February 12, 1996
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
December 31, 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 December 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 January 31, 1996
Class Number of shares Date
TABLE OF CONTENTS
Page
Numbers
Part I - Financial Information
Consolidated Balance Sheets
at December 31, 1995, and 1994
and September 30, 1995
Consolidated Statements of Income
Three Months Ended December 31, 1995 and 1994,
and Twelve Months Ended December 31, 1995 and 1994
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1995 and 1994,
and Twelve Months Ended December 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 6 - Exhibits and Reports on Form 8-K
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands - Unaudited)
December 31 September 30
1995 1994 1995
<S> <C> <C> <C>
UTILITY PLANT:
Original cost $882,124 $835,329 $872,287
Less - accumulated depreciation
and amortization 323,160 297,485 316,991
558,964 537,844 555,296
NONUTILITY PLANT - NET 186 391 188
CURRENT ASSETS:
Cash and cash equivalents 19,670 20 20
Accounts receivable, less reserves of
$2,433, $1,522 and $1,662 respectively 43,313 34,112 13,403
Accrued unbilled revenues 45,121 26,573 6,405
Materials and supplies - at average cost 3,827 3,878 3,890
Liquefied petroleum gas - at average cost 876 947 883
Gas in underground storage - at last-in,
first-out cost 51,392 60,401 59,394
Prepayments and other 1,391 1,402 144
165,590 127,333 84,139
DEFERRED CHARGES:
Unamortized debt discount and expense 6,811 6,835 6,800
Environmental costs - 9,585 -
Other 9,239 8,114 9,510
16,050 24,534 16,310
$740,790 $690,102 $655,933
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
SHAREHOLDER'S EQUITY AND LIABILITIES
(Thousands - Unaudited)
December 31 September 30
1995 1994 1995
<S> <C> <C> <C>
CAPITALIZATION:
Common stock and paid-in capital $142,995 $142,995 $142,995
Retained earnings 137,837 122,079 125,159
Total common shareholder's equity 280,832 265,074 268,154
Long-term debt 193,693 153,815 173,693
474,525 418,889 441,847
CURRENT LIABILITIES:
Notes payable 23,200 43,550 2,225
Accounts payable 79,703 39,644 59,713
Refundable gas costs 8,008 30,794 4,883
Customer deposits and advance payments 16,976 21,923 20,870
Accrued taxes 18,175 21,730 7,928
Accrued interest 4,859 4,498 2,803
Other current liabilities 20,068 21,300 21,560
170,989 183,439 119,982
DEFERRED CREDITS:
Deferred income taxes 65,798 60,690 65,096
Unamortized investment tax credit 11,871 12,801 12,103
Customer advances for construction 1,418 1,284 1,297
Regulatory income tax liability 3,797 4,787 3,797
Other 12,392 8,212 11,811
95,276 87,774 94,104
COMMITMENTS AND CONTINGENCIES
(See Note 9) - - -
$740,790 $690,102 $655,933
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands - Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 154,309 $ 113,062 $ 445,057 $ 436,467
COST OF GAS 89,197 62,511 245,181 250,253
MARGIN 65,112 50,551 199,876 186,214
OPERATING EXPENSES:
Other operation and maintenance 18,690 18,168 76,130 80,617
Depreciation and amortization 8,118 7,649 31,734 29,914
Income taxes 11,405 6,511 24,110 16,980
Taxes other than income taxes 4,245 3,630 13,653 15,161
42,458 35,958 145,627 142,672
OPERATING INCOME 22,654 14,593 54,249 43,542
OTHER INCOME - NET 229 164 1,488 2,471
INCOME BEFORE INTEREST
AND OTHER CHARGES 22,883 14,757 55,737 46,013
INTEREST 3,992 3,994 15,528 15,791
OTHER (37) (16) (49) 3
3,955 3,978 15,479 15,794
NET INCOME $ 18,928 $ 10,779 $ 40,258 $ 30,219
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
CASH FLOWS FROM (REQUIRED FOR)
OPERATING ACTIVITIES:
Net income $ 18,928 $ 10,779 $ 40,258 $ 30,219
Adjustments to reconcile net income to cash
provided from operating activities -
Depreciation and amortization 8,165 7,696 31,921 30,104
Deferred income taxes 701 802 3,893 3,432
Investment tax credit (232) (232) (930) (930)
8,634 8,266 34,884 32,606
Changes in assets and liabilities -
Receivables - net (68,626) (37,243) (27,749) 27,919
Inventories 8,072 4,130 9,131 (7,255)
Accounts payable, customer deposits,
advance payments and other current
liabilities 14,604 21,410 33,880 3,485
Accrued taxes and interest 12,303 3,122 (3,194) (14,744)
Recoverable/refundable gas costs 3,125 (801) (22,786) 31,410
Prepayments (1,247) (1,158) 11 183
Other - net 1,327 395 14,461 3,106
Total adjustments (21,808) (1,879) 38,638 76,710
Net cash flow from (required for)
operations (2,880) 8,900 78,896 106,929
CASH FLOWS FROM (REQUIRED FOR)
