SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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
Stock, New York Stock Exchange
and Electric Company $100 Par Value
</TABLE>
<PAGE> 2
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.
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 February 26, 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 $679,378,830 and $16,957,495, respectively.
As of February 26, 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.
Documents Incorporated by Reference
The Joint Proxy Statement of SIGCORP, Inc. and Southern
Indiana Gas and Electric Company dated March 22, 1999 is
incorporated by reference into Part III of this report.
This combined Form 10-K is separately filed by SIGCORP,
Inc. and Southern Indiana Gas and Electric Company.
<PAGE> 3
<TABLE>
<CAPTION>
Table of Contents
Item Page
Number Number
Part I
<S> <C> <C>
1 Business .............................................. 4
2 Properties ............................................ 14
3 Legal Proceedings...................................... 14
4 Submission of Matters to Vote of Security Holders 14
Part II
5 Market for Registrant's Common Equity
and Related Security Holder Matters ................. 15
6 Selected Financial Data................................ 16
7 Management's Discussion and Analysis
of Results of Operations and Financial Condition..... 17
8 Financial Statements and Supplementary Data............ 27
9 Disagreements on Accounting and Financial
Disclosure........................................... 60
Part III
10 Directors and Executive Officers of
the Registrants 61
11 Executive Compensation and Transactions 61
12 Security Ownership of Certain Beneficial
Owners and Management 61
13 Certain Relationships and Related
Transactions 61
Part IV
14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 62
15 Subsidiaries of the Registrant 68
16 Signatures 69
PART I
<PAGE> 4
Item 1. BUSINESS
SIGCORP and SIGECO
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, availability and cost of capital, and
other similar factors.
ORGANIZATION
SIGCORP, Inc. (SIGCORP) is a holding company
incorporated October 19, 1994 under the laws of the State
of Indiana. SIGCORP has eleven wholly-owned subsidiaries:
Southern Indiana Gas and Electric Company (SIGECO), a gas
and electric utility, and ten nonregulated subsidiaries.
On December 20, 1994, SIGECO's Board of Directors
authorized the steps required for a corporate
reorganization in which a holding company would become the
parent of SIGECO. SIGECO's shareholders approved the
reorganization at SIGECO's March 28, 1995 annual meeting,
and approval by the Federal Energy Regulatory Commission
and the Securities and Exchange Commission was granted
November 7, 1995 and December 14, 1995, respectively.
Effective January 1, 1996, the new holding company,
SIGCORP, became the parent of SIGECO, which accounts for
over 80% of SIGCORP's net income, and four of SIGECO's
former wholly-owned nonregulated subsidiaries: Energy
Systems Group, Inc., Southern Indiana Minerals, Inc.,
Southern Indiana Properties, Inc. and ComSource, Inc. All
of the shares of SIGECO's common stock were exchanged on a
one-for-one basis for shares of SIGCORP, while all of
SIGECO's debt securities and all of its outstanding shares
of preferred stock remained securities of SIGECO and were
unaffected. (See "Nonregulated Subsidiaries - General" and
Note 1 of the Notes to Consolidated Financial Statements,
page 44, for further discussion.)
The reorganization was in response to the changes
created in the electric industry by the Energy Policy Act
of 1992 and the need to respond quickly to the more
competitive business environment. The new structure
buffers SIGECO and its customers from the effects of
pursuing nonregulated opportunities while allowing SIGCORP
to engage in closely related, but historically
nonregulated, businesses. Providing gas and electric
utility service to customers through SIGECO remains the
core business and primary focus of SIGCORP.
SIGECO - GENERAL
SIGECO is an operating public utility incorporated
June 10, 1912, under the laws of the State of Indiana,
engaged in the generation, transmission, distribution and
sale of electric energy and the purchase of natural gas and
its transportation, distribution and sale in a service area
which covers ten counties in southwestern Indiana.
Electric service is supplied directly to Evansville
and 74 other cities, towns and communities, and adjacent
rural areas. Wholesale electric service is supplied to an
additional eight communities. At December 31, 1998, SIGECO
served 124,340 electric customers and was also obligated to
provide for firm power commitments to the City of Jasper,
Indiana and to maintain spinning reserve margin
requirements under an agreement with the East Central Area
Reliability Group (ECAR).
At December 31, 1998, SIGECO supplied gas service to
108,335 customers in Evansville and 64 other nearby
communities and their environs. Since 1986, SIGECO has
purchased its natural gas supply requirements from numerous
suppliers. During 1998, thirty-seven suppliers were used.
<PAGE> 5
The principal industries served by SIGECO include
polycarbonate resin (Lexan) and plastic products, aluminum
smelting and recycling, aluminum sheet products, automotive
assembly, steel finishing, appliance manufacturing,
pharmaceutical and nutritional products, automotive glass,
gasoline and oil products and coal mining.
The only property SIGECO owns outside of Indiana is
approximately eight miles of a 138,000 volt electric
transmission line which is located in Kentucky and which
interconnects with Louisville Gas and Electric Company's
transmission system at Cloverport, Kentucky. The original
cost of the property is less than $425,000. SIGECO does
not distribute any electric energy in Kentucky.<PAGE>
SIGECO - LINES OF BUSINESS
The percentages of operating revenues and operating
income before income taxes attributable to the electric and
gas operations of SIGECO for the five years ended December
31, 1998, were as follows:
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Electric 79.1% 81.3% 74.2% 76.1% 81.7%
Gas 20.9 18.7 25.8 23.9 18.3
Operating Income Before Income Taxes:
Electric 90.9% 96.4% 89.0% 87.1% 90.8%
Gas 9.1 3.6 11.0 12.9 9.2
</TABLE>
Reference is made to Note 9 of the Notes to
Consolidated Financial Statements, page 56, for Segments of
Business data.
SIGECO - ELECTRIC BUSINESS
SIGECO supplies electric service to 124,340 customers,
including 108,241 residential, 15,900 commercial, 175
industrial, 19 public street and highway lighting, and five
municipal customers.
SIGECO's installed generating capacity as of December
31, 1998 was rated at 1,256,000 kilowatts (Kw). Coal-fired
generating units provide 1,041,000 Kw of capacity and gas
or oil-fired turbines used for peaking or emergency
conditions provide 215,000 Kw.
In addition, SIGECO has interconnections with
Louisville Gas and Electric Company, Cinergy Services,
Inc., Indianapolis Power & Light Company, Hoosier Energy
Rural Electric Cooperative, Inc., Big Rivers Electric
Corporation, Wabash Valley Power Association, and the City
of Jasper, providing an ability to simultaneously
interchange approximately 750,000 Kw.
Record-breaking peak conditions occurred on July 21,
1998, when SIGECO's system summer peak load reached
1,082,500 Kw. SIGECO's total load, including its firm
power commitments to the City of Jasper, Indiana, for each
of the years 1994 through 1998 at the time of the system
summer peak, and the related reserve margin, are presented<PAGE>
below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date of Summer Peak
Load 7-20-94 8-17-95 8-21-96 7-14-97 7-21-98
Company System Peak
Load (Kw) 992,000 1,021,000 999,800 1,022,700 1,082,500
Firm Power Commitments
at Peak 42,000 60,800 53,500 63,700 46,800
Total at Peak 1,034,000 1,081,800 1,053,300 1,086,400 1,129,300
Total Generating
Capability (Kw) 1,238,000 1,236,000 1,236,000 1,236,000 1,256,000
Reserve Margin at Peak 20% 14% 17% 14% 11%
</TABLE>
<PAGE> 6
The winter peak load of the 1997-1998 season of
763,200 Kw occurred on March 11, 1998 and was 7.3% lower
than the previous winter peak load of 823,700 Kw which
occurred on January 14, 1997.
SIGECO, primarily as agent of Alcoa Generating
Corporation (AGC), operates the Warrick Generating Station,
a coal-fired steam electric plant which interconnects with
SIGECO's system and provides power for the Aluminum Company
of America's Warrick Operations, which includes aluminum
smelting and fabricating facilities. Of the four turbine
generators at the plant, Warrick Units 1, 2 and 3, with a
capacity of 144,000 Kw each, are owned by AGC. Warrick
Unit 4, with a rated capacity of 270,000 Kw, is owned by
SIGECO and AGC as tenants in common, each having shared
equally in the cost of construction and sharing equally in
the cost of operation and in the output.
SIGECO (a summer peaking utility) has an agreement
with Hoosier Energy Rural Electric Cooperative, Inc.
(Hoosier Energy) for the sale of firm peaking power to
Hoosier Energy during the annual winter heating season
(November 15-March 15). The contract made available 222 Mw
during the 1998-1999 winter season, and will terminate
March 15, 2000.
Electric generation for 1998 was fueled by coal
(98.5%) and natural gas (1.5%). Oil was used only for
testing of gas/oil-fired peaking units.
Historically, coal for SIGECO's coal-fired generating
stations has been purchased from operators of nearby<PAGE>
Indiana strip mines pursuant to long-term contracts. Over
the past several years, SIGECO has been actively involved
in intensive contract negotiations and legal actions to
reduce coal costs and thereby lower electric rates. The
initial long-term coal contracts to be renegotiated and
eventually bought out were those supplying SIGECO's Culley
Generating Station and Warrick Unit 4. Net savings from
these actions, estimated to total approximately $59
million, were passed back to SIGECO's electric customers
through the fuel adjustment clause. The coal used in these
plants is blended, when necessary, to meet specifications
set in conformance with the requirements of the Indiana
State Implementation Plan for sulfur dioxide issued under
federal laws regulating air quality (Clean Air Act).
Approximately 1,638,000 tons of coal were used during 1998
in the generation of electricity at the Culley Station and
Warrick Unit 4 with the majority of the coal used at the
Culley Station supplied by SIGCORP's subsidiary, SIGCORP
Fuels, Inc (see "Nonregulated Subsidiaries - General", page
8). Culley Units 2 and 3 were equipped with flue gas
desulfurization equipment as part of the Clean Air Act
Compliance Plan. (See "Environmental Matters", page 11,
for further discussion.) SIGECO's remaining long-term
contract coal supplier supplied the A. B. Brown Generating
Station. On April 10, 1995, SIGECO reached an agreement
with this coal supplier, effective July 16, 1995, to buy
out the remainder of SIGECO's contractual obligations,
enabling it to acquire lower-priced spot market coal.
SIGECO estimates the total savings in coal costs resulting
from the buyout, net of total buyout costs, approximated
$58 million through December 31, 1998, the term of the
original contract. The net savings from this coal contract
renegotiation are also being passed back to SIGECO's retail
and firm wholesale electric customers through the fuel
adjustment clause. The amount of coal burned at A. B.
Brown Generating Station during 1998 was approximately
1,312,000 tons. Both units at the generating station are
equipped with flue gas desulfurization equipment so that
coal with a higher sulfur content can be used. There are
substantial coal reserves in the southern Indiana area.
The average cost (including contract buyout costs) of all
coal consumed in generating electrical energy for the years
1994 through 1998 was as follows:
<TABLE>
<CAPTION>
Average Cost
Average Cost Average Cost Per Kwh
Year Per Ton Per MMBTU (In Mills)
<S> <C> <C> <C>
1994 $ 31.86 $ 1.42 14.91
1995 30.02 1.33 14.10
1996 26.01 1.16 12.40<PAGE>
1997 20.75 0.91 9.80
1998 21.34 0.94 9.97
</TABLE>
<PAGE> 7
The Broadway Turbine Units 1 and 2, Northeast Gas
Turbines and A. B. Brown Gas Turbine, when used for
peaking, reserve or emergency purposes, use natural gas for
fuel. Number 2 fuel oil can also be used in the Broadway
Turbine Units and the Brown Gas Turbine.
All metered electric rates contain a provision for
adjustment in charges for electric energy to reflect
changes in the cost of fuel and the net energy cost of
purchased power through the operation of a fuel adjustment
clause unless certain criteria contained in the regulations
are not met. Effective April 26, 1995, the principal
restriction to recovery of fuel cost increases is that such
recovery is not allowed to the extent that total operating
income for the 60-month period including the twelve-month
period provided in the fuel cost adjustment filing exceeds
the total operating income authorized by the Indiana
Utility Regulatory Commission (IURC) during the same 60-
month period. Prior to April 26, 1995, the operating
income test period was the twelve-month period provided in
the fuel cost adjustment filing. During 1996-1998, neither
restriction affected SIGECO. As prescribed by order of the
IURC, the adjustment factor is calculated based on the
estimated cost of fuel and the net energy cost of purchased
power in a designated future quarter. The order also
provides that any over- or underrecovery caused by
variances between estimated and actual cost in a given
quarter will be included in the second succeeding quarter's
adjustment factor. This continuous reconciliation of
estimated incremental fuel costs billed with actual
incremental fuel costs incurred closely matches revenues to
expenses.
SIGECO participates in research and development in
which the primary goal is cost savings through the use of
new technologies. This is accomplished, in part, through
the efforts of the Electric Power Research Institute
(EPRI). In 1998, SIGECO paid $650,000 to EPRI to help fund
research and development programs such as advanced clean
coal burning technology.
SIGECO is participating with 14 other electric utility
companies through Ohio Valley Electric Corporation (OVEC)
in arrangements with the United States Department of Energy
(DOE), to supply the power requirements of the DOE plant<PAGE>
near Portsmouth, Ohio. The sponsoring companies are
entitled to receive from OVEC, and are obligated to pay
for, any available power in excess of the DOE contract
demand. The proceeds from the sale of power by OVEC are
designed to be sufficient to meet all of its costs and to
provide for a return on its common stock. During 1998,
SIGECO's participation in the OVEC arrangements was 1.5%.
