UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to
_____________
<c
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
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
Indicate by check mark whether the Registrants (1) have
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2)
have been subject to such filing requirements for the past
90 days.
Yes X . No .
Indicate the number of shares outstanding of each of the
Registrants' classes of common stock, as of the latest
practicable date:
SIGCORP, Inc.: Common stock, no par value,
23,630,568 shares
outstanding at March 31, 1999
Southern Indiana Gas and
Electric Company: Common stock, no par value,
15,754,826 shares outstanding
and held by SIGCORP, Inc. at
March 31, 1999
2
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
1999 1998
(in thousands except for per share amounts)
OPERATING REVENUES:
Electric utility $ 70,987 $ 65,227
Gas utility 29,698 29,918
Energy services and other 49,476 45,926
Total operating revenues 150,161 141,071
OPERATING EXPENSES:
Fuel for electric generation 15,628 14,907
Purchased electric energy 3,262 1,686
Cost of gas sold 19,506 20,258
Cost of energy services and other 49,081 45,219
Other operation expenses 17,021 15,364
Maintenance 7,315 5,464
Depreciation and amortization 11,309 10,701
Property and other taxes 3,246 3,592
Total operating expenses 126,368 117,191
OPERATING INCOME 23,793 23,880
INTEREST AND OTHER CHARGES:
Interest expense on long-term debt 4,285 5,460
Interest expense on short-term debt 1,407 302
Amortization of premium, discount and
expense on debt 177 168
Allowance for funds used during construction (308) (338)
Preferred dividend requirements of subsidiary 270 274
Interest income (988) (936)
Other, net (177) (4,666)
Total interest and other charges 4,666 264
INCOME BEFORE INCOME TAXES 19,127 23,616
Federal and state income taxes 6,507 7,190
NET INCOME $ 12,620 $ 16,426
AVERAGE COMMON SHARES OUTSTANDING 23,631 23,631
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.53 $ 0.70
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.53 $ 0.69
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
3
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,620 $ 16,426
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,309 10,701
Preferred dividend requirements of subsidiary 270 274
Deferred income taxes and investment
tax credits, net (608) (7,775)
Allowance for other funds used during
construction - 5
Change in assets and liabilities:
Receivables, net (including accrued
unbilled revenues) 9,692 4,321
Inventories 4,365 2,884
Accounts payable (12,948) (13,827)
Accrued taxes 10,940 18,179
Refunds from gas suppliers (1,163) (297)
Refunds to customers 2,480 390
Other assets and liabilities 9,356 15,746
Net cash provided by operating activities 46,313 47,027
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of allowance for
other funds used during construction) (13,990) (11,159)
Demand side management program expenditures (33) (152)
Investments in leveraged leases 369 7,609
Purchases of investments 359 (1,861)
Investments in partnerships and other
corporations (1,586) 65
Change in nonutility property 517 (2,558)
Other (4) 154
Net cash used in investing activities (14,368) (7,902)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (8,096) (7,423)
Reduction in preferred stock (116) -
Change in environmental improvement funds
held by trustee (41) (37)
Payments on partnership obligations 1,238) (1,639)
Change in notes payable 20,999 (7,197)
Other 47 128
Net cash used in financing activities 11,555 (16,168)
NET INCREASE IN CASH AND CASH EQUIVALENTS 43,500 22,957
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,049 5,827
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 48,549 $ 28,784
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
4
SIGCORP, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1999 1998
(in thousands)
ASSETS
UTILITY PLANT, at original cost:
Electric $1,146,127 $1,141,870
Gas 150,552 150,136
1,296,679 1,292,006
Less accumulated provision for depreciation 604,196 593,901
692,483 698,105
Construction work in progress 32,855 24,306
Net utility plant 725,338 722,411
OTHER INVESTMENTS AND PROPERTY:
Investments in leveraged leases 35,634 36,003
Investments in partnerships and other
corporations 33,421 32,389
Environmental improvement funds held
by trustee 4,341 4,300
Notes receivable 19,775 20,372
Nonutility property and other, net 14,981 14,901
Total other investments and property 108,152 107,965
CURRENT ASSETS:
Cash and cash equivalents 48,549 5,049
Temporary investments, at market 747 793
Receivables, less allowance of $2,431 and
$2,204, respectively 62,458 65,829
Accrued unbilled revenues 14,274 20,595
Inventories 40,810 45,351
Current regulatory assets 7,848 9,527
Other current assets 3,579 3,777
Total current assets 178,265 150,921
OTHER ASSETS:
Unamortized premium on reacquired debt 4,106 4,226
