<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Registrant Title of each class on which registered
<S> <C> <C>
SIGCORP, Inc. Common Stock,
Without Par Value New York Stock Exchange
Rights to Purchase
Common Stock New York Stock Exchange
Southern Indiana Gas None
and Electric Company
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Registrant Title of each class on which registered
<S> <C> <C>
SIGCORP, Inc. None
Southern Indiana Gas Cumulative Preferred
and Electric Company Stock, $100 Par Value New York Stock Exchange
</TABLE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
1
<PAGE> 2
Indicate by check mark whether all 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 [ ]
At November 2, 1999, the aggregate market values of:
SIGCORP, Inc. Common Stock, Without Par Value, and Southern Indiana Gas
and Electric Company Cumulative Preferred Stock, $100 Par Value, 185,895 shares,
held by non-affiliates were $627,686,963 and $13,942,125, respectively.
As of November 2, 1999, the number of shares outstanding of each of the
Registrants' classes of common stock were:
SIGCORP, Inc.: Common stock, no par value, 23,630,568 shares
Southern Indiana Gas and Electric Company: Common stock, no par value,
15,754,826 shares outstanding and held by SIGCORP, Inc.
2
<PAGE> 3
Explanatory Note:
Amendment of the Annual Report on Form 10-K for SIGCORP, Inc. and Southern
Indiana Gas and Electric Company
In connection with SIGCORP, Inc.'s ("SIGCORP's") proposed merger with Indiana
Energy, Inc., SIGCORP received certain inquiries from the Securities and
Exchange Commission with respect to disclosure in the Annual Report on Form 10-K
for the year ended December 31, 1998 with respect to: (1) certain regulatory
assets which are not included in either the operations and maintenance or
capital cost components of SIGCORP's rates, (2) certain benefit obligations that
increased as a result of plan amendments, and (3) the methods and significant
assumptions used to estimate the fair value of financial instruments. In
response to these inquiries, SIGCORP is hereby setting forth, as amended, Item 8
of Part II (Financial Statements and Supplementary Data) of its Annual Report on
Form 10-K for the year ended December 31, 1998.
3
<PAGE> 4
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
1. Financial Statements
SIGCORP
Report of Independent Public Accountants................ 5
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996.................. 7
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996................... 8
Consolidated Balance Sheets - December 31, 1998 and 1997. 9
Consolidated Statements of Capitalization -
December 31, 1998 and 1997............................... 11
Consolidated Statements of Common Shareholders' Equity
for the years ended December 31, 1998, 1997 and 1996..... 12
SIGECO
Report of Independent Public Accountants................. 13
Statements of Income for the years
ended December 31, 1998, 1997 and 1996................... 15
Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996................... 16
Balance Sheets - December 31, 1998 and 1997.............. 17
Statements of Capitalization -
December 31, 1998 and 1997............................... 19
Statements of Common Shareholder's Equity for the
years ended December 31, 1998, 1997 and 1996............. 20
SIGCORP and SIGECO
Notes to Consolidated Financial Statements............... 21
</TABLE>
4
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SIGCORP, INC.:
We have audited the consolidated balance sheets and consolidated
statements of capitalization of SIGCORP, Inc. (an Indiana corporation) and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, common shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
and the supplemental schedule referred to below are the responsibility of
SIGCORP, Inc.'s management. Our responsibility is to express an opinion on these
financial statements and supplemental schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SIGCORP,
Inc. as of December 31, 1998 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed under
Item 8 (3) is presented for the purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 29, 1999
(except with respect to Notes 1 and 10,
as to which the date is November 1, 1999)
5
<PAGE> 6
SIGCORP, INC. AND
SUBSIDIARIES
6
<PAGE> 7
SIGCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands except for per share amounts) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES:
Electric utility $ 297,865 $ 272,545 $ 276,479
Gas utility 66,801 85,561 96,251
Energy services and other 192,445 75,131 32,008
--------- --------- ---------
Total operating revenues 557,111 433,237 404,738
--------- --------- ---------
OPERATING EXPENSES:
Fuel for electric generation 65,222 62,630 74,860
Purchased electric energy 20,762 13,985 8,295
Cost of gas sold 39,627 54,060 66,105
Cost of energy services and other 187,742 73,668 28,553
Other operation expenses 64,430 60,726 60,885
Maintenance 37,553 29,224 29,784
Depreciation and amortization 42,733 40,373 39,140
Property and other taxes 12,963 12,989 14,399
--------- --------- ---------
Total operating expenses 471,032 347,655 322,021
--------- --------- ---------
OPERATING INCOME 86,079 85,582 82,717
--------- --------- ---------
INTEREST AND OTHER CHARGES:
Interest expense on long-term debt 17,604 19,797 18,432
Interest expense on short-term debt 5,686 1,519 2,387
Amortization of premium, discount and expense on debt 690 671 690
Allowance for funds used during construction (1,392) (1,378) (445)
Preferred dividend requirements of subsidiary 1,095 1,097 1,097
Interest income (5,488) (3,003) (2,135)
Other, net (6,602) (3,122) (2,536)
--------- --------- ---------
Total interest and other charges 11,593 15,581 17,490
--------- --------- ---------
INCOME BEFORE INCOME TAXES 74,486 70,001 65,227
Federal and state income taxes 24,010 23,861 21,963
--------- --------- ---------
NET INCOME $ 50,476 $ 46,140 $ 43,264
--------- --------- ---------
AVERAGE COMMON SHARES OUTSTANDING 23,631 23,631 23,631
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 2.14 $ 1.95 $ 1.83
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 2.12 $ 1.95 $ 1.83
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
7
<PAGE> 8
SIGCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 50,476 $ 46,140 $ 43,264
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 42,733 40,373 39,140
Preferred dividend requirements of subsidiary 1,095 1,097 1,097
Deferred income taxes and investment tax credits, net (3,684) (3,899) 11,500
Allowance for other funds used during construction -- (581) --
Change in assets and liabilities:
Receivables, net (including accrued unbilled revenues) (11,608) (19,497) (17,170)
Inventories (12,421) (4,306) 3,721
Coal contract settlement -- -- 12,928
Accounts payable 5,650 14,141 (4,396)
Accrued taxes (1,005) (1,855) (1,098)
Refunds from gas suppliers (346) (915) (1,213)
Refunds to customers 1,347 (651) (4,961)
Other assets and liabilities 9,322 8,103 5,120
-------- -------- --------
Net cash provided by operating activities 81,559 78,150 87,932
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of allowance for
other funds used during construction) (55,313) (65,501) (40,302)
Demand side management program expenditures (1,182) (2,340) (3,633)
Investments in leveraged leases 6,961 -- (6,850)
Purchases of investments (1,940) (423) --
Sales of investments 80 264 700
Investments in partnerships and other corporations (11,419) 3,166 126
Change in nonutility property (279) (5,572) 395
Change in notes receivable 1,033 (5,592) (11,533)
Other (2,176) (1,181) (150)
-------- -------- --------
Net cash used in investing activities (64,235) (77,179) (61,247)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
First mortgage bonds (14,000) (295) (8,000)
Dividends paid (30,188) (30,482) (28,353)
Reduction in preferred stock (116) -- --
Change in environmental improvement funds held by trustee (198) (272) (188)
Payments on partnership obligations (2,205) (2,276) (2,787)
Change in notes payable 28,578 26,980 11,432
Other 27 2,010 568
-------- -------- --------
Net cash used in financing activities (18,102) (4,335) (27,328)
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (778) (3,364) (643)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,827 9,191 9,834
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,049 $ 5,827 $ 9,191
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
8
<PAGE> 9
SIGCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
---------- ----------
<S> <C> <C>
ASSETS
UTILITY PLANT, at original cost:
Electric $1,141,870 $1,091,349
Gas 150,136 141,646
---------- ----------
1,292,006 1,232,995
Less accumulated provision for depreciation 593,901 557,631
---------- ----------
698,105 675,364
Construction work in progress 24,306 32,241
---------- ----------
Net utility plant 722,411 707,605
---------- ----------
OTHER INVESTMENTS AND PROPERTY:
Investments in leveraged leases 36,003 42,964
Investments in partnerships and other corporations 32,389 21,197
Environmental improvement funds held by trustee 4,300 4,102
Notes receivable 20,372 21,404
Nonutility property and other 14,901 12,503
---------- ----------
Total other investments and property 107,965 102,170
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 5,049 5,827
Temporary investments, at market 793 876
Receivables, less allowance of $2,204 and $361, respectively 65,829 52,496
Accrued unbilled revenues 20,595 22,320
Inventories 45,351 32,930
Current regulatory assets 9,527 11,749
Other current assets 3,777 3,250
---------- ----------
Total current assets 150,921 129,448
---------- ----------
OTHER ASSETS:
Unamortized premium on reacquired debt 4,226 4,704
Postretirement benefits other than pensions 985 3,263
Demand side management programs 25,046 24,467
Allowance inventory 2,093 2,093
Deferred charges 15,871 16,273
---------- ----------
Total other assets 48,221 50,800
---------- ----------
---------- ----------
TOTAL $1,029,518 $ 990,023
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
9
<PAGE> 10
SIGCORP, INC.
