January 27, 2000
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): January 27, 2000
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
On January 27, 2000, Indiana Energy, Inc. (the company) conducted
their quarterly conference call with the investment community regarding
results of operations and financial position. The script
for this teleconference is included herein. This script contains
certain subjects that pertain to our growth strategy and may contain
forward-looking information. Actual results could differ materially
from those that will be projected in this script.
Item 7. Exhibits
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 ENERGY, INC.
Registrant
Dated January 27, 2000 /s/Carl L. Chapman
Carl L. Chapman
Senior Vice President and
Chief Financial Officer
Dated January 27, 2000 /s/Jerome A. Benkert
Jerome A. Benkert
Vice President and Controller
INDIANA ENERGY
1st Quarter Results
Moderator: Jeff Whiteside
January 27, 2000, 9:30 a.m. EST
Operator:
Good morning everyone and welcome to the Indiana Energy first
quarter conference call. This all is being recorded and is
copyrighted material. Therefore, please note that it can not
be recorded, transcribed or rebroadcast without the company's
permission. Your participation implies consent to our recording
this call. If you do not agree to these terms, simply drop off
the line. Now I would like to turn the call over to Mr. Whiteside,
the Director of Investor Relations. Please go ahead sir.
J. Whiteside:
Thank you. Good morning and welcome to our teleconference
highlighting the first quarter results of Indiana Energy. As
the operator mentioned, I am Jeff Whiteside. We are pleased
that you could join us this morning. I hope that all of you
received a fax of our quarterly financial report that includes
highlights and our financial statements for the first quarter
of 2000. If for some reason you did not, you may obtain one
immediately by calling 1-800-366-9831. Today we will be
discussing certain subjects that pertain to our growth strategy
and may contain forward-looking information. I would caution
you that actual results could differ materially from those that
will be projected in our discussions. Additional information
concerning factors that could cause actual results to differ
materially from the information that is provided to you is
readily available in our report on Form 10-Q filed with the
Securities and Exchange Commission on August 12, 1999.
Today you will hear from Jerry Benkert, Vice President and
Controller, and Carl Chapman, Senior Vice President and CFO.
Also joining us today are Ron Christian, Vice President and
General Counsel and Steve Schein, Vice President and Treasurer.
Jerry will provide you our first quarter results. Then Carl will
provide a general update regarding our announced merger with
SIGCORP to form Vectren Corporation and information about Indiana
Energy's efforts to achieve its previously announced growth
strategy. As always, at the conclusion of our remarks we will
allow time for questions and answers. And with that I will ask
Jerry to begin his remarks.
J. Benkert:
Thank you Jeff and good morning everyone. As Jeff mentioned you
should have received our quarterly financial report that includes
highlights and financial statements for the quarter and 12 month
periods ended December 31. I will cover first quarter results
comparing them to last year and also provide some guidance regarding
our view toward the remainder of the year. Weather once again has
adversely affected the results of Indiana Energy. For the quarter,
weather was 17 percent warmer than normal and the same as last year.
Utility gross margin increased by $1.2 million or 2 percent over
last year primarily due to additional residential and commercial
customer growth. We believe weather may have impacted first quarter
results by about 17 cents.
As a general rule, we have found that earnings per share are
impacted by about 2 1/2-3 cents for each annual percent weather varies
from normal. Although warmer than normal weather continued in
early January, there has been recent improvement. As of yesterday,
we have lost about 400 heating degree-days or 7% on an annualized
basis. Assuming normal weather for the remainder of the year, we
would expect earnings per share to be lowered as much as 20 cents for
the year. Operation and maintenance expenses were held to about
the same level while depreciation and amortization were up quarter
over quarter by 9% or approximately $900,000 due to normal additions
to plant and the implementation of the new customer information and
work management system. We expect depreciation and amortization
expense to continue to match expected levels. However, we do believe
operations and maintenance expense will increase over expected
levels for fiscal 2000 as much as 2 cents per share. As Vectren, we
expect redeployment of resources including personnel, will allow
us to aggressively manage these expenses in the future.
