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 September 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 September 30, 1995
<PAGE>
<PAGE> 2
<TABLE> SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(in thousands except per share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric $83,734 $73,290 $210,392 $202,416
Gas 5,693 3,916 43,319 53,771
Total operating revenues 89,427 77,206 253,711 256,187
OPERATING EXPENSES
Operation:
Fuel for electric generation 23,548 21,850 61,539 66,174
Purchased electric energy 2,799 663 8,072 4,048
Cost of gas sold 1,219 336 24,766 31,885
Other 13,640 10,544 37,057 32,866
Total operation 41,206 33,393 131,434 134,973
Maintenance 7,126 6,869 21,477 20,939
Depreciation and amortization 9,331 9,435 29,990 28,306
Federal and state income taxes 8,648 7,148 15,561 17,448
Property and other taxes 3,405 3,067 10,274 9,693
Total operating expenses 69,716 59,912 208,736 211,359
OPERATING INCOME 19,711 17,294 44,975 44,828
Other Income:
Allowance for other funds
used during construction 137 782 345 3,176
Interest 403 186 828 518
Other, net 1,252 797 3,527 2,143
Total Other Income 1,792 1,765 4,700 5,837
INCOME BEFORE INTEREST CHARGES 21,503 19,059 49,675 50,665
Interest Charges:
Interest on long-term debt 4,799 4,658 14,109 13,947
Amortization of premium, discount,
and expense on debt 168 298 525 658
Other interest 608 402 1,334 863
Allowance for borrowed funds used
during construction (159) (436) (572) (1,607)
Total Charges 5,416 4,922 15,396 13,861
NET INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 16,087 14,137 34,279 36,804
CUMULATIVE EFFECT AT JANUARY 1, 1995
OF ADOPTING THE UNBILLED REVENUES
METHOD OF ACCOUNTING -
NET OF INCOME TAXES - - 6,293 -
NET INCOME 16,087 14,137 40,572 36,804
Preferred Stock Dividends 274 276 825 829
NET INCOME APPLICABLE TO
COMMON STOCK $15,813 $13,861 $ 39,747 $ 35,975
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 $1.00 $0.88 $2.12 $2.28
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - 0.40 -
NET INCOME $1.00 $0.88 $2.52 $2.28
<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>
Nine Months Ended
September 30,
1995 1994
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 40,572 $ 36,804
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 29,990 28,306
Deferred income taxes and investment
tax credits, net 4,499 2,179
Allowance for other funds used
during construction (345) (3,176)
Cumulative effect of accounting change (6,293) -
Change in assets and liabilities:
Receivables, net (18,105) 1,665
Inventories 6,474 (1,429)
Coal contract settlement (9,358) 4,209
Accounts payable (10,948) (9,184)
Accrued taxes 5,726 (1,143)
Refunds from gas suppliers 2,722 1,265
Refunds to customers (6,300) 6,530
Accrued coal liability (22,018) 9,997
Other assets and liabilities 5,267 4,317
Net cash provided by operating activities 21,883 80,340
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of allowance for
other funds used during construction) (26,701) (58,429)
Demand side management program expenditures (4,908) (5,085)
Investments in leveraged leases (283) -
Purchases of investments (500) (6,593)
Sales of investments 4,107 6,556
Investments in partnerships 970 379
Change in nonutility property (1,036) (2,831)
Other (82) 982
Net cash used in investing activities (28,433) (65,021)
CASH FLOWS FROM FINANCING ACTIVITIES
First mortgage bonds (300) -
Dividends paid (20,793) (20,275)
Reduction in preferred stock (91) (105)
Change in environmental improvement
funds held by Trustee 6,638 11,143
Change in notes payable and long-term debt 1,670 10,328
Payments on partnership obligations (3,256) (3,849)
Other 464 -
Net cash used by financing activities (15,668) (2,758)
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (22,218) 12,561
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 28,060 14,732
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $5,842 $ 27,293
<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 COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1995 1994
(in thousands)
<S> <C> <C>
ASSETS
Utility Plant, at original cost:
Electric $1,012,502 $ 907,591
Gas 118,087 114,951
Total Utility Plant 1,130,589 1,022,542
