May 15, 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 March 31,
1995, pursuant to the requirements of Section 13 of
the Securities Exchange Act of 1934.
Very truly yours,
Kathleen S. Morris
KSM:rs
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 March 31, 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 April 30, 1995
Class Number of shares Date
TABLE OF CONTENTS
Page
Numbers
Part I - Financial Information
Consolidated Balance Sheets
at March 31, 1995, and 1994
and September 30, 1994
Consolidated Statements of Income
Three Months Ended March 31, 1995 and 1994,
Six Months Ended March 31, 1995 and 1994,
and Twelve Months Ended March 31, 1995 and 1994
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1995 and 1994,
and Twelve Months Ended March 31, 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 4 - Submission of Matters to a Vote of Security
Holders
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands - Unaudited)
March 31 September 30
1995 1994 1994
<S> <C> <C> <C>
UTILITY PLANT:
Original cost $846,963 $797,925 $824,839
Less - accumulated depreciation
and amortization 304,077 279,539 291,823
542,886 518,386 533,016
NONUTILITY PLANT - NET 389 398 393
CURRENT ASSETS:
Cash and cash equivalents 20 8,020 20
Accounts receivable, less reserves of
$1,511, $3,215 and $1,238 respectively 39,193 65,584 14,251
Accrued unbilled revenues 14,460 19,778 6,607
Materials and supplies - at average cost 3,952 4,023 3,663
Liquefied petroleum gas - at average cost 887 881 940
Gas in underground storage - at last-in,
first-out cost 33,727 21,256 64,753
Prepayments and other 1,071 1,050 244
93,310 120,592 90,478
DEFERRED CHARGES:
Unamortized debt discount and expense 6,708 6,363 6,755
Environmental costs (see Note 9) 2,556 10,410 11,925
Other 10,069 4,403 7,415
19,333 21,176 26,095
$655,918 $660,552 $649,982
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
SHAREHOLDER'S EQUITY AND LIABILITIES
(Thousands - Unaudited)
March 31 September 30
1995 1994 1994
<S> <C> <C> <C>
CAPITALIZATION:
Common stock and paid-in capital $142,995 $142,995 $142,995
Retained earnings 137,240 131,400 117,300
Total common shareholder's equity 280,235 274,395 260,295
Long-term debt 153,739 164,901 156,851
433,974 439,296 417,146
CURRENT LIABILITIES:
Maturities and sinking fund requirements
of long-term debt - 10,000 -
Notes payable 12,100 - 30,550
Accounts payable 36,539 42,030 34,808
Refundable gas costs 25,484 25,093 31,595
Customer deposits and advance payments 8,349 1,756 12,594
Accrued taxes 23,765 41,537 20,291
Accrued interest 2,754 3,012 2,815
Other current liabilities 22,719 18,012 14,055
131,710 141,440 146,708
DEFERRED CREDITS:
Deferred income taxes 61,491 56,184 59,887
Unamortized investment tax credit 12,569 13,499 13,033
Customer advances for construction 1,318 983 1,162
Regulatory income tax liability 4,787 4,789 4,787
Other 10,069 4,361 7,259
90,234 79,816 86,128
COMMITMENTS AND CONTINGENCIES
(see Note 9) - - -
$655,918 $660,552 $649,982
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands - Unaudited)
Three Months Six Months
Ended March 31 Ended March 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 150,468 $ 195,672 $ 263,530 $ 347,564
COST OF GAS 82,549 122,239 145,060 215,485
MARGIN 67,919 73,433 118,470 132,079
OPERATING EXPENSES:
Other operation and maintenance 19,282 23,244 37,450 42,777
Depreciation and amortization 7,744 7,358 15,393 14,270
Income taxes 12,693 13,120 19,204 22,118
Taxes other than income taxes 3,533 5,081 7,163 9,390
43,252 48,803 79,210 88,555
OPERATING INCOME 24,667 24,630 39,260 43,524