FINANCING ACTIVITIES:
Sale of long-term debt 20,000 - 40,000 -
Reduction in long-term debt - (3,036) (122) (21,086)
Net change in short-term borrowings 20,975 13,000 (20,350) (6,700)
Dividends (6,250) (6,000) (24,500) (23,600)
Net cash flow from (required for)
financing activities 34,725 3,964 (4,972) (51,386)
CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (12,195) (12,864) (54,274) (55,543)
Net cash flow required for investing activities (12,195) (12,864) (54,274) (55,543)
NET INCREASE IN CASH 19,650 - 19,650 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 20 20 20 20
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,670 $ 20 $ 19,670 $ 20
</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>
Three Months Ended Twelve Months Ended
December 31 December 31
Thousands 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest (net of
amount capitalized) $ 1,604 $ 2,029 $13,617 $15,401
Income taxes $ - $ 2,963 $23,244 $26,263
</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 December 1995,
the cost of replacing the current portion of gas in
underground storage exceeded last-in, first-out cost at
December 31, 1995, by approximately $7,855,000.
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 AFUDC capitalized and
the portion of which was computed on borrowed and equity
funds for all periods reported.
<TABLE>
Three Months Ended Twelve Months Ended
December 31 December 31
Thousands 1995 1994 1995 1994
<S> <C> <C> <C> <C>
AFUDC-Borrowed Funds $ 84 $ 63 $236 $187
AFUDC-Equity Funds 69 51 194 152
Total AFUDC Capitalized $153 $114 $430 $339
</TABLE>
7. Long-Term Debt.
During December 1995, Indiana Gas issued $20 million in
aggregate principal amount of its Medium-Term Notes,
Series E (Notes) as follows: $5 million of 6.69% Notes
due June 10, 2013, $5 million of 6.69% Notes due
December 21, 2015, and $10 million of 6.69% Notes due
December 29, 2015. The net proceeds from the sale of
the Notes will be used to finance the refunding of long-
term debt.
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. Management
believes, and the IURC has found that, those
operations were conducted in accordance with the
then-applicable industry standards. However, 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
and others are 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. Site
investigations (SIs) have been completed at 19
sites and supplemental site investigations (SSIs)
have been conducted at 15 sites. Based upon the
site work completed to date, Indiana Gas believes
that a level of contamination that 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
additional sites, but expects to conduct further
investigation and evaluation 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, SSI 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. 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. Indiana Gas is presently in negotiations
with PSI to determine PSI's share of
responsibility. With the help of outside counsel,
Indiana Gas has prepared estimates of PSI's and
other PRP's share 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. NIPSCO
has been identified as an additional PRP at five of
these 19 sites. On September 27, 1995, Indiana Gas
reached an agreement with NIPSCO which provides for
a coordination of efforts and a sharing of
investigation and clean-up costs incurred and to be
incurred at the five sites in which they both have
an interest. The cost sharing estimates of PSI and
other PRPs, and the NIPSCO agreement, have been
utilized by Indiana Gas to record a receivable from
PRPs for their share of the liability for work
performed by Indiana Gas to date, as well as to
accrue Indiana Gas' proportionate share of the
estimated cost related to work not yet performed.
The receivable from PRPs of $3.5 million is
reflected in Accounts Receivable on the
Consolidated Balance Sheet at December 31, 1995.
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 decision was contrary to rulings in
other states where utility regulatory commissions
have issued orders on the subject. The precedent
cited by the IURC was a ruling related to a
cancelled nuclear power plant which, unlike
manufactured gas plants, never provided service to
the public. Management believes applying the
nuclear power plant issue to Indiana Gas' case was
an incorrect application of the law and 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 spring of 1996. 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.