SIGECO participates with 27 other utilities and other
affiliated groups located in eight states comprising the
east central area of the United States, in the East Central
Area Reliability group, the purpose of which is to
strengthen the area's electric power supply reliability.
SIGECO - GAS BUSINESS
SIGECO supplies natural gas service to 108,335
customers, including 98,636 residential, 9,481 commercial
and 218 industrial customers, through 2,932 miles of gas
transmission and distribution lines.
SIGECO owns and operates three underground gas storage
fields with an estimated ready delivery from storage of 3.9
million Dth of gas. Natural gas purchased from SIGECO's
suppliers is injected into these storage fields during
periods of light demand which are typically periods of
lower prices. The injected gas is then available to
supplement the contracted volumes during periods of peak
requirements. It is estimated that approximately 119,000
Dth of gas per day can be withdrawn from the three storage
fields during peak demand periods on the system.
In 1998, a total of 37 suppliers sold gas to SIGECO. In
total, SIGECO purchased 12,949,575 Dth in 1998. During
1998, sixty-six of SIGECO's major gas customers utilized
SIGECO's gas transportation program to procure a portion of
their gas supply needs from suppliers other than SIGECO. A
total of 17,349,036 Dth, 60% of total gas throughput, was
transported for these major customers in 1998 compared to
14,548,909 Dth transported in 1997. SIGECO receives fees
for the use of its facilities in transporting such gas.
The all-time record send out occurred during the 1993-
1994 winter season on January 18, 1994, when 247,449 Dth of
gas were delivered to SIGECO's customers. Of this amount,
97,946 Dth was purchased, 106,558 Dth was taken out of
SIGECO's three underground storage fields, and 42,945 Dth
was transported to customers under transportation
<PAGE> 8
agreements. The 1997-1998 winter season peak day send out<PAGE>
was 182,818 Dth on March 11, 1998.
The average cost per Dth of gas purchased by SIGECO
during the past five calendar years was as follows: 1994,
$2.54; 1995, $2.48; 1996, $3.47; 1997, $3.25; and 1998,
$3.22.
The State of Indiana has established procedures which
result in SIGECO passing on to its customers the changes in
the cost of gas sold unless certain criteria contained in
the regulations are not met. Effective April 26, 1995, the
principal restriction to recovery of gas cost increases is
that such recovery is not allowed to the extent that total
operating income for the 60-month period including the
twelve-month period provided in the gas cost adjustment
filing exceeds the total operating income authorized by the
IURC during the same 60-month period. Prior to April 26,
1995, the operating income test period was the twelve-month
period provided in the gas cost adjustment filing. During
1996-1998, neither restriction affected SIGECO.
Additionally, these procedures provide for scheduled
quarterly filings and IURC hearings to establish the amount
of price adjustments for a designated future quarter. The
procedures also provide for inclusion in a later quarter of
any variances between estimated and actual costs of gas
sold in a given quarter. This reconciliation process with
regard to changes in the cost of gas sold closely matches
revenues to expenses. SIGECO's rate structure does not
include a weather normalization-type clause whereby a
utility would be authorized to recover the gross margin on
sales established in its last general rate case, regardless
of actual weather patterns.
Natural gas research is supported by SIGECO through
the Gas Research Institute in cooperation with the American
Gas Association. Since passage of the Natural Gas Act of
1978, a major effort has gone into promoting gas
exploration by both conventional and unconventional
sources. Efforts continue through various projects to
extract gas from tight gas sands, shale and coal. Research
is also directed toward the areas of conservation, safety
and the environment.
SIGCORP
NONREGULATED SUBSIDIARIES - GENERAL
In addition to its wholly-owned utility subsidiary,
SIGECO, SIGCORP has ten wholly-owned nonutility
subsidiaries, of which nine were active by December 1998.
Southern Indiana Properties, Inc., formed in 1986, invests
in leveraged leases of real estate and equipment, real
estate partnerships and joint ventures and private
placement subordinated debt instruments. Energy Systems
Group, Inc., incorporated in April 1994, 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.,
incorporated in May 1994, processes and markets coal
combustion by-products. SIGCORP Energy Services, Inc.,
incorporated in October 1996, was established to market
energy and related services and currently provides natural
gas, pipeline management, storage service and other natural
gas-related services to SIGECO and other customers.
SIGCORP Capital, Inc., also incorporated in October 1996,
is the primary financing vehicle for SIGCORP's nonregulated
subsidiaries. SIGCORP Fuels, Inc., incorporated in
December 1996, was formed to own and operate coal mining
properties and to provide coal and related services to
SIGECO and other customers. SIGCORP Power Marketing, Inc.,
also incorporated in December 1996, but 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,
Inc., incorporated in August 1997, was formed to undertake
telecommunications-related strategic initiatives. SIGECO
Advanced Communications, Inc. (Advanced Communications),
incorporated in April 1998, holds SIGCORP's investment in
SIGECOM, LLC and Utilicom Networks, Inc. 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
incorporated in June 1995, was merged into Advanced
Communications. SIGCORP Environmental Services, Inc.,
incorporated in November 1998, holds SIGCORP's investment
in Air Quality Services, a joint venture created to provide
air quality monitoring and testing services to industry and
utilities. (See "SIGECO Advanced Communications, Inc." in
Item 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, page 21, and Note 1 of
the Notes to Consolidated Financial Statements, page 44,
for further discussion.)
<PAGE> 9
SIGCORP and SIGECO
PERSONNEL
The holding company, SIGCORP, had no employees as of
December 31, 1998.
SIGECO's network of gas and electric operations
directly involves 787 employees with an additional 155
employed at Alcoa's Warrick Power Plant. Alcoa reimburses
SIGECO for the entire cost of the payroll and associated
benefits at the Warrick Plant, with the exception of one-
half of the payroll costs and benefits allocated to Warrick
Unit 4, which is jointly owned by SIGECO and Alcoa. The
total payroll and benefits for SIGECO employees in 1998
(including all Warrick Plant employees) were $55.8 million.
In 1997, total payroll and benefits were $54.6 million.
On July 1, 1998, SIGECO signed a new two-year contract
with Local 702 of the International Brotherhood of
Electrical Workers. The contract provides for annual wage
increases of 3.5% and 3.0%. Improvements in healthcare
coverage costs and pension plan benefits are also included.
On July 1, 1994, SIGECO's Hoosier Division signed a five-
year labor contract with Local 135 of the Teamsters,
Chauffeurs, Warehousemen and Helpers. The contract
provides for annual wage increases of 3.5%, 3.5%, 3.75%,
4.0% and 4.0%. Also included are improvements in health
care coverage costs and pension benefits.
As of December 31, 1998, Southern Indiana Properties,
Inc. had 2 employees; Energy Systems Group, Inc. had 35
employees; Southern Indiana Minerals, Inc. had 8 employees;
SIGCORP Energy Services, Inc. had 16 employees; SIGCORP
Communications, Inc. had 14 employees; SIGCORP Fuels, Inc.
had 3 employees; and Sigeco Advanced Communications, Inc.
had 1 employee. SIGCORP Capital, Inc., SIGCORP
Environmental Services, Inc. and SIGCORP Power Marketing,
Inc. had no employees as of December 31, 1998. There were
no labor organizations representing employees of the
nonregulated entities.
CONSTRUCTION PROGRAM AND FINANCING
SIGCORP's demand for capital is primarily related to
SIGECO's construction of utility plant and equipment
necessary to meet customers' electric and gas energy needs,
as well as environmental compliance requirements. See
"Liquidity and Capital Resources" in Item 7, MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, page 25, for discussion of
construction expenditures and financing during 1998.
For 1999, SIGECO's construction expenditures are
presently estimated to be $65.7 million. Expenditures in
the power production area are expected to total $24.7
million. The balance of the 1999 construction program
consists of $18.5 million for additions and improvements to<PAGE>
other electric system facilities, $10.5 million for
additions and improvements to the gas system, $12.0 million
to complete several strategic information systems and for
common utility plant buildings and equipment.
In keeping with SIGECO's objective to bring new
facilities on line as needed, the construction program and
amount of scheduled expenditures are reviewed periodically
to factor in load growth projections, system planning
requirements, environmental compliance and other
considerations. As a result of this program of periodic
review, construction expenditures may change in the future
from the program as presented herein.
Currently it is estimated that SIGECO's construction
expenditures will total about $280 million, including
allowance for funds used during construction, for the years
1999-2003 as follows: 1999 - $65.7 million; 2000 - $65.3
million; 2001 - $64.0 million; 2002 - $47.0 million and
2003 - $38.0 million. This construction program reflects
approximately $10.0 million for the completion of several
comprehensive information systems initiated in 1996, but
excludes construction expenditures that may be required to
comply with new United States Environmental Protection
Agency (USEPA) air quality standards discussed under
"Environmental Matters" which could total $90 million.
Because SIGECO plans to lease the proposed cogeneration
facility discussed in "Rate and Regulatory Matters" in Item
7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL
<PAGE> 10
CONDITION, page 19, its cost is not included in the
projected five-year construction requirements. SIGECO does
not currently anticipate the need for construction of
additional generation facilities. Additionally, SIGCORP
will contribute a minimum of $2.7 million to its
nonregulated subsidiary, Advanced Communications, for the
joint venture, SIGECOM, during the five-year period. While
SIGCORP expects the majority of SIGECO's construction
requirements to be provided by internally generated funds,
external financing requirements of $60-70 million are
anticipated and will be used primarily to redeem an
estimated $47.4 million of SIGCORP long-term debt
redemptions anticipated during the five-year period.
REGULATION
Because of its ownership of SIGECO, SIGCORP is a
"Holding Company" as defined by the Public Utility Holding
Company Act of 1935 (PUHCA). Furthermore, SIGECO is also a
"Holding Company" as defined by PUHCA due to SIGECO's
ownership of 33% of Community Natural Gas Company. Both
SIGCORP and SIGECO are exempt from regulation under the
PUHCA except for the provisions of Section 9(A)(2), which
pertain to acquisitions of other utilities.
Operating as a public utility under the laws of
Indiana, SIGECO is subject to regulation by the Indiana
Utility Regulatory Commission (IURC) as to its rates,
services, accounts, depreciation, issuance of securities,
acquisitions and sale of utility properties or securities,
and in other respects as provided by the laws of Indiana.
See subsequent discussion under "Competition" regarding the
restructuring of the electric utility industry and possible
deregulation of certain segments or functions of electric
utility service.
In addition, SIGECO is subject to regulation by the
Federal Energy Regulatory Commission (FERC) with respect to
the sale and transmission of electric energy in interstate
commerce, its rates for sales for resale, interconnection
agreements with other utilities, the classification of its
accounts and the acquisition and sale of utility property
in certain circumstances as provided by the Federal Power
Act.
See "SIGECO-Electric Business", page 5 and "SIGECO-Gas
Business", page 7 for further discussion regarding
regulatory matters.
SIGECO is subject to regulations issued pursuant to
federal and state laws, pertaining to air and water
pollution control. The economic impact of compliance with
these laws and regulations is substantial, as discussed in
detail under "Environmental Matters." SIGECO is also
subject to multiple regulations issued by both federal and
state commissions under the Federal Public Utility
Regulatory Policies Act of 1978.
COMPETITION
As part of its efforts to develop a national energy
strategy, Congress amended PUHCA and the Federal Power Act
by enacting the National Energy Policy Act of 1992 (NEPA),
which will affect the traditional structure of the electric
utility industry. As a result of changes brought about by
NEPA, SIGECO competes with other utilities and wholesale
generators for sales of electricity to existing wholesale
customers of SIGECO and other potential wholesale
customers. SIGECO currently competes with other utilities
in connection with intersystem bulk power sales. SIGECO<PAGE>
does not presently compete for retail electric or gas
customers with the other utilities within its assigned
service areas. However, various federal and state
legislators, including members of the Indiana General
Assembly, have introduced proposed legislation addressing
retail wheeling and other related issues. Under the
proposed legislation, the electric generation function (and
the marketing function under some proposals) would be
subject to competition and deregulated, while other
functions such as transmitting and distributing power,
would continue to be regulated. See "Competition" in Item
7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, page 19, for discussion
of the major changes effected by NEPA; the status of
related recently proposed Indiana legislation; and further
discussion of the deregulation of the electric industry and
possible further deregulation of the natural gas industry.
Some of SIGECO's gas customers have, or in the future
could acquire, access to energy sources other than those
available through SIGECO. (See "SIGECO-Gas Business", page
7, for discussion of gas transportation.) Although
<PAGE> 11
federal policy allows bypass of a local distribution
company, Indiana law disallows bypass in most cases.
SIGECO is currently litigating such an attempt in the
Indiana regulatory arena and before the FERC. (See
"Competition" in Item 7, MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION,
page 19 for discussion of the bypass attempt and related
litigation.)
There is also increasing interest in research on the
development of sources of energy other than those in
general use. Such competition from other energy sources
has not been a material factor to SIGECO in the past.
SIGECO is unable, however, to predict the extent of this
competition in the future or its potential effect on
SIGECO's operations.
