February 13, 1996
Securities and Exchange Commission
Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Gentlemen:
We are transmitting herewith Indiana Gas Company, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996, pursuant to the requirements of Section 13
of the Securities Exchange Act of 1934.
Very truly yours,
/s/Douglas S. Schmidt
Douglas S. Schmidt
DSS:rs
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6494
INDIANA GAS COMPANY, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0793669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1630 North Meridian Street, Indianapolis, Indiana 46202
(Address of principal executive offices) (Zip Code)
317-926-3351
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Common Stock - Without par value 9,080,770 January 31, 1997
Class Number of shares Date
TABLE OF CONTENTS
Page
Numbers
Part I - Financial Information
Consolidated Balance Sheets
at December 31, 1996, and 1995
and September 30, 1996
Consolidated Statements of Income
Three Months Ended December 31, 1996 and 1995,
and Twelve Months Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1996 and 1995,
and Twelve Months Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Part II - Other Information
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands - Unaudited)
December 31 September 30
1996 1995 1996
UTILITY PLANT:
Original cost $946,934 $882,124 $931,092
Less - accumulated depreciation
and amortization 351,496 323,160 344,268
595,438 558,964 586,824
NONUTILITY PLANT - NET 31 186 33
CURRENT ASSETS:
Cash and cash equivalents 185 19,670 20
Accounts receivable, less reserves of
$2,658, $2,433 and $1,853 respectively 45,070 43,313 15,468
Accrued unbilled revenues 37,247 45,121 8,158
Materials and supplies - at average cost 4,075 3,827 4,611
Liquefied petroleum gas - at average cost 864 876 507
Gas in underground storage - at last-in,
first-out cost 34,336 51,392 39,083
Recoverable gas costs 16,949 - 2,710
Prepayments and other 1,017 1,391 43
139,743 165,590 70,600
DEFERRED CHARGES:
Unamortized debt discount and expense 7,324 6,811 7,477
Other 8,392 9,239 7,973
15,716 16,050 15,450
$750,928 $740,790 $672,907
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
SHAREHOLDER'S EQUITY AND LIABILITIES
(Thousands - Unaudited)
December 31 September 30
1996 1995 1996
CAPITALIZATION:
Common stock and paid-in capital $142,995 $142,995 $142,995
Retained earnings 148,458 137,837 138,539
Total common shareholder's equity 291,453 280,832 281,534
Long-term debt 139,733 193,693 174,733
431,186 474,525 456,267
CURRENT LIABILITIES:
Maturities and sinking fund
requirements of long-term debt 35,000 - -
Notes payable 63,000 23,200 24,236
Accounts payable 67,018 79,703 49,402
Refundable gas costs - 8,008 -
Customer deposits and advance payments 16,533 16,976 14,256
Accrued taxes 13,971 18,175 4,206
Accrued interest 4,497 4,859 2,505
Other current liabilities 21,210 20,068 24,827
221,229 170,989 119,432
DEFERRED CREDITS:
Deferred income taxes 67,421 65,798 66,862
Unamortized investment tax credit 10,941 11,871 11,173
Customer advances for construction 1,488 1,418 1,434
Regulatory income tax liability 2,835 3,797 2,835
Other 15,828 12,392 14,904
98,513 95,276 97,208
COMMITMENTS AND CONTINGENCIES
(See Notes 7 & 9) - - -
$750,928 $740,790 $672,907
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands - Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31
1996 1995 1996 1995
OPERATING REVENUES $ 172,481 $ 154,309 $ 548,766 $ 445,057
COST OF GAS 109,836 89,197 340,770 245,181
MARGIN 62,645 65,112 207,996 199,876
OPERATING EXPENSES:
Other operation and maintenance 19,237 18,690 84,683 76,130
Depreciation and amortization 8,624 8,118 33,738 31,734
Income taxes 9,868 11,405 21,637 24,110
Taxes other than income taxes 4,656 4,245 16,779 13,653
42,385 42,458 156,837 145,627
OPERATING INCOME 20,260 22,654 51,159 54,249
OTHER INCOME - NET 334 229 993 1,488
INCOME BEFORE INTEREST
AND OTHER 20,594 22,883 52,152 55,737
INTEREST 4,285 3,992 16,200 15,528
OTHER (110) (37) (169) (49)
4,175 3,955 16,031 15,479
NET INCOME $ 16,419 $ 18,928 $ 36,121 $ 40,258
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31
1996 1995 1996 1995
CASH FLOWS FROM (REQUIRED FOR)
OPERATING ACTIVITIES:
Net income $ 16,419 $ 18,928 $ 36,121 $ 40,258
Adjustments to reconcile net income to cash
provided from operating activities -
Depreciation and amortization 8,671 8,165 33,925 31,921
