SIGCORP, Inc.
AND
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
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Page No.
PART I. FINANCIAL INFORMATION:
Item 1: Financial Statements
SIGCORP, Inc.
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Consolidated Balance Sheets 4-5
Consolidated Statements of Capitalization 6
Consolidated Statements of Retained Earnings 7
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
Statements of Income 8
Statements of Cash Flows 9
Balance Sheets 10-11
Statements of Capitalization 12
Statements of Retained Earnings 13
NOTES TO FINANCIAL STATEMENTS OF SIGCORP, Inc.
AND SOUTHERN INDIANA GAS AND ELECTRIC COMPANY 14-15
Item 2: Management's Discussion and Analysis of Results
of Operations and Financial Condition 16-20
SIGCORP, Inc. AND SOUTHERN INDIANA GAS
AND ELECTRIC COMPANY
Part II.OTHER INFORMATION
Item 4: Submission of Matters to a Vote
of Security Holders 21
Item 5: Other information 21
Item 6: Exhibits and Reports on Form 8-K 21
Signatures 22
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SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric utility $ 87,928 $ 84,169 $230,681 $211,267
Gas utility 5,431 9,189 45,643 56,223
Energy services and other 40,676 15,437 132,087 34,485
Total operating revenues 134,035 108,795 408,411 301,975
OPERATING EXPENSES:
Fuel for electric generation 19,500 17,952 51,970 47,703
Purchased electric energy 5,286 6,846 12,693 11,886
Cost of gas sold 1,102 2,824 26,743 34,096
Cost of energy services
and other 39,731 14,898 128,757 33,488
Other operation expenses 15,748 13,199 49,877 43,928
Maintenance 7,433 5,571 24,298 19,599
Depreciation and amortization 10,700 10,089 32,074 30,246
Property and other taxes 2,978 2,789 9,938 9,464
Total operating expenses 102,478 74,168 336,350 230,410
OPERATING INCOME 31,557 34,627 72,061 71,565
INTEREST AND OTHER CHARGES:
Interest on long-term debt 5,005 4,482 15,423 13,509
Interest expense on
short-term debt 709 1,094 1,964 2,674
Amortization of premium,
discount and expense on debt 169 168 506 503
Allowance for funds used
during construction (210) (402) (927) (875)
Preferred dividend requirements
of subsidiary 274 274 823 823
Interest income (1,493) (1,205) (4,445) (2,802)
Other, net (879) (776) (6,042) (1,770)
Total interest and
other charges 3,575 3,635 7,302 12,062
INCOME BEFORE INCOME TAXES 27,982 30,992 64,759 59,503
Federal and state income taxes 10,106 11,045 21,451 20,179
NET INCOME $ 17,876 $ 19,947 $ 43,308 $ 39,324
AVERAGE COMMON SHARES
OUTSTANDING 23,631 23,631 23,631 23,631
BASIC EARNINGS PER SHARE
OF COMMON STOCK $0.76 $0.84 $1.83 $1.66
DILUTED EARNINGS PER SHARE
OF COMMON STOCK $0.75 $0.84 $1.82 $1.66
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
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<PAGE> 3
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<CAPTION>
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1998 1997
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 43,308 $ 39,324
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 32,074 30,246
Preferred dividend requirements of subsidiary 823 823
Deferred income taxes and investment
tax credits, net (7,502) (1,903)
Allowance for other funds used
during construction 73 (430)
Change in assets and liabilities:
Receivables, net (including accrued
unbilled revenues) 7,703 16,482
Inventories (11,465) (2,167)
Accounts payable (9,583) (13,894)
Accrued taxes 1,800 (317)
Refunds from gas suppliers (364) (301)
Refunds to customers 761 5,702
Other assets and liabilities 12,847 (3,369)
Net cash provided by operating activities 70,475 70,196
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of allowance for
other funds used during construction) (32,098) (39,950)
Demand side management program expenditures (1,150) (2,003)
Sale of leveraged lease investment 7,323 -
Purchases of investments (1,940) (323)
Sale of investments 80 160
Investments in partnerships and
other corporations (2,979) (80)
Change in nonutility property 1,395 (5,145)
Other 20 207
Net cash used in investing activities (29,349) (47,134)
CASH FLOWS FROM FINANCING ACTIVITIES
First mortgage bonds (14,000) -
Dividends paid (22,268) (23,237)
Reduction in preferred stock
and long-term debt (116) -
Change in environmental improvement
funds held by trustee (153) (158)
Payments on partnership obligations (2,205) (2,276)
Change in long-term notes payable 3,476 1,793
Other (103) 1,844
Net cash used in financing activities (35,369) (22,034)
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,757 1,028
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,827 9,192
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,584 $ 10,220
<FN>
The accompanying notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
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SIGCORP, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
(in thousands)
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ASSETS
UTILITY PLANT, at original cost:
Electric $1,142,559 $1,091,349
Gas 150,318 141,646