ENVIRONMENTAL MATTERS
SIGECO is subject to federal, state and local
regulations with respect to environmental matters,
principally air, solid waste and water quality. Pursuant
to environmental regulations, SIGECO is required to obtain
operating permits for the electric generating plants which
it owns or operates and construction permits for any new
plants which it might propose to build. Regulations
concerning air quality establish standards with respect to
both ambient air quality and emissions from SIGECO's
facilities, including particulate matter, sulfur dioxide
and nitrogen oxides. Regulations concerning water quality
establish standards relating to intake and discharge of
water from SIGECO's facilities, including water used for
cooling purposes in electric generating facilities.
Because of the scope and complexity of these regulations,
SIGECO is unable to predict the ultimate effect of such
regulations on its future operations, nor is it possible to
predict what other regulations may be adopted in the
future. SIGECO intends to comply with all applicable valid
governmental regulations, but will contest any regulation
it deems to be unreasonable or impossible to comply with or
which is otherwise invalid.
The implementation of federal and state regulations
designed to protect the environment, including those
hereinafter referred to, involves or may involve review,
certification or issuance of permits by federal and state
agencies. Compliance with such regulations may limit or
prevent certain operations or substantially increase the
cost of operation of existing and future generating
installations, as well as seriously delay or increase the
cost of future construction. Such compliance may also
require substantial investments above those amounts stated
under "Construction Program and Financing", page 9.
All existing SIGECO electric generation facilities
have operating permits from the Indiana Department of
Environmental Management or other agencies having
jurisdiction. In order to secure approval for these
permits, SIGECO had installed electrostatic precipitators
on all coal-fired units and is operating flue gas
desulfurization (FGD) units to remove sulfur dioxide from
the flue gas at its A. B. Brown Units 1 and 2 generating
facilities. The FGD units at the Brown Station remove most
of the sulfur dioxide from the flue gas emissions by way of
a scrubbing process, thereby allowing SIGECO to burn high
sulfur southern Indiana coal at the station.
In October 1990, the U.S. Congress adopted major
revisions to the Federal Clean Air Act. The revisions
require reduction in emissions of sulfur dioxide (SO2) and
nitrogen oxide (NOX) from coal-burning electric generating
facilities, including those owned and operated by SIGECO.
Two of SIGECO's principal coal-fired facilities (A. B.
Brown Units 1 and 2, totaling 500 megawatts of capacity)
were equipped with sulfur dioxide removal equipment
(scrubbers) and were not severely affected by the new
legislation. However, 523 megawatts of SIGECO's coal-fired
generating capacity were significantly impacted by the
lower emission requirements. SIGECO was required to reduce
total emissions from Culley Unit 3 (250 megawatts), Warrick
Unit 4 (135 megawatts) and Culley Unit 2 (92 megawatts) by
approximately 50% to 2.5 lb/MMBTU by January 1995 (Phase I)
and to 1.2 lb/MMBTU by January 2000 (Phase II). SIGECO met
all of the Phase I emission requirements and some of the
Phase II requirements by January 1995 with the
implementation of its Clean Air Act Compliance Plan which
includes equipping Culley Units 2 and 3 with a sulfur
dioxide scrubber, among other provisions. Unit 1 at
Culley Station (46 megawatts) is also subject to the 1.2
lb/MMBTU restriction by January 2000. Current regulatory
policy allows for the recovery through rates of all
authorized and approved pollution control expenditures.
Refer to "Environmental Matters" in Item 7, MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, page 21, for further discussion of
SIGECO's Clean Air Act Compliance Plan, and the associated
costs. SIGECO filed Title V (of the 1990 Amendments to the
Federal Clean Air Act) permit applications for all of its
applicable generation facilities during the fourth quarter
of 1996. The applications
<PAGE> 12
have been approved for completeness and are being processed
by the Indiana Department of Environmental Management.
Warrick Unit 4 (50% owned by SIGECO) is covered by Title V
permit applications filed by Alcoa Generating Corporation,
majority owner of the Warrick Generating Station.
With the addition of the scrubber at the Culley
generating station, SIGECO is exceeding the minimum
compliance requirements of Phase I and intends, at this
time, to utilize resulting "overcompliance allowances" and
fuel blending (with low sulfur coal) strategies to help
meet the stricter Phase II requirements effective January
2000. SIGECO is purchasing additional allowances to fully
meet Phase II requirements. No material capital
expenditures are anticipated to meet Phase II requirements,
and thus, none are reflected in the projected construction
requirements for the years 1999-2003 discussed in
"Construction Program and Financing" or in "Liquidity and
Capital Resources" in Item 7, MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION,
page 24.
In December 1996 and January 1997, the USEPA issued
proposed regulations regarding new national ambient air
quality standards for regional ozone and particulate matter
concentration levels. In July 1997, the USEPA issued its
final rule which revised the national ambient air quality
standard for ozone by setting a lower concentration limit
and changing the averaging period from one hour to eight
hours. There remains much uncertainty as to the extent
that SIGECO would be affected by this ruling. Refer to
"Environmental Matters" in Item 7, MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION, page 21, for discussion of this new ruling and
related issues and the estimated possible costs to comply
with reductions if ultimately required.
In connection with the use of sulfur dioxide removal
equipment at the A. B. Brown Generating Station, SIGECO
operates a solid waste landfill for the disposal of
approximately 200,000 tons of residue per year from the
scrubbing process. Application for renewal of the landfill
operating permit was filed with the Indiana Department of
Environmental Management (IDEM) in August 1996. The
existing permit will remain in effect until action is taken
by IDEM on the renewal application. SIGECO also has a
solid waste landfill available for the disposal of the
gypsum by-product being produced by the new sulfur dioxide
scrubber at the Culley Generating Station. SIGECO was
granted a five-year operating permit for the landfill in
June 1995, but anticipates using this landfill only when
the gypsum by-product does not meet contract specifications
for its sale to a wallboard manufacturer. Such utilization
has not been necessary, to date.
Under the Federal Water Pollution Control Act of 1972
and Indiana law and regulations, SIGECO is required to
obtain permits to discharge effluents from its existing
generating stations into the navigable waterways of the
United States. The State of Indiana has received
authorization from the USEPA to administer the federal
discharge permits program in Indiana. Variances from
effluent limitations may be granted by permit on a plant-
by-plant basis where the utility can establish the
limitations are not necessary to assure the protection of
aquatic life and wildlife in and on the body of water into
which the discharge is to be made. SIGECO has been granted
National Pollution Discharge Elimination System (NPDES)
permits covering miscellaneous waste water and thermal
discharges for all its generating facilities to which the
NPDES is applicable, namely the Culley Station, A. B. Brown
Station and Broadway Station (gas turbines). As majority
owner of Warrick Generating Station, Alcoa Generating
Corporation has been granted an NPDES permit for that
facility, including Warrick Unit 4. Such discharge permits
are limited in time and must be renewed at five-year
intervals. During 1994, SIGECO submitted renewal
applications for these permits, which are currently
pending, as they are for most industries. The existing
permits will remain in effect until action is taken by IDEM
on the renewal applications. SIGECO anticipates renewal of
the permits by IDEM. At present, there are no known
enforcement proceedings concerning water quality pending or
threatened against SIGECO.
<PAGE> 13
Item 1. BUSINESS (Continued)
EXECUTIVE OFFICERS OF SIGCORP AND SIGECO
<TABLE>
<CAPTION>
Age at
Name 12/31/98 Positions Held During Past Five Years Dates
<S> <C> <C> <C>
R. G. Reherman 63 Chairman of the Board of Directors,
President and Chief Executive
Officer of SIGCORP Jan 1996
- Present
Chairman of the Board of Directors
of SIGECO Sept 1997 -
Present
Chairman of the Board of Directors,
President and Chief Executive
Officer of SIGECO *- Sept 1997
A.E. Goebel 51 Executive Vice President of SIGCORP Sept 1997 -
Present
Secretary and Treasurer of SIGCORP Jan 1996 -
Sept 1997
President and Chief Executive Officer
of SIGECO Sept 1997 -
Present
Senior Vice President, Chief Financial
Officer and Secretary of SIGECO Oct 1996 -
Sept 1997
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
of SIGECO * - Oct 1996
J.G. Hurst 55 Executive Vice President and Chief
Operating Officer of SIGECO Sept 1997 -
Present
Senior Vice President and General
Manager of Operations of SIGECO * - Sept 1997
J.L. Davis 43 Vice President Support Services
of SIGECO Jan 1999 -
Present
Vice President of Marketing and
Customer Service of SIGECO July 1995 -
Dec 1998
Director of Marketing of SIGECO * - July 1995<PAGE>
W.S. Doty 48 Vice President Energy Delivery of
SIGECO Jan 1999 -
Present
Director of Gas Operations of SIGECO * - Dec 1998
R.G. Jochum 51 Vice President Power Supply of SIGECO Jan 1999 -
Present
Vice President and Director of Power
Production of SIGECO July 1994 -
Dec 1998
G.M.McManus 51 Vice President and Director of
Governmental Relations of SIGECO * - Present
</TABLE>
* Indicates positions held at least since 1994.
<PAGE> 14
Item 2. PROPERTIES
SIGCORP and SIGECO
SIGCORP has no significant properties other than
common stock of affiliates.
SIGECO's installed generating capacity as of December
31, 1998 was rated at 1,256,000 Kw. SIGECO's coal-fired
generating facilities are: the Brown Station with 500,000
Kw of capacity, located in Posey County about eight miles
east of Mt. Vernon, Indiana; the Culley Station with
406,000 Kw of capacity, and Warrick Unit 4 with 135,000 Kw
of capacity. Both the Culley and Warrick Stations are
located in Warrick County near Yankeetown, Indiana.
SIGECO's gas-fired turbine peaking units are: the 80,000
Kw Brown Gas Turbine located at the Brown Station; two
Broadway Gas Turbines located in Evansville, Vanderburgh
County, Indiana, with a combined capacity of 115,000 Kw;
and two Northeast Gas Turbines located northeast of
Evansville in Vanderburgh County, Indiana with a combined
capacity of 20,000 Kw. The Brown and Broadway turbines are
also equipped to burn oil. Total capacity of SIGECO's five
gas turbines is 215,000 Kw and they are generally used only
for reserve, peaking or emergency purposes due to the
higher per unit cost of generation.
SIGECO's transmission system consists of 832 circuit
miles of 138,000 and 69,000 volt lines. The transmission
system also includes 28 substations with an installed
capacity of 4,016,590 kilovolt amperes (Kva). The electric
distribution system includes 3,188 pole miles of lower<PAGE>
voltage overhead lines and 213 trench miles of conduit
containing 1,280 miles of underground distribution cable.
The distribution system also includes 92 distribution
substations with an installed capacity of 1,804,480 Kva and
48,690 distribution transformers with an installed capacity
of 2,168,242 Kva.
SIGECO owns and operates three underground gas storage
fields with an estimated ready delivery from storage
capability of 3.9 million Dth of gas. The Oliver Field, in
service since 1954, is located in Posey County, Indiana,
about 13 miles west of Evansville. The Midway Field is
located in Spencer County, Indiana, about 20 miles east of
Evansville near Richland, Indiana, and was placed in
service in December 1966. The third field is the Monroe
City Field, located in Knox County, about 10 miles east of
Vincennes, Indiana. The field was placed in service in
1958.
SIGECO's gas transmission system includes 383 miles of
transmission mains, and the gas distribution system
includes 2,548 miles of distribution mains.
SIGECO's properties are subject to the lien of the
First Mortgage Indenture dated as of April 1, 1932 between
SIGECO and Bankers Trust Company, New York, as Trustee, as
supplemented by various supplemental indentures, all of
which are exhibits to this report and collectively referred
to as the "Mortgage".
Subsidiaries other than SIGECO have no significant
properties other than the ownership and operation of coal
mining property and investments in real estate
partnerships, leveraged leases, and private placement
subordinated debt instruments.
Item 3. LEGAL PROCEEDINGS
SIGCORP and SIGECO
There are no pending legal proceedings, other than
routine litigation incidental to the business, to which
either registrant is a party.
No material legal proceedings were terminated during
the fourth quarter of 1998.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
SIGCORP and SIGECO
None
<PAGE> 15
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED SECURITY HOLDER MATTERS
SIGCORP and SIGECO
Effective January 1, 1996, all shares of common stock
of SIGECO were exchanged for an equal number of shares of
common stock of SIGCORP. As of February 19, 1999, SIGCORP
had 8,817 holders of record of common stock. The principal
market on which SIGCORP's common stock is traded is the New
York Stock Exchange, Inc. where the common stock is listed.
The high and low sales prices for SIGCORP's stock as
reported in the consolidated transaction reporting system
for each quarterly period during the two most recent fiscal
years were:
<TABLE>
<CAPTION>
QUARTERLY PERIOD
1 2 3 4
High Low High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C>
1998
$32-5/16 $27-5/16 $32-3/8 $28-1/16 $33-7/16 $30-1/4 $36-9/16 $32-13/16
1997
$24-9/16 $22-9/16 $26-15/16 $21-7/8 $26-15/16 $24-1/8 $30-1/8 $24-15/16
</TABLE>
Dividends declared and paid per share of SIGCORP
common stock during the past two years were:
<TABLE>
<CAPTION>
QUARTERLY PERIOD
1 2 3 4
<S> <C> <C> <C> <C>
1998 $0.3025 $0.3025 $0.3025 $0.3025
1997 $0.2950 $0.2950 $0.2950 $0.2950
</TABLE>
The quarterly dividend on common stock was increased
to 31 cents per share in January 1999, payable
March 20, 1999.