Deferred income taxes 558 701 661 3,893
Investment tax credit (232) (232) (930) (930)
8,997 8,634 33,656 34,884
Changes in assets and liabilities -
Receivables - net (58,691) (68,626) 6,117 (27,749)
Inventories 4,926 8,072 16,820 9,131
Accounts payable, customer deposits,
advance payments and other current
liabilities 16,276 14,604 (11,986) 33,880
Accrued taxes and interest 11,757 12,303 (4,566) (3,194)
Recoverable/refundable gas costs (14,239) 3,125 (24,957) (22,786)
Prepayments (974) (1,247) 374 11
Other - net 1,143 1,327 5,495 14,461
Total adjustments (30,805) (21,808) 20,953 38,638
Net cash flow from (required for)
operations (14,386) (2,880) 57,074 78,896
CASH FLOWS FROM (REQUIRED FOR)
FINANCING ACTIVITIES:
Sale of long-term debt - 20,000 - 40,000
Reduction in long-term debt - - (18,960) (122)
Net change in short-term borrowings 38,764 20,975 39,800 (20,350)
Dividends (6,500) (6,250) (25,500) (24,500)
Net cash flow from (required for)
financing activities 32,264 34,725 (4,660) (4,972)
CASH FLOWS REQUIRED FOR
INVESTING ACTIVITIES:
Capital expenditures (17,713) (12,195) (71,899) (54,274)
Net cash flow required for investing activities (17,713) (12,195) (71,899) (54,274)
NET INCREASE (DECREASE) IN CASH 165 19,650 (19,485) 19,650
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 20 20 19,670 20
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 185 $ 19,670 $ 185 $ 19,670
Indiana Gas Company, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
1. Financial Statements.
Indiana Gas Company, Inc. and its subsidiaries (Indiana
Gas or the company) provide natural gas and
transportation services to a diversified base of
customers in 281 communities in 48 of Indiana's 92
counties.
The interim condensed consolidated financial statements
included in this report have been prepared by Indiana
Gas, without audit, as provided in the rules and
regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
omitted as provided in such rules and regulations.
Indiana Gas believes that the information in this report
reflects all adjustments necessary to fairly state the
results of the interim periods reported, that all such
adjustments are of a normally recurring nature, and the
disclosures are adequate to make the information
presented not misleading. These interim financial
statements should be read in conjunction with the
financial statements and the notes thereto included in
Indiana Gas' latest annual report on Form 10-K.
Because of the seasonal nature of Indiana Gas' gas
distribution operations, the results shown on a
quarterly basis are not necessarily indicative of annual
results.
2. Cash Flow Information.
For the purposes of the Consolidated Statements of Cash
Flows, Indiana Gas considers cash investments with an
original maturity of three months or less to be cash
equivalents. Cash paid during the periods reported for
interest and income taxes were as follows:
Three Months Ended Twelve Months Ended
December 31 December 31
Thousands 1996 1995 1996 1995
Interest (net of
amount capitalized) $ 1,826 $1,604 $15,425 $13,617
Income taxes $ - $ - $28,721 $23,244
3. Revenues.
To more closely match revenues and expenses, revenues
are recorded for all gas delivered to customers but not
billed at the end of the accounting period.
4. Gas in Underground Storage.
Based on the cost of purchased gas during December 1996,
the cost of replacing the current portion of gas in
underground storage exceeded last-in, first-out cost at
December 31, 1996, by approximately $39,934,000.
5. Refundable or Recoverable Gas Costs.
The cost of gas purchased and refunds from suppliers,
which differ from amounts recovered through rates, are
deferred and are being recovered or refunded in
accordance with procedures approved by the Indiana
Utility Regulatory Commission (IURC).
6. Allowance For Funds Used During Construction.
An allowance for funds used during construction (AFUDC),
which represents the cost of borrowed and equity funds
used for construction purposes, is charged to
construction work in progress during the period of
construction and included in "Other Income-Net" and
"Other" on the Consolidated Statements of Income. An
annual AFUDC rate of 7.5 percent was used for all
periods reported.
The table below reflects the total AFUDC capitalized and
the portion of which was computed on borrowed and equity
funds for all periods reported.
