SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-3553
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Indiana 35-0672570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
20 N. W. Fourth Street
Evansville, Indiana 47741-0001
(Address of principal executive offices)
(812) 465-5300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the close of the
period covered by this report.
Common Stock, without par value - 15,754,826 Shares
Outstanding at June 30, 1995
<PAGE> 2
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(in thousands except per share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric $66,343 $60,484 $126,658 $129,126
Gas 13,518 13,774 37,626 49,855
Total operating revenues 79,861 74,258 164,284 178,981
OPERATING EXPENSES
Operation:
Fuel for electric generation 19,034 19,652 37,992 44,324
Purchased electric energy 4,119 2,100 5,273 3,385
Cost of gas sold 5,756 6,366 23,547 31,549
Other 11,895 11,698 23,418 22,322
Total operation 40,804 39,816 90,230 101,580
Maintenance 8,516 8,832 14,352 14,070
Depreciation and amortization 10,419 9,435 20,660 18,871
Federal and state income taxes 4,300 3,028 6,913 10,300
Property and other taxes 3,231 2,831 6,869 6,626
Total operating expenses 67,270 63,942 139,024 151,447
OPERATING INCOME 12,591 10,316 25,260 27,534
Other Income:
Allowance for other funds
used during construction 98 1,246 208 2,394
Interest 232 145 426 332
Other, net 575 758 2,276 1,346
Total operating income 905 2,149 2,910 4,072
INCOME BEFORE INTEREST CHARGES 13,496 12,465 28,170 31,606
Interest Charges:
Interest on long-term debt 4,657 4,666 9,311 9,289
Amortization of premium,
discount and expense on debt 186 185 356 360
Other interest 323 222 725 461
Allowance for borrowed funds
used during construction (102) (615) (414) (1,171)
Total income before interest
charges 5,064 4,458 9,978 8,939
NET INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 8,432 8,007 18,192 22,667
CUMULATIVE EFFECT AT JANUARY 1, 1995
OF ADOPTING THE UNBILLED REVENUES
METHOD OF ACCOUNTING - NET OF
INCOME TAXES - - 6,293 -
NET INCOME 8,432 8,007 24,485 22,667
Preferred Stock Dividends 274 276 550 552
NET INCOME APPLICABLE TO
COMMON STOCK $ 8,158 $ 7,731 $ 23,935 $ 22,115
AVERAGE COMMON SHARES OUTSTANDING 15,755 15,755 15,755 15,755
EARNINGS PER SHARE OF COMMON STOCK
NET INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $0.52 $0.49 $1.12 $1.40
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - 0.40 -
NET INCOME $0.52 $0.49 $1.52 $1.40
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE> 3
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
June 30,
1995 1994
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 24,485 $ 22,667
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 20,660 18,871
Deferred income taxes and investment
tax credits, net 3,606 1,487
Allowance for other funds used during
construction (208) (2,394)
Cumulative effect of accounting change (6,293) -
Change in assets and liabilities:
Receivables, net (4,457) 3,586
Inventories 3,191 2,862
Coal contract settlement (11,429) 2,833
Accounts payable (7,153) (6,426)
Accrued taxes 2,356 (631)
Refunds from gas suppliers (914) -
Refunds to customers (1,385) 2,657
Accrued coal liability (22,018) 6,421
Other 2,777 3,646
Net cash provided by operating activities 3,218 55,579
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (net of allowance for
other funds used during construction) (17,595) (42,230)
Demand side management program expenditures (3,083) (2,648)
Purchases of investments (801) (4,507)
Sales of investments 1,250 3,103
Investments in partnerships 725 379
Change in nonutility property (4,258) (770)
Other 501 515
Net cash used in investing activities (23,261) (46,158)
CASH FLOWS FROM FINANCING ACTIVITIES:
First mortgage bonds (50) -
Dividends paid (13,861) (13,500)
Reduction in Preferred Stock (91) -
Change in environmental improvement funds
held by Trustee 6,695 9,279
Change in notes payable 6,215 6,478
Payment on partnership obligations (3,256) (3,849)
Other 310 -
Net cash (used) provided in financing activities (4,038) (1,592)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (24,081) 7,829