Postretirement benefits other than pensions 415 985
Demand side management programs 24,928 25,046
Allowance inventory 2,269 2,093
Deferred charges 16,035 15,871
Total other assets 47,753 48,221
TOTAL $1,059,508 $1,029,518
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
5
SIGCORP, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1999 1998
(in thousands)
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 297,010 292,288
Accumulated Other Comprehensive Income (40) (12)
Total common shareholders' equity 375,228 370,534
Cumulative Nonredeemable Preferred Stock
of Subsidiary 11,090 11,090
Cumulative Redeemable Preferred Stock
of Subsidiary 7,500 7,500
Cumulative Special Preferred Stock
of Subsidiary 692 808
Long-Term Debt, net of current maturities 204,860 204,771
Long-Term Partnership Obligations, net of
current maturities 224 781
Total capitalization, excluding bonds
subject to tender (see Consolidated
Statements of Capitalization) 599,594 595,484
CURRENT LIABILITIES:
Current Portion of Adjustable Rate Bonds
Subject to Tender 53,700 53,700
Current Maturities of Long-Term Debt,
Interim Financing and Long-Term
Partnership Obligations:
Maturing long-term debt 45,009 45,000
Notes payable 90,437 69,508
Partnership obligations 896 1,577
Total current maturities of long-term debt,
interim financing and long-term
partnership obligations 136,342 116,085
Other Current Liabilities:
Accounts payable 40,443 53,391
Dividends payable 117 120
Accrued taxes 15,803 4,863
Accrued interest 6,850 5,140
Refunds to customers 3,473 2,156
Other accrued liabilities 27,138 21,749
Total other current liabilities 93,824 87,419
Total current liabilities 283,866 257,204
OTHER LIABILITIES:
Accumulated deferred income taxes 143,782 144,032
Accumulated deferred investment tax credits,
being amortized over lives of property 18,444 18,802
Postretirement benefits other than pensions 12,161 11,337
Other 1,661 2,659
Total other liabilities 176,048 176,830
TOTAL $1,059,508 $1,029,518
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
6
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Unaudited)
March 31, December 31,
1999 1998
(in thousands)
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 297,010 292,288
Accumulated Other Comprehensive Income (40) (12)
Total common shareholders' equity 375,228 370,534
PREFERRED STOCK OF SUBSIDIARY
Cumulative, $100 par value, authorized 800,000
shares, issuable in series:
Nonredeemable
4.8% Series, outstanding 85,895 shares,
callable at $110 per share 8,590 8,590
4.75% Series, outstanding 25,000 shares,
callable at $101 per share 2,500 2,500
Total nonredeemable preferred stock
of subsidiary 11,090 11,090
Redeemable
6.50% Series, outstanding 75,000 shares,
redeemable at $100 per share December 1, 2002 7,500 7,500
SPECIAL PREFERRED STOCK OF SUBSIDIARY
Cumulative, no par value, authorized 5,000,000
shares, issuable in series: 8-1/2% series, outstanding
6,917 and 8,077 shares, respectively,
redeemable at $100 per share 692 808
LONG-TERM DEBT, NET OF CURRENT MATURITIES
First mortgage bonds 169,915 169,915
Notes payable 36,078 36,009
Unamortized debt premium and discount, net (1,133) (1,153)
Total long-term debt 204,860 204,771
LONG-TERM PARTNERSHIP OBLIGATIONS,
NET OF CURRENT MATURITIES 224 781
CURRENT PORTION OF ADJUSTABLE RATE POLLUTION
CONTROL BONDS SUBJECT TO TENDER, DUE
2025, Series A, presently 3.00% 31,500 31,500
2030, Series C, presently 3.05% 22,200 22,200
53,700 53,700
TOTAL CAPITALIZATION, including bonds subject
to tender $653,294 $649,184
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
7
CAPTION
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Accumulated
Other
Common Retained Compre-
hensive
(in thousands) Total Stock Earnings Income
Balances, December 31, 1997 $349,163 $78,258 $270,828 $ 77
Net Income 50,476 - 50,476 -
Unrealized Gain on Securities
(net of tax) (89) - - (89)
Comprehensive Income 50,387 - - -
Common Stock Dividends ($1.21
per share) (28,587) - (28,587) -
Stock Expense (429) - (429) -
Balances, December 31, 1998 370,534 78,258 292,288 (12)
Net Income 12,620 - 12,620 -
Unrealized (Loss) on Securities
(net of tax) (28) - - (28)
Comprehensive Income 12,592 - - -
Common Stock Dividends ($0.31
per share) (7,826) - (7,826) -
Stock Expense (72) - (72) -
Balances, March 31, 1999 $375,228 $78,258 $297,010 $ (40)
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
8
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
1999 1998
(in thousands except for per share amounts)
OPERATING REVENUES:
Electric $ 70,987 $ 65,227
Gas 29,698 29,918
Total operating revenues 100,685 95,145
OPERATING EXPENSES:
Fuel for electric generation 16,868 15,794
Purchased electric energy 3,262 1,686
Cost of gas sold 19,505 20,258
Other operation expenses 14,941 13,810
Maintenance 7,288 5,409
Depreciation and amortization 11,217 10,632
Federal and state income taxes 7,330 7,640
Property and other taxes 3,127 3,497