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
----------- -----------
<S> <C> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 292,717 270,828
Accumulated Other Comprehensive Income (12) 77
----------- -----------
Total common shareholders' equity 370,963 349,163
----------- -----------
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 808 924
Long-Term Debt, net of current maturities 204,771 273,707
Long-Term Partnership Obligations, net of current maturities 781 2,424
----------- -----------
Total capitalization, excluding bonds subject to
tender (see Consolidated Statements of Capitalization) 595,913 644,808
----------- -----------
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 45,000 12,695
Notes payable 69,508 41,368
Partnership obligations 1,577 2,139
----------- -----------
Total current maturities of long-term debt, interim financing
and long-term partnership obligations 116,085 56,202
----------- -----------
Other Current Liabilities:
Accounts payable 53,391 47,741
Dividends payable 120 123
Accrued taxes 4,863 5,868
Accrued interest 5,140 5,216
Refunds to customers 2,156 1,155
Other accrued liabilities 21,320 17,866
----------- -----------
Total other current liabilities 86,990 77,969
----------- -----------
Total current liabilities 256,775 165,671
----------- -----------
OTHER LIABILITIES:
Accumulated deferred income taxes 144,032 146,268
Accumulated deferred investment tax credits, being
amortized over lives of property 18,802 20,249
Postretirement benefits other than pensions 11,337 11,271
Other 2,659 1,756
----------- -----------
Total other liabilities 176,830 179,544
----------- -----------
----------- -----------
TOTAL $ 1,029,518 $ 990,023
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
10
<PAGE> 11
SIGCORP, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
At December 31 (dollars in thousands) 1998 1997
--------- ---------
<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 292,717 270,828
Accumulated Other Comprehensive Income (12) 77
--------- ---------
Total common shareholders' equity 370,963 349,163
--------- ---------
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 and
9,237 shares, respectively, redeemable at $100 per share 808 924
--------- ---------
LONG-TERM DEBT, NET OF CURRENT MATURITIES
First mortgage bonds 169,915 238,420
Notes payable 36,009 36,000
Unamortized debt premium and discount, net (1,153) (713)
--------- ---------
Total long-term debt 204,771 273,707
--------- ---------
LONG-TERM PARTNERSHIP OBLIGATIONS, NET OF CURRENT MATURITIES 781 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 $ 649,613 $ 676,308
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
11
<PAGE> 12
SIGCORP, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
(in thousands except per share data) Total Stock Earnings Income
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1995 $ 314,882 $ 78,258 $ 236,617 $ 7
Net Income 43,264 -- 43,264 --
Unrealized Gain On Securities (net of tax) 33 -- -- 33
--------- --------- --------- ---------
Comprehensive Income 43,297 -- 43,264 33
Common Stock Dividends ($1.15 per share) (27,255) -- (27,255) --
--------- --------- --------- ---------
BALANCES, DECEMBER 31, 1996 330,924 78,258 252,626 40
Net Income 46,140 -- 46,140 --
Unrealized Gain On Securities (net of tax) 37 -- -- 37
--------- --------- --------- ---------
Comprehensive Income 46,177 -- 46,140 37
Common Stock Dividends ($1.18 per share) (27,938) -- (27,938) --
--------- --------- --------- ---------
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 (89)
Common Stock Dividends ($1.21 per share) (28,587) -- (28,587) --
--------- --------- --------- ---------
BALANCES, DECEMBER 31, 1998 $ 370,963 $ 78,258 $ 292,717 $ (12)
========= ========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
12
<PAGE> 13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SOUTHERN INDIANA GAS AND ELECTRIC COMPANY:
We have audited the balance sheets and statements of capitalization of
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY (an Indiana corporation) as of
December 31, 1998 and 1997, and the related statements of income, common
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements and the supplemental
schedule referred to below are the responsibility of Southern Indiana Gas and
Electric Company's management. Our responsibility is to express an opinion on
these financial statements and supplemental schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Southern Indiana Gas
and Electric Company as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed under
Item 8 (3) is presented for the purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 29, 1999
(except with respect to Notes 1 and 10,
as to which the date is November 1, 1999)
13
<PAGE> 14
SOUTHERN INDIANA GAS
AND ELECTRIC COMPANY
14
<PAGE> 15
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES:
Electric $ 297,865 $ 272,545 $ 276,479
Gas 66,801 85,561 96,251
--------- --------- ---------
Total operating revenues 364,666 358,106 372,730
--------- --------- ---------
OPERATING EXPENSES:
Fuel for electric generation 68,849 62,630 74,860
Purchased electric energy 20,762 13,985 8,295
Cost of gas sold 39,627 54,060 66,105
Other operation expenses 56,001 55,611 56,139
Maintenance 37,398 29,086 29,641
Depreciation and amortization 42,401 40,191 38,617
Federal and state income taxes 25,035 27,259 24,640
Property and other taxes 12,591 12,828 14,004
--------- --------- ---------
Total operating expenses 302,664 295,650 312,301
--------- --------- ---------
OPERATING INCOME 62,002 62,456 60,429
--------- --------- ---------
OTHER INCOME:
Allowance for other funds used during construction (73) 581 --
Interest 340 541 431
Other, net 488 1,448 2,234
--------- --------- ---------
Total other income 755 2,570 2,665
--------- --------- ---------
INCOME BEFORE INTEREST AND OTHER CHARGES 62,757 65,026 63,094
--------- --------- ---------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 17,376 18,020 18,432
Amortization of premium, discount, and expense on debt 690 671 690
Other interest 2,614 1,769 1,576
Allowance for borrowed funds used during construction (1,465) (797) (445)
--------- --------- ---------
Total interest and other charges 19,215 19,663 20,253
--------- --------- ---------
NET INCOME 43,542 45,363 42,841
Preferred stock dividend 1,095 1,097 1,097
--------- --------- ---------
NET INCOME APPLICABLE TO COMMON STOCK $ 42,447 $ 44,266 $ 41,744
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
15
<PAGE> 16
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 43,542 $ 45,363 $ 42,841
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 42,401 40,191 38,617
Deferred income taxes and investment tax credits, net 2,207 (4,951) 10,558
Allowance for other funds used during construction -- (581) --
Change in assets and liabilities:
Receivables, net (including accrued unbilled revenues) 5,152 (3,261) (18,128)
Inventories (12,587) (3,407) 3,772
Coal contract settlement -- -- 12,928
Accounts payable 1,061 (272) (4,882)
Accrued taxes (1,153) (2,788) (1,682)
Refunds from gas suppliers (346) (915) (1,213)
Refunds to customers 1,347 (651) (4,961)
Other assets and liabilities 7,492 7,950 5,194
-------- -------- --------
Net cash provided by operating activities 89,116 76,678 83,044
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of allowance for
other funds used during construction) (55,314) (65,501) (40,302)
Demand side management program expenditures (1,182) (2,340) (3,633)
Change in nonutility property (25) -- 648
Other (1,894) (456) (211)
-------- -------- --------
Net cash used in investing activities (58,415) (68,297) (43,498)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
First mortgage bonds (14,000) (295) (8,000)
Dividends paid (30,187) (30,482) (28,353)
Reduction in preferred stock (116) -- --
Change in environmental improvement funds held by trustee (198) (272) (188)
Change in notes payable 13,588 20,129 1,900
Contribution of nonregulated subsidiaries -- -- (12,145)
Other (390) 526 533
-------- -------- --------
Net cash used in financing activities (31,303) (10,394) (46,253)
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (602) (2,013) (6,707)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,114 3,127 9,834
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 512 $ 1,114 $ 3,127
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
16
<PAGE> 17
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
---------- ----------
<S> <C> <C>
ASSETS
UTILITY PLANT, at original cost:
Electric $1,141,870 $1,091,349
Gas 150,136 141,646
---------- ----------