DIVIDEND RESTRICTIONS
The following restrictions pertain to SIGECO but, to
the extent that the dividends of SIGCORP depend on SIGECO
earnings, may have an effect on SIGCORP.
The payment of cash dividends on SIGECO's common stock
to SIGCORP is, in effect, restricted by SIGECO's Mortgage
to accumulated surplus, available for distribution to the
common stock, earned subsequent to December 31, 1947,
subject to reduction if amounts deducted from earnings for
current repairs and maintenance and provisions for
renewals, replacements and depreciation of all the property
of SIGECO are less than amounts specified in the Mortgage.
(See Section 1.02 of the Supplemental Indenture dated as of
July 1, 1948, as supplemented.) No amount was restricted
against cash dividends on common stock as of December 31,
1998 under this restriction.
The payment of cash dividends on common stock is, in
effect, restricted by SIGECO's Amended Articles of
Incorporation to accumulated surplus, available for
distribution to the common stock, earned subsequent to
December 31, 1935. The Amended Articles of Incorporation
require that, immediately after such dividends, there shall
remain to the credit of earned surplus an amount at least
equal to two times the annual dividend requirements on all
then outstanding Preferred Stock, No Par Value. (See Art.
VI, Terms of Capital Stock, General Provisions (B)). The
amount restricted against cash dividends on common stock at
December 31, 1998 under this restriction was $2,174,402,
leaving $239,749,465 unrestricted for the payment of
dividends. In addition, the Amended Articles of
Incorporation provide that surplus otherwise available for
the payment of dividends on common stock shall be
restricted to the extent that such surplus is included in a
calculation required to permit SIGECO to issue, sell or
dispose of preferred stock or other stock senior to the
common stock (Art. VI, Terms of Capital Stock, General
Provisions (E)).
<PAGE> 16
Item 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SECURITY HOLDER MATTERS (Continued)
An order of the Securities and Exchange Commission
dated October 12, 1944 under the Public Utility Holding
Company Act of 1935 in effect restricts the payment of cash
dividends on common stock to 75% of net income available
for distribution to the common stock, earned subsequent to
December 31, 1943, if the percentage of common stock equity
to total capitalization and surplus, as defined, is less
than 25%. At December 31, 1998, such ratio amounted to
approximately 53%.
Item 6.SELECTED FINANCIAL DATA
SIGCORP and SIGECO
<TABLE>
<CAPTION>
SIGCORP, Inc.
Year Ended December 31
(in thousands except for per share amounts)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating Revenues $557,111 $433,237 $404,738 $360,771 $330,899
Operating Income $ 86,079 $ 85,582 $ 82,717 $ 72,401 $ 70,779
Net Income Before
Cumulative Effect of
Accounting Change $ 50,476 $ 46,140 $ 43,264 $ 38,525 $ 39,920
Net Income $ 50,476 $ 46,140 $ 43,264 $ 44,819 $ 39,920
Average Common Shares
Outstanding 23,631 23,631 23,631 23,631 23,631
Earnings Per Share
of Common Stock
Before Cumulative Effect
of Accounting Change $2.14 $1.95 $1.83 $1.63 $1.69
Cumulative Effect of
Accounting Change $ - $ - $- $0.27 $-
Basic Earnings Per Share $2.14 $1.95 $1.83 $1.90 $1.69
Diluted Earnings Per Share $2.12 $1.95 $1.83 $1.90 $1.69
Dividends Per Share of
Common Stock $1.21 $1.18 $1.15 $1.13 $1.10
Total Assets $1,029,518 $990,023 $952,720 $923,981 $917,310
Redeemable Preferred Stock $ 8,308 $ 8,424 $ 8,424 $ 8,424 $ 8,515
Long-Term Obligations $ 206,705 $276,844 $266,951 $265,085 $274,467
</TABLE>
<TABLE>
<CAPTION>
Southern Indiana Gas And Electric Company
Year Ended December 31
(in thousands) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating Revenues $364,666 $358,106 $372,730 $338,698 $330,035
Operating Income $ 62,002 $ 62,912 $ 61,041 $ 53,873 $ 52,367
Net Income Before Cumulative
Effect of Accounting Change $ 43,542 $ 45,363 $ 42,841 $ 39,624 $ 41,025
Net Income Applicable to
Common Stock $ 42,447 $ 44,266 $ 41,744 $ 44,819 $ 39,920
Total Assets $881,912 $864,463 $852,325 $923,981 $917,310
Redeemable Preferred Stock $ 8,308 $ 8,424 $ 8,424 $ 8,424 $ 8,515
Long-Term Obligations $170,915 $239,420 $252,114 $265,085 $274,467
/TABLE
<PAGE>
<PAGE> 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
SIGCORP and SIGECO
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
affected, or may materially affect the results of
operations and financial condition of SIGCORP and its
subsidiaries.
RESULTS OF OPERATIONS
Strong results from nonutility operations, sustained
economic growth within its service territory, warmer summer
temperatures, and the ability to aggressively compete in
the wholesale power market produced record basic earnings
per share for SIGCORP of $2.14 in 1998, compared to $1.95
for 1997 and $1.83 for 1996. Utility operations
contributed $1.80 of the 1998 per share earnings and
nonregulated operations contributed $.34 per share; for
1997, utility net income provided $1.87 and nonregulated
results contributed the remaining $.08 of total basic
earnings per share. The factors effecting the $.19
increase in 1998 earnings follow:
<TABLE>
<CAPTION>
<S> <C>
Period ended December 31, 1997 $ 1.95
Weather and customer usage .08
Electric sales to other utilities and power marketers .17
Utility O&M expense <F1> (.23)
Utility depreciation expense (.06)
Nonregulated gas energy services and nonutility
operations .26
Other (.03)
Period ended December 31, 1998 $ 2.14
<FN>
<F1>) Includes $.05 per share provision for uncollectible Federal Energy
Sales revenues
</FN>
</TABLE>
REVENUES Electric utility revenues rose $25.3 million
(9.3%) during 1998, reflecting a 9.1% increase in total
sales to retail and wholesale customers and higher unit
prices for power sales to other utilities and power
marketers. In 1997, the increase in electric utility
revenues due to greater nonfirm wholesale sales was fully
offset by the recovery of lower unit fuel costs through
retail rates and fewer sales to retail customers, resulting
in a $3.9 million (1.4%) decrease in electric revenues.
Much warmer temperatures (46% warmer than 1997 and 18%
warmer than normal in terms of cooling degree-days) and
continued economic growth in SIGECO's service area resulted
in an increase in 1998 electric sales to retail and firm
wholesale customers of 7.3% compared to 1997. The increase
followed a 1% decrease in 1997 sales to these customers
resulting from 8% milder temperatures. Sales to nonfirm
wholesale customers, excluding sales to Alcoa Generating
Corporation (AGC), increased 6.7% in 1998, after rising 35%
during 1997. Sales to AGC were up 62% due to the scheduled
major outage of one of AGC's generating units. The warmer
weather, coupled with market supply constraints, caused
wholesale power prices to be substantially higher during
much of 1998, increasing average wholesale unit sales
margins compared to the same period in 1997. SIGECO's
ability to aggressively compete in the wholesale power
market contributed an additional $.12 to earnings compared
to the previous year.
Fewer sales to retail gas customers and the recovery of
lower per unit gas costs reflected in customer rates
resulted in a 22% ($18.8 million) decrease in 1998 gas
utility revenues, following 11% ($10.7 million) lower gas
revenues in 1997. Total gas sales were down 22% in 1998,
after a 23% decline in 1997, reflecting the impact of 21%
milder temperatures (in terms of heating degree-days) on
weather-sensitive sales and fewer sales to commercial and
industrial transportation customers. Residential sales
declined 19% during 1998 due to the milder weather, after a
12% decrease in 1997. Total sales to commercial and
industrial customers in 1998 were down 27% because more of
these customers purchased gas supplies from suppliers other
than SIGECO; total natural gas sold and transported to gas
customers declined only 1% as increased deliveries to
commercial and industrial transportation customers offset
the impact of weather on residential sales.
<PAGE> 18
The continued growth of SIGCORP Energy Services (Energy),
which markets natural gas and related services, during its
second full year of operation raised SIGCORP's 1998
revenues $108.0 million, following a $70.2 million increase
in Energy's revenues in 1997. A $9.4 million increase in
other revenues, which includes the operating revenues of
SIGCORP's other nonregulated subsidiaries, reflected the
full-year operation of SIGCORP's Communications Services
(Communications) subsidiary. The $27.1 million decrease in
1997 revenues from SIGCORP's other nonregulated operations
was chiefly due to lower revenues from Energy Systems
Group.
OPERATING EXPENSES Electric generation increased 5.5% in
1998 which provided the majority of the increase in
electric sales. As a result, related fuel expenses, the
most significant electric operating cost, rose 4.1% ($2.6
million). The 1997 fuel for electric generation expense
was 16.3% lower than the 1996 expense due to 21% lower unit
coal costs. Changes in the unit costs of fuel and
purchased electric energy are passed on to electric
customers through commission-approved fuel and purchased
power cost recovery mechanisms.
Although SIGECO's sales of electric energy to nonfirm
wholesale customers are provided primarily from excess
capacity, SIGECO increased its purchases of electricity
from other utilities 39% in 1998 for resale to nonfirm
electric wholesale customers, following a 24% increase in
purchases of electric energy in 1997. Higher average
market prices also contributed to the $6.8 million increase
in cost of purchased electric energy during 1998.
The cost of gas sold, the major component of gas operating
expenses, declined 26.7% ($14.4 million) in 1998 due to the
decrease in gas sales and a 7% decrease in the average per
unit cost of gas sold. The 18.2% ($12 million) decrease in
cost of gas sold in 1997 was attributed to the decrease in
sales of gas. Changes in the unit costs of natural gas are
passed on to gas customers through commission-approved gas
cost recovery mechanisms.
During 1998, the cost of energy services and other
revenues, which was chiefly the cost of natural gas
purchased for resale by Energy and project contract costs
at Communications, rose $114.1 million compared to 1997 due
to the continued growth of Energy and to Communication's
first full year operation. These costs were $45.1 million
greater in 1997 compared to the previous year due to the
full year operation of Energy.
Other operation expenses for 1998 rose 6.1% ($3.7 million)
compared to 1997 due to higher operation expenses at
several of SIGCORP's nonregulated subsidiaries, primarily
Energy, SIGCORP Fuels (Fuels) and Communications, related
to their increased activity. SIGECO's 1998 operation
expenses, which included a $2 million reserve for
uncollectible revenue from sales of wholesale power to
Federal Energy Sales, were comparable to 1997. SIGCORP's
other operation expenses in 1997 were comparable to the<PAGE>
$60.9 million incurred in 1996.
Maintenance expenses, essentially all incurred at SIGECO,
were 28% ($8.3 million) greater in 1998, following a 1.9%
($.6 million) decrease in 1997. Higher power generation
maintenance expenditures during 1998 related to a scheduled
major overhaul of a turbine generator at one generating
unit and unscheduled repairs at two other generating units.
Depreciation and amortization expense increased 5.8% ($2.4
million) in 1998, following a 3.2% increase in 1997, due
primarily to SIGECO's continued investment in gas and
electric utility facilities required to serve new customers
and upgrade existing energy production and delivery
systems.
While inflation has a significant impact on the replacement
cost of SIGECO's facilities, only the historical cost of
electric and gas plant investment is recoverable in
revenues as depreciation under the ratemaking principles to
which SIGECO is subject. With the exception of adjustments
for changes in fuel and gas costs and margin on sales lost
under SIGECO's demand side management programs, SIGECO's
electric and gas rates remain unchanged until a rate
application is filed and a general rate order is issued by
the Indiana Utility Regulatory Commission (IURC).
Property and other taxes expense in 1998 was comparable to
1997, when the favorable outcome of contested prior year
<PAGE> 19
property tax assessments resulted in a $1.4 million decline
in property and other taxes expense compared to 1996.
INTEREST AND OTHER CHARGES A $3.5 million increase in
SIGCORP's Other, net, due primarily to the liquidation of
Southern Indiana Properties' (SIPI) equity position in a
leveraged lease, was the primary reason for a $4 million
reduction in SIGCORP's total interest and other charges in
1998. Increases in SIGCORP's total interest expense and in
interest income during 1998 reflected increased financial
investment activities by SIPI and the related costs.
SIGCORP's total interest and other charges declined
slightly in 1997 due to SIGECO's additional capitalized
interest and allowance for equity funds related to several
large utility construction projects.
INCOME TAX EXPENSE Despite SIGCORP's higher pretax income
in 1998, SIGCORP's federal and state income taxes in 1998
were comparable to 1997 due to the favorable impact on the
1998 effective tax rate of the liquidation of the leveraged
lease discussed above. In 1997, SIGCORP's federal and<PAGE>
state income taxes rose $1.9 million compared to 1996
expense due to SIGECO's higher 1997 pretax income.
RATE AND REGULATORY MATTERS SIGECO complies with the
provisions of Statement of Financial Accounting Standard
(SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation" that allows certain costs incurred by SIGECO
that have been, or are expected to be, approved by
regulatory authorities for recovery through rates, to be
deferred as regulatory assets until recovered by SIGECO.