Total operating expenses 83,538 78,726
OPERATING INCOME 17,147 16,419
OTHER INCOME:
Allowance for other funds used during
construction - (5)
Interest 58 67
Other, net 25 1,599
Total interest and other charges 83 1,661
INCOME BEFORE INTEREST AND OTHER CHARGES 17,230 18,080
INTEREST AND OTHER CHARGES:
Interest on long-term debt 4,057 4,806
Amortization of premium, discount, and
expense on debt 177 168
Other interest 797 412
Allowance for borrowed funds used during
construction (308) (343)
Total interest and other charges 4,723 5,043
NET INCOME 12,507 13,037
Preferred stock dividend 270 274
NET INCOME APPLICABLE TO COMMON STOCK $ 12,237 $ 12,763
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
9
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,507 $ 13,037
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,217 10,632
Deferred income taxes and investment tax
credits, net (152) (721)
Allowance for other funds used
during construction - 5
Change in assets and liabilities:
Receivables, net (including accrued
unbilled revenues) 1,050 7,649
Inventories 4,757 2,911
Accounts payable (7,094) (12,697)
Accrued taxes 10,291 10,922
Refunds from gas suppliers (1,163) (297)
Refunds to customers 2,480 389
Other assets and liabilities 9,582 12,739
Net cash provided by operating activities 43,475 44,569
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of allowance for
other funds used during construction) (13,990) (11,160)
Demand side management program expenditures (33) (152)
Other (153) (38)
Net cash used in investing activities (14,176) (11,350)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (8,096) (7,423)
Reduction in preferred stock (116) -
Change in environmental improvement funds
held by trustee (41) (37)
Change in notes payable 21,017 (21,829)
Other 138 131
Net cash used in financing activities 12,902 (29,158)
NET DECREASE IN CASH AND CASH EQUIVALENTS 42,201 4,061
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 512 1,114
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,713 $ 5,175
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
10
CAPTION
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
March 31,December 31,
1999 1998
(in thousands)
ASSETS
UTILITY PLANT, at original cost:
Electric $1,146,127 $1,141,870
Gas 150,552 150,136
1,296,679 1,292,006
Less accumulated provision for depreciation 604,196 593,901
692,483 698,105
Construction work in progress 32,855 24,306
Net utility plant 725,338 722,411
OTHER INVESTMENTS AND PROPERTY:
Environmental improvement funds held by trustee 4,341 4,300
Nonutility property and other, net 1,577 1,577
Total other investments and property 5,918 5,877
CURRENT ASSETS:
Cash and cash equivalents 42,713 512
Receivables, less allowance of $2,377 and
$2,156, respectively 34,125 28,854
Accrued unbilled revenues 14,274 20,595
Inventories 39,633 44,566
Current regulatory assets 7,848 9,527
Other current assets 2,948 2,776
Total current assets 141,541 106,830
OTHER ASSETS:
Unamortized premium on reacquired debt 4,106 4,226
Postretirement benefits other than pensions 415 985
Demand side management programs 24,928 25,046
Allowance inventory 2,269 2,093
Deferred charges 14,656 14,444
Total other assets 46,374 46,794
TOTAL $ 919,171 $ 881,912
<FN>
The accompanying Notes to Consolidated Financial Statements are an
ntegral part of these statements.
</FN>
11
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
March 31,December 31,
1999 1998
(in thousands)
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 246,335 241,924
Total common shareholders' equity 324,593 320,182
Cumulative Nonredeemable Preferred Stock
of Subsidiary 11,090 11,090
Cumulative Redeemable Preferred Stock
of Subsidiary 7,500 7,500
Cumulative Special Preferred Stock
of Subsidiary 692 808
Long-Term Debt, net of current maturities 169,782 169,762
Total capitalization, excluding bonds subject to
tender (see Consolidated Statements of
Capitalization) 513,657 509,342
CURRENT LIABILITIES:
Current Portion of Adjustable Rate Bonds
Subject to Tender 53,700 53,700
Current Maturities of Long-Term Debt,
Interim Financing and Long-Term Partnership
Obligations:
Maturing long-term debt 45,000 45,000
Notes payable 71,686 50,759
Notes payable to Associated Company 15,020 14,930
Total current maturities of long-term debt
and interim financing 131,706 110,689
Other Current Liabilities:
Accounts payable 21,033 28,127
Dividends payable 117 120
Accrued taxes 15,063 4,772
Accrued interest 6,272 4,676
Refunds to customers 3,473 2,156
Other accrued liabilities 23,532 18,544
Total other current liabilities 69,490 58,395
Total current liabilities 254,896 222,784
OTHER LIABILITIES:
Accumulated deferred income taxes 118,352 118,147
Accumulated deferred investment tax credits,
being amortized over lives of property 18,444 18,801
Postretirement benefits other than pensions 12,162 11,337
Other 1,660 1,501
Other liabilities 150,618 149,786
