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 June 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to
_____________
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 June 30, 1999
Southern Indiana Gas and
Electric Company: Common stock, no par value,
15,754,826 shares
outstanding and held by
SIGCORP, Inc. at
June 30, 1999
SIGCORP, Inc.
AND
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION:
Item 1: Financial Statements
SIGCORP, Inc.
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Consolidated Balance Sheets 4-5
Consolidated Statements of Capitalization 6
Consolidated Statements of Retained Earnings 7
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
Statements of Income 8
Statements of Cash Flows 9
Balance Sheets 10-11
Statements of Capitalization 12
Statements of Retained Earnings 13
NOTES TO FINANCIAL STATEMENTS OF SIGCORP, Inc.
AND SOUTHERN INDIANA GAS AND ELECTRIC COMPANY 14-17
Item 2: Management's Discussion and Analysis of Results
of Operations and Financial Condition 18-23
SIGCORP, Inc. AND SOUTHERN INDIANA GAS
AND ELECTRIC COMPANY
Part II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 24
Item 5: Other information 24
Item 6: Exhibits and Reports on Form 8-K 23
Signatures 25
2
SIGCORP, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(in thousands except for per share amounts)
OPERATING REVENUES:
Electric utility $ 73,802 $ 77,526 $144,789 $142,753
Gas utility 10,517 10,295 40,214 40,213
Energy services and other 47,601 45,484 97,078 91,410
Total operating revenues 131,920 133,305 282,081 274,376
OPERATING EXPENSES:
Fuel for electric generation 15,730 17,563 31,358 32,470
Purchased electric energy 7,064 5,720 10,325 7,406
Cost of gas sold 4,867 5,384 24,372 25,642
Cost of energy services
and other 46,564 43,809 95,646 89,028
Other operation expenses 17,211 18,765 34,232 34,128
Maintenance 9,857 11,401 17,173 16,866
Depreciation and amortization 11,327 10,673 22,636 21,374
Property and other taxes 3,143 3,367 6,389 6,959
Total operating expenses 115,763 116,682 242,131 233,873
OPERATING INCOME 16,157 16,623 39,950 40,503
INTEREST AND OTHER CHARGES:
Interest expense on
long-term debt 3,317 4,958 7,602 10,418
Interest expense on
short-term debt 2,441 951 3,848 1,254
Amortization of premium,
discount and expense on debt 97 169 274 337
Allowance for funds used
during construction (297) (379) (605) (717)
Preferred dividend
requirements of subsidiary 269 274 539 548
Interest income (1,206) (2,016) (2,194) (2,952)
Other, net (422) (496) (599) (5,163)
Total interest and
other charges 4,199 3,461 8,865 3,725
INCOME BEFORE INCOME TAXES 11,958 13,162 31,085 36,778
Federal and state
income taxes 3,788 4,155 10,294 11,345
NET INCOME $ 8,170 $ 9,007 $ 20,791 $ 25,433
AVERAGE COMMON SHARES
OUTSTANDING 23,631 23,631 23,631 23,631
BASIC EARNINGS PER SHARE
OF COMMON STOCK $ 0.35 $ 0.38 $ 0.88 $ 1.08
DILUTED EARNINGS PER SHARE
OF COMMON STOCK $ 0.34 $ 0.38 $ 0.88 $ 1.07
<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)
Six Months Ended
June 30,
1999 1998
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 20,791 $ 25,433
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 22,636 21,374
Preferred dividend requirements
of subsidiary 539 548
Deferred income taxes and investment
tax credits, net (188) (7,487)
Allowance for other funds used
during construction 51 8
Change in assets and liabilities:
Receivables, net (including accrued
unbilled revenues) 14,633 5,850
Inventories 4,857 (4,702)
Accounts payable (16,365) (8,582)
Accrued taxes (1,476) 2,414
Refunds from gas suppliers (1,107) (364)
Refunds to customers 1,868 (95)
Other assets and liabilities 9,003 13,584
Net cash provided by operating activities 55,242 47,981
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of
allowance for other funds used
during construction) (31,422) (24,170)
Demand side management program expenditures (58) (484)
Investments in leveraged leases 13 7,249
Purchases of investments - (1,860)
Sale of Investments 96 80
Investments in partnerships and other
corporations (1,556) 148
Change in nonutility property (801) 1,487
Other (278) 2,011
Net cash used in investing activities (34,006) (15,539)
CASH FLOWS FROM FINANCING ACTIVITIES
First mortgage bonds (45,000) -
Dividends paid (16,190) (14,845)
Reduction in preferred stock (116) -
Change in environmental improvement funds
held by trustee (84) (95)
Payments on partnership obligations (1,513) (2,139)