Criteria that could give rise to the discontinuance of SFAS
71 include (1) increasing competition that restricts
SIGECO's ability to establish prices to recover specific
costs, and (2) a significant change in the manner in which
rates are set by regulators from cost-based regulation to
another form of regulation. SIGECO periodically reviews
these criteria to ensure the continuing application of SFAS
71 is appropriate. In the event SIGECO determines that it
no longer meets the criteria for following SFAS 71, the
accounting impact could be an extraordinary noncash charge
to operations of an amount that could be material. SFAS
121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", imposes a
stricter criterion for these regulatory assets by requiring
that such assets be probable of future recovery at each
balance sheet date. Under SIGECO's present regulatory
environment and given its current competitive position in
the industry, SIGECO believes its use of regulatory
accounting is appropriate.
Over the past several years, SIGECO has been actively
involved in intensive contract negotiations and legal
actions to reduce coal costs and thereby lower electric
rates. In April 1995, SIGECO reached an agreement with its
remaining long-term contract coal supplier, effective July
1995, to buy out the remainder of SIGECO's contractual
obligations, enabling it to acquire lower-priced spot
market coal. In 1997, the full benefit of the contract
buyout was reflected in average coal costs per kWh
generated, which were down 21% from 1996 and were 30% lower
than 1995 per unit costs. SIGECO estimates the total
savings in coal costs resulting from the buyout, net of
total buyout costs, approximated $58 million through
December 31, 1998, the term of the original contract. The
net savings are being passed back to SIGECO's retail and
firm wholesale electric customers through the fuel
adjustment clause.
On October 1, 1998, SIGECO announced plans and filed for
regulatory approval with the Indiana Department of
Environmental Management (IDEM) and the IURC to build a
$100 million cogeneration facility, pending regulatory
approval and placement of permanent financing. The
facility, an atmospheric fluidized-bed coal-fired plant,
will have production capacity to sell approximately one
million pounds of steam to industrial customers and produce
approximately 42 megawatts of electricity for SIGECO, which
plans to lease the facility through an operating lease.
Regulatory reviews by the IDEM and IURC are in progress, as
are preliminary financing discussions. The final outcome
of these matters are uncertain at this time, however,
SIGECO believes these issues will be favorably resolved.
Pending final resolution, construction of the facility is
expected to begin in mid-1999, with commercial operation to
begin in 2001.
COMPETITION SIGCORP's predominant subsidiary, SIGECO, is
presently a fully integrated provider of retail gas and
electric utility service within a franchised, monopoly
service area. The production of electricity is the most
significant functional component of the integrated SIGECO
operations, representing approximately 60% of regulated
assets and, as a result of wholesale sales of electricity,
a greater portion of the net income of the utility.
<PAGE> 20
A fundamental change with respect to the monopoly structure
of the electric utility industry is occurring in the United
States, brought about by the National Energy Policy Act of
1992 (NEPA). The primary purpose of the electric
provisions of NEPA is to increase competition in electric
generation, and under authority granted by NEPA, the
Federal Energy Regulatory Commission (FERC) has
aggressively undertaken the introduction of competition
into the wholesale electric business.
The results of the changes in the wholesale electric
business on SIGECO have been generally favorable. Because
SIGECO has below average variable costs of generation, it
has been an aggressive seller of electricity to power
marketers and other providers seeking electricity to
fulfill wholesale sales contracts. The results of the
increased wholesale sales are discussed further in "Results
of Operations." Conversely, SIGECO has reduced prices to
firm wholesale customers, or offered to do so, to retain
their business after the expiration of existing contracts.
These discounts in pricing terms, when fully effective,
result in gross margins which are several million dollars
below margins attainable from such customers prior to NEPA.
SIGECO cannot predict the long-term consequences of these
changes on its results of operations or financial
condition.
FERC does not have jurisdiction over the retail sales of
electricity. States retain jurisdiction over the
permitting of retail competition, the terms of such
competition and the recovery of any costs or other
transition charges resulting from retail competition.
To date, more than a dozen state legislatures or regulatory
agencies have adopted laws or regulations to introduce
retail electricity competition. However, most states are
continuing to evaluate the issue. In Indiana, the state
legislature must adopt appropriate legislation to amend the
Public Utility Act to provide for retail competition. In
1997, and again in 1998, such legislation was introduced in
the Indiana Senate, but failed to pass. In January 1999, a
bill to restructure Indiana's electric utility industry and
provide for retail competition was introduced to the
Indiana Senate. The bill, referred to the Commerce and
Consumer Affairs Committee, provides a choice of
electricity supplier beginning January 1, 2001 and caps
rates and charges for retail electric customers from July
1, 1999 through December 31, 2005. The bill is not
expected to pass.
During 1998, Indiana's five largest investor-owned
utilities attempted to develop the framework for a
comprehensive retail competition bill. However, due to
disagreement on a few issues, no proposal has been
finalized. Also, recent studies have concluded that many
of Indiana's electric and gas customers, whose energy costs
rank among the lowest in the nation, may actually
experience rate increases with retail competition. These
developments have delayed statewide deregulation in
Indiana.
It is anticipated by SIGECO that pressure on the Indiana
legislature could intensify as other surrounding states
implement retail competition for electricity. SIGECO will
continue to participate in the debate to represent the
interest of all its stakeholders. One of SIGECO's primary
concerns in the debate is that appropriate reciprocity
provisions with other utilities and power marketers are
enacted which would prevent out-of-state providers from
having an unfair advantage over Indiana utilities. In
addition, SIGECO has taken the position in the debate (and
will continue to attempt to influence the outcome of the
debate) that low-cost producers such as SIGECO should not,
as has occurred in other states, be penalized for prudently
managing its business and being a low-cost provider. More
specifically, the implementation of "access charges" and
"transition charges" in other states have served to make it
very difficult for low-cost producers to economically
compete for business from the customers of high-cost
producers due to the need for those customers to pay their<PAGE>
current provider very high fixed charges for the privilege
of "accessing" the marketplace. At the same time,
historically low-cost producers, such as SIGECO, have lower
access charges because their "stranded costs" are low,
making it economically less difficult for high-cost
producers to sell to a low-cost producer's customer base at
marginal production costs.
SIGECO is unable to predict the timing or final provisions
of Indiana legislative actions on competition, if any.
Although SIGECO is uncertain of the timing and/or final
outcome of these developments, it is committed to pursuing,
and is rapidly implementing, its corporate strategy of
positioning itself as a low-cost energy producer and the
provider of high-quality service to its retail and
wholesale customers.
<PAGE> 21
SIGECO also provides retail integrated natural gas service
in Indiana. However, SIGECO does not earn a profit on the
direct sale of the natural gas commodity. SIGECO simply
charges its retail gas customers the cost SIGECO incurs to
purchase the gas and have it delivered to SIGECO's metering
points on the interstate pipeline network. SIGECO does
earn a return on the investment in its assets used to
deliver the gas to customers. As a result, SIGECO does not
anticipate any material impact on the financial results of
its operations should the right of retail customers to
choose gas commodity providers extend beyond the current
level.
Although federal policy allows bypass of a local
distribution company, Indiana law disallows bypass in most
cases. SIGECO is litigating an attempt to bypass in the
Indiana regulatory arena and before the FERC. In May 1998,
a natural gas transmission pipeline company requested
authorization from FERC to construct and operate a 3-mile
lateral pipeline from its main line system directly to a
newly-constructed industrial facility located in SIGECO's
service territory, thus bypassing SIGECO, the local
distribution company. In July 1998, SIGECO and other
interested parties intervened and filed protests with FERC
against the pipeline company's proposal. SIGECO also filed
a request with FERC for an evidentiary hearing regarding
the proposal. Additionally, SIGECO petitioned the IURC to
rule on the pipeline company's proposal. In December 1998,
FERC approved the pipeline company's application to
construct and operate the lateral pipeline. In January
1999, SIGECO filed a request with FERC for rehearing of
FERC's December order. The IURC has issued an order
effectively awaiting final FERC action on the issue. The
pipeline is currently under construction despite SIGECO's
opposition. If, through litigation, SIGECO is unable to
prevent the pipeline from directly serving the new
industrial facility, the incremental gas service revenue
foregone will not have a material detrimental impact on
SIGCORP's revenues or financial condition.
SIGCORP's nonutility subsidiaries are all subject to the
competitive forces existing in their respective industries,
including the gas marketing industry, the energy services
industry, telecommunications, industrial mineral products
and coal production. As such, the financial results of the
nonregulated entities depend upon their ability to
successfully compete in their respective markets.
SIGCORP
SIGECO Advanced Communications, Inc. On May 7, 1998,
SIGCORP formed SIGECO Advanced Communications, Inc.
(Advanced Communications), a wholly-owned nonregulated
subsidiary which holds SIGCORP's investment in SIGECOM, LLC
and Utilicom Networks, Inc. (Utilicom). SIGECOM, LLC, also
formed on May 7, 1998, is a joint venture between Advanced
Communications and Utilicom to provide and market enhanced
communication services over a high capacity fiber optic
network in a multi-state area encompassing SIGECO's service
territory. Advanced Communications and Utilicom are each
required to make equity contributions of $10 million to
SIGECOM during the 24-month period subsequent to the
formation date as required by the construction and
operating needs of SIGECOM. In addition to these required
equity contributions, SIGCORP contributed its wholly-owned
subsidiary, ComSource, Inc. to SIGECOM on July 1, 1998. As
of December 31, 1998, Advanced Communications had made $7.3
million of the required equity contributions to SIGECOM.
Advanced Communications has a preferred interest in
SIGECOM, which is convertible to a 49% common interest, and
Utilicom has a 100% common interest. Advanced
Communication's preferred interest has a 100% liquidation
preference. Advanced Communications has also acquired a
4.7% interest in Utilicom.
SIGCORP and SIGECO
Environmental Matters To meet the Phase I requirements of
the Clean Air Act Amendments of 1990 (CAAA), effective
1995, and some of the Phase II requirements (effective
2000), SIGECO installed a single sulfur dioxide scrubber at
the Culley Generating Station to serve Culley Units 2 and 3
and installed low nitrogen oxide (NOx) burners on the two
units. With the addition of the scrubber, SIGECO is
emitting lower sulfur dioxide quantities than the minimum
compliance requirements of Phase I of the CAAA and has
available unused allowances, called "overcompliance
allowances", for retention by SIGECO to meet stricter post-
2000 emission limitations. SIGECO is purchasing additional
allowances to fully meet Phase II requirements.
<PAGE> 22
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, because they
believe this approach is the most cost effective.
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 CAAA. 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 IDEM in June
1998.
In July 1998, Indiana submitted its proposed plan to the
USEPA in response to the USEPA's proposed new NOx rule and
the emissions budget proposed for Indiana. The Indiana
plan, which calls for a reduction of NOx emissions to a
rate of 0.25 lb/mmBtu by 2003, is less stringent than the
USEPA proposal but more stringent than the alliance
proposal.
The USEPA issued its final ruling on September 24, 1998,
which was essentially unchanged from its July 1997 proposed
rule, after considering all filed comments. The USEPA's
final ruling is 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<PAGE>
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.
Also in July 1997, the USEPA announced a new 2.5-micron
particulate matter (PM) standard while retaining the
existing 10-micron PM standard. The regulatory impacts of
this action cannot be determined until appropriate
monitoring data is collected and subsequent national
ambient air quality area designations are determined. The
extent of the impact on SIGECO, if any, is unknown.
DEMAND SIDE MANAGEMENT (DSM) In the latest update of its
Integrated Resource Plan (IRP), filed in November 1997,
SIGECO determined that certain of its DSM programs were not
cost effective and were to be discontinued. As a result,
projected DSM expenditures for the 1999-2014 period are
expected to total $22 million. The IRP projections
indicate that by 2000, approximately 52 megawatts of
required capacity are expected to have been postponed or
eliminated due to these programs.
SIGECO will continue to monitor the benefits of its DSM
programs and additional changes are possible. Although
SIGECO is already recognized as one of the most competitive
electric utilities in the nation, the reductions enable
SIGECO to be even more cost competitive in the future with
very low stranded investment exposure.
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
<PAGE> 23
Year 2000-readiness issues. In 1998, this process became
more formalized with the establishment of SIGCORP's Year
2000 Task Force. A high-level assessment of the mission-
critical systems and items of all SIGCORP subsidiaries was
completed in early 1997. 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,<PAGE>
under its general business plan SIGECO has recently
replaced or has scheduled to replace by late-1999, all of
its known major noncompliant mission-critical information
and control systems with systems incorporating Year 2000-
ready technology. As of December 31, 1998, SIGECO has
tested approximately 20% of the remaining mission-critical
systems and devices. Of those systems and devices tested,
all were found to be either Year 2000-ready or easily
modified to be ready for 2000. Completion of initial
testing is scheduled for March 31, 1999, with all testing
expected to be finalized by June 30, 1999.
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. The two projects, initiated in
1996 and 1997, respectively, are expected to be completed
by the third quarter of 1999. Of the two noncompliant
critical information systems being replaced, the customer
billing system carries the most risk since it has
experienced project delays and problems with the supplying
vendor. Due to the risk of not completing this project by
2000, SIGECO initiated a contingency plan in the second
quarter of 1998 to modify its existing customer billing
system to be Year 2000-ready. The upgrade is expected to
be completed in the first quarter of 1999 at a total
expense of less than $400,000. The first and largest phase
of the financials/supply chain systems project was
successfully implemented September 1, 1998. Although the
smaller, final phase of the financials/supply chain systems
project, the payroll/HR information system, is expected to
be completed on schedule by mid-1999, SIGECO will monitor
the status of this project and if necessary, modify the
existing payroll system during 1999 for use in 2000.