Less - Accumulated provision
for depreciation 479,283 456,922
Total 651,306 565,620
Construction work in progress 24,247 112,316
Net utility plant 675,553 677,936
Other Investments and Property:
Investments in leveraged leases 35,029 34,746
Investments in partnerships 22,441 23,411
Environmental improvement funds
held by Trustee 3,888 10,526
Nonutility property and other 13,820 12,783
Total other investments and property 75,178 81,466
Current Assets:
Cash and cash equivalents 5,842 6,042
Restricted cash - 22,018
Temporary investments,at market 1,357 5,444
Receivables, less allowance of
$183 and $180, respectively 49,979 25,582
Inventories 39,967 46,441
Coal contract settlement 17,043 7,685
Other current assets 1,638 2,355
Total current assets 115,826 115,567
Deferred Charges:
Unamortized premium on reacquired debt 6,262 6,621
Postretirement benefits other than pensions 9,574 8,011
Demand side management program 16,438 11,530
Other deferred charges 14,157 16,109
Total deferred charges 46,431 42,271
$ 912,988 $ 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>
September 30, December 31,
1995 1994
(in thousands)
<S> <C> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
Common Stock $102,798 $102,798
Retained Earnings 238,203 218,424
Less-unrealized loss on debt and
equity securities - 106
341,001 321,116
Less Treasury Stock, at cost 24,540 24,540
Common Shareholders' Equity 316,461 296,576
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 258,045 264,110
Long-Term Partnership Obligations,
net of current maturities 6,855 9,507
Total capitalization, excluding bonds
subject to tender (see Consolidated
Statements of Capitalization) 600,875 589,798
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 Obligations:
Maturing long-term debt 14,437 7,803
Notes payable 22,860 22,060
Partnership obligations 2,770 3,374
Total current maturities of long-
term debt, interim financing and
long-term partnership obligations 40,067 33,237
Other Current Liabilities:
Accounts payable 24,235 35,183
Dividends payable 103 125
Accrued taxes 12,575 6,849
Accrued interest 7,703 4,599
Refunds to customers 10,292 14,844
Accrued coal liability - 22,018
Other accrued liabilities 15,840 16,339
Total other current liabilities 70,748 99,957
Total current liabilities 142,315 164,694
Deferred Credits and Other:
Accumulated deferred income taxes 125,718 120,576
Accumulated deferred investment tax credits, being
amortized over lives of property 23,536 24,702
Regulatory income tax liability 4,576 4,052
Postretirement benefits other than pensions 10,027 8,384
Other 5,941 5,034
Total deferred credits and other 169,798 162,748
$912,988 $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>
September 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 238,203 218,424
Less-unrealized loss on debt and equity
securities - 106
341,001 321,116
Less Treasury Stock, at cost, 1,110,177 shares 24,540 24,540
316,461 296,576
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 244,862 259,615
Notes payable 14,000 5,345
Unamortized debt premium and discount, net (817) (850)
258,045 264,110
LONG-TERM PARTNERSHIP OBLIGATIONS,
NET OF CURRENT MATURITIES 6,855 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 $632,375 $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>
Nine Months Ended
September 30,
1995 1994
(in thousands)
<S> <C> <C>
Balance Beginning of Period $218,424 $204,449
Net Income 40,572 36,804
258,996 241,253
Preferred stock dividends 825 829
Common stock dividends ($1.2675 share in 1995
and $0.12375 per share in 1994) 19,968 19,446
20,793 20,275
Balance End of Period (See Consolidated
Statements of Capitalization for restriction) $238,203 $220,978
<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 1995 consolidated statements are on the basis of
interim figures and are subject to audit and adjust-
ments. 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., ComSource, Inc. and Southern Indiana
Minerals, Inc. , and include all adjustments which are
in the opinion of management, necessary for a fair
statement of the financial position and results of
operations for the nine months ended September 30, 1995.
