November 14, 1997
Securities and Exchange Commission
Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Gentlemen:
We are transmitting herewith Indiana Energy, Inc.'s
Current Report on Form 8-K.
Very truly yours,
/s/ Douglas S. Schmidt
Douglas S. Schmidt
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 14, 1997
INDIANA ENERGY,INC.
(Exact name of registrant as specified in its charter)
INDIANA 1-9091 35-1654378
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification Number)
1630 North Meridian Street, Indianapolis, Indiana 46202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 926-3351
Item 5. Other Events
Following are the September 30, 1997 audited Consolidated Financial
Statements and Notes to Consolidated Financial Statements of Indiana
Energy, Inc. and Subsidiary Companies, as well as Management's
Discussion and Analysis of Results of Operations and Financial
Condition.
Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Indiana Energy, Inc.'s (Indiana Energy or the company) consolidated
earnings are from the operations of its gas distribution subsidiary,
Indiana Gas Company, Inc. (Indiana Gas), and its nonutility
subsidiaries and investments grouped under its nonregulated
subsidiary, IEI Investments, Inc. The nonutility operations include
IGC Energy, Inc. (IGC Energy), Energy Realty, Inc. (Energy Realty) and
Indiana Energy Services, Inc. (IES), all indirect wholly owned
subsidiaries of Indiana Energy, and interests in ProLiance Energy,
LLC, CIGMA, LLC and Energy Systems Group, LLC (see below). The company
is currently implementing a new growth strategy and restructuring plan
which provides for, among other things, growing the earnings
contribution from nonutility operations to over 20 percent of its
total annual earnings within the next five years, and aggressively
managing costs within its utility operations.
Earnings
Income and earnings per average share of common stock before 1997
restructuring costs for the last three fiscal years are provided for
comparison purposes below:
<TABLE>
(Millions except per share amounts) 1997 1996 1995
<S> <C> <C> <C>
Utility income(1) $ 38.0 $ 38.6 $ 32.1
Nonutility income $ 7.0 $ 3.6 $ .9
Net income(1) $ 45.0 $ 42.2 $ 33.0
Earnings per average share
of common stock(1) $ 1.99 $ 1.87 $ 1.46
</TABLE>
(1) Utility income, net income and earnings per share for 1997 after
restructuring costs were $13.5 million, $20.5 million and 91 cents,
respectively.
Net income and earnings per average share of common stock before
restructuring costs increased approximately 6 percent ($2.8 million
and 12 cents per share, respectively) in fiscal 1997 when compared to
fiscal 1996. The increases are due primarily to an increase in
nonutility income as a result of higher earnings recognized from
Indiana Energy's gas marketing affiliates and a gain on the sale of
certain nonutility assets.
For fiscal 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 after-
tax restructuring charge of $24.5 million. These actions by Indiana
Gas were consistent with the company's growth strategy that was
approved by its board of directors during fiscal 1997. The effect on
the company's fiscal 1997 earnings is a reduction in earnings per
share of $1.08 per common share. (See New Growth Strategy and
Corporate Restructuring)
Net income and earnings per share increased 28 percent ($9.2 million
and 41 cents per share, respectively) in fiscal 1996 when compared to
fiscal 1995 due to increases in utility and nonutility income. Utility
income increased primarily as a result of weather that was 25 percent
colder than the prior year, as well as the addition of new residential
and commercial customers. This increase was offset somewhat by higher
operation and maintenance expenses. Nonutility income increased as a
result of the operations of Indiana Energy's gas marketing affiliates.
Dividends
On July 25, 1997, the board of directors of the company increased the
quarterly dividend on common stock to 29 1/2 cents per share from 28
1/2 cents per share. This resulted in total dividends paid in 1997 of
$1.15 compared to $1.11 in 1996. This is the 25th consecutive year
that the company's dividends paid on common stock increased over the
previous year.
Margin (Revenues Less Cost of Gas)
In 1997, margin decreased 1 percent ($2.6 million) when compared to
1996. The decrease is primarily attributable to normal weather which
was 7 percent warmer than the same period last year, offset
substantially by the addition of new residential and commercial
customers.
In 1996, margin increased 14 percent ($25.1 million) when compared to
1995. The increase was primarily attributable to weather that was 25
percent colder than the prior year and 8 percent colder than normal.
Additional residential and commercial customers, as well as rate
recovery (beginning May 1995) of postretirement benefit costs
recognized in accordance with Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions (SFAS 106), also contributed to the increase.
In 1997, total system throughput (combined sales and transportation)
decreased 3 percent (3.9 MMDth) when compared to last year. In 1996,
throughput increased 16 percent (17.2 MMDth) when compared to 1995.
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 dekatherm of gas purchased (average commodity
and demand) was $3.64 in 1997, $3.14 in 1996 and $2.53 in 1995. The
price swings are due primarily to changing commodity costs in the
marketplace.
Operating Expenses
Operation and maintenance expenses decreased approximately $4.6
million in 1997 when compared to 1996. The decrease is due in part to
lower distribution system costs than in 1996 when certain projects
were accelerated because of the increased margin resulting from the
very cold weather. Lower costs for uncollectible accounts also
contributed to the decrease.
Operation and maintenance expenses increased approximately $8.5
million in 1996 when compared to 1995. The increase was primarily
attributable to higher performance-based compensation and the
recognition (beginning May 1995) of postretirement benefit costs in
accordance with SFAS 106. In addition, the increased margin resulting
from the very cold weather allowed for the acceleration of certain
projects to help maintain and strengthen the distribution system.
Restructuring costs of $39.5 million (pre-tax) were recorded in 1997
related to the implementation of the company's new growth strategy
(see New Growth Strategy and Corporate Restructuring).
Depreciation and amortization expense increased in both 1997 and 1996
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 in 1997 due primarily to the
recording of restructuring costs. Federal and state income taxes
increased in 1996 due to an increase in taxable utility income.
Taxes other than income taxes increased in 1997 due primarily to
higher property tax expense as the result of additions to utility
plant. Taxes other than income taxes increased in 1996 due to higher
property tax expense, and higher gross receipts tax expense resulting
from increased revenue.
Interest Expense
Interest expense increased in 1997 and 1996 due to increases in
average debt outstanding, slightly offset by decreases in interest
rates.
Nonutility Income
Nonutility income increased $3.5 million in 1997 when compared to 1996
due in part to higher earnings recognized from Indiana Energy's gas
marketing affiliates ($5.7 million in 1997 versus $3.3 million in
1996). Prior to April 1, 1996, IES provided natural gas and related
services to other gas utilities and customers in Indiana and
surrounding states, and from January 1, 1996, to March 31, 1996, to
Indiana Gas. ProLiance Energy, LLC assumed the business of IES
effective April 1, 1996, and now is the supplier of gas and related
services to both Indiana Gas and Citizens Gas and Coke Utility
(Citizens Gas) (see ProLiance Energy, LLC). The June 1997 sale of
certain nonutility assets by IGC Energy, which resulted in an after-
tax gain of approximately $1.8 million, also contributed to the
increase.
Nonutility income increased $2.7 million in 1996 when compared to 1995
due primarily to higher earnings recognized from Indiana Energy's gas
marketing affiliates.
Other Operating Matters
New Growth Strategy and Corporate Restructuring
In April 1997, the Board of Directors of Indiana Energy approved a new
growth strategy designed to support the company's transition into a
more competitive environment. As part of this new growth strategy,
Indiana Energy will endeavor to become a leading regional provider of
energy products and services and to grow its consolidated earnings per
share by an average of 10 percent annually over the next five years.
To achieve such earnings growth, Indiana Energy's aim is to grow the
earnings contribution from nonutility operations to over 20 percent of
its total annual earnings within the next five years (see ProLiance
Energy, LLC, CIGMA, LLC and Energy Systems Group, LLC), and to
aggressively manage costs within its utility operations.
For fiscal 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 of $39.5 million ($24.5 million after-tax) as
described below. These actions by Indiana Gas were consistent with the
company's new growth strategy. The effect on the company's fiscal 1997
earnings is a reduction in earnings per share of $1.08 per common
share.
