May 15, 2000
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, 2000, pursuant to the requirements of
Section 13 of the Securities Exchange Act of 1934.
Very truly yours,
/s/James A. Hummel, II
James A. Hummel
JAH:tmw
Enclosures
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, 2000
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, 2000
Class Number of shares Date
TABLE OF CONTENTS
Part I - Financial Information
Consolidated Balance Sheets
at March 31, 2000 and 1999,
and December 31, 1999
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999,
and Twelve Months Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999,
and Twelve Months Ended March 31, 2000 and 1999
Schedule of Long-term Debt
at March 31, 2000 and 1999
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Quantitative and Qualitative Disclosure about Market Risk
Part II - Other Information
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-
Signatures
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
Assets
(Thousands - Unaudited)
March 31 December 31
2000 1999 1999
<S> <C> <C> <C>
Utility Plant
Original cost $ 1,019,811 $ 958,685 $ 1,005,304
Less - accumulated depreciation and
amortization 415,781 384,207 407,887
604,030 574,478 597,417
Current Assets
Cash and cash equivalents 5,016 2,803 353
Accounts receivable, less reserves of
$2,553, $1,739 and $1,749, respectively 42,820 45,578 37,058
Accrued unbilled revenues 20,130 23,603 36,634
Liquefied petroleum gas - at average cost 802 808 815
Gas in underground storage - at last-in,
first-out cost 4,146 6,106 11,627
Prepaid gas delivery service 114 - 20,937
Prepayments and other 14,253 9,402 16,468
87,281 88,300 123,892
Deferred Charges
Unamortized debt discount and expense 11,671 12,419 11,906
Regulatory income tax asset 528 1,778 2,741
Other 4,214 3,281 3,914
16,413 17,478 18,561
$ 707,724 $ 680,256 $ 739,870
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
(Thousands - Unaudited)
March 31 December 31
2000 1999 1999
<S> <C> <C> <C>
Capitalization
Common stock and paid-in capital $ 142,995 $ 142,995 $ 142,995
Retained earnings 108,758 119,883 105,627
Total common shareholders' equity 251,753 $ 262,878 248,622
Long-term debt (see schedule) 211,849 181,939 211,849
Total Capitalization 463,602 444,817 460,471
Current Liabilities
Maturities and sinking fund requirements of
long-term debt - 10,000 -
Notes payable and commercial paper 50,203 19,979 82,172
Accounts payable 39,035 32,548 37,111
Refundable gas costs 19,070 28,013 10,204
Customer deposits and advance payments 2,562 8,758 11,817
Accrued taxes 7,834 18,004 16,208
Accrued interest 872 1,416 5,252
Other current liabilities 21,780 13,452 12,697
141,356 132,170 175,461
Deferred Credits and Other Liabilities
Deferred income taxes 55,006 60,712 61,061
Accrued postretirement benefits other than pensions 29,080 26,599 28,474
Unamortized investment tax credit 7,919 8,849 8,152
Other 10,761 7,109 6,251
102,766 103,269 103,938
$ 707,724 $ 680,256 $ 739,870
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands - Unaudited)
Three Months Twelve Months
Ended March 31 Ended March 31
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Operating Revenues $ 171,618 $ 161,484 $ 441,495 $ 418,812
Cost of gas 98,893 83,993 241,717 221,641
Margin 72,725 77,491 199,778 197,171
Operating Expenses
Operations and maintenance 25,205 22,135 94,899 86,557
Merger costs 13,448 - 13,448 -
Depreciation and amortization 9,018 8,441 35,162 33,102
Income taxes 6,599 14,354 8,979 16,985
Taxes other than income taxes 4,961 4,685 15,971 14,078
59,231 49,615 168,459 150,722
Operating income 13,494 27,876 31,319 46,449
Other income - net 370 287 1,093 886
Income before interest expense 13,864 28,163 32,412 47,335
Interest expense 5,033 4,165 17,837 15,770
Net Income $ 8,831 $ 23,998 $ 14,575 $ 31,565
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)
Three Months Twelve Months
Ended March 31 Ended March 31
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 8,831 $ 23,998 $ 14,575 $ 31,565
Adjustments to reconcile net income to cash
provided from operating activities -
Merger costs 13,448 - 13,448 -
Depreciation and amortization 9,018 8,441 35,162 33,102
Deferred income taxes (3,842) 132 (4,456) 794
Investment tax credit (233) (233) (930) (930)
Loss (gain) on sale or retirement of assets - - - (1,219)
18,391 8,340 43,224 31,747
Changes in assets and liabilities -
Receivables - net 12,947 3,395 5,105 834
Inventories 7,799 12,095 1,412 (5,157)
Accounts payable, customer deposits,advance
payments and other current liabilities (10,880) (16,101) (3,703) (13,118)
Accrued taxes and interest (12,754) 4,826 (10,714) (726)
Recoverable/refundable gas costs 8,866 13,670 (8,943) 8,731
Accrued postretirement benefits other
than pensions 606 715 2,481 2,149
Prepayments (1,111) (32) (4,297) (1,104)
Prepaid gas delivery service 20,823 - (114) -
Other - net 4,794 400 4,811 8,934
Total adjustments 49,481 27,308 29,262 32,290
Net cash flows from (required for)
operations 58,312 51,306 43,837 63,855
Cash Flows From (Required for) Financing Activities
Sale of long-term debt - - 30,000 45,000
Reduction in long-term debt - (25) (10,090) (61)
Net change in short-term borrowings (31,969) (28,696) 30,224 (40,096)
Dividends on common stock (5,700) (7,000) (25,700) (27,750)