OTHER INCOME - NET 325 1,189 489 1,511
INCOME BEFORE INTEREST
AND OTHER CHARGES 24,992 25,819 39,749 45,035
INTEREST 3,829 4,043 7,823 8,283
OTHER 2 36 (14) (144)
3,831 4,079 7,809 8,139
NET INCOME $ 21,161 $ 21,740 $ 31,940 $ 36,896
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands - Unaudited)
Twelve Months
Ended March 31
1995 1994
<S> <C> <C>
OPERATING REVENUES $ 391,263 $ 513,049
COST OF GAS 210,563 317,673
MARGIN 180,700 195,376
OPERATING EXPENSES
Other operation and maintenance 76,655 84,628
Depreciation and amortization 30,300 27,845
Income taxes 16,553 19,921
Taxes other than income taxes 13,613 15,224
137,121 147,618
OPERATING INCOME 43,579 47,758
OTHER INCOME - NET 1,607 2,129
INCOME BEFORE INTEREST AND OTHER 45,186 49,887
INTEREST 15,577 16,694
OTHER (31) (327)
15,546 16,367
NET INCOME $ 29,640 $ 33,520
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)
Six Months Twelve Months
Ended March 31 Ended March 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,940 $ 36,896 $ 29,640 $ 33,520
Adjustments to reconcile net income to cash
provided from operating activities -
Depreciation and amortization 15,487 14,370 30,488 28,074
Deferred income taxes 1,604 1,286 3,591 3,221
Investment tax credit (465) (465) (930) (930)
16,626 15,191 33,149 30,365
Changes in assets and liabilities -
Receivables - net (32,795) (60,383) 31,709 (20,140)
Inventories 30,790 38,103 (12,406) (5,945)
Accounts payable, customer deposits,
advance payments and other
current liabilities 6,150 (6,711) 5,809 (10,537)
Accrued taxes and interest 3,413 9,628 (18,030) 11,843
Recoverable/refundable gas costs (6,111) 32,546 391 4,555
Prepayments (827) (754) (21) 214
Other - net 10,425 2,883 10,261 1,850
Total adjustments 27,671 30,503 50,862 12,205
Net cash flow from operations 59,611 67,399 80,502 45,725
CASH FLOWS FROM (REQUIRED FOR)
FINANCING ACTIVITIES:
Issuance of common stock - - - 40,000
Reduction in long-term debt (3,112) (10,000) (21,162) (10,000)
Net change in short-term borrowings (18,450) (10,252) 12,100 -
Dividends (12,000) (11,600) (23,800) (22,500)
Net cash flow from (required for) financing activities (33,562) (31,852) (32,862) 7,500
CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (26,049) (27,547) (55,640) (60,085)
Net cash flow required for investing activities (26,049) (27,547) (55,640) (60,085)
NET INCREASE (DECREASE) IN CASH - 8,000 (8,000) (6,860)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 20 20 8,020 14,880
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20 $ 8,020 $ 20 $ 8,020
</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 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>
Six Months Ended Twelve Months Ended
March 31 March 31
Thousands 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest (net of
amount capitalized) $ 7,353 $ 7,807 $14,738 $15,114
Income taxes $12,676 $11,080 $25,476 $12,280
</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 March 1995,
the cost of replacing the current portion of gas in
underground storage was less than last-in, first-out
cost at March 31, 1995, by approximately $6,082,000.
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 Six Months Ended Twelve Months Ended
March 31 March 31 March 31
Thousands 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C>
AFUDC-Borrowed Funds $ 45 $ 13 $ 108 $ 244 $ 219 $ 556
AFUDC-Equity Funds 37 11 88 200 178 455
Total AFUDC Capitalized $ 82 $ 24 $ 196 $ 444 $ 397 $1,011
</TABLE>
7. Long-Term Debt.
On October 28, 1994, $3 million of the outstanding 9
3/8% Series M, First Mortgage Bonds were retired.