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,060 14,732
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,979 $ 22,561
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE> 4
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1995 1994
(thousands)
<S> <C> <C>
ASSETS
Utility Plant, at original cost:
Electric $1,008,659 $ 907,591
Gas 116,426 114,951
1,125,085 1,022,542
Less - Accumulated provision for depreciation 472,501 456,922
652,584 565,620
Construction work in progress 22,536 112,316
Net Utility Plant 675,120 677,936
Other Investments and Property:
Investments in leveraged leases 34,519 34,746
Investments in partnerships 22,686 23,411
Environmental improvement funds held by Trustee 3,831 10,526
Nonutility property and other 17,041 12,783
Total Other Investments and Property 78,077 81,466
Current
Cash and cash equivalents 3,979 6,042
Restricted cash - 22,018
Temporary investments 4,681 5,444
Receivables, less allowance of
$243 and $166, respectively 36,332 25,582
Inventories 43,250 46,441
Coal contract settlement 19,114 7,685
Other current assets 2,178 2,355
Total Current 109,534 115,567
Deferred Charges:
Coal contract settlement 2,557 -
Unamortized premium on reacquired debt 6,381 6,621
Postretirement benefits obligation other
than pensions 10,156 8,011
Demand side management program 14,613 11,530
Other deferred charges 14,924 16,109
Total Deferred Charges 48,631 42,271
$ 911,362 $ 917,240
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements
</FN>
</TABLE>
<PAGE> 5
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1995 1994
(in thousands)
<S> <C> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
Common Stock $102,798 $102,798
Retained Earnings 229,047 218,424
Less-unrealized loss on debt and equity securities 32 106
331,813 321,116
Less Treasury Stock, at cost 24,540 24,540
Common Shareholders' Equity 307,273 296,576
Cumulative Nonredeemable Preferred Stock 11,090 11,090
Cumulative Redeemable Preferred Stock 7,500 7,500
Cumulative Special Preferred Stock 924 1,015
Long-Term Debt, net of current maturities 267,805 264,110
Long-Term Partnership Obligations,
net of current maturities 7,394 9,507
Total capitalization, excluding bonds subject to
tender (see Consolidated Statements
of Capitalization) 601,986 589,798
Current Liabilities:
Current Portion of Adjustable Rate
Bonds Subject to Tender 31,500 31,500
Current Maturities of Long-Term Debt,
Interim Financing and Long-Term Partnership Obligations:
Maturing long-term debt 5,223 7,803
Notes payable 27,110 22,060
Partnership obligations 2,231 3,374
Total current maturities of long-term
debt, interim financing and
long-term partnership obligations 34,564 33,237
Other Current Liabilities:
Accounts payable 28,030 35,183
Dividends payable 123 125
Accrued taxes 9,205 6,849
Accrued interest 4,535 4,599
Refunds to customers 11,570 14,844
Acrued coal liability - 22,018
Other accrued liabilities 18,707 16,339
Total other current liabilities 72,170 99,957
Total current liabilities 138,234 164,694
Deferred Credits and Other:
Accumulated deferred income taxes 123,999 120,576
Accumulated deferred investment tax credits,
being amortized over lives of property 23,924 24,702
Regulatory income tax liability 5,013 4,052
Postretirement benefits other than pensions 10,609 8,384
Other 7,597 5,034
Total Deferred Credits and Other 171,142 162,748
$911,362 $917,240
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE> 6
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
June 30, December 31,
1995 1994
(in thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY:
Common Stock, without par value, authorized
50,000,000 shares, issued 16,865,003 shares $102,798 $102,798
Retained Earnings, $2,194,122 restricted as
to payment of cash dividends on common stock 229,047 218,424
Less-unrealized loss on debt and
equity securities 32 106
331,813 321,116
Less Treasury Stock, at cost, 1,110,177 shares 24,540 24,540
307,273 296,576
PREFERRED STOCK:
Cumulative, $100 par value, authorized
800,000 shares issuable, in series
Nonredeemable
4.8% Series, outstanding 85,895 shares,
