured
gas plants and storage facilities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Computation of Ratio of
Earnings to Fixed Charges Filed herewith.
27 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K.
On April 5, 1995, Indiana Gas filed a
Current Report on Form 8-K with respect to the
offering of its Medium-Term Notes, Series E
with an aggregate principal amount of up to $55
million. Items reported include:
Item 7. Financial Statements and Exhibits
Exhibit 1(a) Distribution Agreement dated April 5,
1995, among Indiana Gas Company,
Inc., Goldman, Sachs & Co., Merrill
Lynch & Co., Merrill Lynch, Pierce
Fenner & Smith Incorporated.
Exhibit 4(a) Officers' Certificate with respect
to the establishment of the Medium-
Term Notes, Series E (including
form of Fixed Rate Note and
Floating Rate Note).
On May 4, 1995, Indiana Gas filed a
Current Report on Form 8-K with respect to a
press release (dated May 4, 1995), announcing
the receipt and assessment of an order issued
by the Indiana Utility Regulatory Commission on
May 3, 1995. The order addressed the
ratemaking for costs incurred in connection
with former manufactured gas plant sites and
costs incurred in complying with Financial
Accounting Standard No. 106, Postretirement
Benefits Other Than Pensions. Items reported
include:
Item 5. Other Events
Press release dated May 4, 1995.
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 August 11, 1995 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
Senior Vice President
and Chief Financial Officer
Dated August 11, 1995 /s/Jerome A. Benkert
Jerome A. Benkert
Controller
<TABLE> EXHIBIT 12
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands, Except Ratios)
Twelve Months Fiscal Year Ended September 30
Ended June 30, 1995 1994 1993 1992 1991 1990(1)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $31,553 $34,596 $28,534 $25,743 $23,286 $22,257
Adjustments:
Income taxes 17,673 17,977 16,030 12,800 11,665 11,085
Fixed charges (see below) 16,494 16,986 17,556 15,642 15,482 12,026
Total adjusted earnings $65,720 $69,559 $62,120 $54,185 $50,433 $45,368
Fixed charges:
Total interest expense $15,629 $16,037 $16,640 $14,556 $14,411 $10,955
Interest component of rents 865 949 916 1,086 1,071 1,071
Total fixed charges $16,494 $16,986 $17,556 $15,642 $15,482 $12,026
Ratio of earnings to fixed charges 4.0 4.1 3.5 3.5 3.3 3.8
(1) Includes consolidation of Richmond Gas Corporation and Terre Haute Gas Corporation beginning
August 1990.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Indiana Gas
Company, Inc.'s consolidated financial statements as of June 30, 1995, and for
the nine months then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 547,125
<OTHER-PROPERTY-AND-INVEST> 387
<TOTAL-CURRENT-ASSETS> 95,243
<TOTAL-DEFERRED-CHARGES> 18,441
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 661,196
<COMMON> 142,995
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 135,567
<TOTAL-COMMON-STOCKHOLDERS-EQ> 278,562
0
0
<LONG-TERM-DEBT-NET> 173,693
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 208,941
<TOT-CAPITALIZATION-AND-LIAB> 661,196
<GROSS-OPERATING-REVENUE> 346,611
<INCOME-TAX-EXPENSE> 21,582
<OTHER-OPERATING-EXPENSES> 277,969
<TOTAL-OPERATING-EXPENSES> 299,551
<OPERATING-INCOME-LOSS> 47,060
<OTHER-INCOME-NET> 967
<INCOME-BEFORE-INTEREST-EXPEN> 48,027
<TOTAL-INTEREST-EXPENSE> 11,760
<NET-INCOME> 36,267
0
<EARNINGS-AVAILABLE-FOR-COMM> 36,267
<COMMON-STOCK-DIVIDENDS> 18,000
<TOTAL-INTEREST-ON-BONDS> 9,875
<CASH-FLOW-OPERATIONS> 97,884
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