TOTAL $919,171 $881,912
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
12
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Unaudited)
March 31,December 31,
1999 1998
(in thousands)
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 246,335 241,924
Total common shareholders' equity 324,593 320,182
PREFERRED STOCK OF SUBSIDIARY
Cumulative, $100 par value, authorized 800,000
shares, issuable in series:
Nonredeemable
4.8% Series, outstanding 85,895 shares,
callable at $110 per share 8,590 8,590
4.75% Series, outstanding 25,000 shares,
callable at $101 per share 2,500 2,500
Total nonredeemable preferred stock
of subsidiary 11,090 11,090
Redeemable
6.50% Series, outstanding 75,000 shares,
redeemable at $100 per share December 1, 2002 7,500 7,500
SPECIAL PREFERRED STOCK OF SUBSIDIARY
Cumulative, no par value, authorized 5,000,000
shares, issuable in series: 8-1/2% series,
outstanding 6,917 and 8,077 shares, respectively,
redeemable at $100 per share 692 808
LONG-TERM DEBT, NET OF CURRENT MATURITIES
First mortgage bonds 169,915 169,915
Notes payable 1,000 1,000
Unamortized debt premium and discount, net (1,133) (1,153)
Total long-term debt 169,782 169,762
CURRENT PORTION OF ADJUSTABLE RATE POLLUTION
CONTROL BONDS SUBJECT TO TENDER, DUE
2025, Series A, presently 3.00% 31,500 31,500
2030, Series C, presently 3.05% 22,200 22,200
53,700 53,700
TOTAL CAPITALIZATION, including bonds subject
to tender $567,357 $563,042
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
13
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
STATEMENTS OF RETAINED EARNINGS
(Unaudited
Three Months Ended
March 31,
1999 1998
(in thousands)
Balance Beginning of Period $241,924 $228,570
Net Income 12,507 13,037
254,431 241,607
Preferred Stock Dividends 270 274
Common Stock Dividends 7,826 7,149
8,096 7,423
Balance End of Period (See Consolidated
Statements of Capitalization for restriction) $246,335 $234,184
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
14
SIGCORP, Inc.
AND
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
SIGCORP, Inc. (SIGCORP) is a holding company
incorporated October 19, 1994 under the laws of the state
of Indiana. SIGCORP has 11 wholly-owned subsidiaries:
Southern Indiana Gas and Electric Company (SIGECO), a gas
and electric utility which accounts for over 90% of
SIGCORP's net income for the three months ended March 31,
1999, and ten nonregulated subsidiaries.
2. General
It is suggested that these consolidated financial
statements be read in conjunction with the consolidated
financial statements and the notes thereto included in
SIGCORP's and SIGECO's 1998 Annual Report or Form 10-K.
The consolidated statements include the accounts of
SIGCORP, Inc. and nine of its wholly-owned subsidiaries:
Southern Indiana Gas and Electric Company (SIGECO),
Southern Indiana Properties, Inc. (SIPI), Energy Systems
Group, Inc. (ESGI), Southern Indiana Minerals, Inc. (SIMI),
SIGCORP Energy Services, Inc. (Energy), SIGCORP Capital,
Inc. (Capital), SIGCORP Communications, Inc.
(Communications), SIGCORP Fuels, Inc. (Fuels), SIGECO
Advanced Communications, Inc. (Advanced Communications) and
SIGCORP Environmental Services, Inc. (Environmental
Services), and include all adjustments which are, in the
opinion of management, necessary for a fair statement of
the financial position and results of operations. Because
of seasonal and other factors, the earnings for the three
months ending March 31, 1999 should not be taken as an
indication for all or any part of the balance of 1999.
3. Cash Flow Information
For the purposes of the Consolidated Balance Sheets and
Consolidated Statements of Cash Flows, SIGCORP and SIGECO
consider all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash
equivalents.
SIGCORP, for the three months ended March 31, 1999 and
1998, paid interest (net of amounts capitalized) of
$3,674,000 and $1,781,000, respectively, and income taxes
of $36,000 and $15,000, respectively. Additionally,
SIGCORP is involved in several partnerships which are
partially financed by partnership obligations amounting to
$1,120,000 and $2,358,000 at March 31, 1999 and December
31, 1998, respectively.
SIGECO, for the three months ended March 31, 1999 and
1998, paid interest (net of amounts capitalized) of
$2,950,000 and $1,688,000, respectively, and no income
taxes and $745,000, respectively.
4. Long-Term Debt
On March 1, 1999, the interest rate on $31,500,000 of
Adjustable Rate Pollution Control bonds was changed from
3.65% to 3.00% due March 1, 2025. The new interest rate
will be fixed through February 29, 2000. Also on March 1,
1999, the interest rate on $22,200,000 of Adjustable Rate
Pollution Control bonds was changed from 3.70% to 3.05% due
March 1, 2020. The new interest rate will also be fixed
through February 29, 2000. For financial statement
presentation the $53,700,000 of Adjustable Rate Pollution
Control bonds are shown as a current liability.