callable at $110 per share 8,590 8,590
4.75% Series, outstanding 25,000 shares,
callable at $101 per share 2,500 2,500
11,090 11,090
Redeemable
6.50% Series, outstanding 75,000 shares
redeemable at $100 per share
December 1, 2002 7,500 7,500
SPECIAL PREFERRED STOCK:
Cumulative, no par value, authorized 5,000,000
shares, issuable in series: 8-1/2% series,
outstanding 9,237 shares, redeemable
at $100 per share 924 1,015
LONG-TERM DEBT, NET OF CURRENT MATURITIES:
First mortgage bonds 259,660 259,615
Notes payable 8,974 5,345
Unamortized debt premium and discount, net (829) (850)
267,805 264,110
LONG-TERM PARTNERSHIP OBLIGATIONS,
NET OF CURRENT MATURITIES 7,394 9,507
CURRENT PORTION OF ADJUSTABLE RATE POLLUTION CONTROL
BONDS SUBJECT TO TENDER, DUE:
2015, Series B, presently 4.6% 31,500 31,500
31,500 31,500
Total capitalization, including bonds
subject to tender $633,486 $621,298
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE> 7
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>
for the six months ended
June 30,
1995 1994
(in thousands)
<S> <C> <C>
Balance Beginning of Period $218,424 $204,449
Net Income 24,485 22,667
242,909 227,116
Preferred stock dividends 550 543
Common stock dividends ($0.845 per share in 1995 and
$0.825 per share in 1994) 13,312 12,957
13,862 13,500
Balance End of Period (See Consolidated
Statements of Capitalization for restriction) $229,047 $213,616
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE> 8
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
It is suggested that these consolidated financial
statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the
Company's 1994 Annual Report to Shareholders.
The consolidated statements are on the basis of interim
figures and are subject to audit and adjustments. These
financial statements include the accounts of Southern
Indiana Gas and Electric Company and its wholly-owned
subsidiaries, Southern Indiana Properties, Inc., Lincoln
Natural Gas Company, Inc., Energy Systems Group, Inc.
(Energy) and Southern Indiana Minerals, Inc. (SIMI), and
include all adjustments which are in the opinion of
management, necessary for a fair statement of the financial
position and results of operations. Energy and SIMI were
incorporated during the second quarter of 1994. Because of
seasonal and other factors, the earnings for the six months
ending June 30, 1995 should not be taken as an indication
for all or any part of the balance of 1995.
2. UTILITY PLANT
Utility plant is stated at the historical original cost
of construction. Such cost includes payroll-related costs
such as taxes, pensions and other fringe benefits, general
and administrative costs, and an allowance for the cost of
funds used during construction (AFUDC), which represents the
estimated debt and equity cost of funds capitalized as a
cost of construction. While capitalized AFUDC does not
represent a current source of cash, it does represent a
basis for future cash revenues through depreciation and
return allowances. The weighted average AFUDC rates (before
income taxes) used by the Company for the six months ending
June 30, 1995 and 1994 were 8.5% and 9.6%, respectively.
3. CASH FLOW INFORMATION
For the purposes of the Consolidated Balance Sheets and
Consolidated Statements of Cash Flows, the Company considers
all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash
equivalents.
The Company, for the six months ended June 30, 1995 and
1994 paid interest (net of amounts capitalized) of
$9,687,000 and $8,518,000, respectively, and income taxes of
$4,714,000 and $7,933,000, respectively. Additionally, the
Company is involved in several partnerships which are
partially financed by partnership obligations amounting to
$9,625,000 and $12,881,000 at June 30, 1995 and December
31, 1994, respectively.
4. LONG-TERM DEBT
On May 1, 1995, the interest rate on $31,500,000 of
Adjustable Rate Pollution control bonds was changed from
3.50% to 4.60%. The new interest rate, 4.60% will be fixed
through April 30, 1996. For financial statement
presentation the $31,500,000 of Adjustable Rate Pollution
Control bonds are shown as a current liability.