Change in notes payable 44,997 (6,863)
Other 1,165 268
Net cash used in financing activities (16,741) (23,674)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,495 8,768
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,049 5,827
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,544 $ 14,595
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
4
SIGCORP, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1999 1998
(in thousands)
ASSETS
UTILITY PLANT, at original cost:
Electric $1,149,334 $1,141,870
Gas 150,551 150,136
1,299,885 1,292,006
Less accumulated provision for depreciation 614,404 593,901
685,481 698,105
Construction work in progress 46,130 24,306
Net utility plant 731,611 722,411
OTHER INVESTMENTS AND PROPERTY:
Investments in leveraged leases 35,990 36,003
Investments in partnerships and
other corporations 33,757 32,389
Environmental improvement funds
held by trustee 4,384 4,300
Notes receivable 20,955 20,372
Nonutility property and other, net 15,119 14,901
Total other investments and property 110,205 107,965
CURRENT ASSETS:
Cash and cash equivalents 9,544 5,049
Temporary investments, at market 600 793
Receivables, less allowance of $2,520 and
$2,204, respectively 58,204 65,829
Accrued unbilled revenues 13,587 20,595
Inventories 40,318 45,351
Current regulatory assets 7,555 9,527
Other current assets 4,432 3,777
Total current assets 134,240 150,921
OTHER ASSETS:
Unamortized premium on reacquired debt 4,050 4,226
Postretirement benefits other than pensions - 985
Demand side management programs 24,995 25,046
Allowance inventory 2,269 2,093
Deferred charges 15,787 15,871
Total other assets 47,101 48,221
TOTAL $1,023,157 $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)
June 30, December 31,
1999 1998
(in thousands)
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 298,361 292,288
Accumulated Other Comprehensive Income (72) (12)
Total common shareholders' equity 376,547 370,534
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 204,883 204,771
Long-Term Partnership Obligations,
net of current maturities 224 781
Total capitalization, excluding bonds
subject to tender (see Consolidated
Statements of Capitalization) 600,936 595,484
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 19 45,000
Notes payable 114,430 69,508
Partnership obligations 621 1,577
Total current maturities of long-term debt,
interim financing and long-term
partnership obligations 115,070 116,085
Other Current Liabilities:
Accounts payable 37,026 53,391
Dividends payable 117 120
Accrued taxes 3,348 4,863
Accrued interest 4,741 5,140
Refunds to customers 2,917 2,156
Other accrued liabilities 28,053 21,749
Total other current liabilities 76,202 87,419
Total current liabilities 244,972 257,204
OTHER LIABILITIES:
Accumulated deferred income taxes 144,558 144,032
Accumulated deferred investment tax credits,
being amortized over lives of property 18,087 18,802
Postretirement benefits other than pensions 13,006 11,337
Other 1,598 2,659
Total other liabilities 177,249 176,830
TOTAL $1,023,157 $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)
June 30, 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 298,361 292,288
Accumulated Other Comprehensive Income (72) (12)
Total common shareholders' equity 376,547 370,534
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 36,084 36,009
Unamortized debt premium and discount, net (1,116) (1,153)
Total long-term debt 204,883 204,771
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 $654,636 $649,184
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
7
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Accumulated
Other
Common Retained Comprehensive
(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 20,791 - 20,791 -
Unrealized (Loss) on Securities
(net of tax) (60) - - (60)
Comprehensive Income 20,731 - - -
Common Stock Dividends
($0.62 per share) (14,640) - (14,640) -
Stock Expense (78) - (78) -
Balances, June 30,1999 $376,547 $78,258 $298,361 $ (72)
<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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(in thousands except for per share
amounts)
OPERATING REVENUES:
Electric $ 73,802 $ 77,526 $144,789 $142,753
Gas 10,516 10,295 40,214 40,213
Total operating revenues 84,318 87,821 185,003 182,966
OPERATING EXPENSES:
Fuel for electric generation 16,880 18,103 33,748 33,897
Purchased electric energy 7,063 5,720 10,325 7,406