On April 1, repayments on two of SIGECO's debt
instruments were due. They were the $45,000,000 6% Series
of 1993 First Mortgage Bonds and a $20,000,000 commercial
loan. SIGECO expects to issue a new series of long-term
debt to refund the issues. However, placement of new debt
was delayed; authority is needed from the IURC before new
long-term debt can be issued. SIGECO expects approval in
May, and new bonds to be issued in July. In the interim,
two 120-day loans were completed to refund the maturing
debt.
15
5. Earnings Per Share
The following table illustrates the basic and diluted
earnings per share calculations:
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
(in thousands except for per share amount
Basic EPS $12,620 23,631 $0.53 $16,426 23,631 $0.70
Effect of dilutive
securities 122 96
Diluted EPS $12,620 23,753 $0.53 $16,426 23,727 $0.69
Basic earnings per common share were computed by dividing
net income by the weighted average number of shares of
common stock outstanding during the year. Diluted earnings
per common share were determined using the treasury stock
method for dilutive stock options.
6. Segments of Business
SIGCORP and SIGECO adopted SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information" in
1998. SFAS No. 131 establishes standards for reporting
information about operating segments in financial
statements and disclosures about products and services and
geographic areas. Operating segments are defined as
components of an enterprise for which separate financial
information is available and is evaluated regularly by the
chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SIGCORP has four reportable segments. They are SIGECO's
electric and gas utility operations, Energy Services gas
marketing services and SIPI's investment operations. All
other subsidiary operations and corporate activities are
included in other. SIGCORP's reportable segments are
operations that are managed separately and meet the
quantitative thresholds required by SFAS No. 131. Revenues
for each of SIGCORP's segments are attributable principally
to customers in the United States.
16
Certain financial information relating to significant
segments of business is presented below:
Three Months Ended March 31 (in thousands) 1999 1998
Operating revenues:
Electric $ 70,987 $ 65,227
Gas 29,698 29,918
Gas marketing 47,986 43,901
Investment operations 246 237
All other 6,227 5,018
Total 155,144 144,301
Interest revenue:
Electric <F1> 53 61
Gas <F1> 5 6
Gas marketing 15 20
Investment operations 604 746
All other 1,304 1,241
Total 1,981 2,074
Interest expense:
Electric <F1> 4,417 4,748
Gas <F1> 437 470
Gas marketing 31 59
Investment operations 661 689
All other 1,139 934
Total 6,685 6,900
Income taxes:
Electric 6,058 6,151
Gas 1,272 1,489
Gas marketing 29 (15)
Investment operations (687) (547)
All other (165) 112
Total 6,507 7,190
Net income:
Electric 9,410 10,038
Gas 2,827 2,725
Gas marketing 48 (19)
Investment operations 607 3,449
All other (272) 233
Total 12,620 16,426
Depreciation and amortization expense:
Electric 10,059 9,551
Gas 1,157 1,081
Gas marketing 14 4
Investment operations 33 35
All other 46 30
Total 11,309 10,701
Capital expenditures:
Electric 11,790 9,949
Gas 2,200 1,206
Gas marketing 12 31
Investment operations - -
All other 167 1,920
Total 14,169 13,106
Identifiable assets:
Electric<F2> 772,104 720,278
Gas <F2> 147,067 137,196
Gas marketing 21,571 19,720
Investment operations 84,894 83,366
All other 463,715 424,795
Total assets $1,489,351 $1,385,355
<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>
The following is a reconciliation to the consolidated
financial statements of SIGCORP:
Three Months Ended March 31 (in thousands) 1999 1998
Operating revenues:
Total revenues for segments $ 155,144 $ 144,301
Elimination of intersegment revenues (4,983) (3,230)
Total consolidated revenues 150,161 141,071
Interest revenue:
Total interest revenue for segments 1,981 2,074
Elimination of intersegment interest (993) (1,138)
Total consolidated interest revenue 988 936
Interest expense:
Total interest expense for segments 6,685 6,900
Elimination of intersegment interest (993) (1,138)
Total consolidated interest expense 5,692 5,762
Identifiable assets:
Total assets for segments 1,489,351 1,385,355
Elimination of intersegment assets (429,834) (385,823)
Total consolidated assets $1,059,508 $ 999,532
Southern Indiana Gas and Electric Company
Three Months Ended March 31 (in thousands) 1999 1998
Operating revenues:
Electric $ 70,987 $ 65,227
Gas 29,698 29,918
Total 100,685 95,145
Interest revenue:
Electric <F1> 53 61
Gas <F1> 5 6
Total 58 67
Interest expense:
Electric <F1> 4,417 4,748
Gas <F1> 437 470
Total 4,854 5,218
Identifiable assets:
Electric <F2> 772,104 720,278
Gas <F2> 147,067 137,196
Total assets $919,171 $857,474
<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>
16
SIGCORP, Inc.