In July 1997, Indiana Gas advised its employees of its plan to reduce
its work force from about 1,025 full-time employees at June 30, 1997,
to approximately 800 employees within five years. The reductions are
being implemented through involuntary separation and attrition. As a
result of initial work force reductions during September 1997,
employees totaled approximately 950 as of September 30, 1997. Indiana
Gas recorded restructuring costs of $5.4 million related to the 1997
and planned work force reductions. These costs include separation pay
in accordance with Indiana Gas' severance policy, and net curtailment
losses related to these employees' postretirement and pension
benefits.
Further, Indiana Gas' management has committed to sell, abandon or
otherwise dispose of certain assets, including buildings, gas storage
fields and intangible plant. Indiana Gas recorded restructuring costs
of $34.1 million to adjust the carrying value of those assets to
estimated fair value.
In October 1997, Indiana Energy formed a new business unit, IEI
Services, LLC (IEI Services), to provide support services to Indiana
Energy and its subsidiaries, as well as to third-parties in the
future. Services to be provided include human resources functions,
information technology and various financial services. These services
had been provided by Indiana Gas in the past. IEI Services has been
designed to avoid duplicate business unit support costs, eliminate low-
value support activities and to assist in cost containment, which
should help the company in meeting its earnings growth targets.
As a result of the restructuring, the company expects reductions in
future operating expenses, which should help the company to be more
successful in an increasingly competitive energy marketplace.
ProLiance Energy, LLC
ProLiance Energy, LLC (ProLiance) is owned jointly and equally by IGC
Energy and Citizens By-Products Coal Company, a wholly owned
subsidiary of Citizens Gas. ProLiance is the supplier of gas and
related services to both Indiana Gas and Citizens Gas, as well as a
provider of similar services to other utilities and customers in
Indiana and surrounding states. ProLiance added power marketing in
late fiscal 1997 to its services offered. Power marketing involves
buying electricity on the wholesale market and then reselling it to
other marketers, utilities and other customers.
On September 12, 1997, the Indiana Utility Regulatory Commission
(IURC) issued the decision in the complaint proceeding relating to the
gas supply and portfolio administration agreements between ProLiance
and Indiana Gas and ProLiance and Citizens Gas. The IURC concluded
that these agreements are consistent with the public interest. The
management of Indiana Energy believes that the decision is supportive
of the utilities' relationship with ProLiance in all material
respects.
This decision is particularly important because the IURC has
recognized that significant customer benefits can be achieved if
utilities are encouraged to work toward innovative customer solutions
in the changing energy marketplace. As a result of ProLiance's
provision of service to Indiana Gas and Citizens Gas, in excess of $50
million in gas costs savings will be realized for the customers of
those utilities over the initial four and one-half year term of the
utilities' agreements. Further, the IURC has recognized that benefits
for investors are appropriate when risks are being assumed by those
investors.
The IURC's decision suggests that all material provisions of the
agreements between ProLiance and the utilities are reasonable. In the
decision the IURC acknowledged that the utilities' purchases of gas
commodity from ProLiance at index prices, as compared to ProLiance's
actual cost, is not unreasonable. The IURC also acknowledged that the
amounts paid by ProLiance to the utilities for the prospect of using
pipeline entitlements if and when they are not required to serve the
utilities' firm customers, and the fees paid by the utilities to
ProLiance for portfolio administration services are not unreasonable.
Nevertheless, with respect to each of these matters, the IURC
concluded that additional findings 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.
On October 6, 1997, counsel for Indiana Gas was served with certain
filings made with the Indiana Court of Appeals (Court) by the
Petitioners and the Indiana Office of Utility Consumer Counselor
(OUCC). The effect of these filings is to initiate an appeal of the
IURC's decision by the Petitioners and the OUCC.
Pursuant to the procedure governing appeals of IURC decisions, at this
time neither the Petitioners nor the OUCC have indicated on what basis
they will attempt to challenge the IURC's decision. The schedule for
the appeal proposed by the Petitioners and the OUCC indicates that the
earliest they will likely disclose such a basis would be on January
12, 1998, when they would be obligated to file the IURC's record of
proceedings with the Court.
As a result of the IURC's decision and notwithstanding the initiation
of the appeal, during the fourth quarter of fiscal 1997, Indiana
Energy recognized approximately $3.0 million of its share of
ProLiance's earnings which had previously been reserved. Of that
amount, $700,000 related to fiscal 1996. At September 30, 1997,
$600,000 continues to be reserved pending the outcome of the
consolidated GCA proceeding involving Indiana Gas and Citizens Gas.
Although Indiana Gas' management believes that based upon applicable
Indiana law and the IURC's record of proceedings in the ProLiance case
the IURC's decision should be upheld by the Court, there can be no
assurance as to that outcome.
CIGMA, LLC
On April 1, 1997, IGC Energy and Citizens By-Products Coal Company
formed CIGMA, LLC (CIGMA), a jointly and equally owned limited
liability company. CIGMA provides materials acquisition and related
services that are used by Indiana Gas and Citizens Gas, as well as
similar services for third parties. CIGMA is generating cost savings
for the utilities by enabling purchase discounts and more efficient
purchasing, warehousing and distribution of materials and equipment.
Energy Systems Group, LLC
On May 23, 1997, IGC Energy, Citizens By-Products Coal Company and
Energy Systems Group, Inc. (ESGI) formed Energy Systems Group, LLC
(ESG), an equally owned limited liability company. ESG provides a
package of products, services and skills to help energy users achieve
enhanced energy and operational performance. The packages provide for
improvements to be paid for by the customers from savings generated
within their existing operating budgets. ESG has assumed the
responsibilities of ESGI, an energy related performance contracting
firm and wholly owned subsidiary of SIGCORP, Inc.
Environmental Matters
Indiana Gas is currently conducting environmental investigations and
work at certain sites that were the locations of former manufactured
gas plants. It has been seeking to recover the costs of the
investigations and work from insurance carriers, other potentially
responsible parties (PRPs) and customers.
During 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. This ruling was affirmed by the Indiana Court
of Appeals. On August 15, 1997, the Indiana Supreme Court denied
Indiana Gas' petition for transfer and the IURC order became final.
On August 12, 1997, Indiana Gas and PSI Energy, Inc. (PSI) signed an
agreement with respect to thirteen of the nineteen sites where PSI is
a PRP, which provides for an equal sharing between Indiana Gas and PSI
of past and future response costs at the thirteen sites. Indiana Gas
and PSI must jointly approve future management of the sites and the
decisions to spend additional funds. Indiana Gas previously entered
into an agreement with PSI providing for the sharing of costs related
to another site. Five other sites are already the subject of an
agreement between Indiana Gas and Northern Indiana Public Service
Company (NIPSCO) which provides for coordination of efforts and
sharing of investigation and clean-up costs incurred and to be
incurred at the sites. Indiana Gas further expects in the near future
to commence negotiations with PSI and NIPSCO regarding these five
sites for the purpose of including PSI in the Indiana Gas-NIPSCO
agreement.
On April 14, 1995, Indiana Gas filed suit in the United States
District Court for the Northern District of Indiana, Fort Wayne
Division (the Court) 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 the carriers are
obligated to pay these costs in the future. On October 2, 1996, the
Court granted several motions filed by defendant insurance carriers
for summary judgment on a number of issues relating to the insurers'
obligations to Indiana Gas under insurance policies issued by these
carriers. For example, the Court held that because the placement of
residuals on the ground at the sites was done intentionally, there was
no "fortuitous accident" and therefore no "occurrence" subject to
coverage under the relevant policies. Based on discussions with
counsel, the management of Indiana Gas believes that a number of the
Court's rulings are contrary to Indiana law and has appealed all
adverse rulings to the United States Court of Appeals for the Seventh
Circuit. However, if these rulings are not reversed on appeal, they
would effectively eliminate coverage under most of the policies at
issue. There can be no assurance as to whether Indiana Gas will
prevail on this appeal. As of September 30, 1997, Indiana Gas has
obtained settlements from some insurance carriers in an aggregate
amount of approximately $14.7 million.
The Court's rulings have had no material impact on earnings since
Indiana Gas has previously recorded all costs (in aggregate $14.7
million) which it presently expects to incur in connection with
remediation activities. It is possible that future events may require
additional remediation activities which are not presently foreseen.
For further information regarding the status of investigation and
remediation of the sites, PRPs and financial reporting see Note 10 of
the Notes to Consolidated Financial Statements.
Postretirement Benefits Other Than Pensions
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
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions (SFAS 106).