5. OPERATING REVENUES - ACCOUNTING CHANGE
The Company previously recognized electric and gas
revenues when customers were billed on a cycle billing
basis. The utility service rendered after monthly meter
reading dates through the end of a calendar month (unbilled
revenues) became a part of operating revenues in the
following month. To more closely match revenues with
expenses, effective January 1, 1995, the Company changed its
method of accounting to accrue the amount of revenue for
sales unbilled at the end of each month. The cumulative
effect of the change on prior years, net of income taxes, is
included in net income for 1995. The effect of the change
for the quarter was to increase net income $2.1 million
($.13 per share) which is reflected in operations. The
<PAGE> 9
effect of the change for the six months was to increase net
income $5.2 million ($.33 per share), of which a decrease of
$1.1 million ($.07 per share) is reflected in operations,
and an increase of $6.3 million ($.40 per share), the
cumulative effect of the change as of January 1, 1995, is
reported as a separate component of net income. Summarized
below is the proforma effect of this change, as if the
change had been effective during the following periods:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
As Reported
Operating Revenues
Electric $66,343 $60,484 $126,658 $129,126
Gas 13,518 13,774 37,626 49,855
Total 79,861 74,258 164,284 178,981
Operating Income 12,591 10,316 25,260 27,534
Net Income 8,432 8,007 24,485 22,667
Earnings Per Share of
Common Stock $0.52 $0.49 $1.52 $1.40
Proforma
Operating Revenues
Electric $66,343 $64,922 $126,658 $130,756
Gas 13,518 15,838 37,626 49,444
Total 79,861 80,760 164,284 180,200
Operating Income 12,591 14,417 25,260 28,303
Net Income 8,432 12,108 18,192 23,436
Earnings Per Share of
Common Stock $0.52 $0.75 $1.12 $1.45
</TABLE>
<PAGE> 10
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OPERATING REVENUES
Electric revenue was $5.8 million (10%) greater during
the second quarter compared to the same period in 1994,
primarily due to stronger nonsystem sales and the Company's
adoption of the unbilled revenue method of accounting.
Nonsystem sales, which typically have lower per unit margins
than system sales, were up substantially due to increased
sales to Alcoa Generating Corporation (AGC) during a major
maintenance outage on one of AGC's generating units, and due
to the Company's more aggressive marketing of electric power
to nonassociated utilities. Despite milder temperatures
during the recent quarter, when cooling degree days were 10%
fewer than a year ago, system sales rose 3% due to the
Company's adoption of the unbilled revenue method of
accounting January 1, 1995. The change in accounting
method, which recognizes revenues for gas and electric
energy delivered to customers, but unbilled at the end of
each month, effected a 6% increase in system sales and a
$2.8 million increase in electric revenue for the second
quarter. (Refer to "Change In Accounting Method" and Note 5
of the Notes to Consolidated Financial Statements for
further discussion of this accounting change.) In addition
to the impact of greater nonsystem sales and the change in
accounting method, electric revenues rose $1.1 million
during the current quarter due to the second step of the
Company's electric rate increase effective June 29, 1994,
which raised retail rates approximately 2.3% overall.
During the six month period ending June 30, 1995,
electric revenues declined $2.5 million (2%) compared to the
first two quarters of 1994, chiefly due to the recovery of
9% lower per unit fuel and purchased power costs. Changes
in the cost of fuel for electric generation and purchased
power are passed on to customers through commission approved
fuel cost adjustments. Fewer sales to residential and
commercial customers due to milder temperatures during the
period and fewer sales to nonsystem customers caused related
revenues to decline. The change to the unbilled revenue
method of accounting had little impact on electric revenue
for the six month period. (Refer to the following "Change
In Accounting Method" and to Note 5 of the Notes to
Consolidated Financial Statements for further discussion of
this accounting change and the $6.3 million increase in net
income for the cumulative effect of the change as of January
1, 1995.) Due to the second step of the Company's electric
rate increase, revenues from retail customers during the six
month period rose $2.4 million, partially offsetting the
impact of the lower fuel costs and decreased sales.