Three Months Ended Twelve Months Ended
December 31 December 31
Thousands 1996 1995 1996 1995
AFUDC-Borrowed Funds $ 157 $ 84 $ 356 $ 236
AFUDC-Equity Funds 128 69 291 194
Total AFUDC Capitalized $ 285 $ 153 $ 647 $ 430
7. Environmental Costs.
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
locations of former manufactured gas plants. It is
seeking to recover the costs of the investigations and
work from insurance carriers, other potentially
responsible parties (PRPs) and customers.
On May 3, 1995, Indiana Gas received an order from the
IURC in which the Commission concluded that the costs
incurred by Indiana Gas to investigate and, if
necessary, clean-up former manufactured gas plant sites
are not utility operating expenses necessary for the
provision of service and, therefore, are not recoverable
as operating expenses from utility customers. On
January 21, 1997, this ruling was affirmed by the
Indiana Court of Appeals. The company is planning to
petition for transfer to the Indiana Supreme Court.
On April 14, 1995, Indiana Gas filed suit in the United
States District Court for the Northern District of
Indiana, Fort Wayne Division, against a number of
insurance carriers for payment of claims for
investigation and clean-up costs already incurred, as
well as for a determination that the carriers are
obligated to pay these costs in the future. On October
2, 1996, the Court granted several motions filed by
defendant insurance carriers for summary judgment on a
number of issues relating to the insurers' obligations
to Indiana Gas under insurance policies issued by these
carriers. For example, the Court held that because the
placement of residuals on the ground at the sites was
done intentionally, there was no "fortuitous accident"
and therefore no "occurrence" subject to coverage under
the relevant policies. Since the management of Indiana
Gas believes that a number of the Court's rulings are
contrary to Indiana law, it intends to appeal all
adverse rulings to the United States Court of Appeals
for the Seventh Circuit. However, if these rulings are
not reversed on appeal, they would effectively eliminate
coverage under most of the policies at issue. There can
be no assurance as to whether Indiana Gas will prevail
on this appeal. As of December 31, 1996, Indiana Gas
has obtained settlements from some insurance carriers in
an aggregate amount in excess of $14.7 million.
The Court's rulings have had no material impact on
earnings since Indiana Gas has previously recorded all
costs (in aggregate $14.8 million) which it presently
expects to incur in connection with remediation
activities. It is possible that future events may
require additional remediation activities which are not
presently foreseen.
8. Postretirement Benefits Other Than Pensions
On May 3, 1995, the IURC issued an order authorizing
Indiana Gas to recover the costs related to
postretirement benefits other than pensions under the
accrual method of accounting consistent with Statement
of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than
Pensions (SFAS 106). The Office of Utility Consumer
Counselor appealed the order. On January 21, 1997, the
Indiana Court of Appeals affirmed the IURC decision
authorizing recovery.
9. Affiliate Transactions.
Indiana Energy Services, Inc. (IES), an indirect wholly
owned subsidiary of Indiana Energy (Indiana Gas'
parent), provided natural gas and related services to
Indiana Gas from January 1, 1996, to March 31, 1996.
Indiana Gas' purchases from IES for the three months
ended March 31, 1996, totalled $102.7 million. ProLiance
Energy, LLC (ProLiance), a nonregulated marketing
affiliate of Indiana Energy, assumed the business of IES
effective April 1, 1996, and is the supplier of gas and
related services to both Indiana Gas and Citizens Gas
and Coke Utility (Citizens Gas). Indiana Gas' purchases
from ProLiance for the three- and twelve-month periods
ended December 31, 1996, totalled $103.2 million and
$221.1 million, respectively.
The sale of gas and provision of other services to
Indiana Gas by Indiana Energy's marketing affiliates are
subject to regulatory review through the quarterly gas
cost adjustment proceeding currently pending before the
IURC.
Two proceedings which may affect the formation,
operation or earnings of ProLiance are currently pending
before the IURC. The first proceeding was initiated by
a small group of Indiana Gas' and Citizens Gas' large-
volume customers who contend that the gas service
contracts between ProLiance and Indiana Gas and Citizens
Gas should be disapproved by the IURC or, alternatively,
that the IURC should regulate the operations of
ProLiance. On September 27, 1996, the IURC issued a
partial decision in that proceeding and found that
ProLiance is not subject to regulation as a public
utility. The IURC did confirm that it will continue to
monitor gas costs incurred by Indiana Gas. Hearings on
the remaining issues were concluded on October 9, 1996.