1,292,006 1,232,995
Less accumulated provision for depreciation 593,901 557,631
---------- ----------
698,105 675,364
Construction work in progress 24,306 32,241
---------- ----------
Net utility plant 722,411 707,605
---------- ----------
OTHER INVESTMENTS AND PROPERTY:
Environmental improvement funds held by trustee 4,300 4,102
Nonutility property and other 1,577 1,552
---------- ----------
Total other investments and property 5,877 5,654
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 512 1,114
Receivables, less allowance of $2,156 and $328, respectively 28,854 32,281
Accrued unbilled revenues 20,595 22,320
Inventories 44,566 31,979
Current regulatory assets 9,527 11,749
Other current assets 2,776 1,968
---------- ----------
Total current assets 106,830 101,411
---------- ----------
OTHER ASSETS:
Unamortized premium on reacquired debt 4,226 4,704
Postretirement benefits other than pensions 985 3,263
Demand side management programs 25,046 24,467
Allowance inventory 2,093 2,093
Deferred charges 14,444 15,266
---------- ----------
Total other assets 46,794 49,793
---------- ----------
TOTAL $ 881,912 $ 864,463
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
17
<PAGE> 18
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
-------- --------
<S> <C> <C>
SHAREHOLDER'S EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 241,924 228,570
-------- --------
Total common shareholder's equity 320,182 306,828
-------- --------
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 808 924
Long-Term Debt, net of current maturities 169,762 238,707
-------- --------
Total capitalization, excluding bonds subject to
tender (see Statements of Capitalization) 509,342 565,049
-------- --------
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 45,000 12,695
Notes payable 50,759 31,643
Notes payable to associated company 14,930 20,886
-------- --------
Total current maturities of long-term debt and interim financing 110,689 65,224
-------- --------
Other Current Liabilities:
Accounts payable 28,127 27,066
Dividends payable 120 123
Accrued taxes 4,772 5,925
Accrued interest 4,676 4,635
Refunds to customers 2,156 1,155
Other accrued liabilities 18,544 16,018
-------- --------
Total other current liabilities 58,395 54,922
-------- --------
Total current liabilities 222,784 151,646
-------- --------
OTHER LIABILITIES:
Accumulated deferred income taxes 118,147 114,493
Accumulated deferred investment tax credits, being
amortized over lives of property 18,801 20,249
Postretirement benefits other than pensions 11,337 11,271
Other 1,501 1,755
-------- --------
Other liabilities 149,786 147,768
-------- --------
TOTAL $881,912 $864,463
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
18
<PAGE> 19
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
At December 31 (dollars in thousands) 1998 1997
--------- ---------
<S> <C> <C>
COMMON SHAREHOLDER'S 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 241,924 228,570
--------- ---------
Total common shareholder's equity 320,182 306,828
--------- ---------
PREFERRED STOCK
Cumulative, $100 par value, authorized 800,000 shares, issuable in series:
Nonredeemable
4.8% Series, outstanding 85,895 shares,
callable at $110 per share 8,590 8,590
4.75% Series, outstanding 25,000 shares,
callable at $101 per share 2,500 2,500
--------- ---------
Total nonredeemable preferred stock 11,090 11,090
--------- ---------
Redeemable
6.50% Series, outstanding 75,000 shares,
redeemable at $100 per share December 1, 2002 7,500 7,500
--------- ---------
SPECIAL PREFERRED STOCK
Cumulative, no par value, authorized 5,000,000
shares, issuable in series: 8-1/2% series, outstanding 8,077 and
9,237 shares, respectively, redeemable at $100 per share 808 924
--------- ---------
LONG-TERM DEBT, NET OF CURRENT MATURITIES
First mortgage bonds 169,915 238,420
Notes payable 1,000 1,000
Unamortized debt premium and discount, net (1,153) (713)
--------- ---------
Total long-term debt 169,762 238,707
--------- ---------
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 $ 563,042 $ 596,549
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
19
<PAGE> 20
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Retained
(in thousands except per share data) Total Stock Earnings
--------- --------- ---------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1995 $ 314,875 $ 78,258 $ 236,617
Net Income 42,841 -- 42,841
--------- --------- ---------
357,716 78,258 279,458
Common Stock Dividends (27,255) -- (27,255)
Dividend of Nonregulated Subsidiaries to Parent (37,418) -- (37,418)
Preferred Stock Dividends (1,097) -- (1,097)
--------- --------- ---------
BALANCES, DECEMBER 31, 1996 291,946 78,258 213,688
Net Income 45,363 -- 45,363
--------- --------- ---------
337,309 78,258 259,051
Common Stock Dividends (29,384) -- (29,384)
Preferred Stock Dividends (1,097) -- (1,097)
--------- --------- ---------
BALANCES, DECEMBER 31, 1997 306,828 78,258 228,570
Net Income 43,542 -- 43,542
--------- --------- ---------
350,370 78,258 272,112
Common Stock Dividends (29,093) -- (29,093)
Preferred Stock Dividends (1,095) -- (1,095)
--------- --------- ---------
BALANCES, DECEMBER 31, 1998 $ 320,182 $ 78,258 $ 241,924
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SIGCORP AND SIGECO
PRINCIPLES OF CONSOLIDATION SIGCORP, Inc. (SIGCORP), an Indiana holding company,
has 11 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 twelve months ended December 31, 1998, and ten nonregulated
subsidiaries.
SIGECO, which has no subsidiaries, is a regulated gas and electric utility and
engaged principally in the production, purchase, transmission, distribution and
sale of electricity and the delivery of natural gas. SIGECO serves 124,340
electric customers in the city of Evansville and 74 other communities and serves
108,335 gas customers in the city of Evansville and 64 other communities.
Energy Systems Group, Inc. (ESGI) has a one-third ownership in Energy Systems
Group, LLC, an energy-related performance contracting firm serving industrial
and commercial customers. Southern Indiana Minerals, Inc. (SIMI) processes and
markets coal combustion by-products. Southern Indiana Properties, Inc. (SIPI)
invests in leveraged leases of real estate and equipment, real estate
partnerships and joint ventures, and private placement subordinated debt
instruments. Cash balances are invested in marketable securities. SIGCORP Energy
Services, Inc. (Energy) was established to market energy and related services
and is currently providing natural gas, pipeline management, storage service and
other natural gas-related services to SIGECO, other utilities and endusers.
SIGCORP Capital, Inc. (Capital) is the primary financing vehicle for SIGCORP's
nonregulated subsidiaries. SIGCORP Fuels, Inc. (Fuels) was formed to provide
coal and related services to SIGECO and other customers. SIGCORP Power
Marketing, Inc. (Power), not yet active, was formed to procure electric power
supplies for SIGECO and other customers, and will market SIGECO's excess
electric generation capacity. SIGCORP Communications Services (Communications)
was formed to undertake telecommunications-related strategic initiatives.
SIGCORP Environmental Services, Inc. (Environmental Services) holds SIGCORP's
investment in Air Quality Services, a joint venture created to provide air
quality monitoring and testing services to industry and utilities. SIGECO
Advanced Communications, Inc. (Advanced Communications) holds SIGCORP's
investment in SIGECOM, LLC and Utilicom Networks, Inc. (Utilicom). SIGECOM, LLC,
is a joint venture between Advanced Communications and Utilicom to provide and
market enhanced communications services over a high capacity fiber optic network
in a multi-state area encompassing SIGECO's service territory. Effective June
30, 1998, ComSource, Inc., a former subsidiary of SIGCORP, was merged into
Advanced Communications. All significant intercompany transactions are
eliminated.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REGULATION The Indiana Utility Regulatory Commission (IURC) has jurisdiction
over all investor-owned gas and electric utilities in Indiana. The Federal
Energy Regulatory Commission (FERC) has jurisdiction over those investor-owned
utilities that make wholesale energy sales. These agencies regulate SIGECO's
utility business operations, rates, accounts, depreciation allowances, services,
security issues and the sale and acquisition of properties. The financial
statements of SIGCORP and SIGECO are based on generally accepted accounting
principles, which give recognition to the ratemaking and accounting practices of
these agencies.
