UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
<TABLE>
<CAPTION>
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
<S> <C> <C>
1-11603 SIGCORP, Inc. 35-1940620
(An Indiana Corporation)
20 N. W. Fourth Street
Evansville, Indiana 47741-0001
(812) 465-5300
1-3553 Southern Indiana Gas and Electric Company 35-0672570
(An Indiana Corporation)
20 N. W. Fourth Street
Evansville, Indiana 47741-0001
(812) 465-5300
</TABLE>
Indicate by check mark whether the Registrants (1) have
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
Registrants were required to file such reports), and (2)
have been subject to such filing requirements for the past
90 days.
Yes X . No .
Indicate the number of shares outstanding of each of the
Registrants' classes of common stock, as of the latest
practicable date:
<TABLE>
<CAPTION>
<S> <C>
SIGCORP, Inc.: Common stock, no par value,
23,630,568 shares
outstanding at September 30, 1999
Southern Indiana Gas and
Electric Company: Common stock, no par value,
15,754,826 shares
outstanding and held by SIGCORP, Inc. at
September 30, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGCORP, Inc.
AND
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page No
<S> <C> <C>
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 14-18
Item 2: Management's Discussion and Analysis of Results
of Operations and Financial Condition 19-25
SIGCORP, Inc. AND SOUTHERN INDIANA GAS
AND ELECTRIC COMPANY
Part II. OTHER INFORMATION
Item 1: Litigation 26
Item 4: Submission of Matters to a Vote of
Security Holders 26
Item 5: Other information 26
Item 6: Exhibits and Reports on Form 8-K 26
Signatures 27
<PAGE> 2
</TABLE>
<TABLE>
<CAPTION>
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(in thousands except for per share amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric utility $ 94,171 $ 87,928 $238,960 $230,681
Gas utility 7,759 5,431 47,973 45,643
Energy services and other 56,033 40,676 153,111 132,087
Total operating revenues 157,963 134,035 440,044 408,411
OPERATING EXPENSES:
Fuel for electric generation 20,171 19,500 51,529 51,970
Purchased electric energy 8,405 5,286 18,731 12,693
Cost of gas sold 2,454 1,102 26,826 26,743
Cost of energy services
and other 54,861 39,731 150,507 128,757
Other operation expenses 17,929 15,748 52,161 49,877
Maintenance 7,069 7,433 24,242 24,298
Depreciation and amortization 11,341 10,700 33,976 32,074
Property and other taxes 3,392 2,978 9,781 9,938
Total operating expenses 125,622 102,478 367,753 336,350
OPERATING INCOME 32,341 31,557 72,291 72,061
INTEREST AND OTHER CHARGES:
Interest expense on
long-term debt 5,102 5,005 13,574 15,423
Interest expense on
short-term debt 1,231 709 4,209 1,964
Amortization of premium,
discount and expense on debt 100 169 374 506
Allowance for funds used during
construction (1,725) (210) (2,330) (927)
Preferred dividend requirements
of subsidiary 269 274 809 823
Interest income (1,375) (1,493) (3,569) (4,445)
Other, net (2,845) (879) (3,444) (6,042)
Total interest and other
charges 757 3,575 9,623 7,302
INCOME BEFORE INCOME TAXES 31,584 27,982 62,668 64,759
Federal and state income taxes 11,336 10,106 21,630 21,451
NET INCOME $ 20,248 $ 17,876 $ 41,038 $ 43,308
AVERAGE COMMON SHARES OUTSTANDING 23,631 23,631 23,631 23,631
BASIC EARNINGS PER SHARE OF
COMMON STOCK 0.86 0.76 1.74 1.83
DILUTED EARNINGS PER SHARE OF
COMMON STOCK 0.85 0.75 1.73 1.82
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1999 1998
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 41,038 $ 43,308
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 33,976 32,074
Preferred dividend requirements
of subsidiary 809 823
Deferred income taxes and investment
tax credits, net 2,292 (7,502)
Allowance for other funds used
during construction 237 73
Change in assets and liabilities:
Receivables, net (including accrued
unbilled revenues) (1,985) 7,703
Inventories 4,898 (11,465)
Accounts payable (8,504) (9,583)
Accrued taxes 400 1,800
Refunds to customers and from
gas suppliers 2,040 397
Other assets and liabilities 5,045 12,847
Net cash provided by operating activities 80,246 70,475
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of allowance for
other funds used during construction) (47,116) (32,098)
Demand side management program expenditures (339) (1,150)
Investments in leveraged leases (47,766) 7,323
Purchases of investments - (1,940)
Sale of Investments 96 80
Investments in partnerships and other
corporations (5,818) (2,979)
Change in nonutility property (644) 1,395
Other 2,195 20
Net cash used in investing activities (99,392) (29,349)
CASH FLOWS FROM FINANCING ACTIVITIES
First mortgage bonds retired (45,000) (14,000)
First mortgage bonds issued 80,000 -
Dividends paid (24,285) (22,268)
Reduction in preferred stock (116) (116)
Change in environmental improvement
funds held by trustee 3,316 (153)
Payments on partnership obligations (1,478) (2,205)
Change in notes payable 11,018 3,476
Other 1,752 (103)
Net cash provided by (used) in
financing activities 25,207 (35,369)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 6,061 5,757
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 5,049 5,827
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,110 $ 11,584
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
SIGCORP, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1999 1998
(in thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT, at original cost:
Electric $1,152,180 $1,141,870
Gas 150,652 150,136
1,302,832 1,292,006
Less accumulated provision
for depreciation 624,435 593,901
678,397 698,105
Construction work in progress 57,518 24,306
Net utility plant 735,915 722,411
OTHER INVESTMENTS AND PROPERTY:
Investments in leveraged leases 83,769 36,003
Investments in partnerships and
other corporations 35,461 32,389
Environmental improvement funds
held by trustee 984 4,300
Notes receivable 24,083 20,372
Nonutility property and other, net 15,545 14,901
Total other investments and property 159,842 107,965
CURRENT ASSETS:
Cash and cash equivalents 11,110 5,049
Temporary investments, at market 538 793
Receivables, less allowance of $2,319
and $2,204, respectively 72,861 65,829
Accrued unbilled revenues 11,837 20,595
Inventories 40,277 45,351
Current regulatory assets 9,949 9,527
Other current assets 5,082 3,777
Total current assets 151,654 150,921
OTHER ASSETS:
Unamortized premium on reacquired debt 3,993 4,226