Indiana Gas has recorded $11.3 million for its
share of environmental costs to date. As a result
of its pursuit of recovery of costs from PRPs and
insurance carriers, Indiana Gas has secured
settlements from insurers of approximately $12.4
million. Amounts recovered in excess of its share
of costs to date have been deferred. The May 3,
1995, order of the IURC has had no immediate impact
on Indiana Gas' earnings since settlements with
insurers exceed Indiana Gas' share of environmental
liability recorded to date.
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 customers, 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. 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- and twelve-month periods
ended December 31, 1995, when compared to the same periods
one year ago are listed below. The sharp increase in
earnings for the three-month period is attributable to
weather that was 46 percent colder than last year.
Significantly higher earnings for the twelve-month period
are the result of weather 7 percent colder than last year
and additional customers, as well as reductions in
operation and maintenance expenses which reflect
management's ongoing efforts to control costs.
Periods Ended December 31 1995 1994
(Millions)
Three Months $18.9 $10.8
Twelve Months $40.3 $30.2
The following discussion highlights the factors
contributing to these results.
Margin (Revenues Less Cost of Gas)
Margin for the quarter ended December 31, 1995,
increased $14.6 million compared to the same period last
year. The increase was primarily due to weather that was
46 percent colder than last year and 9 percent colder than
normal.
Margin for the twelve-month period ended December 31,
1995, increased $13.7 million compared to the same period
last year. The increase for the twelve-month period
reflects weather 7 percent colder than the same period
last year and 1 percent warmer than normal, as well as
additional residential and commercial customers.
Total system throughput (combined sales and
transportation) increased 29 percent (9.0 MMDth) and 7
percent (7.3 MMDth) for the three- and twelve-month
periods, respectively, compared to the same periods one
year ago. These increases are a result of higher
residential and commercial space heating sales caused by
colder weather, as well as an increase in industrial
throughput.
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 increased
to $2.71 for the three-month period ended December 31,
1995, compared to $2.68 for the same period one year ago.
For the twelve-month period, cost of gas per unit
decreased to $2.55 in the current period compared to $2.78
for the same period last 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 remained
approximately the same for the three-month period ended
December 31, 1995, when compared to the same period one
year ago. Operation and maintenance expenses for the
twelve-month period decreased $4.5 million primarily due
to lower expenses for labor, outside services, office
supplies and advertising. Operation and maintenance
expenses for both current periods reflect management's
ongoing efforts to control costs.
Depreciation and amortization expense increased for
the three- and twelve-month periods ended December 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 increased for the three-
and twelve-month periods ended December 31, 1995, when
compared to the same periods one year ago due to higher
taxable income.
Taxes other than income taxes increased for the three-
month period ended December 31, 1995, when compared to the
same period one year ago due to higher gross receipts tax
expense. Taxes other than income taxes decreased for the
twelve-month period due to lower gross receipts tax
expense.
Interest Expense
Interest expense remained approximately the same for
the three-month period ended December 31, 1995, when
compared to the same period one year ago. Interest
expense decreased for the twelve-month period due to a
decrease in average debt outstanding and a decrease in
interest rates.
Other Operating Matters
Gas Management Alliance
On January 31, 1996, Indiana Energy, the parent of
Indiana Gas, and Citizens Gas and Coke Utility
(Citizens Gas) signed a letter of intent to form a
jointly-owned partnership for natural gas supply and
related marketing services. The new entity will
provide complete gas supply and related marketing
services for Indiana Gas and Citizens Gas starting
sometime this spring subject to the execution of a
definitive agreement. In addition, the joint entity
will offer gas supply and related marketing services to
other businesses in Indiana and other markets. The new
entity will assume the responsibilities of Indiana
Energy Services, Inc., Indiana Energy's gas marketing
affiliate, which had provided similar services to other
customers and as of January 1, 1996, to Indiana Gas.
1996 Settlement Agreement
As provided in the previous year's settlement
agreement among Indiana Gas, the Office of Utility
Consumer Counselor (OUCC) and a group of large-volume
users, the OUCC performed an investigation during
fiscal 1995 to consider an increase to Indiana Gas'
authorized utility operating income. These parties then
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 November 9, 1995, a settlement
agreement which provided, among other things, for the
following: (1) an increase in Indiana Gas' authorized
utility operating income from $51.1 million to $54.2
million beginning in fiscal 1996; (2) with certain
specified exceptions, Indiana Gas may not file a
petition to increase its base rates until November 15,
1996; and (3) an agreement to a number of operational
and other service enhancements for large-volume
customers.