REGULATORY ASSETS SIGECO is subject to the provisions of Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types
of Regulation." Regulatory assets represent probable future revenues to SIGECO
associated with certain incurred costs which will be recovered from customers
through the ratemaking process.
21
<PAGE> 22
Generally accepted accounting principles for rate regulated companies also
require that regulatory assets which are no longer probable of recovery through
future revenues, at the balance sheet date, be charged to earnings. The
following regulatory assets are reflected in the financial statements:
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
Regulatory Assets:
<S> <C> <C>
Demand side management program costs $25,648 $25,069
Postretirement benefit costs * 3,263 5,541
Unamortized premium on reacquired debt 4,705 5,183
Regulatory study costs 107 337
Fuel and gas costs * 5,931 9,129
39,654 45,259
Less current amounts 9,527 11,749
Total long-term regulatory assets $30,127 $33,510
======= =======
</TABLE>
*Refer to the individual paragraphs in this Note for discussion of specific
regulatory assets. See Income Taxes for regulatory assets and liabilities
related to income taxes.
As of December 31, 1998, the recovery of $19,136,000 of SIGECO's total
regulatory assets is currently reflected in rates charged to customers. The
remaining $20,518,000 of regulatory assets, which are not yet included in rates,
represent SIGECO's demand side management (DSM) costs incurred after 1993. When
SIGECO files its next electric rate case, these costs will be included in rate
base and earn a return; amortization of the costs over a period anticipated to
be 15 years will be recovered through rates as a cost of operations. Of the
$19,136,000 of regulatory assets currently reflected in rates, a total of
$9,572,000 is earning a return: $4,867,000 of pre-1994 DSM costs and $4,705,000
of unamortized premium on reacquired debt. The remaining recovery periods for
the DSM costs and premium on reacquired debt are 11.5 years and 20 years,
respectively. The remaining $9,564,000 of regulatory assets included in rates
but not earning a return are being recovered over varying periods: $263,000 of
pre-1994 DSM costs, over 1.5 years; $3,263,000 of deferred postretirement
benefit costs, over 2 years; $107,000 of regulatory study costs; over 8 months;
$4,084,000 of fuel costs, over 3 months; and $1,847,000 of gas costs, over 12
months.
If all or a separable portion of SIGECO's operations becomes no longer subject
to the provisions of SFAS No. 71, a write off of related regulatory assets would
be required, unless some form of transition cost recovery continues through
rates established and collected for SIGECO's remaining regulated operations that
would meet the requirements under generally accepted accounting principles for
continued accounting as regulatory assets during such recovery period. In
addition, SIGECO would be required to determine any impairment to the carrying
costs of deregulated plant and inventory assets.
CONCENTRATION OF CREDIT RISK SIGECO's customer receivables from gas and electric
sales and gas transportation services are primarily derived from a diversified
base of residential, commercial and industrial customers located in a
southwestern region of Indiana. SIGECO continually reviews customers'
creditworthiness and requests deposits or refunds deposits based on that review.
SIGECO also sells electricity to wholesale marketers which increases its
exposure to potential credit losses. Energy's customer receivables from gas
sales and transportation services are primarily derived from a diversified base
of commercial and industrial customers located in the midwestern region of the
United States. Energy investigates the creditworthiness of its potential
customers. See Note 2 for a discussion of receivables related to SIPI's
leveraged lease investments.
UTILITY PLANT Utility plant is stated at the historical original cost of
construction. The cost of repairs and minor renewals is charged to maintenance
expense as incurred. Property unit replacements are capitalized and the
depreciation reserve is charged with the cost, less net salvage, of units
retired.
22
<PAGE> 23
DEPRECIATION Depreciation of utility property is provided using the
straight-line method over the estimated service lives of the depreciable plant.
Provisions for depreciation, expressed as an annual percentage of the cost of
average depreciable plant in service, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Electric 3.4% 3.4% 3.4%
Gas 3.3% 3.2% 3.2%
</TABLE>
INCOME TAXES SIGCORP and SIGECO utilizes the liability method of accounting for
income taxes, providing deferred taxes on temporary differences. Investment tax
credits have been deferred and are amortized through credits to income over the
lives of the related property.
The components of the net deferred income tax liability are as follows:
SIGCORP, Inc.
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
Deferred Tax Liabilities:
<S> <C> <C>
Depreciation and cost recovery timing differences $ 117,866 $ 117,357
Deferred fuel costs, net 3,446 1,252
Leveraged leases 25,330 31,625
Regulatory assets recoverable through future rates 26,048 25,687
Deferred Tax Assets:
Unbilled revenue (1,394) (1,593)
Regulatory liabilities to be settled through future rates (22,993) (25,229)
Other, net (4,271) (2,831)
Net deferred income tax liability $ 144,032 $ 146,268
========= =========
</TABLE>
The $2,236,000 decrease in the net deferred income tax liability from December
31, 1997 to December 31, 1998 represents a $5,850,000 decrease in the leveraged
lease and other assets and liabilities offset by the current year deferred
federal and state income tax expense of $3,614,000.
Southern Indiana Gas and Electric Company
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
Deferred Tax Liabilities:
<S> <C> <C>
Depreciation and cost recovery timing differences $ 117,765 $ 117,467
Deferred fuel costs, net 3,446 1,252
Regulatory assets recoverable through future rates 26,048 25,687
Deferred Tax Assets:
Unbilled revenue (1,394) (1,593)
Regulatory liabilities to be settled through future rates (22,993) (25,229)
Other, net (4,725) (3,091)
Net deferred income tax liability $ 118,147 $ 114,493
========= =========
</TABLE>
Of the $3,654,000 increase in the net deferred income tax liability from
December 31, 1997 to December 31, 1998, $4,112,000 is due to current year
deferred federal and state income tax expense and the remaining $458,000
decrease is primarily a result of the change in the other assets and
liabilities.
23
<PAGE> 24
The components of current and deferred income tax expense are as follows:
SIGCORP, Inc.
<TABLE>
<CAPTION>
Year Ended December 31 ( in thousands) 1998 1997 1996
Current
<S> <C> <C> <C>
Federal $ 18,984 $ 24,387 $ 8,743
State 2,859 3,961 1,891
Deferred, net
Federal 3,558 (2,858) 10,967
State 56 (172) 1,805
Investment tax credit, net (1,447) (1,457) (1,443)
Total income tax expense $ 24,010 $ 23,861 $ 21,963
======== ======== ========
Southern Indiana Gas and Electric Company
<CAPTION>
Year Ended December 31 ( in thousands) 1998 1997 1996
Current
<S> <C> <C> <C>
Federal $ 19,521 $ 28,403 $ 12,286
State 2,849 4,265 2,027
Deferred, net
Federal 3,270 (3,673) 10,081
State 842 (278) 1,689
Investment tax credit, net (1,447) (1,458) (1,443)
Total income tax expense $ 25,035 $ 27,259 $ 24,640
======== ======== ========
</TABLE>
A reconciliation of the statutory tax rates to effective income tax rate is as
follows:
SIGCORP, Inc.
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
<S> <C> <C> <C>
Statutory federal and state rate 37.9% 37.9% 37.9%
Equity portion of allowance for funds used during construction -- (0.3) --
Book depreciation over related tax depreciation - nondeferred 1.7 1.8 1.7
Amortization of deferred investment tax credit (1.9) (2.1) (2.2)
Low-income housing credit (3.8) (4.0) (4.2)
Preferred dividend requirements of subsidiary .0.6 0.6 0.6
Excess deferred tax (2.8) (1.2) (1.7)
Other, net 0.5 1.4 1.6
Effective tax rate 32.2% 34.1% 33.7%
------ ------ ------
Southern Indiana Gas and Electric Company
<CAPTION>
Year Ended December 31 1998 1997 1996
<S> <C> <C> <C>
Statutory federal and state rate 37.9% 37.9% 37.9%
Equity portion of allowance for funds used during construction -- (0.3) --
Book depreciation over related tax depreciation - nondeferred 1.7 1.8 1.9
Amortization of deferred investment tax credit (2.1) (2.1) (2.3)
Other, net (.4) 0.2 (1.0)
Effective tax rate 37.1 37.5% 36.5%
------ ------ ------
</TABLE>
PENSION BENEFITS SIGECO has trusteed, noncontributory defined benefit plans
which cover eligible full-time regular employees. The plans provide retirement
benefits based on years of service and the employee's highest 60 consecutive
months' compensation during the last 120 months of employment. The funding
policy of SIGECO is to contribute amounts to the plans equal to at least the
minimum funding requirements of the Employee Retirement Income Security Act of
1974 (ERISA) but not in excess of the maximum deductible for federal income tax
purposes. The plans' assets as of December 31, 1998 consist of investments in
interest-bearing obligations and common stocks.