1,292,877 1,232,995
Less accumulated provision for depreciation 585,579 557,631
707,298 675,364
Construction work in progress 2,227 32,241
Net utility plant 709,525 707,605
OTHER INVESTMENTS AND PROPERTY:<PAGE>
Investments in leveraged leases 35,641 42,964
Investments in partnerships and
other corporations 21,936 19,076
Environmental improvement funds
held by trustee 4,255 4,102
Notes receivable 16,937 21,404
Nonutility property and other 17,696 14,624
Total other investments and property 96,465 102,170
CURRENT ASSETS:
Cash and cash equivalents 11,584 5,827
Temporary investments, at market 812 749
Receivables, less allowance of $2,478
and $328, respectively 48,553 52,496
Accrued unbilled revenues 18,559 22,320
Inventories 44,920 32,930
Current regulatory assets 8,933 11,749
Other current assets 2,192 3,250
Total current assets 135,553 129,321
OTHER ASSETS:
Unamortized premium on reacquired debt 4,345 4,704
Postretirement benefits other than pensions 1,663 3,263
Demand side management programs 25,165 24,467
Allowance inventory 2,093 2,093
Deferred charges 16,200 16,273
Total other assets 49,466 50,800
TOTAL $ 991,009 $ 989,896
<FN>The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
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<PAGE> 5
<TABLE>
<contents>
SIGCORP, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
(in thousands)
<S> <C> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 292,698 270,828
Total common shareholders' equity 370,956 349,086
Cumulative Nonredeemable Preferred
Stock of Subsidiary 11,090 11,090
Cumulative Redeemable Preferred<PAGE>
Stock of Subsidiary 7,500 7,500
Cumulative Special Preferred Stock
of Subsidiary 808 924
Long-Term Debt, net of current maturities 249,541 273,707
Long-Term Partnership Obligations,
net of current maturities 715 2,424
Total capitalization, excluding bonds
subject to tender (see Consolidated
Statements of Capitalization) 640,610 644,731
CURRENT LIABILITIES:
Current Portion of Adjustable Rate
Bonds Subject to Tender 53,700 31,500
Current Maturities of Long-Term Debt,
Interim Financing and Long-Term
Partnership Obligations:
Maturing long-term debt 400 12,695
Notes payable 44,637 41,368
Partnership obligations 1,642 2,139
Total current maturities of long-term
debt, interim financing and long-term
partnership obligations 46,679 56,202
Other Current Liabilities:
Accounts payable 38,158 47,741
Dividends payable 120 123
Accrued taxes 7,669 5,868
Accrued interest 6,628 5,216
Refunds to customers 1,553 1,155
Other accrued liabilities 21,375 17,866
Total other current liabilities 75,503 77,969
Total current liabilities 175,882 165,671
OTHER LIABILITIES:
Accumulated deferred income taxes 139,801 146,218
Accumulated deferred investment tax credits,
being amortized over lives of property 19,164 20,249
Postretirement benefits other than pensions 13,851 11,271
Other 1,701 1,756
Total other liabilities 174,517 179,494
TOTAL $991,009 $989,896
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
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<PAGE> 6
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SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF CAPITALIZATION<PAGE>
(Unaudited)
September 30, December 31,
1998 1997
(in thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common stock, without par value, authorized
50,000,000 shares, issued 23,630,568 shares $ 78,258 $ 78,258
Retained earnings, $2,194,121 restricted as
to payment of cash dividends on common stock 292,698 270,828
Total common shareholders' equity 370,956 349,086
PREFERRED STOCK OF SUBSIDIARY
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
Total nonredeemable preferred stock
of subsidiary 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 OF SUBSIDIARY
Cumulative, no par value, authorized 5,000,000 shares,
issuable in series: 8-1/2% series, outstanding 8,077
shares, redeemable at $100 per share 808 924
LONG-TERM DEBT, NET OF CURRENT MATURITIES
First mortgage bonds 214,515 238,420
Notes payable 36,205 36,000
Unamortized debt premium and discount, net (1,179) (713)
Total long-term debt 249,541 273,707
LONG-TERM PARTNERSHIP OBLIGATIONS,
NET OF CURRENT MATURITIES 715 2,424
CURRENT PORTION OF ADJUSTABLE RATE POLLUTION
CONTROL BONDS SUBJECT TO TENDER, DUE
2025, Series A, presently 3.65% 31,500 31,500
2030, Series C, presently 3.70% 22,200 -
53,700 31,500
TOTAL CAPITALIZATION, including bonds
subject to tender $694,310 $676,231
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
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<PAGE> 7
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SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
Nine Months Ended
September 30,
1998 1997
(in thousands)
<S> <C> <C>
Balance Beginning of Period $270,828 $252,626
Net Income 43,308 39,324
314,136 291,950
Common Stock Dividends ($0.9075 per share
in 1998 and $0.8850 per share in 1997) 21,438 20,960
Balance End of Period (See Consolidated
Statements of Capitalization for restriction) $292,698 $270,990