Postretirement benefits other
than pensions - 985
Demand side management programs 25,404 25,046
Allowance inventory 2,269 2,093
Deferred charges 17,338 15,871
Total other assets 49,004 48,221
TOTAL $1,096,415 $1,029,518
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
SIGCORP, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1999 1998
(in thousands)
<S> <C> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 311,281 292,288
Accumulated Other Comprehensive Income (77) (12)
Total common shareholders' equity 389,462 370,534
Cumulative Nonredeemable Preferred
Stock of Subsidiary 11,090 11,090
Cumulative Redeemable Preferred
Stock of Subsidiary 7,500 7,500
Cumulative Special Preferred
Stock of Subsidiary 692 808
Long-Term Debt, net of current maturities 284,364 204,771
Long-Term Partnership Obligations,
net of current maturities 224 781
Total capitalization, excluding bonds
subject to tender (see Consolidated
Statements of Capitalization) 693,332 595,484
CURRENT LIABILITIES:
Current Portion of Adjustable Rate Bonds
Subject to Tender 53,700 53,700
Current Maturities of Long-Term Debt,
Interim Financing and Long-Term
Partnership Obligations:
Maturing long-term debt 30 45,000
Notes payable 80,990 69,508
Partnership obligations 656 1,577
Total current maturities of
long-term debt, interim financing
and long-term partnership obligations 81,676 116,085
Other Current Liabilities:
Accounts payable 44,887 53,391
Dividends payable 117 120
Accrued taxes 5,264 4,863
Accrued interest 6,401 5,140
Refunds to customers 4,196 2,156
Other accrued liabilities 24,977 21,749
Total other current liabilities 85,842 87,419
Total current liabilities 221,218 257,204
OTHER LIABILITIES:
Accumulated deferred income taxes 147,688 144,032
Accumulated deferred investment tax credits, being
amortized over lives of property 17,730 18,802
Postretirement benefits other
than pensions 13,996 11,337
Other 2,451 2,659
Total other liabilities 181,865 176,830
TOTAL $1,096,415 $1,029,518
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Unaudited)
September 30, December 31,
1999 1998
(in thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common Stock, without par value, authorized
50,000,000 shares, issued 23,630,568 $ 78,258 $ 78,258
Retained Earnings, $2,174 restricted as
to payment of cash dividends on common stock 311,281 292,288
Accumulated Other Comprehensive Income (77) (12)
Total common shareholders' equity 389,462 370,534
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 6,917 and 8,077 shares,respectively,
redeemable at $100 per share 692 808
LONG-TERM DEBT, NET OF CURRENT MATURITIES
First mortgage bonds 249,915 169,915
Notes payable 36,065 36,009
Unamortized debt premium and discount, net (1,616) (1,153)
Total long-term debt 284,364 204,771
LONG-TERM PARTNERSHIP OBLIGATIONS,
NET OF CURRENT MATURITIES 224 781
CURRENT PORTION OF ADJUSTABLE RATE POLLUTION
CONTROL BONDS SUBJECT TO TENDER, DUE
2025, Series A, presently 3.00% 31,500 31,500
2030, Series C, presently 3.05% 22,200 22,200
53,700 53,700
TOTAL CAPITALIZATION, including bonds
subject to tender $747,032 $649,184
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Accumulated
Other
Common Retained Comprehensive
(in thousands) Total Stock Earnings Income
<S> <C> <C> <C> <C>
Balances, December 31, 1997 $349,163 $78,258 $270,828 $ 77
Net Income 50,476 - 50,476 -
Unrealized Loss on
Securities (net of tax) (89) - - (89)
Comprehensive Income 50,387 - 50,476 -
Common Stock Dividends
($1.21 per share) (28,587) - (28,587) -
Stock Expense (429) - (429) -
Balances, December 31, 1998 370,534 78,258 292,288 (12)
Net Income 41,038 - 41,038 -
Unrealized (Loss) on
Securities (net of tax) (65) - - (65)
Comprehensive Income 40,973 - 41,038 -
Common Stock Dividends
($0.93 per share) (21,965) - (21,965) -
Stock Expense (80) - (80) -
Balances, September 30,1999 $389,462 $78,258 $311,281 $ (77)
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(in thousands except for per share amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric $ 94,171 $ 87,929 $238,960 $230,682
Gas 7,759 5,430 47,973 45,644
Total operating revenues 101,930 93,359 286,933 276,326
OPERATING EXPENSES:
Fuel for electric generation 21,946 20,551 55,693 54,449
Purchased electric energy 8,405 5,286 18,731 12,693
Cost of gas sold 2,454 1,101 26,826 26,743
Other operation expenses 15,586 14,164 45,046 44,261
Maintenance 7,037 7,402 24,163 24,182
Depreciation and amortization 11,217 10,632 33,650 31,897
Federal and state income taxes 10,774 9,926 22,638 22,094
Property and other taxes 3,292 2,921 9,481 9,696
Total operating expenses 80,711 71,983 236,228 226,015
OPERATING INCOME 21,219 21,376 50,705 50,311
OTHER INCOME:
Allowance for other funds used
during construction 187 (65) 238 (73)
Interest 62 107 189 268
Other, net (221) 65 (113) 1,559
Total other income 28 107 314 1,754
INCOME BEFORE INTEREST AND
OTHER CHARGES 21,247 21,483 51,019 52,065
INTEREST AND OTHER CHARGES:
Interest on long-term debt 4,220 4,165 11,601 13,290
Interest on short-term debt 595 720 2,872 1,669
Amortization of premium,
discount, and expense on debt 100 169 374 506
Allowance for borrowed funds
used during construction (1,538) (275) (2,093) (1,000)
Total interest and
other charges 3,377 4,779 12,754 14,465
NET INCOME 17,870 16,704 38,265 37,600
Preferred stock dividend 269 275 809 823
NET INCOME APPLICABLE TO
COMMON STOCK $ 17,601 $ 16,429 $ 37,456 $ 36,777
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1999 1998
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 38,265 $ 37,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 33,650 31,897
Deferred income taxes and investment
tax credits, net (463) (1,242)
Allowance for other funds used
during construction 238 73
Change in assets and liabilities:
Receivables, net (including accrued
unbilled revenues) (3,197) 7,645
Inventories 5,971 (11,242)
Accounts payable (7,576) (4,812)
Accrued taxes 1,052 (788)
Refunds to customers and from
gas suppliers 2,040 397
Other assets and liabilities 8,622 11,922
Net cash provided by
operating activities 78,602 71,450
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of allowance for
other funds used during construction) (47,116) (32,098)
Demand side management program
expenditures (339) (1,150)
Other (275) (1,728)
Net cash used in investing activities (47,730) (34,976)
CASH FLOWS FROM FINANCING ACTIVITIES
First mortgage bonds retired (45,000) (14,000)