Net cash flows from (required for)
financing activities (37,669) (35,721) 24,434 (22,907)
Cash Flows From (Required for) Investing Activities
Capital expenditures (15,980) (12,802) (66,058) (54,380)
Proceeds from sale of assets - - - 9,204
Net cash flows from (required for) investing
activities (15,980) (12,802) (66,058) (45,176)
Net increase (decrease) in cash 4,663 2,783 2,213 (4,228)
Cash and cash equivalents at beginning of period 353 20 2,803 7,031
Cash and cash equivalents at end of period $ 5,016 $ 2,803 $ 5,016 $ 2,803
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
Consolidated Schedules of Long Term Debt
(Thousands - Unaudited)
March 31
Long-term debt - Utility Total Due Within 2000 1999
Notes Payable Due Date Outstanding One Year Balance Balance
<C> <C> <C> <C> <C> <C>
5.75% Series F January 15, 2003 $ 15,000 $ - $ 15,000 $ 15,000
6.36% Series F December 6, 2004 15,000 15,000 15,000
6.54% Series E July 9, 2007 6,500 6,500 6,500
6.69% Series E June 10, 2013 5,000 5,000 5,000
7.15% Series E March 15, 2015 5,000 5,000 5,000
6.69% Series E December 21, 2015 5,000 5,000 5,000
6.69% Series E December 29, 2015 10,000 10,000 10,000
9.375% January 15, 2021 25,000 25,000 25,000
9.125% Series A February 15, 2021 7,000 7,000 7,000
6.31% Series E June 10, 2025 5,000 5,000 5,000
6.53% Series E June 10, 2025 10,000 10,000 10,000
6.42% Series E July 7, 2027 5,000 5,000 5,000
6.68% Series E July 7, 2027 3,500 3,500 3,500
6.34% Series F December 10, 2027 20,000 20,000 20,000
6.75% Series F March 15, 2028 14,849 14,849 14,939
6.36% Series F May 1, 2028 10,000 10,000 10,000
6.55% Series F June 30, 2028 20,000 20,000 20,000
7.08% Series G October 5, 2029 30,000 30,000 -
Total Long-term debt $211,849 $ - $211,849 $181,939
The accompanying notes are an integral part of these consolidated schedules.
</TABLE>
PART I - FINANCIAL INFORMATION
1. Financial Statements.
Indiana Gas Company, Inc. and its subsidiaries (Indiana
Gas or the Company) provide natural gas and
transportation services to a diversified base of
customers in 311 communities in 49 of Indiana's 92
counties.
The interim 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 (SEC).
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 normal 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' amended annual report on Form 10-K/A,
filed on May 15, 2000, that reflects the change in
fiscal year end to December 31 from September 30 to
conform its year end to the year end of its parent
company (see Note 2).
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. Indiana Energy, Inc. and SIGCORP, Inc. Merger
On June 14, 1999, Indiana Energy and SIGCORP, Inc.
(SIGCORP) jointly announced the signing of a
definitive agreement to combine into a new holding
company named Vectren Corporation (Vectren).
SIGCORP was an investor-owned energy and
telecommunications company that through its
subsidiaries provided electric and gas service to
southwest Indiana and energy and telecommunications
products and services throughout the Midwest and
elsewhere.
The merger was conditioned, among other things,
upon the approvals of the shareholders of each
company and customary regulatory approvals. On
December 17, 1999, the merger was approved by the
shareholders of each company. On December 20, 1999,
the Federal Energy Regulatory Commission (FERC)
issued an order approving the proposed merger. In
approving the merger, the FERC concluded that the
merger was in the public interest and would not
adversely affect competition, rates or regulation.
On January 18, 2000, the Department of Justice
informed the Companies that it had concluded its
review of their Hart Scott Rodino notification
filings and would take no further action. On March
8, 2000, approval was received from the (SEC) under
the Public Utility Holding Company Act to
consummate the merger. The merger was therefore
completed on March 31, 2000.
As provided for in the merger agreement, Indiana
Energy shareholders received one share of Vectren
common stock for each share of Indiana Energy held
at the March 31, 2000 closing date. SIGCORP
shareholders received 1.333 shares of Vectren
common stock for each share of SIGCORP held at the
March 31, 2000 closing date. The transaction was
accounted for as a pooling of interests. The
transaction was a tax-free exchange of shares.
Indiana Gas Company, Inc. and Southern Indiana Gas
and Electric Company are operating as separate
subsidiaries of Vectren.
3. Merger Costs.
In connection with the merger, Vectren incurred $27.2
million of merger costs. Management has reflected these
merger costs in the financial statements of the
operating subsidiaries in which the merger savings are
expected to be realized. The companies expect to
realize merger savings from the elimination of duplicate
corporate and administrative programs and greater
efficiencies in operations, business processes and
purchasing. Merger costs expensed by Indiana Gas at
March 31, 2000 totaled $13.4 million. These costs relate
primarily to transaction costs, severance and other
merger integration activities and the accrual remaining
for such costs at March 31, 2000 is approximately $8.6
million. The continued merger integration activities
will be substantially complete by 2001.