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
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<PAGE> 8
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SOUTHERN INDIANA GAS AND ELECTRIC COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric utility $87,929 $84,167 $230,682 $211,267
Gas utility 5,430 9,190 45,644 56,223
Total operating revenues 93,359 93,357 276,326 267,490
OPERATING EXPENSES:
Fuel for electric generation 20,551 17,952 54,449 47,703
Purchased electric energy 5,286 6,847 12,693 11,886
Cost of gas sold 1,101 2,824 26,743 34,096
Other operation expenses 14,164 12,358 44,261 40,405
Maintenance 7,402 5,536 24,182 19,479
Depreciation and amortization 10,632 10,029 31,897 30,087
Federal and state income taxes 9,926 11,340 22,094 22,374
Property and other taxes 2,921 2,748 9,696 9,226
Total operating expenses 71,983 69,634 226,015 215,256
OPERATING INCOME 21,376 23,723 50,311 52,234 <PAGE>
OTHER INCOME:
Allowance for other funds used
during construction (65) 169 (73) 430
Interest 107 158 268 406
Other, net 65 110 1,559 753
Total other income 107 437 1,754 1,589
INCOME BEFORE INTEREST AND
OTHER CHARGES 21,483 24,160 52,065 53,823
INTEREST AND OTHER CHARGES:
Interest on long-term debt 4,165 4,482 13,290 13,509
Amortization of premium,
discount and expense on debt 169 167 506 503
Other interest 720 429 1,669 1,064
Allowance for borrowed funds
used during construction (275) (233) (1,000) (445)
Total interest and
other charges 4,779 4,845 14,465 14,631
NET INCOME 16,704 19,315 37,600 39,192
Preferred dividend 275 275 823 823
EARNINGS APPLICABLE TO
COMMON STOCK $16,429 $19,040 $ 36,777 $ 38,369
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
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<PAGE> 9
<TABLE>
<CAPTION>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1998 1997
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $37,600 $39,192
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 31,897 30,087
Deferred income taxes and investment
tax credits, net (1,242) (2,177)
Allowance for other funds used
during construction 73 (430)
Change in assets and liabilities:
Receivables, net (including accrued
unbilled revenues) 7,645 18,759<PAGE>
Inventories (11,242) (2,117)
Accounts payable (4,812) (14,863)
Accrued taxes (788) (351)
Refunds from gas suppliers (364) (301)
Refunds to customers 761 5,702
Other assets and liabilities 11,922 (4,651)
Net cash provided by operating activities 71,450 68,850
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of allowance for
other funds used during construction) (32,098) (39,950)
Demand side management program expenditures (1,150) (2,003)
Other (1,728) (285)
Net cash used in investing activities (34,976) (42,238)
CASH FLOWS FROM FINANCING ACTIVITIES
First mortgage bonds (14,000) -
Dividends paid (22,268) (23,236)
Change in environmental improvement
funds held by trustee (153) (158)
Change in long-term notes payable 475 967
Other (109) 390
Net cash used in financing activities (36,055) (22,037)
NET INCREASE IN CASH AND CASH EQUIVALENTS 419 4,575
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,114 3,127
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,533 $ 7,702
<FN>
The accompanying notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
(in thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT, at original cost:
Electric $1,142,559 $1,091,349
Gas 150,317 141,646
1,292,876 1,232,995
Less accumulated provision for
depreciation 585,579 557,631
707,297 675,364<PAGE>
Construction work in progress 2,227 32,241
Net utility plant 709,524 707,605
OTHER INVESTMENTS AND PROPERTY:
Environmental improvement funds held
by trustee 4,255 4,102
Nonutility property and other 1,562 1,552
Total other investments and property 5,817 5,654
CURRENT ASSETS:
Cash and cash equivalents 1,533 1,114
Receivables, less allowance of $2,436
and $144, respectively 28,397 32,281
Accrued unbilled revenues 18,559 22,320
Inventories 43,746 32,504
Current regulatory assets 8,933 11,749
Other current assets 1,322 1,443
Total current assets 102,490 101,411
OTHER ASSETS:
Unamortized premium on reacquired debt 4,345 4,704
Postretirement benefits other than pensions 1,663 3,263
Demand side management program 25,165 24,467
Allowance inventory 2,093 2,093
Deferred charges 14,825 15,266
Total other assets 48,091 49,793
TOTAL $ 865,922 $ 864,463
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
(in thousands)
<S> <C> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 243,902 228,570
Total common shareholders' equity 322,160 306,828
Cumulative Nonredeemable Preferred
Stock of Subsidiary 11,090 11,090
Cumulative Redeemable Preferred
Stock of Subsidiary 7,500 7,500<PAGE>
Cumulative Special Preferred
Stock of Subsidiary 808 924
Long-Term Debt, net of current maturities 214,336 238,707
Total capitalization, excluding bonds
subject to tender (see Consolidated
Statements of Capitalization) 555,894 565,049
CURRENT LIABILITIES:
Current Portion of Adjustable Rate
Bonds Subject to Tender 53,700 31,500
Current Maturities of Long-Term Debt