The changes in electric revenue are shown below:
<TABLE>
<CAPTION>
Revenue Increase (Decrease) From
Corresponding Period in 1994
Three Months Six Months
Ended 6-30-95 Ended 6-30-95
(in thousands)
<S> <C> <C>
Change in sales volume (including a $2,800
increase during the three month period due
to change in accounting method; impact on
six months due to the change in accounting
method was less than $100) $ 5,300 $ (1,600)
Effect of rate adjustments in sales to
retail customers 1,100 2,400
Fuel and purchased power recovery (700) (3,200)
Other 159 (68)
$ 5,859 $ (2,468)
Increase in system sales (MWh) 32,665 8,460
Increase (decrease) in nonsystem sales (MWh) 215,790 (12,861)
</TABLE>
<PAGE> 11
A decline in billed weather-sensitive gas sales was the
major reason for a small decrease in gas revenues during the
three months ended June 30, 1995. The change in accounting
method to record unbilled sales revenue effected a $0.5
million increase in related revenues. The impact during the
current quarter of the increase in the Company's base retail
gas rates, about 4% overall since August 1994 when the
second step of its two step retail rate adjustment became
effective, partially offset the impact of the lower sales.
Residential and commercial sales billed to customers
declined 13% and 8%, respectively, during the first half of
1995 versus the first six months of 1994 due to milder
winter weather during the first quarter of 1995. Winter
temperatures in the Company's service area, when measured in
heating degree days, were 15% warmer than in 1994 and 14%
warmer than normal, resulting in a $4.2 million reduction in
related revenues. The change in accounting method to record
unbilled revenues effected an additional $1.7 million
reduction in sales-related gas revenues. An 18% decline in
average unit costs of gas sold during the six month period,
which is passed on to customers through commission approved
gas cost adjustments, resulted in a $6.1 million decrease in
gas revenues. Considerably milder winter temperatures
nationwide created excess spot market gas supplies, causing
downward pressure on market prices during the first three
months of 1995. The impact of the Company's retail rate
adjustment was partially offset by a less favorable sales
mix during the 1995 period.
The changes in gas revenues are shown below:
<TABLE>
<CAPTION>
Revenue Increase (Decrease) From
Corresponding Period in 1994
Three Months Six Months
Ended 6-30-95 Ended 6-30-95
(in thousands)
<s <C> <C>
Change in sales volume (including a $500
increase and a $1,700 reduction,
respectively, due to change in
accounting method) $(1,300) $ (6,900)
Cost of gas recovery 200 (6,100)
Effect of rate adjustments in sales to
retail customers and sales mix 844 771
$ (256) $(12,229)
(Decrease) in total throughput (MDth) (1,075) (2,053)
</TABLE>
OPERATING EXPENSES
Although per unit fuel costs were lower during the
current quarter, the cost of fuel for electric generation
and purchased electric energy increased $2.1 million (6%)
during the second quarter as a result of a 19% increase in
units delivered to customers. Fuel and purchased power
costs declined $4.4 million (9%) during the six months ended
June 30, 1995 primarily due to an 8% decline in the
Company's per unit fuel costs. Cost of gas sold declined
$.6 million during the current quarter due to fewer unit
deliveries; the substantial decline in spot market prices
during the first quarter of 1995 and the decline in
deliveries to residential and commercial customers caused an
$8 million (25%) drop in cost of gas sold during the first
half of 1995.
<PAGE> 12
On June 8, exactly 13 years after a devastating storm in
1982, the Company's electric service area experienced a
storm requiring expenditures totaling $3.5 million to
restore service to its customers. Of the total storm
restoration costs approximately $2 million were related to
system repairs; the remainder represented capital
replacements. Lower production maintenance expenditures
during the second quarter offset the impact of the
storm-related maintenance expenditures.
During the three and six month periods, increases in
other operating expenses and depreciation expense reflected
the February 1, 1995 commercial operation of the Company's
$103 million investment to comply with the Clean Air Act
Amendments of 1990, primarily its sulfur dioxide scrubber.
(See "Clean Air Act" in Item 7 of Management's Discussion
and Analysis of Results of Operations and Financial
Condition in the Company's 1994 Form 10-K report for further
discussion.) Other operation expenses for the first half of
1995 also included increased employee benefit costs.
Greater pretax operating income during the second
quarter caused a $1.3 million increase in federal and state
income taxes. Conversely, a $5.7 million decline in pretax
operating income for the first six months of 1995 and a $1.2
million reduction in income taxes during the first quarter
resulting from settlement of the Company's most recent IRS
audit, caused a $3.4 million reduction in income tax expense
for the six months ending June 30, 1995.