4. 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
March 31 March 31
Thousands 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest (net of
amount
capitalized) $ 7,931 $ 6,683 $15,579 $13,936
Income taxes $21,542 $11,019 $27,442 $25,736
</TABLE>
5. Revenues.
To more closely match revenues and expenses, revenues
are recorded for all gas delivered to customers but not
billed at the end of the accounting period.
6. Gas in Underground Storage.
Based on the average cost of purchased gas during the
three months ended March 31, 2000 the cost of replacing
the current portion of gas in underground storage
exceeded last-in, first-out cost at March 31, 2000, by
approximately $6.1 million.
7. 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).
8. Environmental Costs.
Indiana Gas is currently conducting environmental
investigations and work at many of the 26 sites
that were the locations of former manufactured gas
plants. It has been recovering the costs of the
investigations and work from insurance carriers and
other potentially responsible parties (PRPs). The
IURC has determined that these costs are not
recoverable from utility customers.
Indiana Gas has PRP agreements in place covering 19
of the 26 sites. The agreements provide for
coordination of efforts and sharing of
investigation and clean-up costs incurred and to be
incurred at the sites. These agreements limit
Indiana Gas' share of past and future response
costs at these 19 sites to between 20 and 50
percent. Based on the agreements, Indiana Gas has
accrued its proportionate share of the estimated
cost related to work not yet performed.
In early 1999, Indiana Gas filed a complaint in
Indiana state court to continue its pursuit of
insurance coverage from four insurance carriers. As
of March 31, 2000, settlement agreements were
reached with each of these insurers and the
litigation was dismissed.
These environmental matters have had no material impact
on earnings since costs recorded to date approximate PRP
recoveries and insurance settlements received. While
Indiana Gas has recorded all costs which it presently
expects to incur in connection with remediation
activities, it is possible that future events may
require some level of additional remedial activities
which are not presently foreseen.
9. Affiliate Transactions.
ProLiance Energy, LLC (ProLiance), a non-regulated
marketing affiliate of Vectren, provides natural gas
supply and related services to Indiana Gas. Indiana
Gas' purchases from ProLiance for resale and for
injections into storage for the three-month and twelve-
month periods ended March 31, 2000, totaled $66.6
million and $235.8 million, respectively. Indiana Gas'
purchases from ProLiance for the three-month and twelve-
month periods ended March 31, 1999, totaled $71.7
million, and $226.0 million, respectively.
The sale of gas and provision of other services to
Indiana Gas by ProLiance is subject to regulatory review
through the quarterly gas cost adjustment process
administered by the IURC.
On September 12, 1997, the Indiana Utility
Regulatory Commission (IURC) issued a decision
finding the gas supply and portfolio administration
agreements between ProLiance and Indiana Gas and
ProLiance and Citizens Gas and Coke Utility (the
gas supply agreements) to be consistent with the
public interest. The IURC's decision reflected the
significant gas cost savings to customers obtained
by ProLiance's services and suggested that all
material provisions of the agreements between
ProLiance and the utilities are reasonable.
Nevertheless, with respect to the pricing of gas
commodity purchased from ProLiance and two other
pricing terms, the IURC concluded that additional
review in the gas cost adjustment (GCA) process
would be appropriate and directed that these
matters be considered further in the pending,
consolidated GCA proceeding involving Indiana Gas
and Citizens Gas. The IURC has not yet established
a schedule for conducting these additional
proceedings.
The IURC's September 12, 1997, decision was
appealed to the Indiana Court of Appeals by certain
Petitioners, including the Indiana Office of
Utility Consumer Counselor, the Citizens Action
Coalition of Indiana and a small group of large-
volume customers. On October 8, 1998, the Indiana
Court of Appeals issued a decision which reversed
and remanded the case to the IURC with instructions
that the gas supply agreements be disapproved. The
basis for the decision was that because the gas
supply agreements provide for index based pricing
of gas commodity sold by ProLiance to the
utilities, the gas supply agreements should have
been the subject of an application for approval of
an alternative regulatory plan under Indiana
statutory law.
On April 22, 1999, the Indiana Supreme Court
granted a petition for transfer of the case and
will now consider the appeal of the IURC's decision
and issue its own decision on the merits of the
appeal at a later date. By granting transfer, the
Supreme Court has vacated the Court of Appeals'
decision.
If the Supreme Court reverses the IURC's decision,
the case will be remanded to the IURC for further
proceedings regarding the public interest in the
gas supply agreements. If the Supreme Court affirms
the IURC's decision, as described above, the
reasonableness of certain of the gas costs incurred
by Indiana Gas under the gas supply agreements will
be further reviewed by the IURC in the consolidated
GCA proceeding. The existence of significant
benefits to the utilities and their customers
resulting from ProLiance's services has not been
challenged on appeal. Indiana Gas and Citizens Gas
are continuing to utilize ProLiance for their gas
supplies.
On or about August 11, 1998, Indiana Gas, Citizens
Gas and ProLiance each received a Civil
Investigative Demand ("CID") from the United States
Department of Justice requesting information
relating to Indiana Gas' and Citizens Gas'
relationship with and the activities of ProLiance.