and Interim Financing:
Maturing long-term debt 400 12,695
Notes payable 33,026 31,643
Notes payable to Associated Company 20,092 20,886
Total current maturities of long-term
debt and interim financing 53,518 65,224
Other Current Liabilities:
Accounts payable 22,254 27,066
Dividends payable 120 123
Accrued taxes 5,137 5,925
Accrued interest 6,113 4,635
Refunds to customers 1,553 1,155
Other accrued liabilities 18,568 16,018
Total other current liabilities 53,745 54,922
Total current liabilities 160,963 151,646
OTHER LIABILITIES:
Accumulated deferred income taxes 114,335 114,493
Accumulated deferred investment tax credits,
being amortized over lives of property 19,164 20,249
Postretirement benefits other than pensions 13,851 11,271
Other 1,715 1,755
Other liabilities 149,065 147,768
TOTAL $865,922 $864,463
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Unaudited)
September 30, December 31,
1998 1997
(in thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common stock, without par value, authorized
50,000,000 shares, issued 15,754,826 shares $ 78,258 $ 78,258<PAGE>
Retained earnings, $2,194,121 restricted as
to payment of cash dividends on common stock 243,902 228,570
Total common shareholders' equity 322,160 306,828
PREFERRED STOCK OF SUBSIDIARY
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
Total nonredeemable preferred stock
of subsidiary 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 OF SUBSIDIARY
Cumulative, no par value, authorized 5,000,000 shares,
issuable in series: 8-1/2% series, outstanding 8,077
shares, redeemable at $100 per share 808 924
LONG-TERM DEBT, NET OF CURRENT MATURITIES
First mortgage bonds 214,515 238,420
Notes payable 1,000 1,000
Unamortized debt premium and discount, net (1,179) (713)
Total long-term debt 214,336 238,707
CURRENT PORTION OF ADJUSTABLE RATE POLLUTION
CONTROL BONDS SUBJECT TO TENDER, DUE
2025, Series A, presently 3.65% 31,500 31,500
2030, Series C, presently 3.70% 22,200 -
53,700 31,500
TOTAL CAPITALIZATION, including bonds
subject to tender $609,594 $596,549
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF RETAINED EARNINGS
(Unaudited)
Nine Months Ended
September 30,
1998 1997
(in thousands)
<S> <C> <C>
Balance Beginning of Period $228,570 $213,688
Net Income 37,600 39,192
266,170 252,880
Preferred Stock Dividends 823 823
Common Stock Dividends 21,445 22,413
22,268 23,236
Balance End of Period (See Consolidated
Statements of Capitalization for restriction) $243,902 $229,644
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
</FN>
</TABLE>
<PAGE> 14
SIGCORP, Inc.
AND
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
SIGCORP, Inc. (SIGCORP) is a holding company
incorporated October 19, 1994 under the laws of the state of
Indiana. SIGCORP has nine wholly-owned subsidiaries:
Southern Indiana Gas and Electric Company (SIGECO), a gas
and electric utility which accounts for over 80% of
SIGCORP's net income for the nine months ended September 30,
1998, and eight nonregulated subsidiaries.
2. GENERAL
It is suggested that these consolidated financial
statements be read in conjunction with the consolidated
financial statements and the notes thereto included in
SIGCORP's and SIGECO's 1997 Annual Report or Form 10-K.
The consolidated statements include the accounts of
SIGCORP, Inc. and its wholly-owned subsidiaries: Southern
Indiana Gas and Electric Company (SIGECO), Southern Indiana
Properties, Inc. (SIPI), Energy Systems Group, Inc. (ESGI),
Southern Indiana Minerals, Inc. (SIMI), SIGCORP Energy
Services, Inc. (Energy), SIGCORP Capital, Inc. (Capital),
SIGCORP Communications, Inc. (Communications), SIGCORP
Fuels, Inc. (Fuels) and SIGECO Advanced Communications, Inc.
(Advanced Communications), and include all adjustments which
are, in the opinion of management, necessary for a fair
statement of the financial position and results of
operations. Effective June 30, 1998, ComSource, Inc., a
former subsidiary of SIGCORP, was merged into Advanced
Communications. Because of seasonal and other factors, the
earnings for the nine months ending September 30, 1998
should not be taken as an indication for all or any part of
the balance of 1998.
3. CASH FLOW INFORMATION
For the purposes of the Consolidated Balance Sheets and
Consolidated Statements of Cash Flows, SIGCORP and SIGECO
consider all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash
equivalents.
SIGCORP, for the nine months ended September 30, 1998
and 1997, paid interest (net of amounts capitalized) of
$14,973,000 and $12,127,000, respectively, and income taxes
of $25,050,000 and $19,791,000, respectively. Additionally,
SIGCORP is involved in several partnerships which are
partially financed by partnership obligations amounting to
$2,358,000 and $4,563,000 at September 30, 1998 and
December 31, 1997, respectively.
SIGECO, for the nine months ended September 30, 1998 and
1997, paid interest (net of amounts capitalized) of
$12,480,000 and $11,040,000, respectively, and income taxes
of $22,453,000 and $20,427,000, respectively.