ComSource, Inc. was incorporated during the second
quarter of 1995. Because of seasonal and other factors,
the earnings for the nine months ending September 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 nine months ending September 30,
1995 and 1994 were 8.1% and 9.4%, 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 nine months ended September 30,
1995 and 1994 paid interest (net of amounts capitalized)
of $11,767,000 and $10,155,000, respectively, and income
taxes of $6,840,000 and $12,103,000, 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
September 30, 1995 and December 31,1994, respectively.
4. Long-Term Debt
On May 1, 1994, 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.
<PAGE> 9
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 $.3 million ($.02 per share) which is
reflected in operations. The effect of the change for
nine months was to increase net income $5.6 million
($.35 per share), of which a decrease of $.7 million
($.05 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 pro forma effect of this change,
as if the change had been effective during the following
periods:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
As Reported
Operating Revenues
Electric $83,734 $73,290 $210,392 $202,416
Gas 5,693 3,916 43,319 53,771
Total 89,427 77,206 253,711 256,187
Operating Income 19,711 17,294 44,975 44,828
Net Income 16,087 14,137 40,572 36,804
Earnings Per Share of
Common Stock $1.00 $0.88 $2.52 $2.28
Pro Forma
Operating Revenues
Electric $83,734 $71,631 $210,392$ 202,387
Gas 5,693 3,701 43,319 53,145
Total 89,427 75,332 253,711 255,532
Operating Income 19,711 16,112 44,975 44,415
Net Income 16,087 12,955 34,279 36,391
Earnings Per Share of
Common Stock $1.00 $0.81 $2.12 $2.26
</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 $10.4 million (14%) greater during
the third quarter compared to the same period in 1994,
primarily due to much stronger sales to electric customers
and to higher base retail rates. Temperatures during the
quarter, when measured by cooling degree days, were 36%
warmer than a year ago, and the Company set a new peak
demand record on August 17, 1995 (1,082 megawatts).
Although total system sales were up only 2% due to fewer
industrial sales, billed residential sales rose 11% compared
to the third quarter of 1994. Nonsystem sales, which
typically have lower per unit margins than system sales,
were up substantially due to increased sales to Alcoa
Generating Corporation and to the Company's more aggressive
marketing of electric power to nonassociated utilities.
Electric revenues increased $1.7 million during the current
quarter due to the third step of the Company's electric rate
increase effective June 27, 1995, which raised retail rates
approximately 2.05% overall. Other factors contributing to
higher electric revenue for the period included the more
favorable sales mix and the recovery of higher average unit
fuel and purchased power costs.
During the nine month period ending September 30, 1995,
electric revenues rose $8 million (4%) compared to the first
three quarters of 1994, chiefly due to the stronger sales
during the third quarter and to the impact of the second and
third steps of the Company's electric rate increase,
effective June 29, 1994 and June 27, 1995, respectively.
The change to the unbilled revenue method of accounting had
little impact on electric revenue for the nine 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.) An improved sales mix
during the nine month period also contributed to the
increase in electric revenue. The recovery of 4% lower per
unit fuel and purchased power costs partially offset these
increases in electric revenue. Changes in the cost of fuel
are passed on to customers through commission approved fuel
cost adjustments.