The Office of Utility Consumer Counselor appealed the order; however,
on January 21, 1997, the Indiana Court of Appeals affirmed the IURC
decision authorizing recovery.
Gas Cost Adjustment
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 IURC. The GCA passes through
increases and decreases in the cost of gas to Indiana Gas' customers
dollar for dollar.
In addition, the IURC has applied the statute authorizing the GCA
procedures to reduce rates when necessary so as to limit utility
operating income, after adjusting to normal weather, to the level
authorized in the last general rate order. The earnings test provides
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). On
November 9, 1995, the IURC approved a settlement agreement among
Indiana Gas, the Office of Utility Consumer Counselor and a group of
large-volume gas users which provided for authorized utility operating
income (weather normalized) of $54.2 million for Indiana Gas beginning
in fiscal 1996.
Liquidity and Capital Resources
Consolidated capitalization objectives for Indiana Energy are 55-65
percent common equity and preferred stock and 35-45 percent long-term
debt, but may vary from time to time, depending on particular business
opportunities. Indiana Energy's common equity component was 60 percent
of total capitalization at September 30, 1997.
Because of its current capital structure, the company does have the
ability to issue additional long-term debt, if necessary, to fund
nonutility investments or for other corporate purposes and still meet
its capitalization objectives. This is particularly important as it
relates to the company's new growth strategy, which provides for,
among other things, expansion of its nonutility operations.
In October 1997, Indiana Energy formed a new subsidiary, IEI Capital
Corp., to conduct the financing for Indiana Energy and its
subsidiaries other than Indiana Gas. IEI Capital Corp. will provide
the non-regulated businesses with short-term financing for working
capital requirements, as well as secure permanent financing for those
entities.
On July 28, 1995, Indiana Energy's board of directors authorized
Indiana Energy to repurchase up to 700,000 shares of its outstanding
common stock. During 1996, Indiana Energy repurchased 92,100 shares
with an associated cost of $2,116,000. No shares were repurchased
during 1997. While there are no immediate plans to repurchase
additional shares, the company will continue to evaluate opportunities
to do so.
Indiana Gas' capitalization objectives, which are 55-65 percent common
equity and preferred stock and 35-45 percent long-term debt, remain
unchanged from prior years. Indiana Gas' common equity component was
59 percent of its total capitalization at September 30, 1997.
New construction, normal system maintenance and improvements, and
information technology investments needed to provide service to a
growing customer base will continue to require substantial
expenditures. Total capital required to fund capital expenditures and
refinancing requirements for 1996 and 1997, along with estimated
amounts for 1998 through 2000, is as follows:
<TABLE>
Thousands 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
Capital expenditures $66,000 $72,000 $ 68,000 $63,000 $60,000
Refinancing requirements
(including nonutility) 19,000 - 35,000 10,000 -
$85,000 $72,000 $103,000 $73,000 $60,000
</TABLE>
The table above does not include nonutility investments. Nonutility
investments, including commitments, totaled approximately $1.1 million
and $10.5 million for 1996 and 1997, respectively. While the company
does expect to make additional nonutility investments in the future,
it cannot provide estimates at this time.
Indiana Gas' long-term goal is to internally fund at least 75 percent
of its capital expenditure program. 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. In 1997, 58 percent of Indiana Gas'
capital expenditures was funded internally (i.e. from utility income
less dividends plus charges to utility income not requiring funds).
In 1996, 70 percent of capital expenditures was provided by funds
generated internally. External funds required for the 1997
construction program were obtained primarily through a combination of
short-term and long-term debt.
During July 1997, Indiana Gas issued $15 million in aggregate
principal amount of its Medium-Term Notes, Series E (Notes) as
follows: $5.0 million of 6.42% Notes due July 7, 2027; $3.5 million of
6.68% Notes due July 7, 2027; and $6.5 million of 6.54% Notes due July
9, 2007.
Provisions under which certain of Indiana Gas' Series E Medium-Term
Notes were issued entitle the holders of $30 million of these notes to
put the debt back to Indiana Gas at face value at a specified date
before maturity beginning in 2000. Long-term debt subject to the put
provisions during the three years following 1997 totals $5 million.
Indiana Gas has $35 million of 6 5/8% Series D Notes and $10 million of
8.90% Notes maturing December 1, 1997, and July 15, 1999,
respectively. Indiana Gas has IURC authority to issue up to $95
million in additional debt securities. In October 1997, Indiana Gas
filed a registration statement with the Securities and Exchange
Commission requesting authority to issue up to $95 million in debt
securities. The net proceeds from the July 1997 sale of Series E Notes
and the sale of these new debt securities will be used to refinance
certain of Indiana Gas' long-term debt issues and to refinance short-
term obligations incurred in connection with Indiana Gas' ongoing
construction program and other corporate purposes.
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. Indiana Gas' commercial paper
is rated P-1 by Moody's and A-1+ by Standard & Poor's. Recently, bank
lines of credit have been the primary source of short-term financing.
Forward-Looking Information
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995.
A "safe harbor" for forward-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. Certain matters described in Management's Discussion and
Analysis of Results of Operations and Financial Condition, including,
but not limited to, Indiana Energy's new earnings growth strategy, are
forward-looking statements. Such statements are based on management's
beliefs, as well as assumptions made by and information currently
available to management. When used in this filing the words "aim,"
"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 Indiana Energy's
actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following:
Factors affecting utility operations such as unusual weather
conditions; catastrophic weather-related damage; unusual maintenance
or repairs; unanticipated changes to gas supply costs, or availability
due to higher demand, shortages, transportation problems or other
developments; environmental or pipeline incidents; 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, 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:
Indiana Energy, 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 such as the
ProLiance complaint proceeding.
Costs and other effects of legal and administrative proceedings,
settlements, investigations, claims and other matters, including, but
not limited to, those described in the Other Operating Matters section
of Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Changes in Federal, state or local legislative requirements, such
as changes in tax laws or rates, environmental laws and regulations.
Indiana Energy undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of changes in
actual results, changes in assumptions, or other factors affecting
such statements.
Management's Responsibility for Financial Statements
The management of the company is responsible for the preparation of
the consolidated financial statements and the related financial data
contained in this report. The financial statements are prepared in
conformity with generally accepted accounting principles and follow
accounting policies and principles applicable to regulated public
utilities.
The integrity and objectivity of the data in this report, including
required estimates and judgments, are the responsibility of
management. Management maintains a system of internal controls and
utilizes an internal auditing program to provide reasonable assurance
of compliance with company policies and procedures and the safeguard
of assets.
The board of directors pursues its responsibility for these financial
statements through its audit committee, which meets periodically with
management, the internal auditors and the independent auditors, to
assure that each is carrying out its responsibilities. Both the
internal auditors and the independent auditors meet with the Audit
Committee of the company's board of directors, with and without
management representatives present, to discuss the scope and results
of their audits, their comments on the adequacy of internal accounting
controls and the quality of financial reporting.