First mortgage bonds issued 80,000 -
Dividends paid (24,285) (22,268)
Reduction in preferred stock (116) -
Change in environmental improvement
funds held by trustee 3,316 (153)
Change in notes payable (44,752) 475
Other (220) (109)
Net cash used in financing activities (31,057) (36,055)
NET DECREASE IN CASH AND CASH EQUIVALENTS (185) (1,008)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 512 1,114
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 327 $ 1,533
<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,
1999 1998
(in thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT, at original cost:
Electric $1,152,180 $1,141,870
Gas 150,652 150,136
1,302,832 1,292,006
Less accumulated provision for depreciation 624,435 593,901
678,397 698,105
Construction work in progress 57,518 24,306
Net utility plant 735,915 722,411
OTHER INVESTMENTS AND PROPERTY:
Environmental improvement funds
held by trustee 984 4,300
Nonutility property and other, net 1,577 1,577
Total other investments and property 2,561 5,877
CURRENT ASSETS:
Cash and cash equivalents 327 512
Receivables, less allowance of $2,253
and $2,156, respectively 40,809 28,854
Accrued unbilled revenues 11,837 20,595
Inventories 38,419 44,566
Current regulatory assets 9,949 9,527
Other current assets 3,705 2,776
Total current assets 105,046 106,830
OTHER ASSETS:
Unamortized premium on reacquired debt 3,993 4,226
Postretirement benefits other than pensions - 985
Demand side management programs 25,404 25,046
Allowance inventory 2,269 2,093
Deferred charges 13,787 14,444
Total other assets 45,453 46,794
TOTAL $ 888,975 $ 881,912
<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,
1999 1998
(in thousands)
<S> <C> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 255,903 241,924
Total common shareholders' equity 334,161 320,182
Cumulative Nonredeemable Preferred
Stock of Subsidiary 11,090 11,090
Cumulative Redeemable Preferred Stock
of Subsidiary 7,500 7,500
Cumulative Special Preferred Stock
of Subsidiary 692 808
Long-Term Debt, net of current maturities 249,299 169,762
Total capitalization, excluding bonds
subject to tender (see Consolidated
Statements of Capitalization) 602,742 509,342
CURRENT LIABILITIES:
Current Portion of Adjustable Rate Bonds
Subject to Tender 53,700 53,700
Current Maturities of Long-Term Debt,
Interim Financing and Long-Term
Partnership Obligations:
Maturing long-term debt - 45,000
Notes payable 21,414 50,759
Notes payable to Associated Company 44 14,930
Total current maturities of long-term
debt and interim financing 21,458 110,689
Other Current Liabilities:
Accounts payable 20,551 28,127
Dividends payable 117 120
Accrued taxes 5,823 4,772
Accrued interest 5,541 4,676
Refunds to customers 4,196 2,156
Other accrued liabilities 21,909 18,544
Total other current liabilities 58,137 58,395
Total current liabilities 133,295 222,784
OTHER LIABILITIES:
Accumulated deferred income taxes 118,757 118,147
Accumulated deferred investment tax credits,
being amortized over lives of property 17,729 18,801
Postretirement benefits other than pensions 13,996 11,337
Other 2,456 1,501
Other liabilities 152,938 149,786
TOTAL $888,975 $881,912
<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,
1999 1998
(in thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common Stock, without par value, authorized
50,000,000 shares, issued 15,754,826 $ 78,258 $ 78,258
Retained Earnings, $2,174 restricted as
to payment of cash dividends on common stock 255,903 241,924
Total common shareholders' equity 334,161 320,182
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 6,917 and 8,077 shares, respectively,
redeemable at $100 per share 692 808
LONG-TERM DEBT, NET OF CURRENT MATURITIES
First mortgage bonds 249,915 169,915
Notes payable 1,000 1,000
Unamortized debt premium and discount, net (1,616) (1,153)
Total long-term debt 249,299 169,762
CURRENT PORTION OF ADJUSTABLE RATE POLLUTION
CONTROL BONDS SUBJECT TO TENDER, DUE
2025, Series A, presently 3.00% 31,500 31,500
2030, Series C, presently 3.05% 22,200 22,200
53,700 53,700
TOTAL CAPITALIZATION, including bonds
subject to tender $656,442 $563,042
<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,
1999 1998
(in thousands)
<S> <C> <C>
Balance Beginning of Period $241,924 $228,570
Net Income 38,265 37,600
280,189 266,170
Preferred Stock Dividends 809 823
Common Stock Dividends 23,477 21,445
24,286 22,268
Balance End of Period (See Consolidated
Statements of Capitalization for restriction) $255,903 $243,902
<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 11 wholly-owned subsidiaries:
Southern Indiana Gas and Electric Company (SIGECO), a gas
and electric utility which accounts for over 90% of
SIGCORP's net income for the nine months ended September
30, 1999, and ten nonregulated subsidiaries.
On June 14, 1999, SIGCORP announced an agreement to
merge with Indiana Energy, Inc. (IEI) in an all-stock
pooling transaction through which a new holding company,
Vectren Corporation, would be formed. In a tax-free
exchange, SIGCORP shareholders would receive one and one-
third shares of Vectren stock for each share of SIGCORP
stock, while IEI shares would be exchanged on a one-for-one
basis. SIGCORP and IEI are proceeding to obtain the
necessary regulatory and shareholder approvals and
completion of the merger is expected by the end of the
first quarter of 2000. The companies expect to generate
$200 million in cost savings/avoidance over a ten-year
period, net of the one-time merger transaction costs
estimated to total $40 million. Transaction and related
costs incurred by SIGCORP through September 30, 1999 were
$2.2 million and have been deferred.
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 1998 Annual Report or Form 10-K.
The consolidated statements include the accounts of
SIGCORP, Inc. and eleven of 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), SIGECO
Advanced Communications, Inc. (Advanced Communications),
SIGCORP Environmental Services, Inc. (Environmental
Services) and SIGCORP Power Marketing, Inc. (Power), not
yet active, and include all adjustments which are, in the
opinion of management, necessary for a fair statement of
the financial position and results of operations. Because
of seasonal and other factors, the earnings for the nine
months ending September 30, 1999 should not be taken as an
indication for all or any part of the balance of 1999.