OTHER INCOME
The decline in other income during both reporting
periods reflects much lower allowance for equity funds used
during construction, the result of the completed
construction of the Company's new sulfur dioxide scrubber
and other equipment required to comply with the Clean Air
Act Amendments of 1990 (previously discussed). Other income
during the six month period included the January sale to
another utility of the Company's 1995 allotment of "bonus"
sulfur dioxide emission allowances (also called "extension
allowances") granted by the Environmental Protection Agency.
The Company has an agreement with the utility to sell to it
essentially all of the Company's allotment of "bonus"
allowances for the five year period beginning 1995.
CHANGE IN ACCOUNTING METHOD
Effective January 1, 1995, the Company adopted the
unbilled revenue method of accounting to accrue the amount
of revenue for sales delivered but unbilled at the end of
each month to more closely match revenues with expenses.
Previously, the Company recognized electric and gas revenues
when customers were billed on a cycle billing basis. The
utility service rendered after monthly meter reading dates
through the end of a calendar month became part of operating
revenues in the following month. The unbilled revenue
method of accounting is a utility industry norm; few
utilities remain on the cycle billing method.
The adoption of this new method of accounting on January
1, 1995 reduced electric and gas operating revenues $2.7
million and $2.3 million, respectively, in the first
quarter. Net of income taxes, these reductions represented
a $3.1 million (20 cents per common share) decrease in net
income. The cumulative effect of this change in accounting
method as of January 1, 1995, net of income taxes, was $6.3
million (40 cents per common share) and is reported as a
separate component of net income for 1995. The net effect
of the accounting change for the first quarter was a $3.2
million (20 cents per common share) increase in net income.
For the second quarter, the accounting method change
effected a $2.8 million and a $.5 million increase in
electric and gas operating revenues, respectively. Net of
income taxes, net income during the current quarter was
increased $2.1 million (13 cents per common share) by the
change. The net effect of the change in accounting method
on the six months ended June 30, 1995 was a $5.2 million (33
cents per common share) increase in net income applicable to
common stock. (See Note 5 of Notes to Consolidated
Financial Statements for further discussion of this
accounting change and the impact of the change on prior
periods on a proforma basis.)
<PAGE> 13
The following table illustrates the net impact on
earnings per share of common stock for the reported periods
due to the adoption of the unbilled revenue method of
accounting:
<TABLE>
<CAPTION>
1 Qtr 2 Qtr Six Months
<S> <C> <C> <C>
Cumulative effect as of
January 1, 1995 $ .40 $ - $ .40
Impact on operating results (.20) .13 (.07)
Net impact on earnings
per common share $ .20 $ .13 $ .33
</TABLE>
EARNINGS
Earnings per share of common stock for the second quarter
was up three cents (6%) compared to the same period in 1994.
The increase resulted from the 13 cents per share increase
due to the change
to the unbilled revenue method of accounting and from to
stronger sales to nonsystem electric customers, which were
partially offset by the impact of fewer billed gas and
electric sales and higher operating expenses.
For the six months ended June 30, 1995, earnings per
share of common stock rose 12 cents (9%) chiefly due to the
33 cents per share impact of the accounting change, the
first quarter sale of "bonus" emission allowances, higher
per unit sales margins resulting from approved increases in
gas and electric rates and the reduction in income tax
expense, all of which were partially offset by much lower
weather-sensitive gas and electric sales, higher operating
expenses and the reduction in allowance for funds used
during construction.
LIQUIDITY AND CAPITAL RESOURCES
The Company's demand for capital is primarily related to
its construction of utility plant and equipment necessary to
meet customers' electric and gas energy needs, as well as
environmental compliance requirements, and to expenditures
for the Company's demand side management (DSM)
programs. Construction expenditures (excluding allowance
for other funds used during construction) and demand side
management program expenditures incurred during the quarter
and six months ended June 30, 1995 totaled $10.7 million and
$20.7, respectively, and were fully funded with internally
generated cash. The Company anticipates continued financial
stability during the remainder of 1995 and is presently
faced with no liquidity problems.