/s/ Niel C. Ellerbrook
Niel C. Ellerbrook
President and Chief Operating Officer
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Indiana Energy, Inc.:
We have audited the accompanying consolidated balance sheets and
schedules of long-term debt of Indiana Energy, Inc. (an Indiana
corporation) and subsidiary companies as of September 30, 1997, and
1996, and the related consolidated statements of income, common
shareholders' equity and cash flows for each of the three years in the
period ended September 30, 1997. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Indiana
Energy, Inc. and subsidiary companies, as of September 30, 1997, and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Indianapolis, Indiana
October 31, 1997
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
Year Ended September 30
1997 1996 1995
<S> <C> <C> <C>
UTILITY OPERATING REVENUES $ 530,407 $ 530,594 $403,810
COST OF GAS (See Note 13) 322,522 320,131 218,495
MARGIN 207,885 210,463 185,315
UTILITY OPERATING EXPENSES:
Other operation and maintenance 79,567 84,136 75,608
Restructuring costs (See Note 2) 39,531 - -
Depreciation and amortization 35,054 33,232 31,265
Income taxes 7,852 23,174 19,216
Taxes other than income taxes 16,870 16,368 13,038
178,874 156,910 139,127
UTILITY OPERATING INCOME 29,011 53,553 46,188
INTEREST EXPENSE 16,774 15,907 15,530
OTHER (1,241) (984) (1,451)
15,533 14,923 14,079
UTILITY INCOME 13,478 38,630 32,109
NONUTILITY INCOME 7,025 3,571 847
NET INCOME $ 20,503 $ 42,201 $ 32,956
AVERAGE COMMON SHARES OUTSTANDING 22,580 22,513 22,560
EARNINGS PER AVERAGE SHARE OF
COMMON STOCK $ 0.91 $ 1.87 $ 1.46
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Year Ended September 30
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,503 $ 42,201 $ 32,956
Adjustments to reconcile net income to cash
provided from operating activities -
Noncash restructuring costs 32,838 - -
Depreciation and amortization 35,241 33,441 31,485
Deferred income taxes (12,618) 804 3,994
Investment tax credit (930) (930) (930)
Gain on sale of nonutility assets (2,923) - -
Undistributed earnings of unconsolidated affiliates (8,712) 88 (237)
42,896 33,403 34,312
Changes in assets and liabilities -
Receivables - net (8,526) (2,558) 3,244
Inventories 24,026 19,966 5,189
Accounts payable, customer deposits, advance
payments and other current liabilities 1,941 (14,801) 39,396
Accrued taxes and interest 4,530 (3,744) (12,637)
Recoverable/refundable gas costs (3,133) (7,593) (26,712)
Accrued postretirement benefits other than pension 8,134 3,505 5,963
Other - net (4,491) 340 8,441
Total adjustments 65,377 28,518 57,196
Net cash flows from operations 85,880 70,719 90,152
CASH FLOWS REQUIRED FOR FINANCING ACTIVITIES:
Repurchase of common stock - (2,116) -
Sale of long-term debt 15,064 21,068 20,812
Reduction in long-term debt (336) (19,296) (3,228)
Net change in short-term borrowings (4,236) 22,011 (28,325)
Dividends on common stock (25,787) (24,896) (24,019)
Net cash flows required for financing activities (15,295) (3,229) (34,760)
CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (71,907) (66,381) (54,943)
Nonutility investments - net (1,650) (1,109) (449)
Proceeds from sale of nonutility assets 3,000 - -
Net cash flows required for investing activities (70,557) (67,490) (55,392)
NET INCREASE (DECREASE) IN CASH 28 - -
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 20 20 20
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 48 $ 20 $ 20
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands)
September 30
1997 1996
<S> <C> <C>
UTILITY PLANT:
Original cost $ 951,617 $ 931,092
Less - accumulated depreciation and amortization 361,936 344,268
589,681 586,824
NONUTILITY PLANT AND OTHER INVESTMENTS - NET 27,884 10,338
CURRENT ASSETS:
Cash and cash equivalents 48 20
Accounts receivable, less reserves of
$1,784 and $1,853 respectively (See Note 13) 22,318 14,598
Accrued unbilled revenues 8,964 8,158
Materials and supplies - at average cost 63 4,611
Liquefied petroleum gas - at average cost 872 507
Gas in underground storage - at last-in,
first-out cost 19,240 39,083
Recoverable gas costs 5,843 2,710
Prepayments and other 3,703 46
61,051 69,733
DEFERRED CHARGES:
Unamortized debt discount and expense 7,074 7,585
Other 5,155 7,983
12,229 15,568
$ 690,845 $ 682,463
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
SHAREHOLDERS' EQUITY AND LIABILITIES
(Thousands except shares)
September 30
1997 1996
<S> <C> <C>
CAPITALIZATION:
Common stock (no par value) - authorized 64,000,000
shares - issued and outstanding 22,580,543 and
22,474,402 shares, respectively $ 146,498 $ 143,875
Less unearned compensation - restricted stock grants 1,589 525
144,909 143,350
Retained earnings 147,688 152,972
Total common shareholders' equity 292,597 296,322
Long-term debt (see schedule) 157,791 178,063
450,388 474,385
CURRENT LIABILITIES:
Maturities and sinking fund requirements of long-term debt 35,272 272
Notes payable 23,800 28,036
Accounts payable (See Note 13) 25,523 34,192
Customer deposits and advance payments 20,405 14,256
Accrued taxes 8,659 4,206
Accrued interest 2,629 2,552
Other current liabilities 31,817 27,356
148,105 110,870
DEFERRED CREDITS:
Deferred income taxes 55,205 66,862
Accrued postretirement benefits other than pensions 23,038 14,904
Unamortized investment tax credit 10,243 11,173
Regulatory income tax liability 1,874 2,835
Other 1,992 1,434
92,352 97,208
COMMITMENTS AND CONTINGENCIES (See Notes 9, 10 & 11) - -
$ 690,845 $ 682,463
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
(Thousands except shares)
COMMON STOCK
RESTRICTED
STOCK RETAINED
SHARES AMOUNT GRANTS EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 22,556,942 $ 145,777 $ (1,262) $ 126,730 $ 271,245
Net income 32,956 32,956
Common stock dividends ($1.07 per share) (24,019) (24,019)
Common stock issuances for Executives'
and Directors' stock plans net of
amortization 4,663 95 438 533
BALANCE AT SEPTEMBER 30, 1995 22,561,605 145,872 (824) 135,667 280,715
Net income 42,201 42,201
Common stock dividends ($1.11 per share) (24,896) (24,896)
Common stock issuances for Executives'
and Directors' stock plans net of
amortization 4,897 119 299 418
Common stock repurchases (92,100) (2,116) (2,116)
BALANCE AT SEPTEMBER 30, 1996 22,474,402 143,875 (525) 152,972 296,322
Net income 20,503 20,503
Common stock dividends ($1.15 per share) (25,787) (25,787)
Common stock issuances for Executives'
and Directors' stock plans net of
amortization 106,141 2,623 (1,064) 1,559
BALANCE AT SEPTEMBER 30, 1997 22,580,543 $ 146,498 $ (1,589) $ 147,688 $ 292,597
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED SCHEDULES OF LONG-TERM DEBT
(Thousands)
September 30
1997 1996
<S> <C> <C>
LONG-TERM DEBT:
Unsecured Notes Payable - Utility
6 5/8% Series D, due December 1, 1997 $ 35,000 $ 35,000
8.90%, due July 15, 1999 10,000 10,000
6.54% Series E, due July 9, 2007 6,500 -
6.69% Series E, due June 10, 2013 5,000 5,000
7.15% Series E, due March 15, 2015 5,000 5,000
6.69% Series E, due December 21, 2015 5,000 5,000
6.69% Series E, due December 29, 2015 10,000 10,000
9 3/8%, due January 15, 2021 25,000 25,000
9 1/8% Series A, due February 15, 2021 40,000 40,000
8 1/2% Series B Debentures, due September 15, 2021 24,733 24,733
6.31% Series E, due June 10, 2025 5,000 5,000
6.53% Series E, due June 27, 2025 10,000 10,000
6.42% Series E, due July 7, 2027 5,000 -
6.68% Series E, due July 7, 2027 3,500 -
189,733 174,733
Unsecured Notes Payable - Nonutility
Variable rate term loan, due May 10, 2004 1,632 1,845
Noninterest bearing note, due August 1, 2005 698 757
Variable rate note, due January 1, 2007 1,000 1,000
3,330 3,602
193,063 178,335
Less - Maturities and sinking fund requirements 35,272 272
$ 157,791 $178,063
The accompanying notes are an integral part of these statements.
</TABLE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Practices
A. Consolidation
The consolidated financial statements include the accounts of Indiana
Energy, Inc. (Indiana Energy or the company) and its wholly and
majority-owned subsidiaries, after elimination of intercompany
transactions. The consolidated financial statements separate the
regulated utility operations, principally Indiana Gas Company, Inc.,
(Indiana Gas), from the nonutility operations grouped under IEI
Investments, Inc. Indiana Gas provides natural gas and transportation
services to a diversified base of customers in 281 communities in 48
of Indiana's 92 counties. The nonutility operations include IGC
Energy, Inc. (IGC Energy), Energy Realty, Inc. (Energy Realty) and
Indiana Energy Services, Inc. (IES), all indirect wholly owned
subsidiaries of Indiana Energy, and interests in ProLiance Energy, LLC
(see Note 11), CIGMA, LLC (see Note 13) and Energy Systems Group, LLC
(see Note 14).
Investments in limited partnerships and less than majority-owned
affiliates are accounted for on the equity method.