The Department of Justice issued the CID to gather
information regarding ProLiance's formation and
operations, and to determine if trade or commerce
has been restrained. Indiana Gas has provided all
information requested and management continues to
believe that there are no significant issues in
this matter.
While the results of the ProLiance issues mentioned
above cannot be predicted, management does not
expect these matters to have a material impact on
Indiana Gas' financial position or results of
operations. However, no assurance can be provided.
CIGMA, LLC, owned jointly and equally by Vectren
Utility Services, Inc., formerly IGC Energy, Inc.,
an indirect wholly owned subsidiary of Vectren and
Citizens By-Products Coal Company, a wholly owned
subsidiary of Citizens Gas, provides materials
acquisition and related services that are used by
Indiana Gas. Indiana Gas' purchases of these
services during the three-month and twelve-month
periods ended March 31, 2000, totaled $3.8 million
and $18.0 million, respectively. Indiana Gas'
purchases of these services during the three-month
and twelve-month periods ended March 31, 1999,
totaled $4.3 million and $16.2 million,
respectively.
IEI Services, now Vectren Resources, LLC, formerly a
wholly owned subsidiary of Indiana Energy, began
providing support services to Indiana Gas effective
October 1, 1997. Services provided include
information technology, financial, human resources,
building and fleet services. Amounts billed by IEI
Services to Indiana Gas for the three-month and
twelve-month periods ended March 31, 2000, totaled
$8.4 million and $32.6 million, respectively.
Amounts billed by IEI Services to Indiana Gas for
the three- month and twelve-month periods ended
March 31, 1999, totaled $7.7 million and $27.6
million, respectively.
Indiana Gas also participates in a centralized cash
management program with its parent, affiliated
companies and banks which permits funding of checks
as they are presented.
Amounts owed to affiliates totaled $16.4 million and
$20.7 million at March 1, 2000 and 1999,
respectively, and are included in Accounts Payable
on the Consolidated Balance Sheets.
10. Segment Reporting
In fiscal 1999, the company adopted Statement of
Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and
Related Information. This statement establishes
standards for the way that public companies report
information about operating segments in annual
financial statements and requires that those
companies report selected information about
operating segments in annual and interim financial
reports issued to shareholders. Indiana Gas
operates in one reportable segment.
11. Reclassifications.
On May 15, 2000, Indiana Gas filed an amended
report of Form 10-K/A to change its fiscal year end
from September 30 to December 31, to be consistent
with the year end of Vectren Corporation, its
parent.
Certain reclassifications have been made to the
prior periods' financial statements to conform to
the current year presentation. These
reclassifications have no impact on net income
previously reported.
Indiana Gas Company, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
Results of Operations
Earnings
Net income for the three- and twelve-month periods ended
March 31, 2000, when compared to the same periods one year
ago, were as follows:
<TABLE>
Periods Ended March 31
(millions) 2000(1) 1999
<S> <C> <C>
Three Months $ 8.8 $24.0
Twelve Months $14.6 $31.6
</TABLE>
(1)includes merger costs of $13.4 million pre-tax
($9.4 million after tax), recognized at March 31, 2000
upon the completion of the Vectren merger.
Margin (Operating Revenues Less Cost of Gas)
Utility margin for the quarter ended March 31, 2000,
was $72.7 million compared to $77.5 million for the
same period last year. Margins are lower than expected
due to weather being 10% warmer than the same period
last year and 17% warmer than normal. The decrease is
partially offset by the addition of new residential
and commercial customers.
Utility margin for the twelve-month period ended March
31, 2000, was $199.8 million compared to $197.1
million for the same period last year. The increase is
primarily attributable to a 2.6 percent increase in
the average number of customers served for the twelve-
month period. This increase is partially offset by
weather 5 percent warmer than the same period last
year, but 18 percent warmer than normal.
Total system throughput (combined sales and
transportation) decreased 5.1 percent (2.4 MMDth) for
the first quarter of fiscal 2000, compared to the same
period one year ago. Throughput decreased 1.6 percent
(1.3 MMDth) for the twelve-month period ended March
31, 2000. 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 $3.82 for the three-month period ended March 31,
2000, compared to $3.17 for the same period one year
ago. For the twelve-month period, cost of gas per unit
increased to $3.80 in the current period compared to
$3.23 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 the cost of gas to Indiana Gas'
customers dollar for dollar.
Operating Expenses
Operation and maintenance expenses increased $3.1
million for the three-month period ended March 31,
2000, when compared to the same period one year ago
due in part to administrative and service fees paid to
Indiana Gas' affiliate, IEI Services, LLC, now Vectren
Resources, LLC, primarily a result of costs associated
with information systems and support. Also impacting
this comparative increase was the reduction of the
severance accrual by $1.3 million in the first quarter
of 1999, originally recorded as part of the Company's
corporate restructuring program.
Operation and maintenance expenses increased $8.3
million for the twelve-month period when compared to the
same period last year due primarily to service fees paid
to Indiana Gas' affiliate, IEI Services, LLC, now
Vectren Resources, LLC. Additionally, the company has
incurred higher contract labor costs. Also impacting
this increase was the reduction of the severance accrual
in 1999 which was originally recorded as part of the
Corporate Restructuring. During 1997, the Indiana Gas
Board of Directors authorized management to undertake
the actions necessary and appropriate to restructure
Indiana Gas' operations and recognize a resulting
restructuring charge which included estimated costs
related to involuntary workforce reductions. Since that
time, the anticipated actions have been taken. As a
result, the remaining severance accrual of $1.3 million
was eliminated and other operating expenses were reduced
during the first quarter of 1999.