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, 1999
and 1998, paid interest (net of amounts capitalized) of
$14,428,000 and $14,973,000, respectively, and income taxes
of $19,051,000 and $25,050,000, respectively.
Additionally, SIGCORP is involved in several partnerships
which are partially financed by partnership obligations
amounting to $880,000 and $2,358,000 at September 30, 1999
and December 31, 1998, respectively.
SIGECO, for the nine months ended September 30, 1999 and
1998, paid interest (net of amounts capitalized) of
$11,516,000 and $12,480,000, respectively, and income taxes
of $20,602,000 and $22,453,000, respectively.
4.Long-Term Debt
On March 1, 1999, the interest rate on $31,500,000 of
Adjustable Rate Pollution Control bonds was changed from
3.65% to 3.00% due March 1, 2025. The new interest rate
will be fixed through February 29, 2000. Also on March 1,
1999, the interest rate on $22,200,000 of Adjustable Rate
Pollution Control bonds was changed from 3.70% to 3.05% due
March 1, 2020. The new interest rate will also be fixed
through February 29, 2000. For financial statement
presentation the $53,700,000 of Adjustable Rate Pollution
Control bonds are shown as a current liability.
On April 1, SIGECO repaid the $45,000,000 6% Series of
1993 First Mortgage Bonds and a $20,000,000 commercial loan
with short-term borrowings. On July 26,1999, $80,000,000 of
6.72% Senior Notes due August 1, 2029 were issued to retire
$80 million of short-term debt, including the above
amounts.
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, 1999 September 30, 1998
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 $41,038 23,631 $1.74 $43,308 23,631 $1.83
Effect of dilutive
securities 101 107
Diluted EPS $41,038 23,732 $1.73 $43,308 23,738 $1.82
</TABLE>
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. Segments of Business
SIGCORP and SIGECO adopted SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information" in
1998. SFAS No. 131 establishes standards for reporting
information about operating segments in financial
statements and disclosures about products and services and
geographic areas. Operating segments are defined as
components of an enterprise for which separate financial
information is available and is evaluated regularly by the
chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SIGCORP has four reportable segments. They are SIGECO's
electric and gas utility operations, Energy Services' gas
marketing services and SIPI's investment operations. All
other subsidiary operations and corporate activities are
included in other. SIGCORP's reportable segments are
operations that are managed separately and meet the
quantitative thresholds required by SFAS No. 131. Revenues
for each of SIGCORP's segments are attributable principally
to customers in the United States.
Certain financial information relating to significant
segments of business is presented below:
<TABLE>
<section>
Nine Months Ended September 30
(in thousands) 1999 1998
<S> <C> <C>
Operating revenues:
Electric $ 238,960 $ 230,681
Gas 47,973 45,643
Gas marketing 146,545 124,336
Investment operations 774 716
All other 21,825 19,436
Total 456,077 420,812
Interest income:
Electric <F1> 172 268
Gas <F1> 18 24
Gas marketing 52 58
Investment operations 1,975 3,097
All other 2,581 3,652
Total 4,798 7,099
Interest expense:
Electric <F1>) 13,170 13,613
Gas <F1> 1,302 1,346
Gas marketing 110 115
Investment operations 2,554 2,073
All other 4,091 2,893
Total 21,227 20,040
Income taxes:
Electric 21,073 21,109
Gas 1,565 985
Gas marketing 24 141
Investment operations (1,009) (1,007)
All other (23) 223
Total 21,630 21,451
Net income:
Electric 34,413 34,618
Gas 3,043 2,159
Gas marketing 40 244
Investment operations 3,029 5,730
All other 513 557
Total 41,038 43,308
Depreciation and amortization expense:
Electric 30,178 28,654
Gas 3,472 3,243
Gas marketing 53 21
Investment operations 103 79
All other 170 77
Total 33,976 32,074
Capital expenditures:
Electric 38,557 26,447
Gas 8,321 5,651
Gas marketing 12 31
Investment operations - -
All other 564 2,186
Total 47,454 34,315
Identifiable assets:
Electric <F2> 746,739 727,374
Gas <F2> 142,236 138,547
Gas marketing 27,849 17,728
Investment operations 144,487 87,463
All other 549,040 436,768
Total assets $1,610,351 $1,407,880
<FN>
<F1> SIGECO allocates interest income and expense based on the net
plant ratio which is 91% electric and 9% gas.
<F2> Utility plant less accumulated provision for depreciation,
inventories, receivables (less allowance), regulatory
assets and other identifiable assets.
</FN>
</TABLE>
The following is a reconciliation to the consolidated
financial statements of SIGCORP:
<TABLE>
<CAPTION>
Nine Months Ended September 30
(in thousands) 1999 1998
<S> <C> <C>
Operating revenues:
Total revenues for segments $ 456,077 $ 420,812
Elimination of intersegment revenues (16,033) (12,401)
Total consolidated revenues 440,044 408,411
Interest income:
Total interest income for segments 4,798 7,099
Elimination of intersegment interest (1,229) (2,654)
Total consolidated interest income 3,569 4,445
Interest expense:
Total interest expense for segments 21,227 20,040
Elimination of intersegment interest (3,444) (2,653)
Total consolidated interest expense 17,783 17,387
Identifiable assets:
Total assets for segments 1,610,351 1,407,880
Elimination of intersegment assets (513,829) (416,871)
Total consolidated assets $1,096,522 $ 991,009
Southern Indiana Gas and Electric Company
Nine Months Ended September 30
(in thousands) 1999 1998
Operating revenues:
Electric $238,960 $230,681
Gas 47,973 45,643
Total 286,933 276,324
Interest income:
Electric <F1> 172 268
Gas <F1> 18 24
Total 190 292
Interest expense:
Electric <F1> 13,170 13,613
Gas <F1> 1,302 1,346
Total 14,472 14,959
Identifiable assets:
Electric <F2> 746,739 727,374
Gas <F2> 142,236 138,547
Total assets $888,975 $865,921
<FN>
<F1> SIGECO allocates interest income and expense based on the net
plant ratio which is 91% electric and 9% gas.
<F2> Utility plant less accumulated provision for depreciation,
inventories, receivables (less allowance), regulatory assets and
other identifiable assets.
</FN>
</TABLE>
7. Subsequent Event
On November 3, 1999, the USEPA filed a lawsuit against
SIGECO. The USEPA alleges that, beginning in 1992, SIGECO
violated the Clean Air Act by: (i) making modifications to
its Culley Generating Station in Yankeetown, Indiana
without obtaining required permits; (ii) making major
modifications to the Culley Generating Station without
installing the best available emission control technology;
and (iii) failing to notify the USEPA of the modifications.