B. Utility Plant and Depreciation
Except as described below, utility plant is stated at the original
cost and includes allocations of payroll-related costs and
administrative and general expenses, as well as an allowance for the
cost of funds used during construction. Upon normal retirement of a
depreciable unit of property, the cost is credited to utility plant
and charged to accumulated depreciation together with the cost of
removal, less any salvage. No gain or loss is recognized upon normal
retirement.
Provisions for depreciation of utility property are determined by
applying straight-line rates to the original cost of the various
classifications of property. The average depreciation rate was
approximately 4.1 percent for all periods reported.
Cost in excess of underlying book value of acquired gas distribution
companies is reflected as a component of utility plant and is being
amortized primarily over 40 years.
C. Unamortized Debt Discount and Expense
Indiana Gas was authorized as part of an August 17, 1994 order from
the Indiana Utility Regulatory Commission (IURC) to amortize over a 15-
year period the debt discount and expense related to new debt issues
and future premiums paid for debt reacquired in connection with
refinancing. Debt discount and expense for issues in place prior to
this order are being amortized over the lives of the related issues.
Premiums paid prior to this order for debt reacquired in connection
with refinancing are being amortized over the life of the refunding
issue.
D. Cash Flow Information
For the purposes of the Consolidated Statements of Cash Flows, the
company 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>
Thousands 1997 1996 1995
<S> <C> <C> <C>
Interest (net of amount capitalized) $ 15,496 $ 15,816 $ 14,614
Income taxes $ 21,851 $ 30,608 $ 26,206
</TABLE>
E. 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.
F. Gas in Underground Storage
Gas in underground storage as of September 30, 1997, was $19.2 million
compared to $39.1 million at September 30, 1996. This decrease
resulted primarily from Indiana Gas' replacement of contract storage
services with city gate delivery services.
Based on the average cost of purchased gas during September 1997, the
cost of replacing the current portion of gas in underground storage
exceeded last-in, first-out cost at September 30, 1997, by
approximately $11,204,000.
G. Refundable or Recoverable Gas Cost
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
IURC.
H. 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" 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>
Thousands 1997 1996 1995
<S> <C> <C> <C>
AFUDC - borrowed funds $ 596 $ 283 $ 215
AFUDC - equity funds 487 232 176
Total AFUDC capitalized $1,083 $ 515 $ 391
</TABLE>
I. Reclassifications
Certain reclassifications have been made in the company's financial
statements of prior years to conform to the current year presentation.
These reclassifications have no impact on previously reported net
income.
J. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. Corporate Restructuring
In April 1997, the Board of Directors of Indiana Energy approved a new
growth strategy designed to support the company's transition into a
more competitive environment.
For fiscal 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 of $39.5 million ($24.5 million after tax) as
described below. These actions by Indiana Gas were consistent with the
company's new growth strategy. The effect on the company's fiscal 1997
earnings is a reduction in earnings per share of $1.08 per common
share.
In July 1997, Indiana Gas advised its employees of its plan to reduce
its work force from about 1,025 full-time employees at June 30, 1997,
to approximately 800 employees within five years. The reductions are
being implemented through involuntary separation and attrition. As a
result of initial work force reductions during September 1997,
employees totaled approximately 950 as of September 30, 1997. Indiana
Gas recorded restructuring costs of $5.4 million related to the 1997
and planned work force reductions. These costs include separation pay
in accordance with Indiana Gas' severance policy, and net curtailment
losses related to these employees' postretirement and pension
benefits.
Further, Indiana Gas' management has committed to sell, abandon or
otherwise dispose of certain assets, including buildings, gas storage
fields and intangible plant. Indiana Gas recorded restructuring costs
of $34.1 million to adjust the carrying value of those assets to
estimated fair value.
In October 1997, Indiana Energy formed a new business unit, IEI
Services, LLC (IEI Services), to provide support services to Indiana
Energy and its subsidiaries, as well as to third-parties in the
future. Services to be provided include human resources functions,
information technology and various financial services. These services
had been provided by Indiana Gas in the past.
3. Regulatory Assets and Liabilities
Indiana Gas is subject to the provisions of Statement of Financial
Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation (SFAS 71). Regulatory assets represent probable
future revenue to Indiana Gas associated with certain costs which will
be recovered from customers through the ratemaking process. Regulatory
liabilities represent probable future reductions in revenues
associated with amounts that are to be credited to customers through
the ratemaking process. Regulatory assets and liabilities reflected in
the Consolidated Balance Sheet as of September 30 (in thousands)
relate to the following:
<TABLE>
Regulatory Assets 1997
<S> <C>
Postretirement benefits other than pensions $ 4,486
Unamortized debt discount and expense 4,849
Gas costs due from customers, net 5,843
Deferred acquisition costs 698
$ 15,876
Regulatory Liabilities
Amounts due to customers - income taxes, net $ 1,874
$ 1,874
</TABLE>
It is Indiana Gas' policy to continually assess the recoverability of
costs recognized as regulatory assets and the ability to continue to
account for its activities in accordance with SFAS 71, based on the
criteria set forth in SFAS 71. Based on current regulation, Indiana
Gas believes that its use of regulatory accounting is appropriate. If
all or part of Indiana Gas' operations cease to meet the criteria of
SFAS 71, a write-off of related regulatory assets and liabilities
would be required. In addition, Indiana Gas would be required to
determine any impairment to the carrying costs of deregulated plant
and inventory assets.
4. Short-Term Borrowings
Indiana Gas has available committed lines of credit of $60 million
with approximately $20 million outstanding at September 30, 1997.
These lines of credit are renewable annually and may be adjusted
quarterly as borrowings fluctuate with seasonal needs and other short-
term funding requirements. Indiana Gas' board of directors has
authorized borrowings of up to $150 million under bank lines of
credit. Indiana Gas has agreed to compensate the participating banks
with arrangements that vary from no commitment fees to a combination
of fees that are mutually agreeable. Notes payable to banks bore
interest at rates negotiated with the bank at the time of borrowing.
Bank loans outstanding during the reported periods were as follows:
<TABLE>
Thousands 1997 1996 1995
<S> <C> <C> <C>
Outstanding at year end $ 20,000 $ 24,236 $ 2,225
Weighted average interest rates at year end 5.7% 5.4% 6.1%
Weighted average interest rates during the year 5.5% 5.7% 5.7%
Weighted average total outstanding during the year $ 28,959 $ 5,930 $ 16,578
Maximum total outstanding during the year $ 89,725 $ 28,150 $ 50,000
</TABLE>
In addition, Energy Realty had a $3.8-million bank loan outstanding at
year end related to the purchase of a warehouse facility that is
leased to Indiana Gas.
5. Long-Term Debt
During July 1997, Indiana Gas issued $15 million in aggregate
principal amount of its Medium-Term Notes, Series E (Notes) as
follows: $5.0 million of 6.42% Notes due July 7, 2027; $3.5 million of
6.68% Notes due July 7, 2027; and $6.5 million of 6.54% Notes due July
9, 2007. The net proceeds from the sale of the Notes will be used to
refinance existing debt, to finance Indiana Gas' continuing
construction program and for other corporate purposes.
Consolidated maturities and sinking fund requirements on long-term
debt subject to mandatory redemption during the five years following
1997 are $35,277,000 in 1998, $10,332,000 in 1999, $393,000 in 2000,
$410,000 in 2001 and $4,917,000 in 2002.
Provisions under which certain of Indiana Gas' Series E Medium Term
Notes were issued entitle the holders of $30 million of these notes to
put the debt back to Indiana Gas at face value at a specified date
before maturity beginning in 2000. Long-term debt subject to the put
provisions during the five years following 1997 totals $5,000,000 in
2000 and $11,500,000 in 2002.
6. Fair Value of Financial Instruments
The estimated fair values of the company's financial instruments were
as follows:
<TABLE>
September 30, 1997 September 30, 1996
Carrying Fair Carrying Fair
Thousands Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 48 $ 48 $ 20 $ 20
Notes payable $ 23,800 $ 23,800 $ 28,036 $ 28,036
Long-term debt (includes
amounts due within one year) $193,063 $200,080 $178,335 $182,482
</TABLE>
Certain methods and assumptions must be used to estimate the fair
value of financial instruments. Because of the short maturity of cash
and cash equivalents and notes payable, the carrying amounts
approximate fair values for these financial instruments. The fair
value of the company's long-term debt was estimated based on the
quoted market prices for the same or similar issues or on the current
rates offered to the company for debt of the same remaining
maturities.