As a result of the merger of Indiana Energy and
SIGCORP, Indiana Gas recognized pre-tax merger costs
of $13.4 million ($9.4 million after tax). These
costs relate primarily to transaction costs, severance
and other merger integration activities.
Depreciation and amortization increased $0.6 million
for the three-month period and $2.0 million for the
twelve-month period ended March 31, 2000, when
compared to the same periods last year due primarily
to additions to plant to serve new customers and to
maintain dependable service to existing customers.
Federal and state income taxes decreased $7.7 million
for the three-month period, and $8.0 million for the
twelve-month period ended March 31, 2000, when
compared to the same periods one year ago due to
changes in taxable income, primarily attributable to
the recognition of $13.4 million in pre-tax merger
costs.
Taxes other than income taxes increased $0.3 million
for the three-month, and $1.9 million for the twelve-
month period ended March 31, 2000, primarily due to
higher property tax expense, the result of additions
to plant, and an increase in the gross receipts tax.
Interest Expense
Interest expense increased for the three-month and
twelve-month periods ended March 31, 2000, when
compared to the same periods one year ago due
primarily to the additional average debt outstanding
and higher interest rates. The additional debt is
partially attributed to seasonal and weather
shortfalls.
Other Operating Matters
Indiana Energy, Inc. and SIGCORP, Inc. Merger
On June 14, 1999, Indiana Energy and SIGCORP, Inc.
(SIGCORP) jointly announced the signing of a
definitive agreement to combine into a new holding
company named Vectren Corporation (Vectren).
SIGCORP was an investor-owned energy and
telecommunications company that through its
subsidiaries provided electric and gas service to
southwest Indiana and energy and telecommunications
products and services throughout the Midwest and
elsewhere.
The merger was conditioned, among other things,
upon the approvals of the shareholders of each
company and customary regulatory approvals. On
December 17, 1999, the merger was approved by the
shareholders of each company. On December 20, 1999,
the Federal Energy Regulatory Commission (FERC)
issued an order approving the proposed merger. In
approving the merger, the FERC concluded that the
merger was in the public interest and would not
adversely affect competition, rates or regulation.
On January 18, 2000, the Department of Justice
informed the Companies that it had concluded its
review of their Hart Scott Rodino notification
filings and would take no further action. On March
8, 2000, approval was received from the (SEC) under
the Public Utility Holding Company Act to
consummate the merger. The merger was therefore
completed on March 31, 2000.
As provided for in the merger agreement, Indiana
Energy shareholders received one share of Vectren
common stock for each share of Indiana Energy held
at the March 31, 2000 closing date. SIGCORP
shareholders received 1.333 shares of Vectren
common stock for each share of SIGCORP held at the
March 31, 2000 closing date. The transaction was
accounted for as a pooling of interests. The
transaction was a tax-free exchange of shares.
Indiana Gas Company, Inc. and Southern Indiana Gas
and Electric Company are operating as separate
subsidiaries of Vectren.
Merger Costs
In connection with the merger, Vectren incurred
$27.2 million ($19.3 million after tax or $.32 EPS)
of merger costs. Management has reflected these
merger costs in the financial statements of the
operating subsidiaries in which the merger savings
are expected to be realized. The companies expect
to realize merger savings from the elimination of
duplicate corporate and administrative programs and
greater efficiencies in operations, business
processes and purchasing. Merger costs expensed by
Indiana Gas at March 31 totaled $13.4 million ($9.4
million after tax). These costs relate primarily to
transaction costs, severance and other merger
integration activities and the accrual remaining
for such costs at March 31, 2000 is approximately
$8.6 million. The continued merger integration
activities will be substantially complete by 2001.
ProLiance Energy, LLC
ProLiance Energy, LLC (ProLiance), a 50% owned non-
regulated marketing affiliate of Vectren, began
providing natural gas and related services to
Indiana Gas and Citizens Gas and Coke Utility
(Citizens Gas) effective April 1, 1996.
The sale of gas and provision of other services to
Indiana Gas by ProLiance is subject to regulatory
review through the quarterly gas cost adjustment
process administered by the IURC.
On September 12, 1997, the Indiana Utility
Regulatory Commission (IURC) issued a decision
finding the gas supply and portfolio administration
agreements between ProLiance and Indiana Gas and
ProLiance and Citizens Gas and Coke Utility (the
gas supply agreements) to be consistent with the
public interest. The IURC's decision reflected the
significant gas cost savings to customers obtained
by ProLiance's services and suggested that all
material provisions of the agreements between
ProLiance and the utilities are reasonable.
Nevertheless, with respect to the pricing of gas
commodity purchased from ProLiance and two other
pricing terms, the IURC concluded that additional
review in the gas cost adjustment (GCA) process
would be appropriate and directed that these
matters be considered further in the pending,
consolidated GCA proceeding involving Indiana Gas
and Citizens Gas. The IURC has not yet established
a schedule for conducting these additional
proceedings.