AND
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The consolidated financial statements of SIGCORP, Inc.
(SIGCORP), an investor-owned holding company, include
SIGCORP's principal subsidiary, Southern Indiana Gas and
Electric Company (SIGECO), a regulated gas and electric
utility, and ten nonregulated subsidiaries. The following
discussion and analysis includes those factors which have,
or may, materially affect the results of operations and
financial condition of SIGCORP and its subsidiaries.
This discussion includes forward looking statements based
on information currently available to management. Such
statements are subject to certain risks and uncertainties.
These statements typically contain, but are not limited to
the terms "anticipate", "expect", "potential", "estimate"
and similar words, and actual results may differ materially
due to the speed and nature of increased competition and
deregulation in the electric and gas utility industry,
economic or weather conditions affecting future sales and
margins, changes in markets for energy services, changing
energy market prices, legislative and regulatory changes
including revised environmental requirements, impacts of
Year 2000 issues, industry restructuring, availability and
cost of capital, and other similar factors.
RESULTS OF OPERATIONS
Basic earnings per share were $.53 for the three-month
period ending March 31, 1999 compared to basic earnings of
$.70 for the first quarter of 1998. The factors affecting
earnings follow:
Qtr
Period ended March 31, 1998 $.70
Weather & usage .04
Electric sales to other utilities and power marketers .02
Utility O&M expense (.08)
Utility depreciation expense (.01)
Nonregulated gas energy services and nonutility operations (.15)
Other .01
Period ended March 31, 1999 $.53
Revenues First quarter electric utility revenue rose $5.8
million, or 9%, due primarily to an increase in electric
sales to retail and municipal customers and higher unit
prices for power sales to other utilities and power
marketers. Temperatures registering 14% colder than a year
ago (in terms of heating degree days) and a growing local
economy, were the primary reasons for a 10% and 4% rise in
residential and commercial electric sales, respectively,
during the first quarter. Combined with a 5% increase in
sales to industrial customers, total electric sales to
retail and municipal customers rose 6% compared to a year
ago. SIGECO's negotiation of several large power sales
contracts to other utilities and power marketers in late
1998 increased revenues from these customers 12% compared
to the 1998 period, despite a 15% decline in related sales
volume. SIGECO aggressively markets electric power to
other utilities and many power marketers in the evolving
deregulated wholesale power market.
17
The colder temperatures and economic growth in SIGECO's
service area resulted in an 11% rise in gas sales and a 14%
increase in total sales and transportation of natural gas
during the current three-month period, but the effect on
gas utility revenues of these factors were more than offset
by the recovery of lower per unit purchased gas costs
through retail rates, causing gas utility revenue to be
slightly lower compared to the same period in 1998.
However, the increased gas sales had a positive impact on
gas margin.
The greater activity of SIGCORP's natural gas marketing
subsidiary, SIGCORP Energy Services (Energy), whose
revenues were up $4.1 million, was the primary reason for a
$3.6 million increase in energy services and other
nonregulated revenues during the quarter ending March 31,
1999.
Operating Expenses In total, costs for fuel for electric
generation and purchased electric energy during the first
quarter of 1999 were $2.3 million (14%) greater than costs
during the same period in 1998 due to the increased
electric sales and higher prices for wholesale market power
purchased for resale. Despite the increased gas sales,
cost of gas sold decreased slightly during the current
three-month period due to a 13% decline in the average per
unit cost of gas sold. The cost of energy services and
other revenues, which was chiefly the cost of natural gas
purchased for resale by Energy, rose $3.9 million during
the first quarter of 1999 compared to the same period in
1998 due primarily to Energy's increased sales. Other
operation expenses were up $1.7 million (11%) in the first
quarter reflecting a $1.1 million (8%) increase in utility
operation expenses and a $.6 million increase in operation
expenses at SIGCORP's newer nonregulated subsidiaries.
SIGCORP's maintenance expense was up $1.9 million during
the first quarter of 1999 due to an anticipated increase in
scheduled maintenance expenditures at SIGECO's generating
plants and other facilities.
Interest and Other Charges During the first three months
of 1999, total interest and other charges rose $4.4 million
due to a substantial decrease in other nonutility income
compared to the first quarter of 1998, which included a
$2.9 million after-tax gain on the liquidation of Southern
Indiana Properties' equity position in a leveraged lease,
and a $1.4 million decrease in sales to another utility of
a portion of SIGECO's emission allowances compared to the
same period in 1998 under a five year agreement beginning
in 1995. Total interest expense was comparable to the same
period a year ago. A $1.0 million decrease in interest on
long-term debt reflected lower average interest rates due
to SIGECO's 1998 refunding of $80.3 million of tax-exempt
bond issues with an equal amount of tax-exempt bonds and
the refunding of $14 million of first mortgage bonds with
short-term debt. A comparable increase in interest expense
on short-term debt reflects the increase in SIGECO's short-
term debt.