Cost of gas sold 4,867 5,384 24,372 25,642
Other operation expenses 14,519 16,287 29,460 30,097
Maintenance 9,838 11,371 17,126 16,780
Depreciation and amortization 11,216 10,632 22,433 21,264
Federal and state income taxes 4,535 4,528 11,865 12,168
Property and other taxes 3,062 3,278 6,189 6,775
Total operating expenses 71,980 75,303 155,518 154,029
OPERATING INCOME 12,338 12,518 29,485 28,937
OTHER INCOME:
Allowance for other funds
used during construction 51 (3) 51 (8)
Interest 69 94 127 161
Other, net 83 (106) 108 1,493
Total interest and other
charges 203 (15) 286 1,646
INCOME BEFORE INTEREST AND
OTHER CHARGES 12,541 12,503 29,771 30,583
INTEREST AND OTHER CHARGES:
Interest on long-term debt 3,324 4,320 7,381 9,126
Amortization of premium,
discount, and expense on debt 97 169 274 337
Other interest 1,480 537 2,277 949
Allowance for borrowed funds
used during construction (246) (382) (554) (725)
Total interest and other
charges 4,655 4,644 9,378 9,687
NET INCOME 7,886 7,859 20,393 20,896
Preferred stock dividend 269 274 539 548
NET INCOME APPLICABLE TO
COMMON STOCK $ 7,617 $ 7,585 $ 19,854 $ 20,348
<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)
Six Months Ended
June 30,
1999 1998
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 20,393 $ 20,896
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,433 21,264
Deferred income taxes and investment
tax credits, net (307) (981)
Allowance for other funds used
during construction 51 8
Change in assets and liabilities:
Receivables, net (including accrued
unbilled revenues) 8,274 7,037
Inventories 5,654 (3,832)
Accounts payable (10,348) (7,087)
Accrued taxes (2,647) (2,035)
Refunds from gas suppliers (1,107) (297)
Refunds to customers 1,868 (163)
Other assets and liabilities 10,092 12,038
Net cash provided by operating activities 54,356 46,848
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (net of allowance for
other funds used during construction) (31,422) (24,170)
Demand side management program expenditures (58) (152)
Change in nonutility property - (10)
Other (262) (131)
Net cash used in investing activities (31,742) (24,463)
CASH FLOWS FROM FINANCING ACTIVITIES
First mortgage bonds (45,000) -
Dividends paid (16,191) (14,845)
Reduction in preferred stock (116) -
Change in environmental improvement
funds held by trustee (84) (95)
Change in notes payable 38,395 (8,715)
Other 213 262
Net cash used in financing activities (22,783) (23,393)
NET DECREASE IN CASH AND CASH EQUIVALENTS (169) (1,008)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 512 1,114
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 343 $ 106
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
10
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
June 30, December 31,
1999 1998
(in thousands)
ASSETS
UTILITY PLANT, at original cost:
Electric $1,149,334 $1,141,870
Gas 150,551 150,136
1,299,885 1,292,006
Less accumulated provision for depreciation 614,404 593,901
685,481 698,105
Construction work in progress 46,130 24,306
Net utility plant 731,611 722,411
OTHER INVESTMENTS AND PROPERTY:
Environmental improvement funds
held by trustee 4,384 4,300
Nonutility property and other, net 1,577 1,577
Total other investments and property 5,961 5,877
CURRENT ASSETS:
Cash and cash equivalents 343 512
Receivables, less allowance of $2,460
and $2,156, respectively 27,587 28,854
Accrued unbilled revenues 13,587 20,595
Inventories 38,736 44,566
Current regulatory assets 7,555 9,527
Other current assets 3,056 2,776
Total current assets 90,864 106,830
OTHER ASSETS:
Unamortized premium on reacquired debt 4,050 4,226
Postretirement benefits other than pensions - 985
Demand side management programs 24,995 25,046
Allowance inventory 2,269 2,093
Deferred charges 14,466 14,444
Total other assets 45,780 46,794
TOTAL $ 874,216 $ 881,912
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
11
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
June 30, December 31,
1999 1998
(in thousands)
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Common Stock $ 78,258 $ 78,258
Retained Earnings 246,127 241,924
Total common shareholders' equity 324,385 320,182
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 169,799 169,762
Total capitalization, excluding bonds
subject to tender (see Consolidated
Statements of Capitalization) 513,466 509,342
CURRENT LIABILITIES:
Current Portion of Adjustable Rate Bonds
Subject to Tender 53,700 53,700