Under current regulatory treatment, call premiums on reacquisition of
long-term debt are generally recovered in customer rates over the life
of the refunding issue or over a 15-year period (see Note 1C).
Accordingly, any reacquisition would not be expected to have a
material effect on the company's financial position or results of
operations.
7. Capital Stock
On July 28, 1995, Indiana Energy's board of directors authorized
Indiana Energy to repurchase up to 700,000 shares of its outstanding
common stock. During 1996, Indiana Energy repurchased 92,100 shares
with an associated cost of $2,116,000. No shares were repurchased
during 1997.
Common stock dividends of the company may be reinvested under a
Dividend Reinvestment and Stock Purchase Plan. Common shares purchased
in connection with the plan are currently being acquired through the
open market.
The company has an Executive Restricted Stock Plan for the principal
officers of the company and participating subsidiary companies. Shares
issued are original issue shares of the company, carry transferability
restrictions and are subject to forfeiture provisions according to the
terms of the plan.
The company also has a Directors' Restricted Stock Plan through which
non-employee directors receive one-third of their combined
compensation (exclusive of attendance fees) as directors of the
company, Indiana Gas or IEI Investments, Inc. in shares of the
company's common stock subject to certain restrictions on
transferability. They may also elect to receive the remaining two-
thirds of their combined compensation (exclusive of attendance fees)
in cash or in shares of the company's common stock which are not
subject to restrictions on transferability other than those imposed by
federal and state laws.
Additionally, under the terms of the company's retirement savings plan
(see Note 8), eligible participants may direct a specified percentage
of their compensation to be invested in shares of the company's common
stock.
At September 30, 1997, the shares of the company's common stock
reserved for issuance under each of those plans were as follows:
Dividend Reinvestment and Stock Purchase Plan 353,847
Executive Restricted Stock Plan 271,089
Directors' Restricted Stock Plan 47,945
Retirement Savings Plan 382,262
Indiana Gas and Indiana Energy also each have 4 million of authorized
and unissued shares of preferred stock.
On July 25, 1986, the board of directors of Indiana Energy declared a
dividend distribution of one common share purchase right for each
outstanding share of common stock of Indiana Energy. The distribution
was made to shareholders of record August 11, 1986. In addition, one
right has been and will be distributed for each share issued following
August 11, 1986. On April 26, 1996, the board of directors of Indiana
Energy authorized the amendment and restatement of the shareholder
rights agreement relating to the common share purchase rights, which
occurred effective May 31, 1996. If and when the rights become
exercisable, each right will entitle the registered holder to purchase
from Indiana Energy one share of common stock at a price of $60 per
share, subject to certain adjustments described in the rights
agreement. The rights become exercisable only when a person or group
acquires beneficial ownership of 15 percent or more of Indiana
Energy's common stock, or becomes the beneficial owner of an amount of
Indiana Energy's common stock (but not less than 10 percent) which the
board of directors determines to be substantial and whose ownership
the board of directors determines is intended or may be reasonably
anticipated, in general, to cause Indiana Energy to take actions
determined by the board of directors to be not in Indiana Energy's
best long-term interests or when any person or group announces a
tender or exchange offer for 15 percent or more of Indiana Energy's
common stock.
In the event that (1) Indiana Energy is acquired in a merger or other
business combination transaction and Indiana Energy is not the
surviving corporation, or (2) any person consolidates or merges with
Indiana Energy and all or part of Indiana Energy common shares are
exchanged for securities, cash or property of any other person, or (3)
50 percent or more of Indiana Energy's consolidated assets or earning
power are sold, each holder of a right will have the right to receive,
upon exercise at the then-current exercise price of the right, that
number of shares of common stock of the acquiring company having a
market value of two times the exercise price of the right. In the
event that a person (1) acquires 15 percent or more of the outstanding
common stock or (2) is declared an adverse person (i.e., a person who
becomes the owner of at least 10 percent of Indiana Energy's common
stock, whose share ownership is determined by the board of directors
to be directed towards causing Indiana Energy to take actions
determined by the board of directors not to be in Indiana Energy's
long-term best interests) by the board of directors of Indiana Energy,
each holder of a right, other than rights beneficially owned by the
acquiring person (which will thereafter be void), will have the right
to receive upon exercise that number of common shares having a market
value of two times the exercise price of the right.
At any time after a person becomes an acquiring person, and prior to
the acquisition by such acquiring person of 50 percent or more of the
outstanding common shares, the board of directors of Indiana Energy
may exchange the rights (other than rights owned by such person or
group which have become void), in whole or in part, at an exchange
ratio of one common share per right (subject to adjustment).
Under the terms and conditions provided in the rights agreement,
Indiana Energy may redeem the rights in whole, but not in part, at a
price of $.01 per right at any time prior to the time a person or
group of affiliated or associated persons becomes an acquiring person
as defined by the rights agreement. The rights agreement, as amended
and restated as of May 31, 1996, was filed with the Securities and
Exchange Commission on June 17, 1996, and will remain in effect for an
extended term of 10 years.
8. Retirement Plans and Other Postretirement Benefits
The company has a defined contribution retirement savings plan which
is qualified under sections 401(a) and 401(k) of the Internal Revenue
Code. Under the terms of the retirement savings plan, eligible
participants may direct a specified percentage of their compensation
to be invested in shares of the company's common stock or various
investment funds. Participants in the retirement savings plan have,
subject to prescribed limitations, matching company contributions made
to the plan on their behalf, plus a year-end lump sum company
contribution. During 1997, 1996 and 1995, the company made
contributions of $2,360,000, $2,445,000 and $2,335,000, respectively.
The company also has two non-contributory defined benefit retirement
plans that cover all employees meeting certain minimum age and service
requirements. Benefits are determined by a formula based on the
employee's base earnings, years of participation in the plan and the
employee's age at retirement.
The company's defined benefit retirement plan assets are under custody
of trustees and consist of actively managed stock and bond portfolios,
as well as short-term investments. It is the company's funding policy
to maintain the pension plans on an actuarially sound basis. Under
this policy, funding was $350,000 in 1997, $464,000 in 1996 and
$143,000 in 1995.
The company has an unfunded supplemental retirement plan for certain
management employees. Benefits are determined by a formula based on 65
percent of the participant's average monthly earnings, less benefits
received under the company's pension and savings plans and the
participant's primary Social Security benefits.
The calculation of pension expense is as follows:
<TABLE>
Thousands 1997 1996 1995
<S> <C> <C> <C>
Pension benefits earned during the period $ 1,268 $ 1,174 $ 1,086
Interest accrued on projected pension benefit obligation 4,847 4,730 4,554
Actual return on pension plan assets (16,013) (10,244) (9,632)
Net amortization, deferral and other 9,982 4,634 4,698
Total pension expense $ 84 $ 294 $ 706
</TABLE>
The following table reconciles the plans' funded status at September
30 with amounts recorded in the company's financial statements.
Certain assets and obligations of the plans have been deferred and
recognized in the financial statements in subsequent periods.
<TABLE>
Thousands 1997 1996
<S> <C> <C>
Actuarial present value of pension benefits:
Vested benefits $ 57,337 $ 54,637
Nonvested benefits 164 159
Effect of future salary increases 8,476 8,167
Projected pension benefit obligation 65,977 62,963
Plan assets at fair value 87,801 75,748
Plan assets in excess of projected
pension benefit obligation at September 30 21,824 12,785
Unrecognized adjusted prior service costs 2,526 1,966
Unrecognized net assets at date of initial application (1,515) (1,776)
Unrecognized net (gain) loss and other (19,378) (13,333)
Prepaid (accrued) pension cost at September 30 $ 3,457 $ (358)
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the SFAS 87 projected benefit obligation was 7.75
percent in 1997 and 8 percent in 1996. For 1997 and 1996, the expected
long-term rate of return on assets used was 9 percent and the average
rate of increase in future compensation levels used ranged from 5 to
5.5 percent. The average future service of plan participants used to
compute amortization of the net assets existing at the date of initial
application of SFAS 87 is approximately 17 years.