24
<PAGE> 25
Change in benefit obligation:
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997
-------- --------
<S> <C> <C>
Benefit obligation at beginning of year $ 72,914 $ 63,999
Service cost - benefits earned during the year 2,639 2,165
Interest cost on projected benefit obligation 5,020 4,661
Plan amendments 2,220 --
Benefits paid (3,176) (3,005)
Actuarial loss 126 5,094
-------- --------
Benefit obligation at end of year $ 79,743 $ 72,914
======== ========
Change in plan assets:
<CAPTION>
At December 31 (in thousands) 1998 1997
-------- --------
<S> <C> <C>
Plan assets at fair value at beginning of year $ 76,587 $ 66,011
Actual return on plan assets 9,926 12,638
Employer contribution -- 943
Benefits paid (3,176) (3,005)
Fair value of plan assets at end of year $ 83,337 $ 76,587
======== ========
Reconciliation of funded status:
<CAPTION>
At December 31 (in thousands) 1998 1997
-------- --------
<S> <C> <C>
Excess of plan assets over projected benefit obligation $ 3,594 $ 3,673
Remaining unrecognized transitional asset (1,815) (2,233)
Unrecognized service cost 3,455 1,412
Unrecognized net gain (11,864) (8,117)
Accrued pension benefit liability $ (6,630) $ (5,265)
======== ========
Components of net periodic pension benefit cost:
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997
-------- --------
<S> <C> <C>
Service cost $ 2,639 $ 2,166
Interest cost 5,020 4,661
Expected return on plan assets (5,985) (5,182)
Amortization of prior service cost 178 147
Amortization of transitional asset (418) (418)
Recognized actuarial gain (47) (4)
-------- --------
Net periodic benefit cost $ 1,387 $ 1,370
======== ========
</TABLE>
The projected benefit obligation at December 31, 1998 and 1997 was determined
using an assumed discount rate of 7.0%. For both periods, the long-term rate of
compensation increases was assumed to be 5.0%, and the long-term rate of return
on plan assets was assumed to be 8.0%. The transitional asset is being amortized
over approximately 15, 18 and 14 years for the Salaried, Hourly and Hoosier
plans, respectively.
SIGECO amended its pension plans by increasing the "monthly earnings multiplier"
applied to all credited years of service in the plans' benefit formulas. These
amendments increased unrecognized prior service costs.
In addition to the trusteed pension plans discussed above, SIGECO provides
supplemental pension benefits to certain current and former officers under
nonqualified and nonfunded plans. The accrued pension liability for this plan at
December 31, 1998 and 1997 was $3,820,000 and $3,255,000, respectively. Annual
service cost related to these benefits is approximately $700,000.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS SIGECO provides certain
postretirement health care and life insurance benefits for retired employees and
their dependents through a combination of self-insured and fully-insured plans.
In 1998, SIGECO amended these benefits for salaried employees aged 49 years and
younger to require retiree
25
<PAGE> 26
contributions towards the related health care insurance costs. SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
requires the expected cost of these benefits be recognized during the employees'
years of service. As authorized by the IURC, SIGECO deferred as a regulatory
asset the additional SFAS No. 106 costs accrued over the costs of benefits
actually paid after date of adoption, but prior to inclusion in rates.
Subsequently, the IURC authorized SIGECO to include in rates SFAS No. 106 costs
and to recover the amounts previously deferred over a 60-month period.
Change in benefit obligation:
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997
<S> <C> <C>
Benefit obligation at beginning of year $ 30,924 $ 29,275
Service cost - benefits earned during the period 578 890
Interest cost on accumulated benefit obligation 1,664 2,056
Actuarial gain (4,201) (443)
Benefits paid net of participant contributions (1,024) (854)
Plan amendments (2,412) --
Benefit obligation at end of year $ 25,529 $ 30,924
======== ========
</TABLE>
The net periodic cost determined under the standard includes the amortization of
the discounted present value of the obligation at the adoption date,
$29,400,000, over a 20-year period.
Change in plan assets:
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
-------- --------
<S> <C> <C>
Plan assets at fair value at beginning of year $ 7,336 $ 5,205
Actual return on plan assets 1,031 597
Employer contribution 2,168 2,388
Benefits paid net of participant contributions (1,024) (854)
-------- --------
Fair value of plan assets at end of year $ 9,511 $ 7,336
======== ========
Reconciliation of funded status:
<CAPTION>
At December 31 (in thousands) 1998 1997
-------- --------
<S> <C> <C>
Excess of projected benefit obligation over plan assets $(16,018) $(23,588)
Unrecognized actuarial gain (13,671) (9,759)
Unrecognized transition obligation 18,353 22,076
-------- --------
Accrued postretirement benefit liability $(11,336) $(11,271)
======== ========
Components of net periodic other postretirement benefit cost:
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997
-------- --------
<S> <C> <C>
Service cost $ 578 $ 890
Interest cost 1,664 2,056
Expected return on plan assets (577) (399)
Amortization of transitional obligation 1,311 1,472
Recognized actuarial gain (743) (499)
-------- --------
Net periodic benefit cost $ 2,233 $ 3,520
======== ========
</TABLE>
The assumptions used to develop the accumulated postretirement benefit
obligation at December 31, 1998 and 1997 included discount rates of 7.0%. As of
December 31, 1998 the health care cost trend rate is 8.0% declining to 4.5% in
2006. The accrued health care cost trend rate for 1999 is 8.0%. The estimated
cost of these future benefits could be significantly affected by future changes
in health care costs, work force demographics, interest rates or plan changes. A
1.0% increase in the assumed health care cost trend rate each year would
increase the aggregate service and interest costs for 1998 by $385,000 and the
accumulated postretirement benefit obligation by $3,900,000. A 1.0% decrease in
the assumed health care cost trend rate each year would decrease the aggregate
service and interest costs for 1998 by $308,000 and the accumulated
postretirement benefit obligation by $3,169,000.
26
<PAGE> 27
SIGECO amended its postretirement benefit plans to change benefits for existing
employees under fifty years of age and new employees to a graduated benefit
rate.
In 1995, SIGECO adopted Voluntary Employee Beneficiary Association (VEBA) Trust
Agreements for the funding of postretirement health benefits for retirees and
their eligible dependents and beneficiaries. Annual funding is discretionary and
is based on the projected cost over time of benefits to be provided to covered
persons consistent with acceptable actuarial methods. To the extent these
postretirement benefits are funded, the benefits will not be shown as a
liability on SIGECO's financial statements.
CASH FLOW INFORMATION For balance sheet and cash flow purposes, SIGCORP and
SIGECO consider all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
During 1998, 1997 and 1996, SIGCORP paid interest (net of amounts capitalized)
of $21,900,000, $19,888,000 and $20,328,000, respectively, and income taxes of
$27,594,000, $29,552,000 and $12,237,000, respectively. SIGCORP is involved in
several partnerships which are partially financed by partnership obligations
amounting to $2,358,000 and $4,563,000 at December 31, 1998 and 1997,
respectively.
During 1998, 1997 and 1996, SIGECO paid interest (net of amounts capitalized) of
$18,484,000, $18,929,000 and $19,591,000, respectively, and income taxes of
$23,789,000, $35,239,000 and $15,746,000, respectively.
INVENTORIES SIGECO accounts for inventories under the average cost method except
for gas in underground storage which is accounted for under the last-in,
first-out (LIFO) method.
SIGCORP, Inc.
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
<S> <C> <C>
Fuel (coal and oil) for electric generation $15,701 $ 8,920
Materials and supplies 15,179 13,579
Emission allowances 5,133 2,616
Gas in underground storage - at LIFO cost 10,762 9,046
Other 669 862
Total inventories $47,444 $35,023
======= =======
Southern Indiana Gas and Electric Company
<CAPTION>
At December 31 (in thousands) 1998 1997
<S> <C> <C>
Fuel (coal and oil) for electric generation $15,701 $ 8,920
Materials and supplies 15,063 13,490
Emission allowances 5,133 2,616
Gas in underground storage - at LIFO cost 10,762 9,046
Total inventories $46,659 $34,072
======= =======
</TABLE>
Based on the December 1998 price of gas purchased, the cost of replacing
SIGECO's current portion of gas in underground storage at December 31, 1998
exceeded the amount stated on a LIFO basis by approximately $13,000,000.