A decision from the IURC is expected during the first
half of calendar 1997.
The second proceeding involves the quarterly gas cost
adjustment applications of Indiana Gas and Citizens Gas
wherein these utilities are proposing to recover the
costs they have and will incur under their gas supply
and related agreements with ProLiance. This proceeding
will consider whether the recovery of those costs is
consistent with Indiana law governing gas cost recovery.
The hearing on the second proceeding has not yet been
scheduled.
While the outcome of these proceedings cannot be
predicted, management does not expect this matter to
have a material impact on Indiana Gas' financial
position or results of operations.
Indiana Gas also participates in a centralized cash
management program with its parent, affiliated companies
and banks which permits funding of checks as they are
presented.
Amounts due affiliated companies, as well as checks
written but not cashed are reflected in Accounts Payable
on the Consolidated Balance Sheet. Amounts owed to
affiliates totaled $64.4 million and $16.4 million at
December 31, 1996 and 1995, respectively.
Indiana Gas Company, Inc. and Subsidiary Companies
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Earnings
Net income for the three- and twelve-month periods
ended December 31, 1996, when compared to the same periods
one year ago are listed below. The decrease in earnings
for the three-month period is primarily attributable to
normal weather for the current quarter as compared to the
prior year which was 9 percent colder than normal. The
twelve-month earnings reflect increased margin
attributable to weather that was 5 percent colder than
normal as compared to the prior year which was about
normal, and the addition of new customers. The increase in
margin for the twelve-month period was offset by increased
operating expenses, including the acceleration of several
distribution system maintenance projects during the
period.
Periods Ended December 31
(Millions) 1996 1995
Three Months $16.4 $18.9
Twelve Months $36.1 $40.3
The following discussion highlights the factors
contributing to these results.
Margin (Revenues Less Cost of Gas)
Margin for the quarter ended December 31, 1996,
decreased $2.5 million compared to the same period last
year. The decrease reflects normal weather for the
current quarter as compared to the prior year which was 9
percent colder than normal.
Margin for the twelve-month period ended December 31,
1996, increased $8.1 million compared to the same period
last year. The increase is primarily attributable to
weather that was 5 percent colder than normal as compared
to the prior year which was about normal. Additional
residential and commercial customers, as well as rate
recovery (beginning May 1995) of postretirement benefit
costs recognized in accordance with Statement of Financial
Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (SFAS 106)
also contributed to the increase.
Total system throughput (combined sales and
transportation) decreased 4 percent (1.7 MMDth) for the
three-month period ended December 31, 1996, compared to
the same period one year ago. For the twelve-month
period, throughput increased 6 percent (6.5 MMDth)
compared to the same period last year. Indiana Gas' rates
for transportation generally provide the same margins as
are earned on the sale of gas under its sales tariffs.
Approximately one-half of total system throughput
represents gas used for space heating and is affected by
weather.
Total average cost per unit of gas purchased increased
to $4.04 for the three-month period ended December 31,
1996, compared to $2.71 for the same period one year ago.
For the twelve-month period, cost of gas per unit
increased to $3.55 in the current period compared to $2.55
for the same period last year.
Adjustments to Indiana Gas' rates and charges related
to the cost of gas are made through gas cost adjustment
(GCA) procedures established by Indiana law and
administered by the Indiana Utility Regulatory Commission
(IURC). The GCA passes through increases and decreases in
the cost of gas to Indiana Gas' customers dollar for
dollar.
Operating Expenses
Operation and maintenance expenses increased $.5
million for the three-month period ended December 31,
1996, when compared to the same period one year ago. The
increase is primarily due to higher labor costs and
related benefits.
Operation and maintenance expenses for the twelve-
month period increased $8.6 million when compared to the
same period last year partly due to the acceleration of
several distribution system maintenance projects into
fiscal 1996 permitted by higher earnings attributable to
the colder than normal weather. Higher performance-based
compensation and recognition (beginning May 1995) of
postretirement benefit costs in accordance with SFAS 106
also contributed to the increase.
Depreciation and amortization expense increased for
the three- and twelve-month periods ended December 31,
1996, when compared to the same periods one year ago as
the result of additions to utility plant to serve new
customers and to maintain dependable service to existing
customers.
Federal and state income taxes decreased for the three-
and twelve-month periods ended December 31, 1996, when
compared to the same periods one year ago due to lower
taxable income.