Taxes other than income taxes including gross receipts tax
and property taxes were up about $200,000 or 5%. Equity in earnings
of unconsolidated affiliates was down about $3.0 million of which
$2.6 million can be directly attributed to lower earnings from
ProLiance. During our November 22, 1999 teleconference, Carl
Chapman explained that we expected Indiana Energy to recognize
lower first quarter earnings due to a timing issue related to the
recognition of hedging the natural gas storage inventory at the
company's marketing affiliate, ProLiance Energy. During the first
quarter, this loss was equivalent to 5 cents per share. The impact
of the storage inventory hedges will be offset by gains as the
inventory is sold under related physical sale commitments principally
during the second quarter of the fiscal year. In addition, Pace
Carbon also contributed $400,000 to the equity in earnings decline,
however, this amount is somewhat offset by tax credits. Carl will
discuss Pace Carbon in more detail in a moment. Interest expense
increased by approximately $1.0 million primarily due to additional
average debt outstanding at Indiana Gas and higher interest rates.
The additional debt is partially attributed to seasonal and weather
shortfalls and we expect short-term debt levels to return to more
normal balances by year-end. Anticipating some increases in interest
rates we would expect increased interest expense to have a 2 cent impact
on year-end expected results. Income taxes were down by $1.2 million
due to lower earnings and increased tax credits. We indicated last
November that Indiana Gas would contribute $1.40 to $1.44 to overall
earnings. Taking into account the projected margin impact of 20 cents based
on weather, as well as the modest increases in both operation and
maintenance and interest expense, we now expect Indiana Gas will
contribute about $1.16 to $1.20 to fiscal year 2000 results.
While our growth strategies continue to be effective, weather
and increasing interest rates have adversely affected the results.
We continue to manage controllable costs while staying focused on
completing the Vectren merger and closing the acquisition of DPL's
gas utility assets. With that I will turn it over to Carl.
C. Chapman:
Thanks Jerry. Before I comment on our first quarter results
and our expectations for IEI Investments for the remainder of
this year let me give you a brief update regarding our merger
with SIGCORP to form Vectren Corporation and our agreement to
purchase Dayton Power & Light's natural gas distribution business.
The Vectren merger remains on track to close by the end of the
first quarter right in line with our original expectations.
In December of 1999, the merger was approved by the Federal
Energy Regulatory Commission and by the shareholders of Indiana
Energy and SIGCORP. On January 18th, we received official
notice from the United States Department of Justice that it has
closed its investigation of the proposed merger. As a result,
no further action from the DOJ is required in order for the
companies to consummate the merger. Approval of the Indiana
Utility Regulatory Commission is not required to consummate the
merger. However, we voluntarily submitted to an informational
investigation by the IURC to provide our regulator with the means
to better understand the merger. It is not necessary for this
proceeding to be concluded prior to the consummation of the merger.
The last two regulatory milestones required to complete the merger
are approvals from the Securities and Exchange Commission regarding
our request that Vectren be an exempt holding company under the
Public Utility Holding Company Act and the approval by the Federal
Communications Commission for the transfer of control of radio
licenses presently held by SIGECO. We do not anticipate problems
with either issue.
Regarding the DPL transaction, we are extremely encouraged with the
reception of management and employees and the enthusiasm they have
shown in our discussions. In addition, we have met with Ohio
regulators and we hope to complete the transaction by June 30.
We are excited about the combination of the Vectren merger together
with the acquisition of DPL's gas operations, and we remain focused
and on track to deliver 10% average earnings per share growth through
2004.
As the merger becomes more imminent we realize you will be
increasingly more focused on Vectren and we expect to share the
Vectren strategy in detail with you at an analyst conference close
to the time of the merger. However, today our focus remains on
Indiana Energy. Last November we laid out our plan to achieve
$1.75 to $1.79 earnings for Indiana Energy in 2000, given normal
weather. Under that plan, IEI Investments would contribute 35 cents
to net income as a combination of earnings from subsidiaries,
unconsolidated affiliates and tax credits.
For IEI Investments, I believe our non-regulated plans are in place.