4. LONG-TERM DEBT
On March 25, 1998, SIGECO refunded the following four
tax-exempt bond issues:
* 1985 Series B Adjustable Rate Pollution Control Bonds,
$31,500,000, at time of redemption a 4.05% interest rate,
due 2015
* 1973 Series A Fixed Rate Pollution Control Bonds,
$4,640,000, at a 5.6% interest rate, due 2003
* 1978 Series A Fixed Rate Pollution Control Bonds,
$22,000,000, at a 6.05% interest rate, due 2008
* 1983 Series A Adjustable Rate Pollution control Bonds,
$22,200,000, at time of redemption a 4.65% interest rate,
due 2028
<PAGE> 14
The above issues were refunded with the following bond
issues:
* 1998 Series A Adjustable Rate Pollution Control Bonds,
$31,500,000, presently at a 3.65% interest rate, due 2025
* 1998 Series B Fixed Rate Pollution Control Bonds,
$4,640,000, presently at a 4.4% interest rate, due 2020
* 1998 Series B Fixed Rate Pollution Control Bonds,
$22,000,000, presently at a 4.4% interest rate, due 2030<PAGE>
* 1998 Series C Adjustable Rate Pollution Control Bonds,
$22,200,000, presently at a 3.7% interest rate, due 2030
The interest rates on the 1998 Series A and C Adjustable
Rate Pollution Control Bonds are fixed through February 28,
1999. The interest rates on the Series B Fixed Rate
Pollution Control Bonds are fixed through February 28, 2003.
The Series A and C Adjustable Rate Pollution Control Bonds
are subject to tender on March 1, 1999 and accordingly, are
presented as current liabilities on the financial
statements. The Series B Fixed Rate Pollution Control Bonds
are subject to tender March 1, 2003.
In January 1998, SIGECO borrowed $20 million under a
floating rate long term bank note, due April 1, 1999, and
refunded an equal amount of short-term bank notes. The
interest rate, presently 6.3%, will be reset every 90 days
based upon the 90-day LIBOR plus 62.5 basis points.
5. EARNINGS PER SHARE
The following table illustrates the basic and diluted
earnings per share calculations:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
(in thousands except for per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $43,308 23,631 $1.83 $39,324 23,631 $1.66
Effect of dilutive
securities 107 52
Diluted EPS $43,308 23,738 $1.82 $39,324 23,683 $1.66
Basic earnings per common share were computed by
dividing net income by the weighted average number of shares
of common stock outstanding during the year. Diluted
earnings per common share were determined using the treasury
stock method for dilutive stock options.
6. COMPREHENSIVE INCOME
Effective January 1, 1998, SIGCORP adopted Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", which requires expanded disclosures
regarding financial results. For all periods presented,
there were no elements of comprehensive income other than
net income.<PAGE>
<PAGE> 16
SIGCORP, Inc.
AND
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The consolidated financial statements of SIGCORP, Inc.
(SIGCORP), an investor-owned holding company, include
SIGCORP's principal subsidiary, Southern Indiana Gas and
Electric Company (SIGECO), a regulated gas and electric
utility, and eight nonregulated subsidiaries. The following
discussion and analysis includes those factors which have,
or may, materially affect the results of operations and
financial condition of SIGCORP and its subsidiaries.
This discussion includes forward looking statements based on
information currently available to management. Such
statements are subject to certain risks and uncertainties.
These statements typically contain, but are not limited to
the term "anticipate", "expect", "potential", "estimate" and
similar words, and actual results may differ materially due
to the speed and nature of increased competition and
deregulation in the electric and gas utility industry,
economic or weather conditions affecting future sales and
margins, changes in markets for energy services, changing
energy market prices, legislative and regulatory changes
including revised environmental requirements, availability
and cost of capital, and other similar factors.
RESULTS OF OPERATIONS
Basic earnings per share were $.76 and $1.83, respectively,
for the three month and nine month periods ending September
30, 1998 compared to basic earnings of $.84 and $1.66 per
share, respectively, for the third quarter and first nine
months of 1997. The factors effecting the changes in
earnings follow:
</TABLE>
<TABLE>
<CAPTION>
Qtr 9 Mos
<S> <C> <C>
Period ended September 30, 1997 $.84 $1.66
Weather .04 .11
Electric sales to other utilities and power marketers .06 .16
Utility O&M expense <F1> (.09) (.22)
Utility depreciation expense (.02) (.05)
Correction of unbilled gas revenues in September 1997 (.05) (.05)
Nonregulated gas energy services and
nonutility operations .02 .24
Other (.04) (.02)
Period ended September 30, 1998 $.76 $1.83<PAGE>
<FN>
<F1> Includes $.05 per share provision for uncollectible
Federal Energy revenues in the second quarter of 1998.
</FN>
</TABLE>
REVENUES Third quarter electric revenues rose $3.8 million,
or 4%, due primarily to an increase in retail electric sales
and higher unit prices for power sales to other utilities
and power marketers. Warmer temperatures, registering 32%
warmer than a year ago (in terms of cooling degree days),
were the primary reason for a 5% rise in residential
electric sales during the third quarter. Combined with a
14% increase in sales to industrial customers, total
electric sales to retail and municipal customers rose 8%
compared to a year ago. The warmer weather, coupled with
market supply constraints, held wholesale market power
prices substantially higher, increasing average wholesale
unit sales margins compared to the same period in 1997.