In addition, the lawsuit alleges that the modifications to
the Culley Generating Station required SIGECO to begin
complying with federal new source performance standards.
SIGECO believes it performed only proper maintenance at
the Culley Generating Station. Because proper maintenance
does not require permits, application of the best available
emission control technology, notice to the USEPA, or
compliance with new source performance standards, SIGECO
believes that the lawsuit is without merit, and intends to
defend the lawsuit vigorously.
The lawsuit seeks fines against SIGECO in the amount of
$27,500 per day per violation. The lawsuit does not
specify the number of days or violations the USEPA believes
occurred. The lawsuit also seeks a court order requiring
SIGECO to install the best available emissions technology
at the Culley Generating Station. If the USEPA is
successful in obtaining an order, SIGECO estimates that it
would incur capital costs of approximately $40 million to
$50 million complying with the order.
<PAGE> 18
The USEPA has also issued an administrative notice of
violation to SIGECO making the same allegations, but
alleging that violations began in 1977.
Under applicable rules, SIGECO could be subjected to
criminal penalties if the Culley Generating Station
continues to operate without complying with the new source
performance standards and the allegations are determined by
a court to be valid. SIGECO anticipates at this time that
the plant will continue to operate while the matter is
being decided.
<PAGE> 19
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 ten 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 terms "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, impacts of
Year 2000 issues, industry restructuring, availability and
cost of capital, and other similar factors.
RESULTS OF OPERATIONS
Basic earnings were $.86 and $1.74 per share for the three-
month and nine-month periods ending September 30, 1999
compared to basic earnings of $.76 and $1.83 per share,
respectively, for the third quarter and first nine months
of 1998. The factors affecting earnings follow:
<TABLE>
<CAPTION>
Qtr 9 Mos
<S> <C> <C>
Period ended September 30, 1998 $.76 $1.83
Weather (.01) (.01)
Sales growth other than weather .03 .11
Electric sales to other utilities and
power marketers .03 (.03)
Utility O&M expense (.03) (.02)
Utility depreciation expense (.01) (.04)
Nonregulated gas energy services and
nonutility operations .05 (.13)
Other .04 .03
Period ended September 30, 1999 $.86 $1.74
</TABLE>
REVENUES Third quarter electric utility revenue rose $6.2
million, or 7%, chiefly due to 3% greater retail and firm
wholesale electric sales and substantially higher unit
prices for sales to other utilities and power marketers.
The Midwest experienced a heat wave during July that
resulted in several record setting days and culminated in a
new peak load record on July 29th of 1199.5 MW, 5% greater
than SIGECO's previous peak load of 1140.4 MW set on June
25, 1998. Despite the intense heat, which began July 19th
in SIGECO's service area, considerably milder weather in
September held temperatures for the quarter 12% below
temperatures of the year-ago period (in terms of cooling
degree days). Reflecting the continued strength of the
local economy, commercial and industrial electric sales
rose 2% and 6%, respectively, and residential sales were
equal to those of a year ago, leading to a 3% increase in
total retail and firm wholesale electric sales during the
third quarter compared to the 1998 period. Sales to other
utilities and power marketers declined 15% during the
recent quarter, but extremely tight energy supplies in the
July wholesale power market and the concurrent availability
of SIGECO's generating facilities enabled the utility to
double its average unit sales margin on July wholesale
power sales compared to the prior year period. Revenues
from these sales increased $1.7 million, or 19%, to $10.9
million during the current quarter.
<PAGE> 20
Gas sales were up only slightly during the period, but
total sales and transported volumes increased 7% reflecting
the area's growth in commercial and industrial activity.
Gas revenue, however, rose $2.3 million, or 43%, due
primarily to the recovery of higher unit costs of purchased
natural gas and increased transportation revenue.
The greater activity of SIGCORP's natural gas marketing
subsidiary, SIGCORP Energy Services (Energy), whose
revenues were up $14.8 million, or 39%, due to a 29%
increase in sales and higher commodity prices, was the
primary reason for a $15.4 million increase in energy
services and other nonregulated revenues during the quarter
ending September 30, 1999.
For the nine-month period ending September 30, 1999,
electric revenues were $8.3 million (3.6%) greater than the
same period a year ago due primarily to stronger retail and
firm wholesale sales, a more favorable sales mix during the
first quarter and additional sales to Alcoa Generating
Corporation. Total electric sales were up 2% for the nine-
month period, reflecting a 4% increase in retail and firm
wholesale sales. Although sales to other utilities and
power marketers were down 25% from the comparable period in
1998 due to less demand and increased energy supplies in
the wholesale market, total sales to nonfirm wholesale
customers declined just 7% due to the increased sales to
Alcoa Generating Corporation; related revenues rose $.8
million, or 3%. Although gas sales were up 10% during the
recent nine-month period, chiefly due to colder
temperatures during the first quarter of 1999, lower unit
costs of purchased natural gas recovered through revenues
held related gas revenues to a $2.3 million, or 5.1%,
increase. Revenues from Energy rose $22.2 million during
the nine months ending September 30, 1999 from continued
growth in sales and services throughout the period and
accounted for the $21.0 million increase in energy services
and other nonregulated revenues during the current period.
Fewer coal sales by SIGCORP's Fuels subsidiary during the
nine-month period ending September 30, 1999 to customers
other than SIGECO was the primary reason for a $1.2 million
reduction in revenues from nonregulated operations other
than Energy.
OPERATING EXPENSES In total, costs for fuel for electric
generation and purchased electric energy during the third
quarter of 1999 increased $3.8 million, or 15.3%, on sales
volumes comparable to the same period in 1998 chiefly due
to higher unit prices for wholesale market power purchased
for resale. Due to a 2% increase in total electric sales
and higher prices for wholesale market power purchased
during the first and third quarters of 1999, total fuel and
purchased energy costs for the nine-month period rose $5.6
million, or 8.7%. Cost of gas sold per unit was
significantly higher during the third quarter of 1999
compared to a year ago. Despite a 10% rise in gas sales
during the nine-month period in 1999, total cost of gas
sold was comparable to the prior year period due to a 9%
decline in average unit cost of gas sold. The cost of
energy services and other revenues, which was chiefly the
cost of natural gas purchased for resale by Energy,
increased $15.1 million and $21.8 million, respectively,
during the third quarter and first nine months of 1999 due
primarily to Energy's increased sales and higher unit
commodity costs incurred during the third quarter.