In addition to providing pension benefits, the company presently
provides postretirement health care and life insurance benefits to
full-time employees who have completed 10 years of service and retire
from the company. The plan pays stated percentages of most reasonable
and necessary medical expenses incurred by retirees, after subtracting
payments by other providers and after a stated deductible has been
met. The plan also contains cost-sharing provisions (added in fiscal
1995) whereby employees retiring after January 1, 1996, are required
to make contributions to the plan when increases in the company's
health care costs exceed the general rate of inflation, as measured by
the Consumer Price Index (CPI). These postretirement benefits are
principally self-insured. Currently, the company does not fund this
postretirement plan.
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
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions (SFAS 106).
The Office of the Utility Consumer Counselor appealed the order,
however, on January 21, 1997, the Indiana Court of Appeals affirmed
the IURC decision authorizing recovery. Amounts accrued prior to the
order were deferred as allowed by the IURC
(see Note 3).
Postretirement benefit cost, excluding the curtailment loss in 1997,
consisted of the following components:
<TABLE>
Thousands 1997 1996 1995
<S> <C> <C> <C>
Service cost - benefits attributed to service during
the period $ 770 $ 806 $ 1,423
Interest cost on accumulated postretirement obligation 3,311 3,264 4,186
Amortization of transition obligation 2,280 2,280 2,772
Amortization of net (gain) loss and other 1,397 978 (4,543)
Total postretirement benefit cost $ 7,758 $ 7,328 $ 3,838
</TABLE>
The following table reconciles the plan's funded status to the accrued
postretirement benefit cost as reflected on the balance sheet as of
September 30, 1997, and 1996:
<TABLE>
Thousands 1997 1996
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents $ 24,811 $ 27,903
Other fully eligible participants 8,599 7,194
Other active participants 9,473 9,973
Total accumulated postretirement benefit obligation 42,883 45,070
Fair value of plan assets - -
Accumulated postretirement benefit obligation
in excess of plan assets (42,883) (45,070)
Unrecognized net (gain) loss (11,441) (8,599)
Unrecognized transition obligation 31,286 38,765
Accrued postretirement benefit
cost at September 30 $(23,038) $(14,904)
</TABLE>
The assumed health care cost trend rate for medical gross eligible
charges used in measuring the accumulated postretirement benefit
obligation as of September 30, 1997, was 7.5 percent for fiscal 1998.
This rate is assumed to decrease gradually through fiscal 2003 to 5.5
percent and remain at that level thereafter. The assumed CPI rate,
relating to the plan's cost sharing provisions for retirees, was 3.5
percent. A 1-percent increase in the assumed health care cost trend
rates for each future year produces approximately a $1.0 million
increase in the accumulated postretirement benefit obligation as of
September 30, 1997, and approximately a $100,000 increase in the
annual aggregate of the service and interest cost components of
postretirement benefit cost. The weighted-average discount rate used
in determining the accumulated postretirement benefit obligation was
7.75 percent in 1997 and 8 percent in 1996.
9. Commitments
Estimated capital expenditures for 1998 are $68 million. Total lease
expense was $2,200,000 in 1997, $2,863,000 in 1996 and $2,811,000 in
1995.
Lease commitments are $1,121,000 in 1998, $594,000 in 1999, $425,000
in 2000, $361,000 in 2001, $329,000 in 2002 and $10,000 in total for
all later years. There are no leases that extend beyond 2036. Indiana
Gas has storage and supply contracts that range from one month to five
years.
10. 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 several 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
continue to assess, on a site-by-site basis, whether any of the
remaining sites require remediation, to what extent it is required and
the estimated cost. Preliminary assessments (PAs) have been completed
on all of the sites. Site investigations (SIs) and supplemental site
investigations (SSIs) have been conducted at a number of the 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 sites. Although Indiana Gas
has not begun an RI/FS at additional sites, Indiana Gas is currently
conducting groundwater monitoring at certain sites where deemed
appropriate and will continue its evaluation of the sites as
appropriate and necessary.
Based upon the work performed to date, Indiana Gas has accrued
remediation and related costs for the sites where remedial activities
have taken place. PA/SI, SSI and groundwater monitoring costs have
been accrued for the remaining sites where appropriate. Estimated
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.
During 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. This ruling was affirmed by the Indiana Court
of Appeals. On August 15, 1997, the Indiana Supreme Court denied
Indiana Gas' petition for transfer and the IURC order became final.
Indiana Gas has also completed the process of identifying PRPs for
each site. With the help of outside counsel, Indiana Gas has prepared
estimates of the PRPs' 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. PRPs include
two financially viable utilities, PSI Energy, Inc. (PSI) and Northern
Indiana Public Service Company (NIPSCO). On August 12, 1997, Indiana
Gas and PSI signed an agreement with respect to thirteen of the
nineteen sites where PSI is a PRP, which provides for an equal sharing
between Indiana Gas and PSI of past and future response costs at the
thirteen sites. Indiana Gas and PSI must jointly approve future
management of the sites and the decisions to spend additional funds.
Indiana Gas previously entered into an agreement with PSI providing
for the sharing of costs related to another site. Five other sites are
already the subject of an agreement between Indiana Gas and NIPSCO
which provides for coordination of efforts and sharing of
investigation and clean-up costs incurred and to be incurred at the
sites. Indiana Gas further expects in the near future to commence
negotiations with PSI and NIPSCO regarding these five sites for the
purpose of including PSI in the Indiana Gas-NIPSCO agreement. The PSI
and NIPSCO agreements, as well as the cost sharing estimates of other
PRPs, 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.
On April 14, 1995, Indiana Gas filed suit in the United States
District Court for the Northern District of Indiana, Fort Wayne
Division (the Court) 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 the carriers are
obligated to pay these costs in the future. On October 2, 1996, the
Court granted several motions filed by defendant insurance carriers
for summary judgment on a number of issues relating to the insurers'
obligations to Indiana Gas under insurance policies issued by these
carriers. For example, the Court held that because the placement of
residuals on the ground at the sites was done intentionally, there was
no "fortuitous accident" and therefore no "occurrence" subject to
coverage under the relevant policies. Based on discussions with
counsel, the management of Indiana Gas believes that a number of the
Court's rulings are contrary to Indiana law and has appealed all
adverse rulings to the United States Court of Appeals for the Seventh
Circuit. However, if these rulings are not reversed on appeal, they
would effectively eliminate coverage under most of the policies at
issue. There can be no assurance as to whether Indiana Gas will
prevail on this appeal. As of September 30, 1997, Indiana Gas has
obtained settlements from some insurance carriers in an aggregate
amount of approximately $14.7 million.
The Court's rulings have had no material impact on earnings since
Indiana Gas has previously recorded all costs (in aggregate $14.7
million) which it presently expects to incur in connection with
remediation activities. It is possible that future events may require
additional remediation activities which are not presently foreseen.
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, as well as the outcome of the appeal of the summary judgment
rulings issued in favor of the insurers in the insurance litigation
described above. Although Indiana Gas will endeavor to manage the
manufactured gas plant remediation program so that any amounts
received will be sufficient to fund environmental costs, there can be
no assurance that in the future, environmental costs will not exceed
related recoveries.
11. Nonutility Income
The components of nonutility income, shown net of tax, are listed
below:
<TABLE>
Thousands 1997 1996 1995
<S> <C> <C> <C>
Nonutility income (loss):
Gas marketing affiliates, net of reserve $ 5,726 $ 3,265 $ 89
Gain on sale of nonutility assets 1,790 - -
Other - net (491) 306 758
$ 7,025 $ 3,571 $ 847
</TABLE>
During June 1997, IGC Energy sold certain nonutility assets, resulting
in an after-tax gain of approximately $1.8 million.
Nonutility income includes the earnings recognized from Indiana
Energy's gas marketing affiliates. Prior to April 1, 1996, IES
provided natural gas and related services to other gas utilities and
customers in Indiana and surrounding states, and from January 1,
1996, to March 31, 1996, to Indiana Gas. ProLiance Energy, LLC
(ProLiance), a nonregulated marketing affiliate, assumed the business
of IES effective April 1, 1996, and is the supplier of gas and related
services to both Indiana Gas and Citizens Gas and Coke Utility
(Citizens Gas). The company's investment in ProLiance is accounted for
using the equity method. ProLiance's fiscal year ends on August 31.