The IURC's September 12, 1997, decision was
appealed to the Indiana Court of Appeals by certain
Petitioners, including the Indiana Office of
Utility Consumer Counselor, the Citizens Action
Coalition of Indiana and a small group of large-
volume customers. On October 8, 1998, the Indiana
Court of Appeals issued a decision which reversed
and remanded the case to the IURC with instructions
that the gas supply agreements be disapproved. The
basis for the decision was that because the gas
supply agreements provide for index based pricing
of gas commodity sold by ProLiance to the
utilities, the gas supply agreements should have
been the subject of an application for approval of
an alternative regulatory plan under Indiana
statutory law.
On April 22, 1999, the Indiana Supreme Court
granted a petition for transfer of the case and
will now consider the appeal of the IURC's decision
and issue its own decision on the merits of the
appeal at a later date. By granting transfer, the
Supreme Court has vacated the Court of Appeals'
decision.
If the Supreme Court reverses the IURC's decision,
the case will be remanded to the IURC for further
proceedings regarding the public interest in the
gas supply agreements. If the Supreme Court affirms
the IURC's decision, as described above, the
reasonableness of certain of the gas costs incurred
by Indiana Gas under the gas supply agreements will
be further reviewed by the IURC in the consolidated
GCA proceeding. The existence of significant
benefits to the utilities and their customers
resulting from ProLiance's services has not been
challenged on appeal. Indiana Gas and Citizens Gas
are continuing to utilize ProLiance for their gas
supplies.
On or about August 11, 1998, Indiana Gas, Citizens
Gas and ProLiance each received a Civil
Investigative Demand ("CID") from the United States
Department of Justice requesting information
relating to Indiana Gas' and Citizens Gas'
relationship with and the activities of ProLiance.
The Department of Justice issued the CID to gather
information regarding ProLiance's formation and
operations, and to determine if trade or commerce
has been restrained. Indiana Gas has provided all
information requested and management continues to
believe that there are no significant issues in
this matter.
While the results of the ProLiance issues mentioned
above cannot be predicted, management does not
expect these matters to have a material impact on
Indiana Gas' financial position or results of
operations. However, no assurance can be provided.
The Year 2000 Issue
Indiana Gas uses various software, systems and
technology that could have been affected by the
date change in 2000. All identification, testing
and replacement or remediation of such software,
systems and technology at Indiana Gas was completed
by December 31, 1999. No significant noncompliance
issues have been encountered in 2000 and Indiana
Gas anticipates that no such issues will be
encountered. Indiana Gas estimates the expense of
Year 2000-readiness modifications to existing
systems or replacements treated as expense
incurred totaled approximately $1.5 million.
Environmental Matters
Indiana Gas is currently conducting environmental
investigations and work at many of the 26 sites
that were the locations of former manufactured gas
plants. It has been recovering the costs of the
investigations and work from insurance carriers and
other potentially responsible parties (PRPs). The
IURC has determined that these costs are not
recoverable from utility customers.
Indiana Gas has PRP agreements in place covering 19
of the 26 sites. The agreements provide for
coordination of efforts and sharing of
investigation and clean-up costs incurred and to be
incurred at the sites. These agreements limit
Indiana Gas' share of past and future response
costs at these 19 sites to between 20 and 50
percent. Based on the agreements, Indiana Gas has
accrued its proportionate share of the estimated
cost related to work not yet performed.
In early 1999, Indiana Gas filed a complaint in
Indiana state court to continue its pursuit of
insurance coverage from four insurance carriers. As
of March 31, 2000, settlement agreements were
reached with each of these insurers and the
litigation was dismissed.
These environmental matters have had no material
impact on earnings since costs recorded to date
approximate PRP recoveries and insurance
settlements received. While Indiana Gas has
recorded all costs which it presently expects to
incur in connection with remediation activities, it
is possible that future events may require some
level of additional remedial activities which are
not presently foreseen.
Liquidity and Capital Resources
Indiana Gas' capitalization objectives, which are 55-
65 percent common equity and preferred stock and 35-45
percent long-term debt. These objectives may vary
from time to time, depending on particular business
opportunities and seasonal factors that affect the
company's operation. Indiana Gas' common equity
component was 54 percent of its total capitalization
at March 31, 2000.
New construction and normal system maintenance and
improvements needed to provide service to a growing
customer base will continue to require substantial
expenditures. Capital expenditures for fiscal 2000 are
estimated at $60.8 million of which $16.0 million have
been expended during the three-month period ended
March 31, 2000. For the twelve months ended March 31,
2000, capital expenditures totaled $66.1 million.
In July 1999, Indiana Gas filed a registration
statement with the Securities and Exchange Commission
which has become effective with respect to $100
million in debt securities. Indiana Gas expects to
issue this debt pursuant to a medium-term note
program. The net proceeds from the sale of these new
debt securities will be used for general corporate
purposes, including repayment of long-term debt and
financing of Indiana Gas' continuing construction program.
On October 5, 1999, Indiana Gas issued $30 million in
principal amount of Series G medium-term notes bearing
interest at the per annum rate of 7.08% with a
maturity date of October 5, 2029.