OPERATING REVENUES AND FUEL COSTS SIGECO accrues an estimate of revenues
unbilled for electric and gas service furnished from the meter reading dates to
the end of each accounting period. All metered gas rates contain a gas cost
adjustment clause which allows for adjustment in charges for changes in the cost
of purchased gas. Metered electric rates typically contain a fuel adjustment
clause which allows for adjustment in charges for electric energy to reflect
changes in the cost of fuel and the net energy cost of purchased power. SIGECO
also collects through a quarterly rate adjustment mechanism, the margin on
electric sales lost due to the implementation of demand side management
programs.
SIGECO records any adjustment clause under-or overrecovery each month in
revenues. A corresponding asset or liability is recorded until such time as the
under-or overrecovery is billed or refunded to its customers. The cost of
27
<PAGE> 28
gas sold is charged to operating expense as delivered to customers and the cost
of fuel for electric generation is charged to operating expense when consumed.
COMPREHENSIVE INCOME SIGCORP adopted Statement of Financial Accounting Standards
(SFAS) No. 130 "Reporting Comprehensive Income" in 1998. The objective of the
statement is to report comprehensive income which is a measure of all changes in
equity of an enterprise which result from transactions or other economic events
during the period other than transactions with shareholders. This information is
reported in the Consolidated Statements of Common Shareholders' Equity.
SIGCORP's components of accumulated other comprehensive income includes
unrealized gains (losses) on available for sale securities. SIGECO has no
elements of other comprehensive income.
NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." In February 1998, FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." These
statements, which were adopted by SIGCORP and SIGECO during 1998, do not affect
the accounting recognition or measurement of transactions, but rather, require
expanded disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15, 1999, but may be adopted earlier. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded on Consolidated Balance Sheets as either an asset or
liability measured at fair value. The accounting for changes in the fair value
of a derivative depends on the intended use of the derivative and resulting
designation.
SFAS No. 133 requires that changes in the derivative's fair value be recognized
in the current period's earnings, unless specific hedge accounting criteria are
met. If an entity qualifies for hedge accounting, gains and losses on
derivatives, generally, will offset the related effects of the hedged items in
the current period income statement. SFAS No. 133 requires that formal
documentation be maintained and that the effectiveness of the hedge be assessed
quarterly.
SIGCORP and SIGECO have not yet quantified the effects of adopting SFAS No. 133
on its financial statements and has not determined the timing or method of its
adoption of this statement. However, adoption of SFAS No. 133 could increase the
volatility in earnings and other comprehensive income.
NOTE 2 LEVERAGED LEASES
SIGCORP
SIPI is a lessor in four leveraged lease agreements under which an office
building, a part of a reservoir, a gas turbine electric generating peaking unit
and passenger railroad cars are leased to third parties. In early 1998, SIPI
sold its leveraged lease in a paper mill. The economic lives and lease terms
vary with the leases. The total equipment and facilities cost was approximately
$86,700,000 and $110,800,000 at December 31, 1998 and 1997, respectively. The
cost of the equipment and facilities was partially financed by nonrecourse debt
provided by lenders, who have been granted an assignment of rentals due under
the leases and a security interest in the leased property, which they accepted
as their sole remedy in the event of default by the lessee. Such debt amounted
to approximately $66,700,000 and $79,100,000 at December 31, 1998 and 1997,
respectively. SIGCORP's net investment in leveraged leases at those dates was
$10,673,000 and $11,339,000, respectively, as shown:
28
<PAGE> 29
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
<S> <C> <C>
Minimum lease payments receivable $51,443 $63,877
Estimated residual value 29,073 29,073
Less unearned income 44,513 49,986
Investment in lease financing receivables and loan 36,003 42,964
Less deferred taxes arising from leveraged leases 25,330 31,625
Net investment in leveraged leases $10,673 $11,339
======= =======
</TABLE>
NOTE 3 SHORT-TERM FINANCING
SIGCORP AND SIGECO
SIGECO has trust demand note arrangements totaling $17,000,000 with several
banks, of which $16,500,000 was utilized at December 31, 1998. Funds are also
borrowed periodically from banks on a short-term basis, made available through
lines of credit. SIGCORP has available lines of credit totaling $79,000,000 at
December 31, 1998 of which $33,008,000 was utilized at that date. SIGCORP, also,
has a $20,000,000 short-term loan outstanding.
SIGCORP, Inc.
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997 1996
Notes Payable
<S> <C> <C> <C>
Balance at year end $ 69,508 $ 41,368 $ 38,750
Weighted average interest rate on year end balance 5.86% 6.21% 5.94%
Average daily amount outstanding during the year $ 38,408 $ 14,510 $ 24,430
Weighted average interest rate on average daily amount
outstanding during the year 6.22% 6.08% 5.74%
</TABLE>
SIGECO has trust demand note arrangements totaling $17,000,000 with several
banks of which $16,500,000 was utilized at December 31, 998. Funds are also
borrowed periodically from banks on a short-term basis, made available through
lines of credit. SIGECO has available lines of credit totaling $49,000,000 at
December 31, 1998 of which $14,259,000 was utilized at that date. SIGECO, also,
has a $20,000,000 short-term loan outstanding. SIGECO, also, has a loan
outstanding from SIGCORP for $14,930,000 as of December 31, 1998.
Southern Indiana Gas and Electric Company
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997 1996
Notes Payable
<S> <C> <C> <C>
Balance at year end $ 65,689 $ 52,529 $ 32,400
Weighted average interest rate on year end balance 5.77% 6.31% 5.94%
Average daily amount outstanding during the year $ 43,149 $ 19,777 $ 24,428
Weighted average interest rate on average daily amount
outstanding during the year 6.28% 6.13% 5.74%
</TABLE>
NOTE 4 LONG-TERM DEBT
SIGCORP AND SIGECO
The annual sinking fund requirement of SIGECO's first mortgage bonds is 1% of
the greatest amount of bonds outstanding under the Mortgage Indenture. This
requirement may be satisfied by certification to the Trustee of unfunded
property additions in the prescribed amount as provided in the Mortgage
Indenture. SIGECO intends to meet the 1999 sinking fund requirement by this
means and, accordingly, the sinking fund requirement for 1999 is excluded from
current liabilities on the balance sheet. At December 31, 1998, $296,605,000 of
SIGECO's utility plant remained unfunded under SIGECO's Mortgage Indenture.
29
<PAGE> 30
Several of SIGCORP's partnership investments have been financed through
obligations with such partnerships. Of the amount of first mortgage bonds, notes
payable and partnership obligations outstanding at December 31, 1998, the
following amounts which mature in the five years subsequent to 1998 are as
follows:
<TABLE>
<CAPTION>
SIGCORP SIGECO
------- ------
<S> <C> <C> <C>
1999 $ 46,577,000 $ 45,000,000
2000 532,000 -
2001 249,000 -
</TABLE>
In addition, $53,700,000 of adjustable rate pollution control series first
mortgage bonds could, at the election of the bondholder, be tendered to SIGECO
in March 1999. If SIGECO's agent is unable to remarket any bonds tendered at
that time, SIGECO would be required to obtain additional funds for payment to
bondholders. For financial statement presentation purposes those bonds subject
to tender in 1999 are shown as current liabilities.
First mortgage bonds, notes payable and partnership obligations outstanding and
classified as long-term are as follows:
SIGCORP, Inc.