At SIGECO's base-load generating stations, all noncompliant
critical control and data systems have already been
replaced or were scheduled to be replaced in 1999, due to
functional obsolescence. SIGECO anticipates the 1999
projects will be completed by mid-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 also requiring Year 2000-readiness upgrades or
replacement to be performed in 1999.
SIGCORP's contingency planning, other than for those
systems already discussed, began in late-1998 and high
level plans are expected to be completed by March 31, 1999.
Detailed contingency planning is scheduled to be completed
by August 1, 1999. The planning encompasses external<PAGE>
dependencies such as critical suppliers, 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 does not expect the remaining amounts required to
be expensed for Year 2000-readiness modifications and
replacements, estimated to total $750,000, to have a
material effect on its financial position or results of
operations. SIGECO expects to complete the replacement of
all noncompliant mission-critical information and control
systems before 2000; if, however, the new customer billing
system is not implemented before 2000, its existing billing
system will have been modified and will be used until the
new system is completed.
<PAGE> 24
<TABLE>
<CAPTION>
Estimated
Incurred through 1999
December 31, 1998 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 $18,300,000 $7,000,000
Expense of Year 2000-readiness
modifications to existing critical
systems or replacements treated
as expense $ 850,000 $ 750,000
</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<PAGE>
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
electric power 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. SIGECO and Energy
do not utilize financial instruments for trading or
speculative purposes.
The table below provides the fair value and average
interest, or fixed dividend rate, of outstanding debt,
preferred stock equity instruments and partnership
obligations at December 31, 1998. The Series A and C
Adjustable Rate Pollution Control Bonds are listed as
variable rate long-term debt due to annual adjustment of
their interest rates to current market rates on March 1.
<TABLE>
<CAPTION>
Fair
Expected Maturity Date Value
SIGCORP and Subsidiaries (millions) There- as of
1999 2000 2001 2002 2003 after Total 12/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt
Fixed Rate $45.0 - - - $1.0 $204.0$250.0 $319.5
Average Interest Rate 6.0% - - - 6.3% 6.9%
Variable Rate - - - - - $53.7 $53.7 $57.2
Average Interest Rate - - - - - 3.7%
Preferred Stock Not Subject
to Mandatory Redemption - - - - - $7.5 $7.5 $9.0
Average Dividend Rate - - - - - 6.5%
Partnership Obligations - - - - - $2.4 $2.4 $3.4
Average Interest Rate - - - - - 8.3%
</TABLE>
SIGECO utilizes contracts for the forward sale of
electricity to effectively manage the utilization of its
available generating capability. Such contracts include
forward physical contracts for wholesale sales of its
generating capability, during periods when SIGECO's
available generating capability is expected to exceed the
demands of its retail, or native load, customers. To
minimize the risk related to these forward contracts,
SIGECO may utilize call option contracts to hedge against
the unexpected loss of its generating capability during
periods of heavy demand. SIGECO also utilizes forward
physical contracts for the wholesale purchase of generating
capability to resell to other utilities and power marketers
through nonfirm "buy-resell" transactions where the sale
and purchase prices of power are concurrently set. As of
December 31, 1998, management believes exposure from these<PAGE>
positions was not material.
Energy utilizes forward physical contracts for both the
purchase and sale of natural gas to its customers,
primarily through "back-to-back" transactions where the
sale and purchase prices of natural gas are concurrently
set. As of December 31, 1998, approximately 10% of
Energy's forward sales contracts were not covered by
<PAGE> 25
forward purchase contracts; management believes exposure
from these positions was not material. Energy sells fixed-
price and capped-price products, and reduces its market
price risk through the use of fixed-price supplier
contracts and storage assets. As of December 31,1998, the
estimated fair market value of Energy's forward sales
contracts was approximately $8.5 million; and the estimated
fair market value of its forward purchase contracts was
approximately $7.7 million.
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
SIGCORP and SIGECO
In 1998, financial performance continued to be solid.
Internally generated cash (net income less dividends plus
charges to net income not requiring cash) fully funded
SIGECO's 1998 construction and DSM program expenditures;
these expenditures were 78% funded with internally
generated cash in 1997. Cash provided from operations
decreased $11.7 million during 1998 compared to 1997, while
cash required for investing and financing activities
declined $14.3 million. SIGCORP's ratio of earnings to
fixed charges (SEC method) was 4.0:1, and its embedded cost
of long-term debt and preferred stock is 6.0% and 5.6%,
respectively. SIGCORP's financial strength is reflected in
high quality credit ratings. SIGECO's senior secured debt
continues to be rated AA, or equivalent, by major credit
rating agencies.
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 its nonregulated operations. Construction<PAGE>
expenditures totaled $56.5 million during 1998, including
$7.7 million to complete the replacement of boiler control
systems at two generating units, $4.9 million to complete
construction of the new A. B. Brown coal truck entrance
road, and $6.8 million expended on the design and
implementation of several comprehensive information systems
necessary to meet expanding customer service needs and to
better manage SIGECO's resources. The 1998 expenditures
compare to $68.4 million and $43.9 million expended in 1997
and 1996, respectively.
Construction requirements for the years 1999-2003 are
projected to total approximately $280 million, including
approximately $10 million for various information systems
projects, but exclude construction expenditures that may be
required to comply with new USEPA air quality standards
discussed under "Environmental Matters" which could total
$90 million. Because SIGECO plans to lease the proposed
cogeneration facility, its cost is not included in the
projected five-year construction requirements. SIGECO does
not currently anticipate the need for construction of
additional generation facilities. Additionally, SIGCORP
will contribute a minimum of $2.7 million to its
nonregulated subsidiary, Advanced Communications, for the
joint venture, SIGECOM, during the five-year period. As
part of its growth strategy, SIGCORP actively seeks
diversified, nonregulated investment opportunities which
could require material additional capital during the five-
year period.
FINANCING ACTIVITIES During March 1998, SIGECO refunded
four tax-exempt bond issues totaling $80.3 million with an
equal amount of tax-exempt bonds which will reduce total
interest expense on a present value basis by $8.5 million
over the remaining lives of the bond issues. During the
third quarter of 1998, SIGECO refunded its $12 million 6-
3/8% series first mortgage bonds due in 1998 and $2 million
of its $25 million 8-7/8% series first mortgage bonds due
2016 with short-term notes payable. SIGCORP's financing
activity during 1997 included a $24.7 million increase in
long-term notes payable incurred primarily for structured
financial investments by SIPI. At year end, SIGCORP had
$69.5 million in short-term borrowings, leaving unused
lines of credit and trust demand note arrangements totaling
$46.7 million.
<PAGE>26
During the five-year period of 1999-2003, SIGCORP
anticipates that a total of $47.4 million of debt
securities, primarily those of SIGECO, will be redeemed.
SIGCORP currently expects the majority of the 1999-2003<PAGE>
construction program and debt redemption requirements to be
provided by internally generated funds. External financing
requirements of $60-70 million are anticipated and will be
used primarily to redeem long-term debt.
SIGCORP is confident that its long-term financial
objectives, which include maintaining a capital structure
near 45-50% long-term debt, 3-7% preferred stock and 43-48%
common equity, will continue to be met, while providing for
future construction and other capital requirements.
FORWARD LOOKING STATEMENTS 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, availability and cost of capital, and other similar
factors.
<PAGE> 27
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
1.Financial Statements
SIGCORP
Report of Independent Public Accountants................ 29
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996.................. 30
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996................... 31
Consolidated Balance Sheets - December 31, 1998 and 1997. 32
Consolidated Statements of Capitalization -
December 31, 1998 and 1997............................... 34
Consolidated Statements of Common Shareholders' Equity
for the years ended December 31, 1998, 1997 and 1996..... 35
SIGECO
Report of Independent Public Accountants................. 37
Statements of Income for the years
ended December 31, 1998, 1997 and 1996................... 38
Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996................... 39
Balance Sheets - December 31, 1998 and 1997.............. 40
Statements of Capitalization -
December 31, 1998 and 1997............................... 42
Statements of Common Shareholder's Equity for the
years ended December 31, 1998, 1997 and 1996............. 43
SIGCORP and SIGECO
Notes to Consolidated Financial Statements............... 44
2.Supplementary Information
SIGCORP and SIGECO
Selected Quarterly Financial Data....................... 60
3.Supplemental Schedules
SIGCORP and SIGECO
Schedule II - Valuation and Qualifying Accounts and
Reserves for the years ended December 31, 1998, 1997
and 1996............................................... 66
</TABLE>
All other schedules have been omitted as not applicable
or not required or because the information required to be
shown is included in the Consolidated Financial Statements
or the accompanying Notes to Consolidated Financial
Statements.
<PAGE> 28
SIGCORP, Inc. and
Subsidiaries
<PAGE> 29
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<PAGE>
Chicago, Illinois
January 29, 1999
<PAGE> 30
<TABLE>
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31
<S> <C> <C> <C>
1998 1997 1996
(in thousands except for per share amounts)
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 31
<TABLE>
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31 (in thousands) 1998 1997 1996
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<PAGE>
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 32
<TABLE>
SIGCORP, Inc.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 33
<TABLE>
SIGCORP, Inc.
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE>34
<TABLE>
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF CAPITALIZATION<PAGE>
<CAPTION>
<S> <C> <C>
At December 31 (dollars in thousands) 1998 1997
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
/TABLE
<PAGE>
<PAGE> 35
<TABLE>
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<CAPTION>
<S> <C> <C> <C> <C>
Accumulated
Other
(in thousands except Common Retained Comprehensive
per share data) Total Stock Earnings Income
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)
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 36
Southern Indiana Gas
And Electric Company
<PAGE> 37
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
<PAGE> 38
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31 (in thousands) 1998 1997 1996
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 39
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31 (in thousands) 1998 1997 1996
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 40
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
BALANCE SHEETS
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
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<PAGE>
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 41
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 241,924 228,570
Total common shareholders' 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<PAGE>
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 42
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
<CAPTION>
<S> <C> <C>
At December 31 (dollars in thousands) 1998 1997
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 241,924 228,570
Total common shareholders' 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<PAGE>
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 43
<TABLE>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<CAPTION>
<S> <C> <C> <C>
Common Retained
(in thousands except per share data) Total Stock Earnings
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)<PAGE>
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
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE> 44
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.
<PAGE> 45
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>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
Regulatory Assets:
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. Recovery periods range up to
22 years for certain regulatory assets. SIGECO intends to
request recovery of its remaining regulatory assets in
future general rate case filings.
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 require-
ments 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.
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>
<S> <C> <C> <C>
1998 1997 1996
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.
<PAGE> 46
The components of the net deferred income tax liability are
as follows:
<TABLE>
SIGCORP, Inc.
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
Deferred Tax Liabilities:
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.
<TABLE>
Southern Indiana Gas and Electric Company
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
Deferred Tax Liabilities:
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.
The components of current and deferred income tax expense
are as follows:
<TABLE>
SIGCORP, Inc.
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31 ( in thousands) 1998 1997 1996
Current
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
</TABLE>
<PAGE> 47
<TABLE>
Southern Indiana Gas and Electric Company
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31 (in thousands) 1998 1997 1996
Current
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:
<TABLE>
SIGCORP, Inc.
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31 1998 1997 1996
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%
</TABLE>
<TABLE>
Southern Indiana Gas and Electric Company
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31 1998 1997 1996
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.
Change in benefit obligation:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31 (in thousands) 1998 1997
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 -<PAGE>
Benefits paid (3,176) (3,005)
Actuarial loss 126 5,094
Benefit obligation at end of year $79,743 $72,914
</TABLE>
<PAGE> 48
Change in plan assets:
<TABLE>
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
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
</TABLE>
Reconciliation of funded status:
<TABLE>
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
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)
</TABLE>
Components of net periodic pension benefit cost:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31 (in thousands) 1998 1997
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.
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 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.
<PAGE> 49
Change in benefit obligation:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31 (in thousands) 1998 1997
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>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
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
</TABLE>
Reconciliation of funded status:
<TABLE>
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
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)
</TABLE>
Components of net periodic other postretirement benefit cost:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31 (in thousands) 1998 1997
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.
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
<PAGE> 49
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.
<PAGE> 50
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.<PAGE>
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.
<TABLE>
SIGCORP, Inc.
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
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
</TABLE>
<TABLE>
Southern Indiana Gas and Electric Company
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
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<PAGE>
billed or refunded to its customers. The cost of 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
<PAGE> 51
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.<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
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>
<PAGE> 52
Note 3 Short-Term Financing
SIGCORP and SIGECO<PAGE>
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.
<TABLE>
SIGCORP, Inc.
<CAPTION>
<S> <C> <C> <C>
At December 31 (in thousands) 1998 1997 1996
Notes Payable
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.
<TABLE>
Southern Indiana Gas and Electric Company
<CAPTION>
<S> <C> <C> <C>
At December 31 (in thousands) 1998 1997 1996
Notes Payable
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
<PAGE>
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.
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>
<S> <C> <C>
SIGCORP SIGECO
1999 $46,577,000 $45,000,000
2000 532,000 -
2001 249,000 -
</TABLE>
<PAGE> 53
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:
<TABLE>
SIGCORP, Inc.