Taxes other than income taxes increased for the three-
month period ended December 31, 1996, when compared to the
same period one year ago due to higher property tax
expense. Taxes other than income taxes increased for the
twelve-month period due to higher property tax expense and
higher gross receipts tax expense resulting from increased
revenue.
Interest Expense
Interest expense increased for the three- and twelve-
month periods ended December 31, 1996, when compared to
the same periods one year ago due to an increase in
average debt outstanding slightly offset by a decrease in
interest rates.
Other Operating Matters
ProLiance Energy, LLC
ProLiance Energy, LLC (ProLiance), a nonregulated
marketing affiliate of Indiana Energy (Indiana Gas'
parent), began providing natural gas and related services
to Indiana Gas and Citizens Gas and Coke Utility (Citizens
Gas) effective April 1, 1996. ProLiance also provides
products and services to other gas utilities and customers
in Indiana and surrounding states. ProLiance assumed the
business of Indiana Energy Services, Inc., an indirect
wholly owned subsidiary of Indiana Energy, which had
provided similar services to other customers and from
January 1, 1996, to March 31, 1996, to Indiana Gas.
The sale of gas and provision of other services to
Indiana Gas by Indiana Energy's marketing affiliates are
subject to regulatory review through the quarterly gas
cost adjustment proceeding currently pending before the
IURC.
Two proceedings which may affect the formation,
operation or earnings of ProLiance are currently pending
before the IURC. The first proceeding was initiated by a
small group of Indiana Gas' and Citizens Gas' large-volume
customers who contend that the gas service contracts
between ProLiance and Indiana Gas and Citizens Gas should
be disapproved by the IURC or, alternatively, that the
IURC should regulate the operations of ProLiance. On
September 27, 1996, the IURC issued a partial decision in
that proceeding and found that ProLiance is not subject to
regulation as a public utility. The IURC did confirm that
it will continue to monitor gas costs incurred by Indiana
Gas. Hearings on the remaining issues were concluded on
October 9, 1996. A decision from the IURC is expected
during the first half of calendar 1997.
The second proceeding involves the quarterly gas cost
adjustment applications of Indiana Gas and Citizens Gas
wherein these utilities are proposing to recover the costs
they have and will incur under their gas supply and
related agreements with ProLiance. This proceeding will
consider whether the recovery of those costs is consistent
with Indiana law governing gas cost recovery. The hearing
on the second proceeding has not yet been scheduled.
While the outcome of these proceedings cannot be
predicted, management does not expect this matter to have
a material impact on Indiana Gas' financial position or
results of operations.
Indiana Legislative Matters
On April 26, 1995, the Indiana General Assembly
enacted legislation which provides flexibility to the IURC
for future regulation of Indiana utilities. The law
recognizes that competition is increasing in the provision
of energy services and that flexibility in the regulation
of energy services providers is essential to the well-
being of the state, its economy and its citizens. Under
the law, an energy utility can present to the IURC a broad
range of proposals from performance-based ratemaking to
complete deregulation of a utility's operations. The law
gives the IURC the authority to adopt alternative
regulatory practices, procedures and mechanisms and
establish rates and charges that are in the public
interest, and will enhance or maintain the value of the
energy utility's retail energy services or property. It
also provides authority for the IURC to establish rates
and charges based on market or average prices that use
performance-based rewards or penalties, or which are
designed to promote efficiency in the rendering of retail
energy services.
Environmental Matters
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
locations of former manufactured gas plants. It is
seeking to recover the costs of the investigations and
work from insurance carriers, other potentially
responsible parties (PRPs) and customers.
On May 3, 1995, Indiana Gas received an order from the
IURC in which the Commission concluded that the costs
incurred by Indiana Gas to investigate and, if necessary,
clean-up former manufactured gas plant sites are not
utility operating expenses necessary for the provision of
service and, therefore, are not recoverable as operating
expenses from utility customers. On January 21, 1997,
this ruling was affirmed by the Indiana Court of Appeals.
The company is planning to petition for transfer to the
Indiana Supreme Court.