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
First Mortgage Bonds due:
<S> <C> <C>
1999, 6% $ -- $ 45,000
2020, 4.40% Pollution Control Series B 4,640 3,945
2030, 4.40% Pollution Control Series B 22,000 22,000
2014, 7.25% Pollution Control Series A 22,500 22,500
2016, 8.875% 23,000 25,000
2023, 7.60% 45,000 45,000
2025, 7.625% 20,000 20,000
Adjustable Rate Pollution Control:
2015, Series A, presently 4.60% 9,975 9,975
Adjustable Rate Environmental Improvement:
2023, Series B, presently 6% 22,800 22,800
2030, Series C, presently 3.70% -- 22,200
Total first mortgage bonds $169,915 $238,420
Notes Payable:
Insurance Company, due 2012, 7.43% $ 35,000 $ 35,000
Tax Exempt, due 2003, 6.25% 1,000 1,000
Bank, due 2000, 2.90% 9 --
Total notes payable $ 36,009 $ 36,000
Partnership Obligations, due 2000 through 2004, without interest $ 781 $ 2,424
-------- --------
</TABLE>
30
<PAGE> 31
Southern Indiana Gas and Electric Company
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
First Mortgage Bonds due:
<S> <C> <C>
1999, 6% $ -- $ 45,000
2020, 4.40% Pollution Control Series B 4,640 3,945
2030, 4.40% Pollution Control Series B 22,000 22,000
2014, 7.25% Pollution Control Series A 22,500 22,500
2016, 8.875% 23,000 25,000
2023, 7.60% 45,000 45,000
2025, 7.625% 20,000 20,000
Adjustable Rate Pollution Control:
2015, Series A, presently 4.60% 9,975 9,975
Adjustable Rate Environmental Improvement:
2023, Series B, presently 6% 22,800 22,800
2030, Series C, presently 3.70% -- 22,200
Total first mortgage bonds $169,915 $238,420
Notes Payable:
Tax Exempt, due 2003, 6.25% 1,000 1,000
Total notes payable $ 1,000 $ 1,000
-------- --------
</TABLE>
NOTE 5 CAPITAL STOCK
SIGCORP AND SIGECO
COMMON STOCK Each outstanding share of SIGCORP's common stock contains a right
which entitles registered holders to purchase from SIGCORP one-hundredth of a
share of SIGCORP's common stock, at an initial price of $65 per share (Purchase
Price) subject to adjustment. The rights will not be exercisable until a party
acquires beneficial ownership of 10% of common shares or makes a tender offer
for at least 10% of its common shares. The rights expire December 31, 2005. If
not exercisable, the rights in whole may be redeemed by SIGCORP at a price of
$.01 per right at any time prior to their expiration. If at any time after the
rights become exercisable and are not redeemed and SIGCORP is involved in a
merger or other business combination transaction, proper provision shall be made
to entitle a holder of a right to buy common stock of the acquiring company
having a value of two times such Purchase Price.
On January 21, 1997, the Board of Directors of SIGCORP approved a split of
SIGCORP's issued shares of common stock without par value on a three-for-two
basis. The stock split, effective March 27, 1997, increased SIGCORP'S
outstanding shares from 15,754,826 to 23,630,568. Average common shares
outstanding, earnings per share of common stock and dividends paid per share for
all periods presented reflect the stock split.
SIGECO has a common stock option plan for its key management employees. The
option price for all stock options is at least 100% of the fair market value of
SIGCORP common stock at the grant date. Options generally vest and become
exercisable between one and three years in equal annual installments beginning
one year after the grant date, and generally expire in 10 years. The expiration
dates for options outstanding as of December 31, 1998, ranged from July 13, 2004
to July 14, 2007. Stock option activity for the past three years was as follows:
31
<PAGE> 32
<TABLE>
<CAPTION>
At December 31 1998 1997 1996
<S> <C> <C> <C>
Outstanding at beginning of year 458,169 327,901 282,478
Granted 74,999 139,348 46,173
Exercised (29,500) (9,080) (750)
Outstanding at end of year 503,668 458,169 327,901
Exercisable at end of year 381,765 318,821 226,044
Reserved for future grants at end of year 204,639 279,638 418,986
Average Option Price - Exercised $ 21.16 $ 18.42 $ 18.42
- Outstanding at end of year $ 23.28 $ 21.58 $ 19.43
</TABLE>
SIGCORP and SIGECO account for stock compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Under Accounting Principles Board Opinion No. 25, no compensation cost has been
recognized for stock options. Had compensation cost for stock options been
determined consistent with SFAS No. 123 "Accounting for Stock-based
Compensation," net income would have been reduced to the following pro forma
amounts:
SIGCORP, Inc.
<TABLE>
<CAPTION>
At December 31 1998 1997 1996
---------- ---------- ----------
Net Income:
<S> <C> <C> <C>
As reported $ 50,476 $ 46,140 $ 43,264
Pro forma 49,961 45,848 43,176
Basic Earnings Per Share:
As reported $ 2.14 $ 1.95 $ 1.83
Pro forma 2.11 1.94 1.83
Diluted Earnings Per Share:
As reported $ 2.12 $ 1.95 $ 1.83
Pro forma 2.10 1.94 1.82
Southern Indiana Gas and Electric Company
<CAPTION>
At December 31 1998 1997 1996
---------- ---------- ----------
Net Income:
<S> <C> <C> <C>
As reported $ 42,447 $ 44,266 $ 41,744
Pro forma 41,932 43,974 41,656
</TABLE>
The fair value of each option granted used to determine pro forma net income is
estimated as of the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in the twelve
month periods ended December 31, 1998, 1997 and 1996: risk-free interest rate of
4.44%, 5.75% and 6.50%, respectively; expected option term of five years;
expected volatilities of 33.16%, 36.62% and 13.83%, respectively; and dividend
rates of 3.77%, 4.46% and 4.96%, respectively.
EARNINGS PER SHARE The following table illustrates the basic and diluted
earnings per share calculations.
SIGCORP, Inc.
<TABLE>
<CAPTION>
At December 31
(in thousands except
for per share amounts) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
PER Per Per
INCOME SHARES SHARE Income Shares Share Income Shares Share
AMOUNT Amount Amount
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS $50,476 23,631 $2.14 $46,140 23,631 $1.95 $43,264 23,631 $1.83
Effect of dilutive securities 134 56 40
Diluted EPS $50,476 23,765 $2.12 $46,140 23,687 $1.95 $43,264 23,671 $1.83
======= ====== ===== ======= ====== ===== ======= ====== =====
</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.
32
<PAGE> 33
Options to purchase 74,999 shares of common stock at $32.06 per share were
granted in July 1998, but were not included in the computation of diluted
earnings per share because the exercise price was greater than the average
market price of the common shares.
CUMULATIVE PREFERRED STOCK OF SIGECO The amount payable in the event of
involuntary liquidation of each series of the $100 par value preferred stock is
$100 per share, plus accrued dividends. This nonredeemable preferred stock is
callable at the option of SIGECO as follows: the 4.8% Series at $110 per share,
plus accrued dividends; and the 4.75% Series at $101 per share, plus accrued
dividends.
CUMULATIVE REDEEMABLE PREFERRED STOCK OF SIGECO The Series has a dividend rate
of 6.50% and is redeemable at $100 per share on December 1, 2002. In the event
of involuntary liquidation of this series of $100 par value preferred stock, the
amount payable is $100 per share, plus accrued dividends.
CUMULATIVE SPECIAL PREFERRED STOCK OF SIGECO The Cumulative Special Preferred
Stock contains a provision which allows the stock to be tendered on any of its
dividend payment dates. On September 2, 1998, SIGECO repurchased 1,160 shares of
the Cumulative Special Preferred Stock at a cost of $118,500 as a result of a
tender within the provision of the issuance.
NOTE 6 OWNERSHIP OF WARRICK UNIT 4
SIGCORP AND SIGECO
SIGECO and Alcoa Generating Corporation (AGC), a subsidiary of Aluminum Company
of America, own the 270 MW Unit 4 at the Warrick Power Plant as tenants in
common. SIGECO's share of the cost of this unit at December 31, 1998 is
$36,295,000 with accumulated depreciation totaling $25,472,000. AGC and SIGECO
also share equally in the cost of operation and output of the unit. SIGECO's
share of operating costs is included in operating expenses in the Consolidated
Statements of Income.
NOTE 7 COMMITMENTS AND CONTINGENCIES
SIGCORP AND SIGECO
SIGECO presently estimates that approximately $66,000,000 will be expended for
construction purposes in 1999, including those amounts applicable to SIGECO's
demand side management (DSM) programs. Commitments for the 1999 construction
program are approximately $23,853,000 at December 31, 1998. Additionally, SIGECO
has a three-year contract with a utility-affiliated power marketer to purchase
50 MW of electric power beginning January 2000 through December 2002.
NOTE 8 LEASE OBLIGATIONS
SIGCORP
SIMI has entered into an agreement to lease back a previously sold manufacturing
facility and related equipment at $532,000 per year through 2010 under a
noncancelable operating lease. In December 1997, Fuels entered operating lease
agreements for mining equipment. The aggregate future minimum rental payments
required under the above leases are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands)
<S> <C>
1999 $ 2,319
2000 2,319
2001 2,319
2002 2,319
2003 2,144
Thereafter 9,041
Total lease payments $ 20,461
===========
</TABLE>
33
<PAGE> 34
Total rental expense under all operating leases was $1,206,977, $578,454 and
$558,282 for the years ended December 31, 1998, 1997 and 1996, respectively.