SIGECO aggressively markets electric power to other
utilities and many power marketers in the evolving
deregulated wholesale power market.
<PAGE> 17
The correction of SIGECO's unbilled gas revenues in
September 1997 for the twelve-month period ended September
1997 was the chief cause of a $3.8 million (41%) decrease in
gas revenues during the quarter ended September 30, 1998.
The net effect of this adjustment was a $2.0 million
increase in September 1997 revenues. In addition to the
effect of the 1997 sales correction, gas sales during the
third quarter of 1998 declined 25% due primarily to fewer
sales of natural gas to SIGECO transportation customers
compared to the third quarter of 1997.
The greater activity of SIGCORP's natural gas marketing
subsidiary, SIGCORP Energy Services (Energy), whose revenues
were up $23.3 million, was the primary reason for a $25.2
million increase in energy services and other nonregulated
revenues during the quarter ending September 30, 1998.
For the nine month period ending September 30, 1998,
electric revenues were $19.4 million (9%) greater than the
same period a year ago due primarily to stronger system
sales and to higher unit prices for power sales to other
utilities and power marketers throughout the second and
third quarters of 1998 which represented $7.8 million of the
total revenue increase. Total electric sales were up 6% for
the nine month period reflecting a 7% increase in sales to
retail and municipal customers. Sales to other utilities
and power marketers were comparable to the same period in
1997. Gas revenues declined $10.6 million (19%) for the
current nine month period compared to a year ago due chiefly
to 22% fewer gas sales resulting from much warmer
temperatures throughout the period and fewer sales to
commercial and industrial transportation customers and to
the 1997 gas revenue adjustment. Revenues from Energy rose
$92.7 million during the nine months ending September 30,
1998 from continued growth in sales and services throughout
the period, accounting for the majority of the $97.6 million
increase in energy services and other nonregulated revenues
during the current period.
OPERATING EXPENSES In total, costs for fuel for electric
generation and purchased electric energy during the third
quarter of 1998 were comparable to the same period in 1997,
but rose $5.1 million during the first nine months of 1998
due to the increased electric sales and higher prices for
wholesale market power purchased for resale. The decline in
cost of gas sold, down $1.7 million and $7.4 million,
respectively, during the current three month and nine month
periods, reflects the decrease in gas sales during the same
periods. The cost of energy services and other revenues,
which was chiefly the cost of natural gas purchased for
resale by Energy, rose $24.8 million during the third
quarter and $95.3 million during the first nine months of
1998 compared to the same periods in 1997. Other operation
expenses, were up $2.5 million (19%) in the third quarter.
The major factor causing the increase was a $1.0 million
reduction in SIGECO's provisions for potential claims and
other anticipated costs during the third quarter of 1997 due
to favorable resolution of these matters. The $5.9 million
increase in other operation expenses for the nine month
period in 1998 reflects a second quarter $2.0 million
provision for potentially uncollectible revenues from a
power marketer and higher operation expenses at SIGCORP's
newer nonregulated subsidiaries. SIGCORP's maintenance
expense was up $1.9 million (33%) during the third quarter
of 1998 and $5.0 million (24%) for the nine month period due
primarily to increased scheduled maintenance expenditures at
SIGECO's generating plants.
INTEREST AND OTHER CHARGES Total interest and other charges
during the three months ending September 30, 1998, were
comparable to the third quarter of 1997. During the first
nine months of 1998, total interest and other charges
declined $4.8 million due to substantially greater other
nonutility income which included a first quarter $2.9
million after-tax gain on the sale of Southern Indiana
Properties' ownership interest in a paper mill, the
operation of the company's new SIGCORP Fuels, Inc.
subsidiary and improved results of other nonutility
subsidiaries. Increases in total interest expense reflected
increased financial investment activities by Southern
Indiana Properties, Inc. and the related costs.
<PAGE> 18
EARNINGS Absent the adjustments recorded in the third
quarter of 1997 for the correction of unbilled gas revenues
and for the favorable resolution of potential claims and
other anticipated costs, current quarter basic earnings
would have equaled third quarter 1997 earnings. Earnings
per share for the third quarter of 1998 decreased $.08 (10%)
compared to the same period in 1997. Earnings were
favorably impacted by the increased electric sales to retail
and municipal customers, higher unit margins on sales to
other utilities and power marketers and improved
nonregulated operations, all of which were fully offset by
the increase in SIGECO's scheduled maintenance and nonfuel
operation expenses and higher depreciation expense. For the
nine months ended September 30, 1998, earnings per share
increased $.17 (10%) due to the stronger results from
SIGCORP's non-utility operations, up $.24 per share during
the period, which were partially offset by a $.07 per share
decline in utility net income.