On April 14, 1995, Indiana Gas filed suit in the
United States District Court for the Northern District of
Indiana, Fort Wayne Division, against a number of
insurance carriers for payment of claims for investigation
and clean-up costs already incurred, as well as for a
determination that the carriers are obligated to pay these
costs in the future. On October 2, 1996, the Court
granted several motions filed by defendant insurance
carriers for summary judgment on a number of issues
relating to the insurers' obligations to Indiana Gas under
insurance policies issued by these carriers. For example,
the Court held that because the placement of residuals on
the ground at the sites was done intentionally, there was
no "fortuitous accident" and therefore no "occurrence"
subject to coverage under the relevant policies. Since
the management of Indiana Gas believes that a number of
the Court's rulings are contrary to Indiana law, it
intends to appeal all adverse rulings to the United States
Court of Appeals for the Seventh Circuit. However, if
these rulings are not reversed on appeal, they would
effectively eliminate coverage under most of the policies
at issue. There can be no assurance as to whether Indiana
Gas will prevail on this appeal. As of December 31, 1996,
Indiana Gas has obtained settlements from some insurance
carriers in an aggregate amount in excess of $14.7
million.
The Court's rulings have had no material impact on
earnings since Indiana Gas has previously recorded all
costs (in aggregate $14.8 million) which it presently
expects to incur in connection with remediation
activities. It is possible that future events may require
additional remediation activities which are not presently
foreseen.
Postretirement Benefits Other Than Pensions
On May 3, 1995, the IURC issued an order authorizing
Indiana Gas to recover the costs related to postretirement
benefits other than pensions under the accrual method of
accounting consistent with Statement of Financial
Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (SFAS 106).
The Office of Utility Consumer Counselor appealed the
order. On January 21, 1997, the Indiana Court of Appeals
affirmed the IURC decision authorizing recovery.
Liquidity and Capital Resources
New construction, normal system maintenance and
improvements, and information technology investments to
provide service to a growing customer base will continue to
require substantial capital expenditures. Capital
expenditures for fiscal 1997 are estimated at $67.8 million
of which $17.7 million have been expended during the three-
month period ended December 31, 1996. For the twelve
months ended December 31, 1996, Indiana Gas' capital
expenditures totaled $71.9 million. Of this amount, 62
percent was provided by funds generated internally (net
income less dividends plus charges to net income not
requiring funds).
Indiana Gas' long-term goal is to fund internally
approximately 75 percent of its construction program.
Capitalization objectives for Indiana Gas are 55-65
percent common equity and 35-45 percent long-term debt.
This will help Indiana Gas to maintain its high
creditworthiness. The long-term debt of Indiana Gas is
currently rated Aa3 by Moody's Investors Service and AA- by
Standard & Poor's Corporation. Indiana Gas' ratio of
earnings to fixed charges was 4.3 for the twelve months
ended December 31, 1996 (see Exhibit 12).
The nature of Indiana Gas' business creates large short-
term cash working capital requirements primarily to finance
customer accounts receivable, unbilled utility revenues
resulting from cycle billing, gas in underground storage
and construction expenditures until permanently financed.
Short-term borrowings tend to be greatest during the
heating season when accounts receivable and unbilled
utility revenues are at their highest. Depending on cost,
commercial paper or bank lines of credit are used as
sources of short-term financing. Indiana Gas' commercial
paper is rated P-1 by Moody's and A-1+ by Standard &
Poor's. Long-term financial strength and flexibility
require maintaining throughput volumes, controlling costs
and, if absolutely necessary, securing timely increases in
rates to recover costs and provide a fair and reasonable
return to shareholders.
Forward-Looking Information
Certain matters discussed in Management's Discussion and
Analysis are forward-looking. These forward-looking
discussions reflect the company's current best estimates
regarding future operations. Since these are only
estimates, actual results could be materially different.
Several factors, some of which are outside of the company's
control and cannot be accurately and conclusively
predicted, may materially affect estimates of future
operations. Such factors include the effect of weather on
gas consumption, particularly in the residential market,
the effect of general economic conditions on gas
consumption, particularly in industrial and commercial
markets, the direction and pace of change in state and
federal regulation on both the gas and electric industries,
and the effects of competition on markets where prices and
providers have been regulated.
Indiana Gas Company and Subsidiary Companies
Part II - Other Information
Item 1. Legal Proceedings
See Note 7 of the Notes to Consolidated Financial
Statements for litigation matters involving insurance
carriers pertaining to Indiana Gas' former manufactured
gas plants and storage facilities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Computation of Ratio of Earnings to
Fixed Charges, filed herewith.
27 Financial Data Schedule, filed herewith.
(b) No Current Reports on Form 8-K were filed
during the quarter ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
INDIANA GAS COMPANY, INC.
Registrant
Dated February 13, 1997 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
Executive Vice President and
Chief Financial Officer
Dated February 13, 1997 /s/Jerome A. Benkert
Jerome A. Benkert
Vice President and Controller