Current Maturities of Long-Term Debt,
Interim Financing and Long-Term
Partnership Obligations:
Maturing long-term debt - 45,000
Notes payable 83,584 50,759
Notes payable to Associated Company 20,500 14,930
Total current maturities of long-term
debt and interim financing 104,084 110,689
Other Current Liabilities:
Accounts payable 17,779 28,127
Dividends payable 117 120
Accrued taxes 2,124 4,772
Accrued interest 4,082 4,676
Refunds to customers 2,916 2,156
Other accrued liabilities 24,688 18,544
Total other current liabilities 51,706 58,395
Total current liabilities 209,490 222,784
OTHER LIABILITIES:
Accumulated deferred income taxes 118,555 118,147
Accumulated deferred investment tax credits,
being amortized over lives of property 18,087 18,801
Postretirement benefits other than pensions 13,006 11,337
Other 1,612 1,501
Other liabilities 151,260 149,786
TOTAL $874,216 $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)
June 30, 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 246,127 241,924
Total common shareholders' equity 324,385 320,182
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 (1,116) (1,153)
Total long-term debt 169,799 169,762
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 $567,166 $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)
Six Months Ended
June 30,
1999 1998
(in thousands)
Balance Beginning of Period $241,924 $228,570
Net Income 20,394 20,896
262,318 249,466
Preferred Stock Dividends 539 548
Common Stock Dividends 15,652 14,297
16,191 14,845
Balance End of Period (See Consolidated
Statements of Capitalization for restriction) $246,127 $234,621
<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 six months
ended June 30, 1999, and ten nonregulated subsidiaries.
On June 14, 1999, the announcement was made that
Indiana Energy, Inc. (IEI) and SIGCORP have agreed to be
merged into a new holding company to be named Vectren
Corporation (Vectren). The merger requires shareholder
and regulatory approvals which are expected to be
completed in six to nine months.
2. General
It is suggested that these consolidated financial
statements be read in conjunction with the consolidated
financial statements and the notes thereto included in
SIGCORP's and SIGECO's 1998 Annual Report or Form 10-K.
The consolidated statements include the accounts of
SIGCORP, Inc. and eleven of its wholly-owned
subsidiaries: Southern Indiana Gas and Electric Company
(SIGECO), Southern Indiana Properties, Inc. (SIPI),
Energy Systems Group, Inc. (ESGI), Southern Indiana
Minerals, Inc. (SIMI), SIGCORP Energy Services, Inc.
(Energy), SIGCORP Capital, Inc. (Capital), SIGCORP
Communications, Inc. (Communications), SIGCORP Fuels,
Inc. (Fuels), SIGECO Advanced Communications, Inc.
(Advanced Communications), SIGCORP Environmental
Services, Inc. (Environmental Services) and SIGCORP
Power Marketing, Inc. (Power), not yet active, and
include all adjustments which are, in the opinion of
management, necessary for a fair statement of the
financial position and results of operations. Because
of seasonal and other factors, the earnings for the six
months ending June 30, 1999 should not be taken as an
indication for all or any part of the balance of 1999.
3. Cash Flow Information
For the purposes of the Consolidated Balance Sheets
and Consolidated Statements of Cash Flows, SIGCORP and
SIGECO consider all highly liquid debt instruments
purchased with an original maturity of three months or
less to be cash equivalents.
SIGCORP, for the six months ended June 30, 1999 and
1998, paid interest (net of amounts capitalized) of
$11,295,000 and $10,803,000, respectively, and income
taxes of $13,624,000 and $16,462,000, respectively.
Additionally, SIGCORP is involved in several
partnerships which are partially financed by partnership
obligations amounting to $845,000 and $2,358,000 at June
30, 1999 and December 31, 1998, respectively.
SIGECO, for the six months ended June 30, 1999 and
1998, paid interest (net of amounts capitalized) of
$9,698,000 and $9,054,000, respectively, and $14,766,000
and $14,795,000, 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.
15
On April 1, SIGECO repaid the $45,000,000 6% Series of
1993 First Mortgage Bonds and a $20,000,000 commercial
loan with short-term borrowings. On July 26,1999,
$80,000,000 of 6.72% Senior Notes due August 1, 2029
were issued to retire $80 million of short-term debt,
including the above amounts.