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
First Mortgage Bonds due:
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>
<TABLE>
Southern Indiana Gas and Electric Company
<CAPTION>
<S> <C> <C>
At December 31 (in thousands) 1998 1997
First Mortgage Bonds due:
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>
<PAGE> 54
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
At December 31 1998 1997 1996
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<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIGCORP, Inc.
At December 31 1998 1997 1996
Net Income:
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
</TABLE>
<PAGE> 55
<TABLE>
Southern Indiana Gas and Electric Company
<CAPTION>
<S> <C> <C> <C>
At December 31 1998 1997 1996
Net Income:
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SIGCORP, Inc.
At December 31 (in thousands except for per share amounts)
1998 1997 1996
Per Per Per
Income Shares Share Income Shares Share Income SharesShare
Amount Amount Amount
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.
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<PAGE>
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.
<PAGE> 56
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>
<S> <C>
Year Ended December 31 (in thousands)
1999 $ 2,319
2000 2,319
2001 2,319
2002 2,319
2003 2,144
Thereafter 9,041
Total lease payments $20,461
</TABLE>
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.
<PAGE> 57
Certain financial information relating to significant
segments of business is presented below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIGCORP, Inc.
Year Ended December 31
(in thousands) 1998 1997 1996
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 <F1> 309 492 392
Gas <F1> 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 <F1> 18,191 18,009 18,207
Gas <F1> 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 <F2> 740,746 726,507 710,791
Gas <F2> 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
<FN>
<F1> SIGECO allocates interest revenue 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
<PAGE>
<PAGE> 58
The following is a reconciliation to the consolidated
financial statements of SIGCORP:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31
(in thousands) 1998 1997 1996
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>
<TABLE>
Southern Indiana Gas and Electric Company
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31 (in thousands) 1998 1997 1996
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 <F1> 309 492 392
Gas <F1> 31 49 39
Total 340 541 431
Interest expense:
Electric <F1> 18,191 18,009 18,207
Gas <F1> 1,799 1,780 1,801
Total 19,990 19,789 20,008
Identifiable assets:
Electric <F2> 740,746 726,507 710,791
Gas (b) 141,174 137,956 141,534
Total assets $881,920 $864,463 $852,325<PAGE>
<FN>
<F1> SIGECO allocates interest revenue 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 financial
statements of SIGECO:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31
(in thousands) 1998 1997 1996
Operating revenues:
Total revenues for segments $364,666 $358,106 $372,730
Interest revenue:
Total interest revenue for segments 340 541 431
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>
<PAGE> 59
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.
<TABLE>
SIGCORP, Inc.
<CAPTION>
<S> <C> <C> <C> <C>
At December 31
(in thousands) 1998 1997
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
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>
<TABLE>
Southern Indiana Gas and Electric Company
CAPTION
<PAGE>
<S> <C> <C> <C> <C>
At December 31
(in thousands) 1998 1997
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
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 The fair value of SIGECO's long-term debt
was estimated based on the current quoted market rate of
utilities with a comparable debt rating. Nonutility long-
term debt was valued based upon the most recent debt
financing.
REDEEMABLE PREFERRED STOCK OF SIGECO The fair value of
SIGECO's redeemable preferred stock was estimated based on
the current quoted market rate of utilities with a
comparable debt rating.
PARTNERSHIP OBLIGATIONS The fair value of SIGCORP's
partnership obligations was estimated based on the current
quoted market rate of comparable debt.
<PAGE> 60
<TABLE>
<CAPTION>
Selected Quarterly Financial Data (Unaudited)
SIGCORP, Inc.
Quarter Ended
March 31, June 30, September 30, December 31,
1998 1997 1998 1997 1998 1997 1998 1997
<S><C> <C> <C> <C> <C> <C> <C> <C>
(in thousands except for per share amounts)
Operating Revenues
$141,071 $107,572 $133,305 $85,609 $134,035$108,795 $148,700$131,261<PAGE>
Operating Income
$23,880 $23,443 $16,623 $13,497 $31,557 $34,627 $14,019 $14,015
Net Income
$16,426 $13,113 $9,007$6,263 $17,876 $19,947 $7,167 $ 6,817
Basic Earnings Per Share
$0.70 $0.55 $0.38 $0.27 $0.76 $ 0.84 $0.30 $0.29
Diluted Earnings Per Share
$0.69 $0.55 $0.38 $0.26 $0.75 $0.84 $0.30 $0.29
Average Common Shares Outstanding
23,631 23,631 23,631 23,631 23,631 23,631 23,631 23,631
</TABLE>
<TABLE>
<CAPTION>
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
Quarter Ended
March 31, June 30, September 30, December 31,
1998 1997 1998 1997 1998 1997 1998 1997
(in thousands)
<S><C>. <C> <C> <C> <C> <C> <C> <C>
Operating Revenues
$95,145 $98,733 $87,821 $75,399 $93,359 $93,357 $88,341 $90,617
Operating Income
$16,419 $17,04 $12,518 $11,461 $21,376 $23,723 $11,689 $10,679
Net Income
$12,763 $12,712 $7,585 $6,617 $16,429 $19,040 $5,670 $ 5,897
Information for any one quarterly period is not
indicative of the annual results which may be expected due
to seasonal variations common in the utility industry.
The quarterly earnings per share may not add to the total
earnings per share for the year due to rounding.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
<PAGE> 61
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANTS
(a) Identification of Directors
The information required by this item is
included in SIGCORP, Inc.'s and Southern
Indiana Gas and Electric Company's Joint Proxy<PAGE>
Statement (the Joint Proxy Statement), dated
March 22, 1999 definitive copies of which were
filed with the Commission pursuant to Regulation
14A.
(b) Identification of Executive Officers
The information required by this item is
included in Part I, Item 1. - BUSINESS on
page 13, to which reference is hereby made.
Item 11. EXECUTIVE COMPENSATION AND TRANSACTIONS
The information required by this item is
included in the Joint Proxy Statement,
definitive copies of which were filed with the
Commission pursuant to Regulation 14A.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item is
included in the Joint Proxy Statement,
definitive copies of which were filed with the
Commission pursuant to Regulation 14A.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is
included in the Joint Proxy Statement,
definitive copies of which were filed with the
Commission pursuant to Regulation 14A.
<PAGE> 62
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1 and 2) The financial statements, including
supporting schedule, are listed in the Index to Financial
Statements, page 27, filed as part of this report.
(a) 3)Exhibits:
SIGCORP and SIGECO
EX-2(a) Agreement and Plan of Exchange, of common
stock between Southern Indiana Gas and Electric Company and
SIGCORP, Inc., dated February 23, 1995. (Physically filed
and designated as Exhibit 2(a) in Amendment No. 1 to Form
S-4 Registration Statement filed January 20, 1995, File No.
33-57381.)<PAGE>
SIGCORP
EX-3(a) Restated Articles of Incorporation of SIGCORP,
Inc. (Physically filed and designated as Exhibit 3(a) in
Amendment No. 1 to Form S-4 Registration Statement, filed
February 23, 1995, File No. 33-57381.)
EX-3(b) By-Laws of SIGCORP, Inc. . (Physically filed
and designated as Exhibit 3(b) in Amendment No. 1 to Form
S-4 Registration Statement, filed February 23, 1995, File
No. 33-57381.)
EX-4(a) Rights Agreement, between SIGCORP, Inc. and
Continental Stock Transfer & Trust Company, Rights Agent,
dated as of December 31, 1995. (Physically filed and
designated as Exhibit 4.1 in Form 8-B Registration
Statement filed December 15, 1995, File No. 1-11603.)
SIGECO
EX-3(a) Amended Articles of Incorporation as amended
March 26, 1985. (Physically filed and designated in Form
10-K, for the fiscal year 1985, File No. 1-3553, as Exhibit
3-A.) Articles of Amendment of the Amended Articles of
Incorporation, dated March 24, 1987. (Physically filed and
designated in Form 10-K for the fiscal year 1987, File No.
1-3553, as Exhibit 3-A.) Articles of Amendment of the
Amended Articles of Incorporation, dated November 27, 1992.
(Physically filed and designated in Form 10-K for the
fiscal year 1992, File No. 1-3553, as Exhibit 3-A).
EX-3(b) By-Laws as amended through December 18, 1990.
(Physically filed in Form 10-K for the fiscal year 1990,
File No. 1-3553, as Exhibit 3-B.) By-Laws as amended
through September 22, 1993. (Physically filed and
designated in Form 10-K for the fiscal year 1993, File No.
1-3553, as EX-3 (b).) By-Laws as amended through January
1, 1995. (Physically filed and designated in Form 10-K for
the fiscal year 1995, File No. 1-3553, as EX-3(b).)
EX-4(a)*Mortgage and Deed of Trust dated as of April
1, 1932 between Southern Indiana Gas and Electric Company
and Bankers Trust Company, as Trustee, and Supplemental
Indentures thereto dated August 31, 1936, October 1, 1937,
March 22, 1939, July 1, 1948, June 1, 1949, October 1,
1949, January 1, 1951, April 1, 1954, March 1, 1957,
October 1, 1965, September 1, 1966, August 1, 1968, May 1,
1970, August 1, 1971, April 1, 1972, October 1, 1973, April
1, 1975, January 15, 1977, April 1, 1978, June 4, 1981,
January 20, 1983, November 1, 1983, March 1, 1984, June 1,
1984, November 1, 1984, July 1, 1985, November 1, 1985,
June 1, 1986. (Physically filed and designated in
Registration No. 2-2536 as Exhibits B-1 and B-2; in Post-
effective Amendment No. 1 to Registration No. 2-62032 as
Exhibit (b)(4)(ii), in Registration No. 2-88923 as Exhibit<PAGE>
4(b)(2), in Form 8-K, File No. 1-3553, dated June 1, 1984
as Exhibit (4), File No. 1-3553, dated March 24, 1986 as
Exhibit 4-A, in Form 8-K, File No. 1-3553, dated June 3,
1986 as Exhibit (4).) July 1, 1985 and November 1, 1985
(Physically filed and designated in Form 10-K, for the
fiscal year 1985, File No. 1-3553, as Exhibit 4-A.)
November 15, 1986 and
January 15, 1987. (Physically filed and designated in Form
10-K, for the fiscal year 1986, File No. 1-3553, as Exhibit
4-A.) December 15, 1987. (Physically filed and designated
in Form 10-K, for the fiscal year 1987, File No. 1-3553, as
Exhibit 4-A.) December 13, 1990. (Physically filed and
designated in Form 10-K, for the fiscal year 1990, File No.
1-3553, as Exhibit 4-A.) April 1, 1993. (Physically filed
and designated in Form 8-K, dated April 13, 1993, File 1-
3553, as Exhibit 4.) June 1, 1993 (Physically filed and
designated in Form 8-K, dated June 14, 1993, File 1-3553,
as Exhibit 4.) May 1, 1993. (Physically filed and
designated in Form 10-K, for the fiscal year 1993, File No.
1-3553, as Exhibit 4(a).)
*Pursuant to paragraph (b)(4)(iii)(a) of Item 601 of
Regulation S-K, SIGECO agrees to furnish to the Commission
on request any instrument with respect to long-term debt if
the total amount of securities authorized thereunder does
not exceed 10% of the total assets of SIGECO, and has
therefore not filed such documents as exhibits to this Form
10-K.
<PAGE> 63
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K (Continued)
EX-10.1 Agreement, dated, January 30, 1968, for Unit
No. 4 at the Warrick Power Plant of Alcoa Generating
Corporation ("Alcoa"), between Alcoa and Southern Indiana
Gas and Electric Company. (Physically filed and designated
in Registration No. 2-29653 as Exhibit 4(d)-A.)
EX-10.2 Letter of Agreement, dated June 1, 1971, and
Letter Agreement, dated June 26, 1969, between Alcoa and
Southern Indiana Gas and Electric Company. (Physically
filed and designated in Registration No. 2-41209 as Exhibit
4(e)-2.)
EX-10.3 Letter
Agreement, dated April 9, 1973, and Agreement dated April
30, 1973, between Alcoa and Southern Indiana Gas and
Electric Company. (Physically filed and designated in<PAGE>
Registration No. 2-53005 as Exhibit 4(e)-4.)
EX-10.4 Electric Power Agreement (the "Power
Agreement"), dated May 28, 1971, between Alcoa and Southern
Indiana Gas and Electric Company. (Physically filed and
designated in Registration No. 2-41209 as Exhibit 4(e)-1.)
EX-10.5 Second Supplement, dated as of July 10, 1975,
to the Power Agreement and Letter Agreement dated April 30,
1973 - First Supplement. (Physically filed and designated
in Form 12-K for the fiscal year 1975, File No. 1-3553, as
Exhibit 1(e).)
EX-10.6 Third Supplement, dated as of May 26, 1978, to
the Power Agreement. (Physically filed and designated in
Form 10-K for the fiscal year 1978 as Exhibit A-1.)
EX-10.7 Letter Agreement dated August 22, 1978 between
Southern Indiana Gas and Electric Company and Alcoa, which
amends Agreement for Sale in an Emergency of Electrical
Power and Energy Generation by Alcoa and Southern Indiana
Gas and Electric Company dated June 26, 1979. (Physically
filed and designated in Form 10-K for the fiscal year 1978,
File No. 1-3553, as Exhibit A-2.)
EX-10.8 Fifth Supplement, dated as of December 13,
1978, to the Power Agreement. (Physically filed and
designated in Form 10-K for the fiscal year 1979, File No.
1-3553, as Exhibit A-3.)