The changes in electric revenue are shown below:
<TABLE>
<CAPTION>
Revenue Increase (Decrease) From
Corresponding Period in 1994
Three Months Nine Months
Ended 9-30-95 Ended 9-30-95
(in thousands)
<S> <C> <C>
Change in sales volume (including a $300
increase during the three month and nine
month periods due to change in
accounting method) $ 6,200 $ 4,100
Effect of rate adjustments in sales
to retail customers 1,700 4,300
Fuel and purchased power recovery 700 (2,500)
Other 1,850 2,075
$ 10,450 $ 7,975
Increase in system sales (MWh) 28,378 36,838
Increase in nonsystem sales (MWh) 168,594 155,733
</TABLE>
The recovery of higher unit costs of gas delivered to
customers and higher base retail rates were the chief
reasons for a $1.8 million increase in gas revenue during
the current quarter. Average unit costs of gas sold, which
are recovered from customers through commission approved gas
cost adjustments, were 72% greater than those during the
same period in 1994 when decreased purchased gas costs and
<PAGE> 11
the impact of storage field activity on the pricing of gas
delivered to customers resulted in substantially lower
average unit costs of gas sold. The second step of the
increase in the Company's base retail gas rates, about 4%
overall since August 1994, contributed approximately
$600,000 to gas revenues during the third quarter of 1995.
Residential and commercial sales billed to customers
declined 13% and 5%, respectively, during the first three
quarters of 1995 versus the first nine 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 14% warmer than in
1994 and 14% warmer than normal, resulting in a $5.1 million
reduction in related revenues during the nine month period.
The change in accounting method to record unbilled revenues
effected an additional $1.5 million reduction in sales-
related gas revenues. A 17% decline in average unit costs
of gas sold during the period, which is passed on to
customers through commission approved gas cost adjustments,
resulted in a $5.5 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 increased base retail gas rates 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 Nine Months
Ended 9-30-95 Ended 9-30-95
(in thousands)
<S> <C> <C>
Change in sales volume (including a $200 increase
and a $1,500 reduction, respectively, due to
change in accounting method) $ 300 $ (6,600)
Cost of gas recovery 600 (5,500)
Effect of rate adjustments in sales to retail
customers and sales mix 600 1,400
Other 280 250
$1,780 $(10,450)
Increase (Decrease) in total
throughput (MDth) 404 (1,709)
Operating Expenses
</TABLE>
The cost of fuel for electric generation and purchased
electric energy increased $3.8 million (17%) during the
third quarter as a result of a 13% increase in units
delivered to customers and slightly higher average unit
costs. Despite a 4% increase in units delivered to
customers, fuel and purchased power costs declined slightly
during the nine months ended September 30, 1995 due to an 6%
decline in the Company's per unit fuel costs. 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 $7 million (22%) drop in
cost of gas sold during the first nine months of 1995.
During the three and nine month periods, increases in
other operating expenses reflected greater employee benefit
costs and 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, Management's
Discussion and Analysis of Results of Operations and
Financial Condition in the Company's 1994 Form 10-K report
for further discussion.) The Company began expensing costs
which had previously been deferred for postretirement
benefits other than pensions (health care and life
insurance) attributed to electric utility operations in June
1995 when the Company received approval from the Indiana
Utility Regulatory Commission to recover such costs in
retail electric rates. (See item (1)(i), "Postretirement
Benefits Other Than Pensions" of Notes To Consolidated
Financial Statements in the Company's 1994 Form 10-K report
for further discussion.) In addition, pension expenses were
greater during both periods.
<PAGE> 12
Higher depreciation expenses during the nine months
ending September 30, 1995 also reflect the February 1995
commercial operation of the new scrubber; however, during
the third quarter, the impact of lower depreciation rates
placed in effect June 1995 offset the impact of the increase
in depreciable electric plant. Although the occurrence of a
devastating storm in the Company's electric service area
during June 1995 required $3.5 million of restoration
expenditures, $2 million of which were expensed as system
repairs, total maintenance costs for the first nine months
of 1995 were less than 3% greater than the same period in
1994 due to lower production maintenance expenditures.
Other Income
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). During the third
quarter of 1995, stronger results from the Company's
nonutility investments offset the decline in allowance for
equity funds used during construction; other income during
the nine 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 $500,000 increase in electric
and gas operating revenues, respectively, and net of income
taxes, net income during the quarter was increased $2.1
million (13 cents per common share) by the change. For the
third quarter, the accounting method change increased
electric and gas revenues $300,000 and $200,000,
respectively, and net of income taxes, net income during the
current quarter was increased $300,000 (2 cents per common
share). The net effect of the change in accounting method
on the nine months ended September 30, 1995 was a $5.5
million (35 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.)