The long-term debt of Indiana Gas is currently rated
Aa2 by Moody's Investors Service and AA- by Standard &
Poor's Corporation. For the twelve months ended March
31, 2000, 40.5 percent of Indiana Gas' capital
expenditures was funded internally (i.e. from net
income less dividends plus charges to net income not
requiring funds). Indiana Gas' ratio of earnings to
fixed charges was 2.3 for the twelve months ended
March 31, 2000 (see Exhibit 12). Indiana Gas' ratio of
earnings to fixed charges prior to the recording of
the merger costs of $13.4 million was 3.0 for the
twelve months ended March 31, 2000.
Short-term cash working capital is required primarily
to finance customer accounts receivable, unbilled
utility revenues resulting from cycle billing, gas in
underground storage and capital 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. At March 31, 2000 Indiana Gas had $50.2
million in outstanding commercial paper. Indiana Gas'
commercial paper is rated P-1 by Moody's and A-1+ by
Standard & Poor's. Prior to March 1, 1999, bank lines
of credit had been the primary source of short-term
financing.
Forward-Looking Information
A "safe harbor" for forwarding-looking statements
is provided by the Private Securities Litigation
Reform Act of 1995 (Reform Act of 1995). The
Reform Act of 1995 was adopted to encourage such
forward-looking statements without the threat of
litigation, provided those statements are
identified as forward-looking and are accompanied
by meaningful cautionary statements identifying
important factors that could cause the actual
results to differ materially from those projected
in the statement. Forward-looking statements have
been and will be made in written documents and oral
presentations of Vectren Corporation and its
subsidiaries. Such statements are based on
management's beliefs, as well as assumptions made
by and information currently available to
management. When used in Vectren Corporation and
its subsidiaries' documents or oral presentations,
the words "believe," "anticipate," "endeavor,"
"estimate," "expect," "objective," "projection,"
"forecast," "goal," and similar expressions are
intended to identify forward-looking statements.
In addition to any assumptions and other factors
referred to specifically in connection with such
forward-looking statements, factors that could
cause Vectren Corporation and its subsidiaries'
actual results to differ materially from those
contemplated in any forward-looking statements
included, among others, the following:
Factors affecting utility operations such as
unusual weather conditions; catastrophic weather-
related damage; unusual maintenance or repairs;
unanticipated changes to fossil fuel costs;
unanticipated changes to gas supply costs, or
availability due to higher demand, shortages,
transportation problems or other developments;
environmental or pipeline incidents; transmission or
distribution incidents; unanticipated changes to
electric energy supply costs, or availability due to
demand, shortages, transmission problems or other
developments; or electric transmission or gas pipeline
system constraints.
Increased competition in the energy environment
including effects of industry restructuring and
unbundling.
Regulatory factors such as unanticipated changes
in rate-setting policies or procedures, recovery of
investments made under traditional regulation, and the
frequency and timing of rate increases.
Financial or regulatory accounting principles or
policies imposed by the Financial Accounting Standards
Board, the Securities and Exchange Commission
(Commission), the Federal Energy Regulatory Commission,
state public utility commissions, state entities which
regulate natural gas transmission, gathering and
processing, and similar entities with regulatory
oversight.
Economic conditions including inflation rates and
monetary fluctuations.
Changing market conditions and a variety of other
factors associated with physical energy and financial
trading activities including, but not limited to,
price, basis, credit, liquidity, volatility, capacity,
interest rate, and warranty risks.
Availability or cost of capital, resulting from
changes in Vectren Corporation and its subsidiaries,
interest rates, and securities ratings or market
perceptions of the utility industry and energy-related
industries.
Employee workforce factors including changes in
key executives, collective bargaining agreements with
union employees, or work stoppages.
Legal and regulatory delays and other obstacles
associated with mergers, acquisitions, and investments
in joint ventures.
Costs and other effects of legal and
administrative proceedings, settlements,
investigations, claims, and other matters, including,
but not limited to, those described in periodic filings
made with the Commission by Vectren Corporation and
Indiana Gas Company, Inc.
Changes in federal, state or local legislature
requirements, such as changes in tax laws or rates,
environmental laws and regulations.
Vectren Corporation and its subsidiaries undertake
no obligation to publicly update or revise any
forward-looking statements, whether as a result of
changes in actual results, changes in assumptions,
other factors affecting such statements.
Item 3. Quantitative and Qualitative Disclosures
about Market Risk
Indiana Gas' (the Company's) debt portfolio
contains a substantial amount of fixed-rate long-
term debt and, therefore, does not expose the
company to the risk of material earnings or cash
flow loss due to changes in market interest rates.
On average, 20.5% of the company's total debt
portfolio consists of short term notes and
commercial paper that are subject to fluctuations
in market interest rates and other seasonal
factors. At March 31, 2000, the company was not
engaged in other contracts which would cause
exposure to the risk of material earnings or cash
flow loss due to changes in market commodity
prices, foreign currency exchange rates, or
interest rates.
Item 1. Legal Proceedings
See Note 9 of the Notes to Consolidated Financial
Statements for discussion of litigation matters
relating to the gas supply and portfolio administration
agreements between ProLiance and Indiana Gas.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2A Agreement and Plan of Merger dated as
of June 14, 1999,
among Indiana Energy, Inc. SIGCORP,
Inc. and the formation of Vectren
Corporation (incorporated by reference
to Exhibit 2 to Indiana Energy's
Current Report on Form 8-K dated June
14, 1999 and filed on June 15, 1999).