Earnings Absent the $2.9 million ($.12 per share) after-
tax gain realized at SIPI during the first quarter of 1998,
current quarter basic earnings would have been $.05 per
share below 1998 earnings. For the first quarter of 1999,
nonutility earnings declined $.15 per share and utility
earnings were down $.02 per share. Utility earnings were
favorably impacted by the increased gas and electric sales
to retail and municipal customers and higher unit margins
on sales to other utilities and power marketers, all of
which were fully offset by the anticipated increase in
SIGECO's scheduled maintenance and nonfuel operation
expenses and higher depreciation expense.
Environmental Matters (Refer to "Environmental Matters" in
Management's Discussion and Analysis of Results of
Operations and Financial Condition in SIGCORP's 1998 Form
10-K for further discussion of environmental matters.) In
July 1997, the United States Environmental Protection
Agency (USEPA) issued its final rule which revised the
national ambient air quality standard for ozone by setting
a lower concentration limit and changing measurement
methods. It is anticipated that the number of ozone
nonattainment counties in the United States will increase
significantly. The USEPA has encouraged states to target
utility coal-fired boilers for the majority of the
reductions required, especially NOx emissions, because they
18
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 Clean Air Act
Amendments of 1990. Midwestern states (the alliance) have
been working together to determine the most appropriate
compliance strategy as an alternative to the USEPA
proposal. The alliance submitted its proposal, which calls
for a smaller, phased in reduction of NOx levels, to the
USEPA and the Indiana Department of Environmental
Management in June 1998.
In July 1998, Indiana submitted its proposed plan to the
USEPA in response to the USEPA's proposed new NOx rule and
the emissions budget proposed for Indiana. The Indiana
plan, which calls for a reduction of NOx emissions to a
rate of 0.25 lb/mmBtu by 2003, is less stringent than the
USEPA proposal but more stringent than the alliance
proposal.
The USEPA issued its final ruling on September 24, 1998,
which was essentially unchanged from its July 1997 proposed
rule, after considering all filed comments. The USEPA's
final ruling is being litigated in the federal courts by
approximately ten midwestern states, including Indiana.
The proposed NOx emissions budget for Indiana stipulated in
the USEPA's final ruling requires a 36% reduction in total
NOx emissions from Indiana. The ruling could require
SIGECO to lower its system-wide emissions by approximately
70%. Depending on the level of system-wide emissions
reductions ultimately required, and the control technology
utilized to achieve the reductions, the estimated
construction costs of the control equipment could reach $90
million, and related additional operation and maintenance
expenses could be an estimated $10 million to $15 million,
annually. Under the USEPA implementation schedule, the
emissions reductions and required control equipment must be
implemented and in place by May 15, 2003.
Year 2000 Readiness SIGCORP, primarily SIGECO, uses
various software, systems and technology that may be
affected by the date change in the Year 2000. A Year 2000
team was established in early 1997 to identify and address
Year 2000-readiness issues. A high-level assessment of the
mission-critical systems and items of all SIGCORP
subsidiaries was completed in early 1997. In 1998, this
process became more formalized with the establishment of
SIGCORP's Year 2000 Task Force. SIGECO has completed a
detailed inventory of all systems and devices, including
imbedded technology in the operational areas, determined to
be date-sensitive. All systems and devices in the
inventory have been rated on criticality and likelihood of
failure and prioritized for testing. Due to functional
obsolescence, under its general business plan SIGECO has
recently replaced, or is currently replacing, all of its
known major noncompliant mission-critical information and
control systems with systems incorporating Year 2000-ready
technology. As of April 30, 1999, SIGECO has tested
approximately 70% of its mission-critical systems and
devices. Of those systems and devices tested, all were
found to be either Year 2000-ready or were easily
remediated to be ready for 2000. Completion of testing and
necessary remediation of all mission-critical systems is
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 2000. Of the two noncompliant critical information
systems being replaced, the customer billing system carries
the most risk since it has experienced project delays. Due
to the risk of not completing this project by 2000, SIGECO
19
modified its existing customer billing system to be Year
2000-ready, testing of which is currently in progress. The
first and largest phase of the financials/supply chain
systems project was successfully implemented September 1,
1998. 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.
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 requiring Year 2000-readiness upgrades or
replacement.
SIGCORP's contingency planning, other than for those
systems already discussed, began in late-1998, and detailed
contingency planning is scheduled to be completed by August
1, 1999. The planning encompasses external dependencies
such as critical suppliers, interconnected electricity and
natural gas transmission systems and major customers, as
well as SIGECO's electric generation facilities and other
gas and electric operations areas. SIGCORP does not yet
know whether the critical systems of its suppliers and
major customers will be Year 2000-ready, however it
believes that noncompliance of such systems would not have
a material adverse effect on its financial position or
results of operations.