5.Earnings Per Share
The following table illustrates the basic and diluted
earnings per share calculations:
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
(in thousands except for per share amounts)
Basic EPS $20,791 23,631 $0.88 $25,433 23,631 $1.08
Effect of dilutive
securities 114 103
Diluted EPS $20,791 23,745 $0.88 $25,433 23,734 $1.07
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:
Six Months Ended June 30 (in thousands) 1999 1998
Operating revenues:
Electric $ 144,789 $ 142,753
Gas 40,214 40,213
Gas marketing 93,599 86,165
Investment operations 514 474
All other 12,902 11,958
Total 292,018 281,563
Interest income:
Electric <F1> 116 147
Gas <F1> 11 14
Gas marketing 34 44
Investment operations 1,229 2,067
All other 2,817 2,455
Total 4,207 4,727
Interest expense:
Electric <F1> 8,788 9,167
Gas <F1> 869 907
Gas marketing 66 84
Investment operations 1,386 1,383
All other 2,353 1,906
Total 13,462 13,447
Income taxes:
Electric 10,258 10,908
Gas 1,607 1,260
Gas marketing 37 101
Investment operations (1,348) (881)
All other (260) (43)
Total 10,294 11,345
Net income:
Electric 16,840 17,836
Gas 3,014 2,512
Gas marketing 62 177
Investment operations 1,317 4,787
All other (442) 121
Total 20,791 25,433
Depreciation and amortization expense:
Electric 20,119 19,103
Gas 2,315 2,162
Gas marketing 32 12
Investment operations 69 50
All other 101 47
Total 22,636 21,374
Capital expenditures:
Electric 26,152 20,759
Gas 5,217 3,404
Gas marketing 12 31
Investment operations - -
All other 358 1,953
Total 31,739 26,147
Identifiable assets:
Electric <F2> 734,341 721,852
Gas <F2> 139,875 137,496
Gas marketing 23,356 19,443
Investment operations 89,314 90,508
All other 479,548 426,564
Total assets $1,466,434 $1,395,863
<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>
17
The following is a reconciliation to the consolidated
financial statements of SIGCORP:
Six Months Ended June 30 (in thousands) 1999 1998
Operating revenues:
Total revenues for segments $ 292,018 $ 281,563
Elimination of intersegment revenues (9,937) (7,187)
Total consolidated revenues 282,081 274,376
Interest income:
Total interest income for segments 4,207 4,727
Elimination of intersegment interest (2,013) (1,775)
Total consolidated interest income 2,194 2,952
Interest expense:
Total interest expense for segments 13,462 13,447
Elimination of intersegment interest (2,013) (1,775)
Total consolidated interest expense 11,449 11,672
Identifiable assets:
Total assets for segments 1,466,434 1,395,863
Elimination of intersegment assets (443,277) (366,345)
Total consolidated assets $1,023,157 $1,029,518
Southern Indiana Gas and Electric Company
Six Months Ended June 30 (in thousands) 1999 1998
Operating revenues:
Electric $144,789 $142,753
Gas 40,214 40,213
Total 185,003 182,966
Interest income:
Electric <F1> 116 147
Gas <F1> 11 14
Total 127 161
Interest expense:
Electric <F1> 8,788 9,168
Gas <F1> 869 907
Total 9,657 10,075
Identifiable assets:
Electric <F2>
Gas <F2> 139,875 137,576
Total assets $874,216 $859,848
<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>
18
SIGCORP, Inc.
AND
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The consolidated financial statements of SIGCORP, Inc.
(SIGCORP), an investor-owned holding company, include
SIGCORP's principal subsidiary, Southern Indiana Gas and
Electric Company (SIGECO), a regulated gas and electric
utility, and ten nonregulated subsidiaries. The following
discussion and analysis includes those factors which have,
or may, materially affect the results of operations and
financial condition of SIGCORP and its subsidiaries.
This discussion includes forward looking statements based
on information currently available to management. Such
statements are subject to certain risks and uncertainties.
These statements typically contain, but are not limited to
the terms ''anticipate'', ''expect'', ''potential'',
''estimate'' and similar words, and actual results may
differ materially due to the speed and nature of increased
competition and deregulation in the electric and gas
utility industry, economic or weather conditions affecting
future sales and margins, changes in markets for energy
services, changing energy market prices, legislative and
regulatory changes including revised environmental
requirements, impacts of Year 2000 issues, industry
restructuring, availability and cost of capital, and other
similar factors.