On September 12, 1997, the Indiana Utility Regulatory Commission
(IURC) issued the decision in the complaint proceeding relating to the
gas supply and portfolio administration agreements between ProLiance
and Indiana Gas and ProLiance and Citizens Gas. The IURC concluded
that these agreements are consistent with the public interest. The
management of Indiana Energy believes that the decision is supportive
of the utilities' relationship with ProLiance in all material
respects.
The IURC's decision suggests that all material provisions of the
agreements between ProLiance and the utilities are reasonable. In the
decision the IURC acknowledged that the utilities' purchases of gas
commodity from ProLiance at index prices, as compared to ProLiance's
actual cost, is not unreasonable. The IURC also acknowledged that the
amounts paid by ProLiance to the utilities for the prospect of using
pipeline entitlements if and when they are not required to serve the
utilities' firm customers, and the fees paid by the utilities to
ProLiance for portfolio administration services are not unreasonable.
Nevertheless, with respect to each of these matters, the IURC
concluded that additional findings 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.
On October 6, 1997, counsel for Indiana Gas was served with certain
filings made with the Indiana Court of Appeals (Court) by the
Petitioners and the Indiana Office of Utility Consumer Counselor
(OUCC). The effect of these filings is to initiate an appeal of the
IURC's decision by the Petitioners and the OUCC.
Pursuant to the procedure governing appeals of IURC decisions, at this
time neither the Petitioners nor the OUCC have indicated on what basis
they will attempt to challenge the IURC's decision. The schedule for
the appeal proposed by the Petitioners and the OUCC indicates that the
earliest they will likely disclose such a basis would be on January
12, 1998, when they would be obligated to file the IURC's record of
proceedings with the Court.
As a result of the IURC's decision and notwithstanding the initiation
of the appeal, during the fourth quarter of fiscal 1997, Indiana
Energy recognized approximately $3.0 million of its share of
ProLiance's earnings which had previously been reserved. Of that
amount, $700,000 related to fiscal 1996. At September 30, 1997,
$600,000 continues to be reserved pending the outcome of the
consolidated GCA proceeding involving Indiana Gas and Citizens Gas.
Although Indiana Gas' management believes that based upon applicable
Indiana law and the IURC's record of proceedings in the ProLiance case
the IURC's decision should be upheld by the Court, there can be no
assurance as to that outcome.
12. Income Taxes
The components of consolidated income tax expense, including amounts
in "Other" on the Consolidated Statements of Income, were as follows:
<TABLE>
Thousands 1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $21,129 $20,574 $12,193
State 3,368 3,277 2,077
24,497 23,851 14,270
Deferred:
Federal (11,678) 709 3,652
State (940) 95 342
(12,618) 804 3,994
Amortization of investment tax credits (930) (930) (930)
Consolidated income tax expense $10,949 $23,725 $17,334
</TABLE>
The recording of restructuring costs of $39.5 million in 1997 had the
effect of decreasing deferred income tax expense by approximately
$15.0 million.
Effective income tax rates were 34.81 percent, 35.99 percent and 34.47
percent of pretax income for 1997, 1996 and 1995, respectively. This
compares with a combined federal and state income tax statutory rate
of 37.93 percent for all years reported. Individual components of
these rate differences are not significant except investment tax
credit which amounted to (3.0%) in 1997, (1.4%) in 1996 and (1.8%) in
1995.
As required by the IURC, Indiana Gas uses a normalized method of
accounting for deferred income taxes. Deferred income taxes reflect
the net tax effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Deferred income taxes are
provided for taxes not currently payable due to, among other things,
the use of various accelerated depreciation methods, shorter
depreciable lives and the deduction of certain construction costs for
tax purposes. Taxes deferred in prior years are being charged and
income credited as these tax effects reverse over the lives of the
related assets.
Significant components of the company's net deferred tax liability as
of September 30, 1997, and 1996 are as follows:
<TABLE>
Thousands 1997 1996
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation $ 51,413 $ 48,009
Property basis differences 2,101 17,690
Acquisition adjustment 6,286 6,475
Other (1,645) (7,406)
Deferred tax assets:
Deferred investment tax credit (3,884) (4,237)
Regulatory income tax liability (711) (1,075)
Less deferred income taxes related
to current assets and liabilities 1,645 7,406
Balance as of September 30 $ 55,205 $ 66,862
</TABLE>
Investment tax credits have been deferred and are being credited to
income over the life of the property giving rise to the credit. The
Tax Reform Act of 1986 eliminated investment tax credits for property
acquired after January 1, 1986.
13. Affiliate Transactions
ProLiance began providing natural gas supply and related services to
Indiana Gas effective April 1, 1996. Indiana Gas' purchases from
ProLiance for resale and for injections into storage for 1997 and 1996
totaled $306.1 million and $117.9 million, respectively.
As of September 30, 1997, ProLiance has a standby letter of credit
facility with a bank for letters up to $45 million. This facility is
secured in part by a support agreement from Indiana Energy.
On April 1, 1997, IGC Energy and Citizens By-Products Coal Company, a
wholly owned subsidiary of Citizens Gas, formed CIGMA, LLC (CIGMA), a
jointly and equally owned limited liability company. CIGMA provides
materials acquisition and related services that are used by Indiana
Gas and Citizens Gas, as well as similar services for third parties.
Indiana Gas' purchases of these services during 1997, totaled $9.6
million. IGC Energy made an initial capital contribution of $3.6
million to CIGMA, and is accounting for its 50-percent interest under
the equity method.
Amounts owed to affiliates totaled $21.7 million and $18.1 million at
September 30, 1997 and 1996, respectively, and are included in
Accounts Payable on the Consolidated Balance Sheets.
Amounts due from affiliates totaled $8.7 million at September 30,
1997, and are included in Accounts Receivable on the Consolidated
Balance Sheet.
14. Energy Systems Group, LLC
On May 23, 1997, IGC Energy, Citizens By-Products Coal Company and
Energy Systems Group, Inc. (ESGI) formed Energy Systems Group, LLC
(ESG), an equally owned limited liability company. ESG provides a
package of products, services and skills to help energy users achieve
enhanced energy and operational performance. The packages provide for
improvements to be paid for by the customers from savings generated
within their existing operating budgets. ESG has assumed the
responsibilities of ESGI, an energy related performance contracting
firm and wholly owned subsidiary of SIGCORP, Inc. IGC Energy's initial
investment in ESG was recorded at $3.3 million and is payable over the
next five years. The final investment amount may be higher depending
on ESG's financial performance over that five-year period. IGC
Energy's one-third interest in ESG is being accounted for under the
equity method.
15. Summarized Financial Data (Unaudited)
Summarized quarterly financial data (in thousands of dollars except
per share amounts) for 1997 and 1996 are as follows:
<TABLE>
1997: THREE MONTHS ENDED DEC. 31 MAR. 31 JUNE 30 SEP. 30(1)
<S> <C> <C> <C> <C>
Utility operating revenues $172,481 $215,695 $83,733 $ 58,498
Utility operating income (loss) 20,260 27,153 7,799 (26,201)
Nonutility income (loss) 866 1,210 2,157 2,792
Net income (loss) 17,285 24,349 6,466 (27,597)
Earnings (loss) per average
share of common stock $ .77 $ 1.07 $ .29 $ (1.22)
1996: THREE MONTHS ENDED DEC. 31 MAR. 31 JUNE 30 SEP. 30
Utility operating revenues $154,309 $222,553 $91,211 $ 62,521
Utility operating income (loss) 22,654 27,280 5,863 (2,244)
Nonutility income (loss) 165 2,404 529 473
Net income (loss) 19,093 26,234 2,802 (5,928)
Earnings (loss) per average
share of common stock $ .85 $ 1.16 $ .13 $ (.27)
</TABLE>
(1) Reflects the recording of restructuring costs of $39.5 million
($24.5 million after-tax or $1.08 per common share), during the fourth
quarter of fiscal 1997 (see Note 2).
Note: Because of the seasonal factors that significantly affect the
companies' operations, the results of operations for interim periods
within fiscal years are not comparable.
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 ENERGY, INC.
Registrant
Dated November 14, 1997 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
President and Chief Operating Officer
Dated November 14, 1997 /s/Jerome A. Benkert
Jerome A. Benkert
Vice President and Controller