The Company estimates that construction expenditures for
the five year period 1995-1999 will total approximately $230
million, including approximately $47 million to develop and
implement DSM programs; however, anticipated changes in the
electric industry and other factors may require changes to
the level of future DSM expenditures. (See "Demand Side
Management" in Item 7 of Management's Discussion and
Analysis of Results of Operations and Financial Condition in
the Company's 1994 Form 10-K report for further discussion).
Although the Company expects the majority of the
construction requirements and an estimated $90 million in
debt security and other long-term obligation redemptions to
be provided by internally generated funds, an additional
$55-70 million of external financing is anticipated to meet
such requirements.
<PAGE> 14
OTHER MATTERS
On June 21, 1995, the Indiana Utility Regulatory
Commission issued its order concerning the third and final
step of the Company's requested adjustment in base electric
rates, primarily to recover the construction and operating
costs of its Clean Air Act compliance project. The order
grants a 2.05% overall increase in retail electric rates,
which represents an estimated $4.5 million in annual
revenues.
On April 10, 1995, the Company executed a contract buyout
settlement with the Ziegler Coal Company for the Company's
remaining long-term coal contract which originally ran
through 1998. Under the settlement, the Company paid
Ziegler $45.5 million during the second quarter of 1995, of
which approximately $28.5 million was escrowed by July 15,
1995, the revised contract termination date. The remaining
$17 million will be recovered from utility customers during
the balance of 1995 and 1996. The Company anticipates a $58
million net savings in fuel expense as a result of the
buyout. Due to the regulatory treatment of the buyout
payment and the resulting fuel expense savings, the contract
settlement will have no impact on financial results.
In March 1995, the Federal Energy Regulatory Commission
(FERC) issued a Notice of Proposed Rulemaking by which the
FERC will require public utilities that own or control
facilities used for the transmission of electric energy in
interstate commerce to offer "open access" transmission
service on a nondiscriminatory basis. The FERC also
proposes to allow, in certain circumstances, the collection
of charges for the recovery of stranded costs when customers
change power suppliers. The FERC expects to issue final
rules by February 1996.
<PAGE> 15
PART TWO - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
SIGNATURE
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.
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
(Registrant)
s/s S. M. KERNEY
S. M. Kerney
Controller
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
INDEX
<CAPTION>
Page No.
<S> <C>
Part I - Financial Information:
Consolidated Statements of Income for the Six Months
ended June 30, 1995 and 1994 2
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 1995 and 1994 3
Consolidated Balance Sheets at June 30, 1995 and
December 31, 1994 4-5
Consolidated Statements of Capitalization at June 30,
1995 and December 31, 1994 6
Consolidated Statements of Retained Earnings for the
Six Months ended June 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 8-9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-14
Part II - Other Information 15
Signature 15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Accounting Change
The Company changed its method of accounting to accrue the amount of revenue for
sales unbilled at the end of each month. The cumulative effect of the change on
prior years, net of income taxes, $6,293, is included in net income for 1995.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 675,120
<OTHER-PROPERTY-AND-INVEST> 78,077
<TOTAL-CURRENT-ASSETS> 109,534
<TOTAL-DEFERRED-CHARGES> 48,631
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 911,362
<COMMON> 78,226
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 229,047
<TOTAL-COMMON-STOCKHOLDERS-EQ> 307,273
0
19,514
<LONG-TERM-DEBT-NET> 275,199
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 27,110
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 38,954
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 243,312
<TOT-CAPITALIZATION-AND-LIAB> 911,362
<GROSS-OPERATING-REVENUE> 164,284
<INCOME-TAX-EXPENSE> 6,913
<OTHER-OPERATING-EXPENSES> 132,111
<TOTAL-OPERATING-EXPENSES> 139,024
<OPERATING-INCOME-LOSS> 25,260
<OTHER-INCOME-NET> 2,910
<INCOME-BEFORE-INTEREST-EXPEN> 28,170
<TOTAL-INTEREST-EXPENSE> 9,978
<NET-INCOME> 18,192
550
<EARNINGS-AVAILABLE-FOR-COMM> 23,935
<COMMON-STOCK-DIVIDENDS> 13,313
<TOTAL-INTEREST-ON-BONDS> 9,311
<CASH-FLOW-OPERATIONS> 3,218
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
</TABLE>