As you may recall from our November teleconference, 1999 was a banner
year for ProLiance. Jerry has already reminded you of a timing
difference in comparing ProLiance earnings quarter over quarter,
but we still believe ProLiance will match their 1999 earnings
levels in 2000.
As we have discussed many times, in addition to ProLiance, Indiana
Energy has successfully managed several non-regulated investments
that complement our core competencies. I would like to make a few
comments on three of our more significant investments, being
Energy Systems Group, Haddington Energy Partners and Reliant Services.
In December, Energy Systems Group, our energy service performance
contractor, signed the $27 million Enhanced-Use Lease for construction
and operation of an energy center in Johnson City, TN. This is the
first contract of its kind with the federal government and is part
of the seven-state award for the department of Veterans' Affairs.
While it took a long time to finalize this contract, we are excited
about its profit potential during the 18-month construction period
and during the life of the lease.
IEI Investments has now invested approximately $7 million of its
$10 million commitment in Haddington Energy Partners. Again, although
relatively small, Haddington is on pace to begin providing earnings in
2000 in accordance with our expectations. Obviously, Haddington has
been very active in completing its investments and we will share
additional details in our next conference.
Reliant Services, our joint venture with Cinergy, continues to grow
by providing underground facilities locating, construction services
and meter reading services to 14 telecommunications and utility
companies in Indiana, Ohio and Kentucky. Reliant has been profitable
since its inception, and with the addition of meter reading services
in late fiscal 1999, we believe it should slightly exceed expected
earnings for fiscal 2000.
These joint ventures and other investments, while generating modest
returns for 2000, provide excellent opportunities for future earnings
growth. In addition to these joint ventures and other investments,
IEI Investments also has a Section 29 investment in Pace Carbon
and six investments in various affordable housing projects that primarily
contribute to earnings through tax credits. These investments were
originally expected to contribute 10 cents to 12 cents to IEI earnings
for fiscal 2000. Production of briquettes at Pace Carbon has improved
dramatically at each of the four sites due to the process enhancements.
In fact, some hourly production runs at each site have been beyond
even our highest expectations. However, we are experiencing a very
soft coal market. As a result, production will be reduced to ensure
that all briquettes made can be sold, which is the driver for securing
credits. While this problem is expected to be resolved as utilities
work off inventory buildups related to Y2K and warm weather, it will
likely impact fiscal year 2000 results by about 4 cents. Coupled with
slightly greater expectations at other investments, particularly Reliant
and Haddington, we now expect an EPS contribution from IEI Investments
of 32 cents rather than the 35 cents previously communicated, which
is still an increase of over 40% from 1999.
Taking into account the new expectations for Indiana Gas' contribution
of $1.16 to $1.20, we now believe $1.48 to $1.52 is a reasonable range
for 2000 earnings for Indiana Energy. Based on recent trading prices
of less than $16.00 per share, I assume you agree that Indiana Energy
stock is trading at a significant discount compared to our peers. This
can probably best be demonstrated by our P/E ratio of less than 11 times
expected earnings and, adjusted for weather that P/E falls to less than
10. While P/E ratios generally have moved down, these levels are below
what we would expect from a low growth energy company, let alone one like
IEI, which is focused on growth. In addition, when our dividend yield
of approximately 6% and our 1999 payout ratio of 67% which was achieved
in a very warm year are compared to other LDC's, we believe that the
market has significantly undervalued Indiana Energy.
We recognize there may be perceived uncertainties with the merger,
and recent increases in interest rates have had a negative impact
in the performance of our stock. However, we believe that Indiana
Energy and SIGCORP will merge by the end of the first quarter to
form Vectren Corporation. We also continue to manage day to day
operations in a cost effective and efficient manner while diligently
pursuing the close of the Vectren merger and the acquisition of the
DPL gas properties. Finally, we truly believe that we are creating
a very strong company with a large footprint in a single region that
is focused on delivering a 10% growth target. Wih that I will stop
and ask for questions.
J. Whiteside:
As always, we appreciate your time and interest in Indiana Energy.
Please let us know if we can provide any additional information
regarding this teleconference or other topics. We look forward
to talking to you in the future.