EX-10.9 Sixth Supplement, dated as of July 1, 1979, to
the Power Agreement. (Physically filed and designated in
Form 10-K for the fiscal year 1979, File No. 1-3553, as
Exhibit A-5.)
EX-10.10Seventh Supplement, dated as of October 1,
1979, to the Power Agreement. (Physically filed and
designated in Form 10-K for the fiscal year 1979, File No.
1-3553, as Exhibit A-6.)
EX-10.11Eighth Supplement, dated as of June 1, 1980 to
the Electric Power Agreement, dated May 28, 1971, between
Alcoa and Southern Indiana Gas and Electric Company.
(Physically filed and designated in Form 10-K for the
fiscal year 1980, File No. 1-3553, as Exhibit (20)-1.)
EX-10.13** Agreement dated July 22, 1986 between
Southern Indiana Gas and Electric Company and A. E. Goebel
regarding continuation of employment. (Physically filed
and designated in Form 10-K for the fiscal year 1992, File
No. 1-3553, as Exhibit 10-A-13.)<PAGE>
EX-10.14** Agreement dated July 25, 1986 between
Southern Indiana Gas and Electric Company and Ronald G.
Reherman regarding continuation of employment. (Physically
filed and designated in Form 10-K for the fiscal year 1992,
File No. 1-3553, as Exhibit 10-A-14.)
EX-10.15** Agreement dated July 22, 1986 between
Southern Indiana Gas and Electric Company and James A. Van
Meter regarding continuation of employment. (Physically
filed and designated in Form 10-K for the fiscal year 1992,
File No. 1-3553, as Exhibit 10-A-15.)
EX-10.16** Agreement dated February 22, 1989 between
Southern Indiana Gas and Electric Company and J. Gordon
Hurst regarding continuation of employment. (Physically
filed and designated in Form 10-K for the fiscal year 1992,
File No. 1-3553 as Exhibit 10-A-16.)
** Filed pursuant to paragraph (b)(10)(iii)(A) of Item
601 of Regulation S-K.
<PAGE> 64
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K (Continued)
EX-10.17** Summary description of Southern Indiana
Gas and Electric Company's nonqualified Supplemental
Retirement Plan (Physically filed and designated in Form
10-K for the fiscal year 1992, File No. 1-3553, as Exhibit
10-A-17.)
EX-10.18** Supplemental Post Retirement Death
Benefits Plan, dated October 10, 1984. (Physically filed
and designated in Form 10-K for the fiscal year 1992, File
No. 1-3553, as Exhibit 10-A-18.)
EX-10.19** Summary description of Southern Indiana
Gas and Electric Company's Corporate Performance Incentive
Plan. (Physically filed and designated in Form 10-K for
the fiscal year 1992, File No. 1-3553, as Exhibit 10-A-19.)
EX-10.20** Southern Indiana Gas and Electric
Company's Corporate Performance Incentive Plan as amended
for the plan year beginning January 1, 1994. (Physically
filed and designated in Form 10-K for the fiscal year 1993,
File No. 1-3553, as Exhibit 10-A-20.)
EX-10.21** Southern Indiana Gas and Electric Company
1994 Stock Option Plan (Physically filed and designated in<PAGE>
Southern Indiana Gas and Electric Company's Proxy Statement
dated February 22, 1994, File No. 1-3553, as Exhibit A.)
EX-10.22** Summary description of Southern Indiana
Gas and Electric Company's Corporate Performance Incentive
Plan as amended for the plan year beginning January 1,
1997. (Physically filed and designated in the SIGCORP,
Inc. and Southern Indiana Gas and Electric Company's Joint
Proxy Statement dated March 23, 1998, File No. 1-11603 and
File No. 1-3553, under "Compensation Committee Report On
Executive Compensation", page 9.)
EX-10.23** Agreement dated September 1, 1997 between
Southern Indiana Gas and Electric Company and Andrew E.
Goebel regarding continuation of employment, which
supercedes such agreement dated July 22, 1986. (Physically
filed and designated in Form 10-K for the fiscal year 1997,
File No. 1-3553, as Exhibit 10.23.)
EX-10.24** Agreement dated September 1, 1997 between
Southern Indiana Gas and Electric Company and J. Gordon
Hurst regarding continuation of employment, which
supercedes such agreement dated February 22, 1989.
(Physically filed and designated in Form 10-K for the
fiscal year 1997, File No. 1-3553, as Exhibit 10.24.)
EX-10.25** Agreement dated January 10, 1997 between
Ronald G. Jochum and Southern Indiana Gas and Electric
Company regarding continuation of employment. (Physically
filed and designated in Form 10-K for the fiscal year 1997,
File No. 1-3553, as Exhibit 10.25.)
EX-10.26** Agreement dated January 10, 1997 between
Southern Indiana Gas and Electric Company and Ronald G.
Reherman regarding continuation of employment, which
supercedes such agreement dated May 6, 1991. (Physically
filed and designated in Form 10-K for the fiscal year 1997,
File No. 1-3553, as Exhibit 10.26.)
EX-10.27** Agreement dated April 16, 1997 between
Southern Indiana Gas and Electric Company and Ronald G.
Reherman regarding supplemental pension and disability
benefits, which supercedes such agreement dated February 1,
1995. (Physically filed and designated in Form 10-K for
the fiscal year 1997, File No. 1-3553, as Exhibit 10.27.)
EX-10.28** Agreement dated January 10, 1997 between
Southern Indiana Gas and Electric Company and Jeffrey L.
Davis regarding continuation of employment. (Physically
filed and designated in Form 10-K for the fiscal year 1997,
File No. 1-3553, as Exhibit 10.28.)<PAGE>
EX-10.29** Southern Indiana Gas and Electric
Company's nonqualified Supplemental Retirement Plan as
amended, effective April 16, 1997. (Physically filed and
designated in Form 10-K for the fiscal year 1997, File No.
1-3553, as Exhibit 10.29.)
** Filed pursuant to paragraph (b)(10)(iii)(A) of Item
601 of Regulation S-K.
<PAGE> 65
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K (Continued)
SIGECO
EX-12 Computation of Ratio of Earnings to Fixed
Charges
SIGCORP
EX-21 Subsidiaries of the Registrant
SIGCORP and SIGECO
EX-24 Power of Attorney
SIGCORP and SIGECO
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
No Form 8-K reports were filed by SIGCORP or SIGECO
during the fourth quarter of 1998.
<PAGE> 66
<table.
<CAPTION>
SCHEDULE II
SIGCORP, Inc.
and
Southern Indiana Gas And Electric Company
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
Additions
Balance Charged Charged Deductions Balance
Beginning to to Other from End of
Description of Year ExpensesAccounts Reserves, Net Year
(in thousands)
<S> <C> <C> <C> <C> <C>
VALUATION AND QUALIFYING
ACCOUNTS:
Year 1998 - Accumulated
provision for uncollectible
accounts $ 328 $2,797 $ - $ 969 $2,156
Year 1997 - Accumulated
provision for uncollectible
accounts $ 215 $1,517 $ - $1,404 $ 328
Year 1996 - Accumulated
provision for uncollectible
accounts $ 138 $ 910 $ - $ 833 $ 215
OTHER RESERVES:
Year 1998 - Reserve for
injuries and damages $1,047 $ 68 $ 261<F1> $ 594 $ 782
Year 1997 - Reserve for
injuries and damages $1,737 $ (253) $ 356<F1> $ 793 $1,047
Year 1996 - Reserve for
injuries and damages $1,541 $ 968 $ 221<F1> $ 993 $1,737
<FN>
<F1> Charged to construction accounts
</FN>
</TABLE>
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrants have
duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized.
Date: March 29, 1999
SIGCORP, Inc.
By R. G. Reherman, Chairman, President
and Chief Executive Officer
BY R. G. Reherman
R. G. Reherman
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
By R. G. Reherman, Chairman
BY R. G. Reherman<PAGE>
R. G. Reherman
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrants and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
R.G. Reherman Chairman, President and Chief Executive Officer
of SIGCORP, Inc.
(Principal Executive Officer)
Chairman of Southern Indiana Gas and
Electric Company March 29, 1999
A.E. Goebel* Executive Vice President of SIGCORP, Inc.
President and Chief Executive Officer
of Southern Indiana Gas and Electric Company
(Principal Executive Officer) March 29, 1999
T.L. Burke* Secretary and Treasurer of SIGCORP, Inc. and
Southern Indiana Gas and Electric Company
(Principal Financial Officer) March 29, 1999
S.M. Kerney* Controller of SIGCORP, Inc. and
Southern Indiana Gas and Electric Company
(Principal Accounting Officer) March 29, 1999
John M. Dunn* )
)
John D. Engelbrecht* )
)
Robert L. Koch II* )
)
Donald A. Rausch* )Directors of SIGCORP, Inc. and March 29, 1999
)Southern Indiana Gas and Electric
Richard W. Shymanski* )Company
)
Donald E. Smith* )
)
James S. Vinson* )
)
</TABLE>
*By R. G. Reherman, Attorney-in-fact
<PAGE> 70
SIGCORP
10-K
<TABLE>
<CAPTION>
EXHIBIT INDEX
Sequential
Page Number
<S> <C>
Exhibits incorporated by reference are found on 62 - 65
EX-21 Subsidiaries of the Registrant 68
EX-24 Power-of-Attorney 71 - 72
EX-27 Financial Data Schedule N/A
</TABLE>
EX-21
SIGCORP, Inc.
SUBSIDIARIES OF THE REGISTRANT
Southern Indiana Gas and Electric Company
Southern Indiana Properties, Incorporated in Indiana
Energy Systems Group, Incorporated in Indiana
Southern Indiana Minerals, Incorporated in Indiana
SIGCORP Energy Services, Incorporated in Indiana
SIGCORP Capital, Incorporated in Indiana
SIGCORP Fuels, Incorporated in Indiana
SIGCORP Power Marketing, Incorporated in Indiana
SIGCORP Communications Services, Incorporated in Indiana
SIGECO Advanced Communications, Incorporated in Indiana
SIGCORP Environmental Services, Incorporated in Indiana<PAGE>
EX-24
March 16, 1999
Mr. R. G. Reherman
Mr. T. L. Burke
Southern Indiana Gas and Electric Company
20 N.W. Fourth Street
Evansville, Indiana 47741
J. H. Byington, Jr., Esq.
Winthrop, Stimson, Putnam & Roberts
40 Wall Street
New York, New York 10005
Dear Gentlemen:
SIGCORP, Inc. and Southern Indiana Gas and Electric
Company will each file an Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 ("Form 10-K")
before April 1, 1999 which will be accompanied by certain
exhibits.
We hereby authorize you, or any one of you, to
complete said Forms 10-K and to remedy any deficiencies
with respect to said Forms 10-K by appropriate amendment or
amendments; and we hereby make, constitute and appoint each
of you our true and lawful attorney for each of us and in
each of our names, places and steads, both in our
individual capacities as directors and that of officers of
SIGCORP, Inc. and Southern Indiana Gas and Electric
Company, to sign and cause to be filed with the Securities
and Exchange Commission said Forms 10-K, any appropriate
amendment or amendments thereto, and any exhibits thereto.
The undersigned, SIGCORP, Inc. and Southern Indiana
Gas and Electric Company, also authorize you and any one of
you to sign said Forms 10-K and any amendment or amendments
thereto on its behalf as attorney-in-fact for its
respective officers, and to file the same as aforesaid
together with exhibits.
Very truly yours,
SIGCORP, INC. and
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY<PAGE>
R. G. Reherman
By R. G. Reherman, Chairman, President
and Chief Executive Officer, SIGCORP, Inc.
Chairman, Southern Indiana Gas and
Electric Company
John N. Dunn Ronald G. Reherman
John M. Dunn Ronald G. Reherman
John D. Engelbrecht Richard W. Shymanski
John D. Engelbrecht Richard W. Shymanski
Andrew E. Goebel Donald E. Smith
Andrew E. Goebel Donald E. Smith
Robert L. Koch II James S. Vinson
Robert L. Koch II James S. Vinson
Donald A. Rausch T. L. Burke
Donald A. Rausch T. L. Burke
S. M. Kerney
S. M. Kerney
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000945372
<NAME> SIGCORP INC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 722,411
<OTHER-PROPERTY-AND-INVEST> 107,965
<TOTAL-CURRENT-ASSETS> 150,921
<TOTAL-DEFERRED-CHARGES> 48,221
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,029,518
<COMMON> 78,258
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 292,705
<TOTAL-COMMON-STOCKHOLDERS-EQ> 370,963
0
19,398
<LONG-TERM-DEBT-NET> 205,552
<SHORT-TERM-NOTES> 69,508
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 100,277
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 263,820
<TOT-CAPITALIZATION-AND-LIAB> 1,029,518
<GROSS-OPERATING-REVENUE> 557,111
<INCOME-TAX-EXPENSE> 24,010
<OTHER-OPERATING-EXPENSES> 471,032
<TOTAL-OPERATING-EXPENSES> 495,042
<OPERATING-INCOME-LOSS> 86,079
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 86,079
<TOTAL-INTEREST-EXPENSE> 11,593
<NET-INCOME> 50,476
1,095
<EARNINGS-AVAILABLE-FOR-COMM> 50,476
<COMMON-STOCK-DIVIDENDS> 30,188
<TOTAL-INTEREST-ON-BONDS> 17,604
<CASH-FLOW-OPERATIONS> 81,559
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 2.12
</TABLE>