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 at these sites.
Indiana Gas has identified the existence, location
and certain general characteristics of 26 gas
manufacturing and storage sites. Remedial
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 these sites. Site
investigations (SIs) have been completed at 19 of
these sites. Based upon the site work completed to
date, Indiana Gas believes that some level of
contamination may be present at a number of the 24
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 remediation obligations 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
resulting 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 of 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 pending in the United
States District Court for the Northern District of
Indiana in Fort Wayne, Indiana.
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 March 31, 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 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 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 in 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 intends to
appeal the decision to the Indiana Court of
Appeals.
The May 3, 1995, order of the IURC will have no
immediate impact on Indiana Gas' earnings since of
the $13.5 million which had been deferred through
March 31, 1995, $11 million was subsequently
received and the balance of $2.5 million is
recoverable from PRPs.
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 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. As of March 31, 1995, 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.
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.
INDIANA GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Earnings
Net income for the three-, six- and twelve-month
periods ended March 31, 1995, when compared to the same
periods one year ago are listed below.
Periods Ended March 31
(Millions) 1995 1994
Three Months $21.2 $21.7
Six Months $31.9 $36.9
Twelve Months $29.6 $33.5
The following discussion highlights the factors
contributing to these results.
Margin (Revenues Less Cost of Gas)
Margin for the quarter ended March 31, 1995, decreased
$5.5 million compared to the same period last year. The
decrease was primarily due to weather 11 percent warmer
than the same period last year and 8 percent warmer than
normal, offset somewhat by additional residential and
commercial customers.
Margin for the six-month period ended March 31, 1995,
decreased $13.6 million compared to the same period last
year. The decrease for the six-month period reflects
weather 17 percent warmer than the same period last year
and 15 percent warmer than normal, offset somewhat by
additional residential and commercial customers.
Margin for the twelve-month period ended March 31,
1995, decreased $14.7 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) decreased 7 percent (3.2 MMDth) for the
second quarter of fiscal 1995, 10 percent (8.3 MMDth) for
the six-month period and 7 percent (8.2 MMDth) for the
twelve-month period ended March 31, 1995, compared to the
same periods last year. The decreases for all periods are
due primarily to decreases in 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 $2.70 for the three-month period ended March 31, 1995,
compared to $3.19 for the same period one year ago. For
the six-month period, cost of gas per unit decreased to
$2.69 in the current period compared to $3.12 for the same
period last year. For the twelve-month period, cost of
gas per unit decreased to $2.62 in the current period
compared to $3.07 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
approximately $4.0 million for the second quarter of
fiscal 1995, and approximately $5.3 million for the six-
month period ended March 31, 1995, when compared to the
same periods one year ago. The decreases are partially
attributable to lower provisions for uncollectible
accounts and employee benefits as well as other
nonrecurring charges which occurred last year. Lower
operating and maintenance expenses for mains, measuring
and regulating station equipment and customer
installations also contributed to the decrease. The
declining operation and maintenance expenses reflect
management's efforts to control costs considering the
impact of warmer weather.
Operation and maintenance expenses for the twelve-
month period decreased approximately $8.0 million compared
to the same period last year. The decrease is primarily
due to labor and related operational costs which are lower
than the levels last year when additional operation and
maintenance projects were in progress. The decrease also
reflects lower health care and pension costs.
Depreciation and amortization expense increased for
the three-, six- and twelve-month periods ended March 31,
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 decreased for the
three-, six- and twelve-month periods ended March 31,
1995, when compared to the same periods one year ago due
to lower taxable income.
Taxes other than income taxes decreased for the three-
, six- and twelve-month periods ended March 31, 1995, when
compared to the same periods one year ago due to lower
gross receipts tax expenses resulting from decreased
revenue.