Other operation expenses were up $2.2 million (14%) in the
third quarter reflecting a $1.4 million increase in utility
operation expenses and a $.8 million increase in operation
expenses at SIGCORP's newer nonregulated subsidiaries. A
$1.0 million increase in electric generating station
operation expenses and a $.4 million increase in gas
distribution operation expenses represented the higher
operation expenses at SIGECO. During the nine-month
period, SIGCORP's other operation expenses were up $2.3
million primarily due to $1.5 million greater operation
expenses at SIGCORP's nonregulated subsidiaries. SIGCORP's
maintenance expenses decreased slightly during the current
three-month period compared to the third quarter in 1998,
and during the first nine months of 1999 were comparable to
the same period in 1998.
Depreciation and amortization expense during the three-and
nine-month periods rose $.6 million and $1.9 million,
respectively, due to SIGECO's continued investment in
depreciable gas and electric utility facilities and
increased additions of plant with shorter depreciable
lives.
INTEREST AND OTHER CHARGES Total interest and other
charges declined $2.8 million in the third quarter of 1999
due to a $2.0 million increase in other nonutility income
and a $1.5 million increase in capitalized interest
charges. The much stronger other nonutility earnings
reflected several asset sales from its investment portfolio
and earnings from additional leveraged lease investments at
SIGCORP's Southern Indiana Properties, Inc. (SIPI)
subsidiary, as well as improved results from Energy Systems
Group (ESGI) due to several new large performance
contracts. The higher capitalized interest charges
<PAGE> 21
reflected a $1.1 million adjustment of prior period
provisions. During the nine months ending September 30,
1999, total interest and other charges rose $2.3 million
due to a substantial decrease in other nonutility income
during the first quarter of 1999 compared to the same
period in 1998, which included a $2.9 million after-tax
gain on the liquidation of SIPI's equity position in a
leveraged lease and a $1.4 million decrease in sales to
another utility of a portion of SIGECO's emission
allowances under a five year agreement beginning in 1995.
Total interest expense during the recent third quarter rose
$.6 million, or 11%, compared to the same period a year
ago, and for the first nine months in 1999 was comparable
to expense for the 1998 period. A $1.8 million decline in
interest on long-term debt expense for the first nine
months of 1999 reflected lower average interest rates
resulting from SIGECO's 1998 refunding of $80.3 million of
tax-exempt bond issues with an equal amount of tax-exempt
bonds, and a reduction of long-term debt due to the 1998
refunding of $14 million of first mortgage bonds and the
April 1999 refunding of $45 million of first mortgage bonds
with short-term debt (see "Financing Activities").
SIGCORP's short-term interest expense rose $.5 million
during the third quarter of 1999 compared to the same
period a year ago due primarily to additional short-term
borrowings to fund SIPI's increased investment activity.
The increase in SIGECO's short-term debt during the first
seven months of 1999 and SIPI's additional investment
activity during the third quarter is reflected in a $2.2
million increase in short-term interest expense during the
nine-month period in 1999.
EARNINGS Utility earnings during the third quarter of 1999
were $.05 per share higher than the same period a year ago.
Favorable impacts of sustained growth in SIGECO's service
area, greater unit sales margins in the wholesale power
market, improved unit gas sales margins and increased
capitalized interest charges were lessened by anticipated
higher operations expenditures and increased depreciation
and property tax expenses. Led by very strong results from
SIPI, as well as from the ESGI and SIGCORP Communications
subsidiaries, earnings from SIGCORP's non-utility
operations rose 83%, adding $.05 per share to 1998 third
quarter non-utility results. Absent the $2.9 million ($.12
per share) after-tax gain realized at SIPI during the first
quarter of 1998, basic earnings for the nine-month period
would have been $.03 per share above the same period 1998
earnings.
PENDING MERGER On June 14, 1999, SIGCORP announced an
agreement to merge with Indiana Energy, Inc. (IEI) in an
all-stock pooling transaction through which a new holding
company, Vectren Corporation, would be formed. In a tax-
free exchange, SIGCORP shareholders would receive one and
one-third shares of Vectren stock for each share of SIGCORP
stock, while IEI shares would be exchanged on a one-for-one
basis. The merger would create a company with more than
650,000 customers providing gas and/or electric service in
adjoining service areas covering nearly two-thirds of
Indiana and assets of approximately $1.8 billion. SIGCORP
and IEI are proceeding to obtain the necessary regulatory
and shareholder approvals and completion of the merger is
expected by the end of the first quarter of 2000. The
companies expect to generate $200 million in cost
savings/avoidance over a ten-year period, net of the one-
time merger transaction costs estimated to total $40
million. Transaction and related costs incurred by SIGCORP
through September 30, 1999 were $2.2 million and have been
deferred.
ENVIRONMENTAL MATTERS (Refer to "Environmental Matters" in
Management's Discussion and Analysis of Results of
Operations and Financial Condition in SIGCORP's 1998 Form
10-K for further discussion of environmental matters.) In
July 1997, the United States Environmental Protection
Agency (USEPA) issued its final rule which revised the
national ambient air quality standard for ozone by setting
a lower concentration limit and changing measurement
methods. It is anticipated that the number of ozone
nonattainment counties in the United States will increase
significantly. The USEPA has encouraged states to target
utility coal-fired boilers for the majority of the
reductions required, especially NOx emissions.
Northeastern states have claimed that ozone transport from
midwestern states (including Indiana) is the primary reason
for their ozone concentration problems. Although this
premise is challenged by others based on various air
quality modeling studies, including studies commissioned by
the USEPA, the USEPA intends to incorporate a regional
control strategy to reduce ozone transport. In October
1997, the USEPA provided each state a proposed budget of
allowed NOx emissions, a key ingredient of ozone, which
requires a significant reduction of such emissions. Under
that budget, utilities may be required to reduce NOx
emissions to a rate of 0.15 lb/mmBtu from levels already
imposed by Phase I and Phase II of the Clean Air Act
Amendments of 1990. Midwestern states (the alliance) 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.
<PAGE> 22
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 being litigated in the federal courts by
approximately ten midwestern states, including Indiana.
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 could 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, the estimated
construction costs of the control equipment could reach $90
million, and related additional operation and maintenance
expenses could be an estimated $10 million to $15 million,
annually. Under the USEPA implementation schedule, the
emissions reductions and required control equipment must be
implemented and in place by May 15, 2003.