2B Amendment No.1, dated December 14,
1999 to Agreement and Plan of
Merger (set forth in 2A, above)
(incorporated by reference to
Exhibit 2 of Indiana Energy's
Current Report on Form 8-K dated
December 16, 1999 and filed on
December 16, 1999).
2C Asset Purchase Agreement dated
December 14, 1999 between Indiana
Energy, Inc. and Dayton Power and
Light Co., Inc. and Number-3CHK,
Inc. with a commitment letter for
364 -Day Credit Facility dated
December 16, 1999 (incorporated by
reference to Exhibit 2 and 99.1 of
Indiana Energy's Current Report on
Form 8-K dated December 14, 1999
and filed on December 28, 1999).
12 Computation of Ratio of
Earnings to Fixed Charges, filed herewith.
27 Financial Data Schedule, filed herewith.
PART II - OTHER INFORMATION
(b) On January 27, 2000, Indiana Energy and
Indiana Gas filed a Current Report on Form 8-K
with respect to the release of summary financial
information to the investment community regarding
Indiana Energy's consolidated results of
operations, financial position and cash flows for
the three- and twelve-month periods ended December
31, 1999. Items reported include:
Item 5. Other Events
Item 7. Exhibits
Exhibit 99 Financial Analyst Report
and Press Release - First
Quarter 2000
On January 27, 2000, Indiana Energy and Indiana
Gas filed a Current Report on Form 8-K with
respect to a analyst teleconference call., held on
January 27, 2000.
Item 5. Other Events
Item 7. Exhibits
Exhibit 99.01 Analyst script
teleconference call
dated January 27, 2000
On April 14, 2000, Indiana Gas filed a Current Report
on Form 8-K with respect to the Change in Control of
the Registrant and a Change in Fiscal Year.
Item 1. Change in Control of Registrant
Item 8. Change in Fiscal Year
On April 17, 2000, Indiana filed an Amended Current
Report on Form 8-K changing the signature of the
report to M. Susan Hardwick, Vice President and
Controller.
Item 1. Change in Control of Registrant
Item 8. Change in Fiscal Year
On April 27, 2000, Indiana Gas filed a Current Report
on Form 8-K with respect to the release of summary
financial information for the quarter ending March 31,
2000.
Item 5. Other Events
Item 7. Exhibits
Exhibit 99-1 Press Release -
First Quarter 2000
Exhibit 99-2 Financial Analyst
Report - First
Quarter 2000
Exhibit 99-3 Precautionary Statement
for Purposes of the "Safe
Harbor" Provisions of the
Private Securities
Litigation Reform Act
of 1995.
On April 27, 2000, Indiana Gas filed a Current Report
on Form 8-K with respect to the release of its
teleconference script for the first quarter ending
March 31, 2000.
Item 5. Other Events
Item 7. Exhibits
Exhibit 99 Analyst Teleconference
Script-First Quarter 2000
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
May 15, 2000 /s/M. Susan Hardwick
M. Susan Hardwick
Vice President and 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 Year Ended December 31
03/31/00(1) 1999 1998 1997(2) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $14,575 $29,742 $26,825 $13,648 $36,121 $40,258
Income taxes 8,979 16,734 14,058 7,813 21,637 24,110
Fixed charges
(see below) 18,137 17,691 16,133 17,782 17,154 16,465
Total adjusted earnings $41,691 $64,167 $57,016 $39,243 $74,912 $80,833
Fixed charges:
Total interest expense $17,837 $16,969 $15,802 $17,049 $16,200 $15,528
Interest component
of rents 300 722 331 733 954 937
Total fixed charges $18,137 $17,691 $16,133 $17,782 $17,154 $16,465
Ratio of earnings to
fixed charges 2.3 3.6 3.5 2.2 4.4 4.9
</TABLE>
(1) Indiana Gas' ratio of earnings to fixed charges for the
twelve month period excluding the merger transaction costs of
$13.4 million would have been 3.0.
(2) Reflects the recording of restructuring costs in
fiscal 1997 of $39.5 million. Indiana Gas' ratio
of earnings to fixed charges for 1997 before
restructuring costs would have been 4.4.
<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, 1999,
and for the three months then ended and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 604,030
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 87,281
<TOTAL-DEFERRED-CHARGES> 16,413
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 707,724
<COMMON> 142,995
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 108,758
<TOTAL-COMMON-STOCKHOLDERS-EQ> 251,753
0
0
<LONG-TERM-DEBT-NET> 211,849
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 50,203
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 193,919
<TOT-CAPITALIZATION-AND-LIAB> 707,724
<GROSS-OPERATING-REVENUE> 171,618
<INCOME-TAX-EXPENSE> 6,599
<OTHER-OPERATING-EXPENSES> 151,525
<TOTAL-OPERATING-EXPENSES> 158,124
<OPERATING-INCOME-LOSS> 13,494
<OTHER-INCOME-NET> 370
<INCOME-BEFORE-INTEREST-EXPEN> 13,864
<TOTAL-INTEREST-EXPENSE> 5,033
<NET-INCOME> 8,831
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,831
<COMMON-STOCK-DIVIDENDS> 5,700
<TOTAL-INTEREST-ON-BONDS> 7,391
<CASH-FLOW-OPERATIONS> 58,312
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