Interest Expense
Interest expense decreased for the three-, six- and
twelve-month periods ended March 31, 1995, when compared
to the same periods one year ago 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. During the
quarter ended March 31, 1995, settlements of approximately
$11 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 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 through March 31, 1995, and recoveries
attributable to those costs from all sources, including
insurance carriers and potentially responsible parties,
the May 3, 1995, order of the IURC will have 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. As
of March 31, 1995, 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.
Indiana Legislative Matters
On April 26, 1995, Indiana Senate Bill 637 was
enacted into law. It will provide new flexibility to
the IURC for future regulation of Indiana utilities and
modify 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, utilities
can present to the IURC a broad range of proposals from
incentive ratemaking to complete deregulation of the
industry. 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 March 31, 1995,
Indiana Gas' capital expenditures totaled $55.6 million.
Of this amount, 70 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 $26.0
million have been expended during the six-month period
ended March 31, 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 3.8 for
the twelve months ended March 31, 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.
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 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 4. Submission of Matters to a Vote of Security
Holders
At the annual meeting of shareholders of Indiana Gas
Company, Inc. on January 9, 1995, (the "Annual
Meeting"), the shareholders elected the following
directors by the vote specified opposite each
director's name:
<TABLE>
<S> <C> <C> <C> <C>
Broker
Director Votes For(1) Votes Withheld Abstentions Non-Vote
Paul T. Baker 9,080,770 - - -
Otto N. Frenzel III 9,080,770 - - -
Don E. Marsh 9,080,770 - - -
Richard P. Rechter 9,080,770 - - -
(1) All outstanding shares of Indiana Gas' common
stock are held by its parent company, Indiana Energy,
Inc.
</TABLE>
The terms of the other eight board members, Duane M.
Amundson, Gerald L. Bepko, Howard J. Cofield, Niel C.
Ellerbrook, Loren K. Evans, Lawrence A. Ferger, Anton
H. George and James C. Shook will expire in January
1996 or January 1997.
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 May 15, 1995 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
Senior Vice President
and Chief Financial Officer
Dated May 15, 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 March 31, 1995 1994 1993 1992 1991 1990(1)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $29,640 $34,596 $28,534 $25,743 $23,286 $22,257
Adjustments:
Income taxes 15,931 17,977 16,030 12,800 11,665 11,085
Fixed charges (see below) 16,442 16,986 17,556 15,642 15,482 12,026
Total adjusted earnings $62,013 $69,559 $62,120 $54,185 $50,433 $45,368
Fixed charges:
Total interest expense $15,577 $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 $16,442 $16,986 $17,556 $15,642 $15,482 $12,026
Ratio of earnings to fixed charges 3.8 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 March 31, 1995, and for
the six months then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 542,886
<OTHER-PROPERTY-AND-INVEST> 389
<TOTAL-CURRENT-ASSETS> 93,310
<TOTAL-DEFERRED-CHARGES> 19,333
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 655,918
<COMMON> 142,995
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 137,240
<TOTAL-COMMON-STOCKHOLDERS-EQ> 280,235
0
0
<LONG-TERM-DEBT-NET> 153,739
<SHORT-TERM-NOTES> 12,100
<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> 209,844
<TOT-CAPITALIZATION-AND-LIAB> 655,918
<GROSS-OPERATING-REVENUE> 263,530
<INCOME-TAX-EXPENSE> 19,204
<OTHER-OPERATING-EXPENSES> 205,066
<TOTAL-OPERATING-EXPENSES> 224,270
<OPERATING-INCOME-LOSS> 39,260
<OTHER-INCOME-NET> 503
<INCOME-BEFORE-INTEREST-EXPEN> 39,763
<TOTAL-INTEREST-EXPENSE> 7,823
<NET-INCOME> 31,940
0
<EARNINGS-AVAILABLE-FOR-COMM> 31,940
<COMMON-STOCK-DIVIDENDS> 12,000
<TOTAL-INTEREST-ON-BONDS> 6,556
<CASH-FLOW-OPERATIONS> 59,611
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