During the second quarter of 1999, the USEPA lost two
federal court challenges to key air-pollution control
requirements. In the first ruling by the U.S. Circuit
Court of Appeals for the District of Columbia on May 14,
1999, the Court struck down the USEPA's attempt to tighten
the one-hour ozone standard to an eight-hour standard and
the attempt to tighten the standard for particulate
emissions, finding the actions unconstitutional. In the
second ruling by the same Court on May 25, 1999, the Court
placed an indefinite stay on the USEPA's attempts to reduce
the allowed NOx emissions rate from levels required by the
Clean Air Act Amendments of 1990. The USEPA appealed both
court rulings. On October 29, 1999, the Court refused to
reconsider its May 14, 1999 ruling.
Approximately 12 months ago, the USEPA initiated an
investigation under Section 114 of the Clean Air Act (the
Act) of SIGECO's coal-fired electric generating units in
commercial operation by 1977 to determine compliance with
environmental permitting requirements related to repairs,
maintenance, modifications and operations changes. The
focus of the investigation was to determine whether new
source performance standards should be applied to the
modifications and whether the best available control
technology was, or should have been, used. Numerous other
electric utilities were, and are currently, being
investigated by the USEPA under an industry-wide review for
similar compliance. SIGECO responded to all of the USEPA's
data requests during the investigation. In July 1999,
SIGECO received a letter from the Office of Enforcement and
Compliance Assurance of the USEPA discussing the industry-
wide investigation, vaguely referring to the investigation
of SIGECO and inviting SIGECO to participate in a
discussion of the issues. No specifics were noted;
furthermore, the letter stated that the communication was
not intended to serve as a notice of violation. Subsequent
meetings were conducted in September and October with the
USEPA and targeted utilities, including SIGECO, regarding
potential remedies to the USEPA's general allegations.
On November 3, 1999, the USEPA filed a lawsuit against
SIGECO. The USEPA alleges that, beginning in 1992, SIGECO
violated the Clean Air Act by: (i) making modifications to
its Culley Generating Station in Yankeetown, Indiana
without obtaining required permits; (ii) making major
modifications to the Culley Generating Station without
installing the best available emission control technology;
and (iii) failing to notify the USEPA of the modifications.
In addition, the lawsuit alleges that the modifications to
the Culley Generating Station required SIGECO to begin
complying with federal new source performance standards.
SIGECO believes it performed only proper maintenance at the
Culley Generating Station. Because proper maintenance does
not require permits, application of the best available
emission control technology, notice to the USEPA, or
compliance with new source performance standards, SIGECO
believes that the lawsuit is without merit, and intends to
defend the lawsuit vigorously.
<PAGE>23
The lawsuit seeks fines against SIGECO in the amount of
$27,500 per day per violation. The lawsuit does not
specify the number of days or violations the USEPA believes
occurred. The lawsuit also seeks a court order requiring
SIGECO to install the best available emissions technology
at the Culley Generating Station. If the USEPA is
successful in obtaining an order, SIGECO estimates that it
would incur capital costs of approximately $40 million to
$50 million complying with the order.
The USEPA has also issued an administrative notice of
violation to SIGECO making the same allegations, but
alleging that violations began in 1977.
Under applicable rules, SIGECO could be subjected to
criminal penalties if the Culley Generating Station
continues to operate without complying with the new source
performance standards and the allegations are determined by
a court to be valid. SIGECO anticipates at this time that
the plant will continue to operate while the matter is
being decided.
YEAR 2000 READINESS SIGCORP, primarily SIGECO, uses
various software, systems and technology that may be
affected by the date change in the Year 2000. A Year 2000
team was established in early 1997 to identify and address
Year 2000-readiness issues. A high-level assessment of the
mission-critical systems and items of all SIGCORP
subsidiaries was completed in early 1997. In 1998, this
process became more formalized with the establishment of
SIGCORP's Year 2000 Task Force. SIGECO has completed a
detailed inventory of all systems and devices, including
imbedded technology in the operational areas, determined to
be date-sensitive. All systems and devices in the
inventory have been rated on criticality and likelihood of
failure and prioritized for testing. Due to functional
obsolescence, under its general business plan SIGECO has
recently replaced, or is currently replacing, all of its
known major noncompliant mission-critical information and
control systems with systems incorporating Year 2000-ready
technology. As of June 30, 1999, SIGECO has tested all of
its mission-critical systems and devices and remediated
those systems and devices found not ready for 2000, thus
meeting the North American Electric Reliability Council
(NERC)-imposed deadline to ensure year 2000 readiness of
SIGECO's operations.
SIGECO's noncompliant critical information systems, the
customer billing and financials/supply chain systems,
developed in the late 1960's, are being replaced to address
functional obsolescence. Of the two noncompliant critical
information systems being replaced, the customer billing
system carries the most risk since it has experienced
project delays. Due to the risk of not completing this
project by 2000, SIGECO modified its existing customer
billing system to be Year 2000-ready, testing of which is
completed. The first and largest phase of the
financials/supply chain systems project was successfully
implemented September 1, 1998 and the smaller, final phase
of the financials/supply chain systems project, the
payroll/HR information system, was successfully implemented
in July 1999.
At SIGECO's base-load generating stations, all noncompliant
critical control and data systems have been replaced or
were scheduled to be replaced in 1999 due to functional
obsolescence. The 1999 projects were completed by June 30,
1999.
Based on the findings of SIGECO's detailed inventory and
related testing completed to date, it is anticipated that
there will be a low number of smaller noncritical systems
and items requiring Year 2000-readiness upgrades or
replacement, most of which have been completed.
SIGCORP's contingency planning has been completed, and
SIGECO's detailed contingency plan was filed with the
Indiana Utility Regulatory Commission on June 30, 1999.
The planning encompasses external dependencies such as
critical suppliers, interconnected electricity and natural
gas transmission systems and major customers, as well as
SIGECO's electric generation facilities and other gas and
electric operations areas. SIGCORP does not yet know
whether the critical systems of its suppliers and major
customers will be Year 2000-ready, however it believes that
noncompliance of such systems would not have a material
adverse effect on its financial position or results of
operations.
SIGCORP estimates the remaining amounts required to be
expensed for Year 2000-readiness modifications and
replacements to total less than $100,000. SIGECO expects
to complete the replacement of all noncompliant mission-
critical information and control systems before 2000,
except its existing billing system which will have been
remediated and will be used until the new system is
completed.