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
<S> <C> <C> <C> <C>
1 Qtr 2 Qtr 3 Qtr Nine Months
Cumulative effect as of
January 1, 1995 $ .40 $ - $ - $ .40
Impact on operating
results (.20) .13 .02 (.05)
Net impact on earnings
per common share $ .20 $ .13 $ .02 $ .35
</TABLE>
<PAGE> 13
Earnings
Earnings per share of common stock for the third quarter
was up twelve cents (14%) compared to the same period in
1994. The increase resulted from greater weather-sensitive
electric sales, stronger sales to nonsystem electric
customers, and higher per unit sales margins resulting from
approved adjustments to gas and electric base rates, which
were partially offset by the impact of higher operating
expenses.
For the nine months ended September 30, 1995, earnings
per share of common stock rose 24 cents (11%) chiefly due to
the 35 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 increased electric sales, all of
which were partially offset by much lower weather-sensitive
gas 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 ended
September 30, 1995 totaled $10.9 million and were fully
funded with internally generated cash. For the current nine
month period, these expenditures totaled $31.6 million and
were 69% funded with internally generated cash. The
Company's cash and cash equivalents declined $22.2 million
during the three quarters of 1995 compared to a $12.6
million increase in cash and cash equivalents during the
same period in 1994. Cash provided from operations declined
$58.4 million during the current nine month period compared
to the first three quarters of 1994 due primarily to the
Company's $45.5 million buyout of its remaining long-term
coal contract with Ziegler Coal Company. Conversely, cash
used in investing activities during 1995 decreased $36.6
million reflecting the completion of the Culley scrubber
project during the first quarter of 1995. No financing
activity occurred during the 1995 period. 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, 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.
Other Matters
On September 7, 1995, the Company petitioned the Indiana
Utility Regulatory Commission to adjust existing gas rates
and charges to reflect the cost of gas service currently
being provided by the Company.
<PAGE> 14
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
<PAGE> 15
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 Three Months and
Nine Months ended September 30, 1995 and 1994 2
Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1995 and 1994 3
Consolidated Balance Sheets at September 30, 1995 and
December 31, 1994 4-5
Consolidated Statements of Capitalization at September 30,
1995 and December 31, 1994 6
Consolidated Statements of Retained Earnings for the
Nine Months ended September 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 8-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Part II - Other Information 14
Signature 15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Operating Revenues - 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>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 675,553
<OTHER-PROPERTY-AND-INVEST> 75,178
<TOTAL-CURRENT-ASSETS> 115,826
<TOTAL-DEFERRED-CHARGES> 46,431
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 912,988
<COMMON> 78,258
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 238,203
<TOTAL-COMMON-STOCKHOLDERS-EQ> 316,461
0
19,514
<LONG-TERM-DEBT-NET> 264,900
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 22,860
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 48,707
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 240,546
<TOT-CAPITALIZATION-AND-LIAB> 912,988
<GROSS-OPERATING-REVENUE> 253,711
<INCOME-TAX-EXPENSE> 15,561
<OTHER-OPERATING-EXPENSES> 193,175
<TOTAL-OPERATING-EXPENSES> 208,736
<OPERATING-INCOME-LOSS> 44,975
<OTHER-INCOME-NET> 4,700
<INCOME-BEFORE-INTEREST-EXPEN> 49,675
<TOTAL-INTEREST-EXPENSE> 15,396
<NET-INCOME> 34,279
825
<EARNINGS-AVAILABLE-FOR-COMM> 39,747
<COMMON-STOCK-DIVIDENDS> 19,968
<TOTAL-INTEREST-ON-BONDS> 14,109
<CASH-FLOW-OPERATIONS> 21,883
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.52
</TABLE>