Environmental Matters
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
locations of former manufactured gas plants. It is
seeking to recover the costs of the investigations and
work from insurance carriers, other potentially
responsible parties (PRPs) and customers. 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. The order is
being appealed. The IURC order has had no immediate
impact on Indiana Gas' earnings since settlements with
insurers of $12.4 million exceed Indiana Gas' share of
environmental liability recorded to date. For further
information regarding the status of investigation and
remediation of the sites, PRPs, financial reporting and
ratemaking, see Note 9.
Indiana Legislative Matters
On April 26, 1995, the Indiana General Assembly
enacted Senate Enrolled Act No. 637, which provides new
flexibility to the IURC for future regulation of
Indiana utilities and modifies the application of the
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 performance-based 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, or 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
authorized in the last general rate order. 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 12 months. In the past,
one-fourth of the amounts over the authorized utility
operating income would be refundable to Indiana Gas'
customers each quarter. The new law revises the
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.
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,
1995, Indiana Gas' capital expenditures totaled $54.3
million. Of this amount, 93 percent was provided by funds
generated internally (net income less dividends plus
charges to net income not requiring funds). Capital
expenditures for fiscal 1996 are estimated at $58.8 million
of which $12.2 million have been expended during the
three-month period ended December 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 4.9 for
the twelve months ended December 31, 1995 (see Exhibit 12).
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
through 1997. 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. During December
1995, an additional $20 million in aggregate principal
amount of the Notes were issued as follows: $5 million of
6.69% Notes due June 10, 2013, $5 million of 6.69% Notes
due December 21, 2015, and $10 million of 6.69% Notes due
December 29, 2015.
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) No Current Reports on Form 8-K were filed
during the quarter ended December 31, 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 February 12, 1996 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
Senior Vice President and
Chief Financial Officer
Dated February 12, 1996 /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 Mos.
Ended Fiscal Year Ended September 30
12/31/95 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $40,258 $32,109 $34,596 $28,534 $25,743 $23,286
Adjustments:
Income taxes 23,605 18,630 17,977 16,030 12,800 11,665
Fixed charges (see below) 16,465 16,395 16,986 17,556 15,642 15,482
Total adjusted earnings $80,328 $67,134 $69,559 $62,120 $54,185 $50,433
Fixed charges:
Total interest expense $15,528 $15,530 $16,037 $16,640 $14,556 $14,411
Interest component of rents 937 865 949 916 1,086 1,071
Total fixed charges $16,465 $16,395 $16,986 $17,556 $15,642 $15,482
Ratio of earnings to fixed charges 4.9 4.1 4.1 3.5 3.5 3.3
</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 December 31, 1995, and
for the three months then ended and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 558,964
<OTHER-PROPERTY-AND-INVEST> 186
<TOTAL-CURRENT-ASSETS> 165,590
<TOTAL-DEFERRED-CHARGES> 16,050
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 740,790
<COMMON> 142,995
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 137,837
<TOTAL-COMMON-STOCKHOLDERS-EQ> 280,832
0
0
<LONG-TERM-DEBT-NET> 193,693
<SHORT-TERM-NOTES> 23,200
<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> 243,065
<TOT-CAPITALIZATION-AND-LIAB> 740,790
<GROSS-OPERATING-REVENUE> 154,309
<INCOME-TAX-EXPENSE> 11,405
<OTHER-OPERATING-EXPENSES> 120,250
<TOTAL-OPERATING-EXPENSES> 131,655
<OPERATING-INCOME-LOSS> 22,654
<OTHER-INCOME-NET> 266
<INCOME-BEFORE-INTEREST-EXPEN> 22,920
<TOTAL-INTEREST-EXPENSE> 3,992
<NET-INCOME> 18,928
0
<EARNINGS-AVAILABLE-FOR-COMM> 18,928
<COMMON-STOCK-DIVIDENDS> 6,250
<TOTAL-INTEREST-ON-BONDS> 3,637
<CASH-FLOW-OPERATIONS> (2,880)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