SIGCORP estimates the remaining amounts required to be
expensed for Year 2000-readiness modifications and
replacements to total $500,000. 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.
Estimated
Incurred through Remaining 1999
March 1998 Expenditures
Capital expenditure requirement for
replacement of critical
information and generating station
control systems not in compliance but
replaced due to functional obsolescence $20,400,000 $9,600,000
Expense of Year 2000-readiness
modifications to existing critical
systems or replacements treated as
expense $ 1,250,000 $ 500,000
Market Risk SIGCORP is exposed to market risk due to
changes in interest rates and changes in the market price
for electricity and natural gas resulting from changes in
supply and demand. Exposure for interest rate changes
relates to its long-term debt and preferred equity and
partnership obligations. Exposure to electricity market
price risk relates to forward contracts to effectively
manage the supply of, and demand for, the electric
generation capability of SIGECO's generating plants related
to its wholesale power marketing activities. Exposure to
natural gas price risk relates to forward contracts taken
by Energy to manage its exposure to commodity price risks
in providing natural gas supplies to its customers. SIGECO
is not currently exposed to market risk for purchases of
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. As of March 31, 1999, management
believes exposure from these positions did not change
materially from December 31, 1998, and was not material.
(Refer to "Market Risk" in Management's Discussion and
Analysis of Results of Operations and Financial Condition
in SIGCORP's 1998 Form 10-K for further discussion of
market risk.)
20
SIGECO and Energy are also exposed to counterparty credit
risk when a customer or supplier defaults upon a contract
to pay or deliver product. To mitigate this risk, they
have established procedures to determine and monitor the
creditworthiness of counterparties.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL REQUIREMENTS SIGCORP's demand for capital is
primarily related to SIGECO's construction of utility plant
and equipment necessary to meet customers' electric and gas
energy needs and environmental compliance requirements.
Additionally, SIGCORP may periodically make capital
investments in nonregulated operations. Construction
expenditures (excluding allowance for other funds used
during construction) incurred during the quarter ending
March 31, 1999 totaled $14.0 million and were fully funded
with internally generated cash during the period. Cash
provided from operations decreased $700,000 during the
current three-month period compared to the same period in
1998. Cash required for investing and financing activities
during 1999 also decreased $21.2 million during the first
quarter, compared to a year ago.
SIGCORP estimates that SIGECO's construction expenditures
for the five year period 1999-2003 will total approximately
$280 million, including approximately $10 million to
complete several comprehensive information systems which
are necessary to fulfill expanding customer service needs
and to better manage SIGECO's resources, but exclude
construction expenditures that may be required to comply
with new USEPA air quality standards discussed in
"Environmental Matters" which could range from estimates of
$10 million to $90 million. Additionally, SIGCORP expects
to invest approximately $75 million during the five-year
period to implement its recently announced Income / Growth
strategy which, among other initiatives, incorporates the
expansion of SIGCORP"s energy services businesses through
the acquisition of electrical contracting and HVAC
companies in an eight-state region to provide industrial,
commercial and institutional customers total energy
solutions.
FINANCING ACTIVITIES The only financing activity during
the first quarter of 1999 was a $21.0 million increase in
short-term notes payable.
Over the five-year period, SIGCORP expects the majority of
the construction requirements, the capital contributions to
its nonregulated subsidiaries and an estimated $47 million
in debt security redemptions to be provided by internally
generated funds. External financing requirements of $95-
110 million are anticipated of which $60-70 million will be
used primarily to redeem long-term debt and $35-40 million
will be required for acquisitions of nonregulated
businesses. These estimates do not reflect construction
expenditures that may be required to comply with new USEPA
air quality standards.
21
PART TWO - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders
(a)The annual meeting of shareholders was held at 3:00 P.M.
(CDT) on April 27, 1999, with the following actions taken:
(b)The following three individuals were re-elected as
directors of SIGCORP, Inc. and SIGECO for three year terms:
John M. Dunn, John D. Engelbrecht, and Robert L. Koch II
The appointment of Arthur Andersen LLP as independent
auditors of SIGECORP, Inc. for 1999 was ratified.
(c)The following table shows the voting results as to each
matter considered by the shareholders:
Item 1: Vote for Election of Directors
Nominee Votes For Votes Withheld
John M. Dunn 19,456,116 173,969
John D. Engelbrecht 19,438,044 192,041
Robert L. Koch II 19,385,333 224,552
2 8
Item 2: Ratification of Appointment of Auditors
Total Votes Cast: 19,630,884
For Against Abstain
19,422,996 66,247 141,641
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SIGCORP, Inc
(Registrant)
/s/ T. L. Burke
T. L. Burke
Secretary and Treasurer
Date May 17, 1999
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
/s/ S. M. Kerney
S. M. Kerney
Controller
Date May 17, 1999