ENVIRONMENTAL MATTERS In July 1997, the United States
Environmental Protection Agency (USEPA) issued its proposed
rule which revised the national ambient air quality standard
for ozone by setting a lower concentration limit and
changing measurement methods. In October 1997, the USEPA
provided each state a proposed budget of allowed nitrogen
oxide (NOx) emissions, a key ingredient of ozone, which
requires a significant reduction of such emissions. An
alliance of electric utilities, including SIGECO, from the
Midwestern states have been working together to determine
the most appropriate compliance strategy as an alternative
to the USEPA proposal. The alliance submitted its proposal,
which calls for a smaller, phased in reduction of NOx
levels, to the USEPA and the Indiana Department of
Environmental Management in June 1998.
In July 1998, Indiana submitted its proposed plan to the
USEPA in response to the USEPA's proposed new NOx rule and
the emissions budget proposed for Indiana. The Indiana
plan, which calls for a reduction of NOx emissions to a rate
of 0.25 lb/mmBtu by 2003, is less stringent than the USEPA
proposal but more stringent than the alliance proposal.
The USEPA issued its final ruling on September 24, 1998,
which was essentially unchanged from its July 1997 proposed
rule, after considering all filed comments. The USEPA's
final ruling is expected to be litigated in the federal
courts. Several Midwestern states have already filed
lawsuits against the USEPA regarding the ruling and more
states are expected to soon file. The proposed NOx
emissions budget for Indiana stipulated in the USEPA's final
ruling requires a 36% reduction in total NOx emissions from
Indiana. The ruling would require SIGECO to lower its
system-wide emissions by approximately 70%. Depending on the
level of system-wide emissions reductions ultimately
required, and the control technology utilized to achieve the
reductions, control equipment expenditures ranging from
estimates of $10 million to $90 million could be required by
SIGECO. If SIGECO would be required to achieve the level of
NOx reductions stipulated in the USEPA ruling, the estimated
construction cost of the control equipment could reach $90
million, and related additional operation and maintenance
expenses are estimated to be $10 million, annually. Under
the USEPA implementation schedule, the emissions reductions
and required control equipment must be implemented and in
place by May 15, 2003. (Refer to "Environmental Matters" in
Management's Discussion and Analysis of Results of
Operations and Financial Condition in SIGCORP's 1997 Form
10-K for further discussion.)
YEAR 2000 COMPLIANCE ISSUES AND RELATED COSTS SIGCORP is
using one of the standard planning processes to evaluate the
IT systems and imbedded technology of non-IT equipment of
its subsidiaries for Year 2000 compliance and to address the
resulting issues. A Year 2000 team was established in 1997
to administer this process, led by an internal Year 2000
project manager. In 1998, this process became more
formalized with the establishment of SIGCORP's Year 2000
Compliance Task Force. A high-level assessment of the
mission-critical systems and items of all SIGCORP
subsidiaries was completed at the beginning of 1997. SIGECO
has completed its high level assessment and detailed
inventory of all mission-critical systems and devices for
testing for noncompliance, which includes imbedded
<PAGE> 19
technology in the operational areas of SIGECO. Such testing
is currently being conducted and is expected to be completed
by June 30, 1999.
SIGECO's noncompliant critical information systems are being
replaced by two major information systems projects, the
customer billing and financials/supply chain systems
initiated in 1996 and 1997, respectively, to address
functional obsolescence, and are expected to be completed by
the third quarter of 1999. Of the two noncompliant critical
information systems being replaced, the customer billing
system carries the most risk since it has experienced
project delays and problems with the supplying vendor. Due
to the risk of not completing this project by 2000, SIGECO
initiated its contingency plan in the second quarter of 1998
to modify its existing customer billing system to be Year
2000 compliant. The upgrade is expected to be completed in
the first quarter of 1999 at a cost of less than $400,000.
In a worst-case scenario, in which the new system would not
be completed by 2000 and the existing system could not be
upgraded in time, SIGECO would outsource the preparation of
its customer bills. The first and largest phase of the
financials/supply chain systems project was successfully
implemented September 1, 1998. Although the second and
final phase of the financials/supply chain systems project,
the payroll/HR information system, is expected to be
completed on schedule by mid-1999, SIGECO will monitor the
status of this project and if necessary, modify the singular
noncompliant component of its existing financials system
during 1999 for use in 2000.
Based on the findings of the detailed inventory and testing
completed to date, it is anticipated that there will be a
low number of smaller noncritical systems and items also
requiring compliance upgrades or replacement at a projected
cost of $500,000, to be performed in 1999.
Critical suppliers and other external dependencies are
currently being evaluated. SIGCORP does not yet know
whether the critical systems of its suppliers and major
customers will be year 2000 compliant, however it believes
that noncompliance of such systems would not have a material
adverse effect on its financial position or results of
operation.
SIGCORP does not expect the amounts required to be expensed
during 1998 and 1999 for the above Year 2000 compliance
modifications and replacements, estimated to be $2.0
million, to have a material effect on its financial position
or results of operations. SIGECO expects to complete the
replacement of both mission-critical noncompliant
information systems before 2000; if, however, the new
customer billing system is not implemented before 2000, its
existing billing system will have been modified for
compliance and will be used until the new system is
completed.