<PAGE> 24
<TABLE>
<CAPTION>
Estimated
Incurred through Remaining 1999
September 1999 Expenditures
<S> <C> <C>
Capital expenditure requirement for
replacement of critical
information and generating station
control systems not in compliance
but replaced due to functional
obsolescence $27,900,000 $1,500,000
Expense of Year 2000-readiness
modifications to existing
critical systems or replacements
treated as expense $ 1,600,000 $ 100,000
</TABLE>
MARKET RISK SIGCORP is exposed to market risk due to
changes in interest rates and changes in the market price
for electricity and natural gas resulting from changes in
supply and demand. Exposure for interest rate changes
relates to its long-term debt and preferred equity and
partnership obligations. Exposure to electricity market
price risk relates to forward contracts to effectively
manage the supply of, and demand for, the electric
generation capability of SIGECO's generating plants related
to its wholesale power marketing activities. Exposure to
natural gas price risk relates to forward contracts taken
by Energy to manage its exposure to commodity price risks
in providing natural gas supplies to its customers. SIGECO
is not currently exposed to market risk for purchases of
fuel for electric generation and natural gas for its retail
customers due to current Indiana regulations which allow
for full cost recovery of such purchases through SIGECO's
fuel and natural gas cost adjustment mechanisms. Recently
the Indiana Utility Regulatory Commission issued a generic
order which established new guidelines for the recovery of
purchased power costs through fuel adjustment clauses which
could expose SIGECO to market risk. SIGECO and Energy do
not utilize financial instruments for trading or
speculative purposes. As of September 30, 1999, management
believes exposure from these positions did not change
materially from December 31, 1998, and was not material.
(Refer to "Market Risk" in Management's Discussion and
Analysis of Results of Operations and Financial Condition
in SIGCORP's 1998 Form 10-K for further discussion of
market risk.)
SIGECO and Energy are also exposed to counterparty credit
risk when a customer or supplier defaults upon a contract
to pay or deliver product. To mitigate this risk, they
have established procedures to determine and monitor the
creditworthiness of counterparties.
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 and environmental compliance requirements.
Additionally, SIGCORP may periodically make capital
investments in nonregulated operations. Construction
expenditures (excluding allowance for other funds used
during construction) incurred during the nine months ending
September 30, 1999 totaled $47.1 million and were fully
funded with internally generated cash. Cash provided from
operations increased $9.8 million during the current nine-
month period compared to the same period in 1998. Cash
required for investing and financing activities increased
$9.5 million for the nine months ended September 30, 1999
compared to the same period a year ago.
SIGCORP estimates that SIGECO's construction expenditures
for the five-year period 1999-2003 will total approximately
$280 million, including approximately $10 million to
complete several comprehensive information systems which
are necessary to fulfill expanding customer service needs
and to better manage SIGECO's resources, but exclude
construction expenditures discussed in "Environmental
Matters" that may be required to comply with new USEPA air
quality standards for NOx emissions which could range from
estimates of $10 million to $90 million, or that may be
required to comply with a potential court order sought by
the USEPA requiring installation of the best available
emissions technology at the Culley Generating Station,
estimated to range from approximately $40 million to $50
million. Additionally, SIGCORP expects to invest
approximately $75 million during the five-year period to
implement its recently announced Income / Growth strategy
which, among other initiatives, incorporates the expansion
of SIGCORP's telecom and energy services businesses.
<PAGE> 25
FINANCING ACTIVITIES On July 26, 1999, $80 million in
short-term borrowings, which included a temporary refunding
of $45 million of SIGECO's first mortgage bonds, were
refunded with the issue of $80 million of 6.72% Senior
Notes due August 1, 2029. Separately, SIGCORP borrowed an
additional $46.6 million in short-term debt to fund SIPI's
additional investment activity.
Over the five-year period, SIGCORP expects the majority of
the construction requirements, the capital contributions to
its nonregulated subsidiaries and an estimated $47 million
in debt security redemptions to be provided by internally
generated funds. External financing requirements of $95-
110 million are anticipated of which $60-70 million will be
used primarily to redeem long-term debt and $35-40 million
will be required for expansion of nonregulated businesses.
These estimates do not reflect construction expenditures
that may be required to comply with new USEPA air quality
standards for NOx emissions or to install the best
available emissions technology at the Culley Generating
Station.
<PAGE> 26
PART TWO - OTHER INFORMATION
Item 1. Litigation
On November 3, 1999, the USEPA filed a lawsuit against
SIGECO. The USEPA alleges that, beginning in 1992, SIGECO
violated the Clean Air Act by: (i) making modifications to
its Culley Generating Station in Yankeetown, Indiana
without obtaining required permits; (ii) making major
modifications to the Culley Generating Station without
installing the best available emission control technology;
and (iii) failing to notify the USEPA of the modifications.
In addition, the lawsuit alleges that the modifications to
the Culley Generating Station required SIGECO to begin
complying with federal new source performance standards.
SIGECO believes it performed only proper maintenance at the
Culley Generating Station. Because proper maintenance does
not require permits, application of the best available
emission control technology, notice to the USEPA, or
compliance with new source performance standards, SIGECO
believes that the lawsuit is without merit, and intends to
defend the lawsuit vigorously.
The lawsuit seeks fines against SIGECO in the amount of
$27,500 per day per violation. The lawsuit does not
specify the number of days or violations the USEPA believes
occurred. The lawsuit also seeks a court order requiring
SIGECO to install the best available emissions technology
at the Culley Generating Station. If the USEPA is
successful in obtaining an order, SIGECO estimates that it
would incur capital costs of approximately $40 million to
$50 million complying with the order.
The USEPA has also issued an administrative notice of
violation to SIGECO making the same allegations, but
alleging that violations began in 1977.
Under applicable rules, SIGECO could be subjected to
criminal penalties if the Culley Generating Station
continues to operate without complying with the new source
performance standards and the allegations are determined by
a court to be valid. SIGECO anticipates at this time that
the plant will continue to operate while the matter is
being decided.
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
(a) NONE
(b) Reports on Form 8-K
On October 21, 1999, SIGCORP, Inc. announced its
revenues and earnings for the quarter ended September 30,
1999. The press release dated October 21, 1999 was filed
with the SEC on November 2, 1999.
<PAGE> 27
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 15, 1999
SOUTHERN INDIANA GAS AND
ELECTRIC COMPANY
/s/ S. M. Kerney
S. M. Kerney
Controller
Date November 15, 1999
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<NAME> SOUTHERN INDIANA GAS AND ELECTRIC CO
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