NOTE 9 SEGMENTS OF BUSINESS
SIGCORP AND SIGECO
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. A
description of the segments' products and services is included in Note 1
"Principles of Consolidation." The accounting policies of the segments are those
described in Note 1. Revenues for each of SIGCORP's segments are attributable
principally to customers in the United States.
34
<PAGE> 35
Certain financial information relating to significant segments of business is
presented below:
SIGCORP, Inc.
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Electric $ 297,865 $ 272,545 $ 276,479
Gas 66,801 85,561 96,251
Gas marketing 179,613 71,669 1,446
Investment operations 963 955 930
All other 28,664 2,507 29,632
----------- ----------- -----------
Total 573,906 433,237 404,738
----------- ----------- -----------
Interest revenue:
Electric (a) 309 492 392
Gas (a) 31 49 39
Gas marketing 71 27 --
Investment operations 3,702 2,305 1,392
All other 4,880 2,912 312
----------- ----------- -----------
Total 8,993 5,785 2,135
----------- ----------- -----------
Interest expense:
Electric (a) 18,191 18,009 18,207
Gas (a) 1,799 1,781 1,801
Gas marketing 155 15 --
Investment operations 2,749 2,242 773
All other 3,901 2,051 38
----------- ----------- -----------
Total 26,795 24,098 20,819
----------- ----------- -----------
Income taxes:
Electric 22,881 23,714 21,603
Gas 2,153 3,545 3,037
Gas marketing 339 244 (15)
Investment operations (1,517) (2,564) (2,314)
All other 154 (1,078) (348)
----------- ----------- -----------
Total 24,010 23,861 21,963
----------- ----------- -----------
Net income:
Electric 38,342 37,861 37,029
Gas 4,106 6,404 4,714
Gas marketing 543 405 (26)
Investment operations 6,899 3,528 2,391
All other 586 (2,058) (844)
----------- ----------- -----------
Total 50,476 46,140 43,264
----------- ----------- -----------
Depreciation and amortization expense:
Electric 38,077 36,217 35,018
Gas 4,324 3,974 3,599
Gas marketing 36 4 --
Investment operations 189 91 410
All other 107 87 113
----------- ----------- -----------
Total 42,733 40,373 39,140
----------- ----------- -----------
Capital expenditures:
Electric 47,114 55,735 34,836
Gas 9,381 12,687 9,099
Gas marketing -- 20 72
Investment operations 196 547 297
All other 11,754 592 952
----------- ----------- -----------
Total 68,445 69,581 45,256
----------- ----------- -----------
Identifiable assets:
Electric (b) 740,746 726,507 710,791
Gas (b) 141,174 137,956 141,534
Gas marketing 25,905 22,372 1,468
Investment operations 87,000 94,365 92,337
All other 460,706 398,928 349,694
----------- ----------- -----------
Total assets $ 1,455,531 $ 1,380,128 $ 1,295,824
----------- ----------- -----------
</TABLE>
(a) SIGECO allocates interest revenue and expense based on the net plant
ratio which is 91% electric and 9% gas.
(b) Utility plant less accumulated provision for depreciation, inventories,
receivables (less allowance), regulatory assets and other identifiable
assets.
35
<PAGE> 36
The following is a reconciliation to the consolidated financial statements of
SIGCORP:
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997 1996
<S> <C> <C> <C>
Operating revenues:
Total revenues for segments $ 573,906 $ 433,237 $ 404,738
Elimination of intersegment revenues (16,795) -- --
Total consolidated revenues 557,111 433,237 404,738
Interest revenue:
Total interest revenue for segments 8,993 5,785 2,135
Elimination of intersegment interest (3,505) (2,782) --
Total consolidated interest revenue 5,488 3,003 2,135
Interest expense:
Total interest expense for segments 26,795 24,098 20,819
Elimination of intersegment interest (3,505) (2,782) --
Total consolidated interest expense 23,290 21,316 20,819
Identifiable assets:
Total assets for segments 1,455,531 1,380,128 1,295,824
Elimination of intersegment assets (426,013) (390,105) (343,104)
Total consolidated assets $ 1,029,518 $ 990,023 $ 952,720
=========== =========== ===========
</TABLE>
Southern Indiana Gas and Electric Company
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Electric $ 297,865 $ 272,545 $ 276,479
Gas 66,801 85,561 96,251
----------- ----------- -----------
Total 364,666 358,106 372,730
----------- ----------- -----------
Interest revenue:
Electric (a) 309 492 392
Gas (a) 31 49 39
----------- ----------- -----------
Total 340 541 431
----------- ----------- -----------
Interest expense:
Electric (a) 18,191 18,009 18,207
Gas (a) 1,799 1,780 1,801
----------- ----------- -----------
Total 19,990 19,789 20,008
----------- ----------- -----------
Identifiable assets:
Electric (b) 740,746 726,507 710,791
Gas (b) 141,174 137,956 141,534
----------- ----------- -----------
Total assets $ 881,920 $ 864,463 $ 852,325
----------- ----------- -----------
</TABLE>
(a) SIGECO allocates interest revenue and expense based on the net plant
ratio which is 91% electric and 9% gas.
(b) Utility plant less accumulated provision for depreciation, inventories,
receivables (less allowance), regulatory assets and other identifiable
assets.
The following is a reconciliation to the financial statements of SIGECO:
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands) 1998 1997 1996
<S> <C> <C> <C>
Operating revenues:
Total revenues for segments $364,666 $358,106 $372,730
Interest revenue:
Total interest revenue for segments 340 541 431
-------- -------- --------
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C> <C> <C>
Interest expense:
Total interest expense for segments 19,990 19,789 20,008
Identifiable assets:
Total assets for segments $881,920 $864,463 $852,325
======== ======== ========
</TABLE>
NOTE 10 DISCLOSURES ABOUT FAIR VALUE
SIGCORP AND SIGECO
Except for the following financial instruments, fair value of SIGCORP's and
SIGECO's financial instruments is equivalent to carrying value due to their
short-term nature.
SIGCORP, Inc.
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
<S> <C> <C> <C> <C>
Long-Term Debt (including current portion) $303,471 $376,424 $318,597 $381,489
Partnership Obligations (including current portion) 2,358 3,446 4,563 6,163
Redeemable Preferred Stock of Subsidiary 7,500 9,044 7,500 8,091
</TABLE>
Southern Indiana Gas and Electric Company
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
<S> <C> <C> <C> <C>
Long-Term Debt (including current portion) $268,462 $333,456 $283,597 $341,375
Redeemable Preferred Stock 7,500 9,044 7,500 8,091
</TABLE>
At December 31, 1998 and 1997, respectively, the fair value of SIGCORP's debt
relating to utility operations exceeded carrying amounts by $65,000,000 and
$58,000,00. Anticipated regulatory treatment of the excess or deficiency of fair
value over carrying amounts of SIGECO's long-term debt, if in fact settled at
amounts approximating those above, would dictate that these amounts be used to
reduce or increase SIGECO's rates over a prescribed amortization period.
Accordingly, any settlement would not result in a material impact on SIGECO's
financial position or results of operations.
LONG-TERM DEBT Fair value of SIGCORP's long-term debt, which was substantially
related to SIGECO's operations, was based on the current quoted market interest
rate of long-term debt of comparably rated utilities (5.09%). Fair value of
SIGCORP's tax-exempt issues were valued at the tax-effected rate of such debt
(3.26%).
REDEEMABLE PREFERRED STOCK OF SIGECO Fair value of SIGECO's redeemable preferred
stock was based on the current quoted market rate of long-term debt with similar
characteristics, of comparably rated utilities (5.09%).
PARTNERSHIP OBLIGATIONS Fair value of SIGCORP's partnership obligations was
estimated based on the current quoted market rate of comparable debt (5.09%).
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 2, 1999
SIGCORP, Inc.
By R. G. Reherman, Chairman, President and Chief Executive Officer
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/s/ R. G. Reherman
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
By R. G. Reherman, Chairman
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/s/ R. G. Reherman
38