<TABLE>
<CAPTION>
Estimated
Incurred through to
September 30, 1998 complete
<S> <C> <C>
Capital expenditure requirement for
replacement of information systems not in
compliance but already scheduled for
replacement due to functional obsolescence $ 9,000,000 $ 2,000,000
Expense of compliance modifications to
existing systems or replacement of minor
items treated as expense $ 300,000 $ 1,700,000
</TABLE>
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL REQUIREMENTS SIGCORP's demand for capital is
primarily related to SIGECO's construction of utility plant
and equipment necessary to meet customers' electric and gas
energy needs, as well as environmental compliance<PAGE>
requirements, and expenditures for SIGECO's demand side
management (DSM) programs. Additionally, SIGCORP may
periodically make capital investments in nonregulated
operations such as SIGECOM. Construction expenditures
(excluding allowance for other funds used during
construction) and DSM program expenditures incurred during
the quarter and nine months ending September 30, 1998
totaled $8.5 million and $33.2 million, respectively, and
were fully funded with internally generated cash during the
respective periods. Cash provided from operations increased
$5.3 million and $300,000 during the current three month and
nine month periods, respectively, compared to the same
periods in 1997. Cash used in investing and financing
activities during 1998 increased $8.0 million during the
third quarter, but decreased $4.5 million for the nine month
period, compared to a year ago.
SIGCORP estimates that SIGECO's construction expenditures
for the five year period 1998-2002 will total approximately
$315 million, including approximately $15 million to
complete several comprehensive information systems which are
necessary to fulfill expanding customer service needs and to
better manage SIGECO's resources, and approximately $5
million to develop and implement DSM programs, but exclude
construction expenditures that may be required to comply
with new USEPA air quality standards discussed in
"Environmental Matters" which could range from estimates of
$10 million to $90 million. Additionally, SIGCORP will
contribute a minimum of $10 million to its nonregulated
subsidiary, Advanced Communications, for the joint venture
SIGECOM during the five year period, as previously reported.
FINANCING ACTIVITIES During the third quarter of 1998,
SIGECO refunded its $12 million 6-3/8% series first mortgage
bonds due in 1998 and $2 million of its $25 million 8-7/8%
series first mortgage bonds due 2016, with short-term notes
payable. Financing activity during the first quarter of
1998 included a $20 million increase in long-term notes
payable to refund $20 million of SIGECO's short-term notes
payable. Additionally, SIGECO refunded $80.3 million of
tax-exempt bond issues with an equal amount of tax-exempt
bonds (see Note 4 of the Notes to Consolidated Financial
Statements in this filing) which will reduce total interest
expense on a present value basis by $8.5 million over the
remaining lives of the original bond issues.
Over the five year period, SIGCORP expects the majority of
the construction requirements, the capital contributions to
its nonregulated subsidiaries and an estimated $66 million
in debt security redemptions to be provided by internally
generated funds. External financing requirements of $60-70
million are anticipated and will be used primarily to redeem
long-term debt. These estimates do not reflect construction<PAGE>
expenditures that may be required to comply with new USEPA
air quality standards.<PAGE>
<PAGE> 21
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> 22
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.
SIGCORP, Inc
(Registrant)
/s/ T. L. Burke
T. L. Burke
Secretary and Treasurer
Date November 16, 1998
SOUTHERN INDIANA GAS AND
ELECTRIC COMPANY
/s/ S. M. Kerney
S. M. Kerney
Controller
27<PAGE>
Date November 16, 1998
28<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000092195
<NAME> SOUTHERN INDIANA GAS & ELECTRIC CO
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 709,524
<OTHER-PROPERTY-AND-INVEST> 5,817
<TOTAL-CURRENT-ASSETS> 102,490
<TOTAL-DEFERRED-CHARGES> 48,091
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 865,922
<COMMON> 78,258
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 243,902
<TOTAL-COMMON-STOCKHOLDERS-EQ> 322,160
0
19,398
<LONG-TERM-DEBT-NET> 214,336
<SHORT-TERM-NOTES> 53,518
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 53,700
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 202,810
<TOT-CAPITALIZATION-AND-LIAB> 865,922
<GROSS-OPERATING-REVENUE> 276,326
<INCOME-TAX-EXPENSE> 22,094
<OTHER-OPERATING-EXPENSES> 203,921
<TOTAL-OPERATING-EXPENSES> 226,015
<OPERATING-INCOME-LOSS> 50,311
<OTHER-INCOME-NET> 1,754
<INCOME-BEFORE-INTEREST-EXPEN> 52,065
<TOTAL-INTEREST-EXPENSE> 14,465
<NET-INCOME> 37,600
823
<EARNINGS-AVAILABLE-FOR-COMM> 36,777
<COMMON-STOCK-DIVIDENDS> 22,268
<TOTAL-INTEREST-ON-BONDS> 13,290
<CASH-FLOW-OPERATIONS> 71,450
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