RESULTS OF OPERATIONS
Basic earnings were $.35 and $.88 per share for the three-
month and six-month periods ending June 30, 1999 compared
to basic earnings of $.38 and $1.08 per share,
respectively, for the second quarter and first six months
of 1998. The factors affecting earnings follow:
Qtr 6 Mos
Period ended June 30, 1998 $.38 $1.08
Weather (.04) -
Electric sales to other utilities and
power marketers (.08) (.06)
Utility O&M expense .09<F1> .01<F1>
Utility depreciation expense (.01) (.03)
Nonregulated gas energy services and
nonutility operations (.03) (.18)
Other .04 .06
Period ended June 30, 1999 $.35 $.88
<FN>
<F1> Reflects $.05 per share provision for uncollectible Federal Energy
revenues in June 1998
<FN>
REVENUES Second quarter electric utility revenue declined
$3.7 million, or 5%, due to 43% fewer power sales to other
utilities and power marketers and lower unit prices for
those sales, reflecting milder weather than a year ago when
temperatures, 23 percent warmer than normal, and a June
heat wave greatly increased demand for energy and
substantially widened wholesale unit margins in a tight
supply market. Despite a 5% decline in weather-sensitive
residential sales, total retail and firm wholesale electric
sales increased 2% during the second quarter of 1999
compared to the same period a year ago, reflecting the
continued strength of the local economy. Commercial and
industrial electric sales rose 2% and 5%, respectively,
while 29% warmer temperatures in April (in terms of heating
degree days) and 31% cooler temperatures (in terms of
cooling degree days) during the remainder of the quarter
caused the decrease in residential sales. Excluding one-
time charges to other operation expenses in June 1998 for
anticipated
19
uncollectible revenues from a defaulting power marketer,
second quarter earnings from sales to other utilities and
power marketers decreased $0.08 per share compared to the
same period a year ago.
Despite the warmer April weather, gas sales were relatively
unchanged during the period, but total sales and
transported volumes increased 13% during the current
quarter reflecting the area's growth in commercial and
industrial activity.
The greater activity of SIGCORP's natural gas marketing
subsidiary, SIGCORP Energy Services (Energy), whose
revenues were up $3.3 million, was the primary reason for a
$2.1 million increase in energy services and other
nonregulated revenues during the quarter ending June 30,
1999.
For the six-month period ending June 30, 1999, electric
revenues were $2.0 million (1.4%) greater than the same
period a year ago due primarily to stronger system sales
and a more favorable sales mix during the first quarter.
Total electric sales were up 3% for the six-month period,
reflecting a 4% increase in system sales; sales to other
utilities and power marketers were comparable to the same
period in 1998. Gas revenues for the current six-month
period equaled gas revenues from a year ago; although gas
sales were up 11% during the recent six-month period,
chiefly due to colder temperatures during the first quarter
of 1999, lower unit costs of purchased natural gas
recovered through revenues decreased related gas revenues.
Revenues from SIGCORP's natural gas marketing subsidiary,
SIGCORP Energy Services (Energy), rose $7.4 million during
the six months ending June 30, 1999 from continued growth
in sales and services throughout the period and accounted
for the $5.7 million increase in energy services and other
nonregulated revenues during the current period. Fewer
coal sales by SIGCORP's Fuels subsidiary during the six-
month period ending June 30, 1999 to customers other than
SIGECO was the primary reason for a $1.7 million reduction
in revenues from nonregulated operations other than Energy.
OPERATING EXPENSES In total, costs for fuel for electric
generation and purchased electric energy during the second
quarter of 1999 declined slightly ($.5 million) on sales
volumes comparable to the same period in 1998, and
increased $1.8 million (5%) during the recent six-month
period due to a 3% increase in total electric sales and
higher prices for wholesale market power purchased for
resale during the first three months of 1999. Despite
increased gas sales, cost of gas sold decreased 10% and 5%,
respectively, during the current three- and six-month
periods due to a 17% and a 14% decline, respectively, in
the average per unit costs of gas sold during those
periods. The cost of energy services and other revenues,
which was chiefly the cost of natural gas purchased for
resale by Energy, increased $2.7 million and $6.6 million,
respectively, during the second quarter and first six
months of 1999 compared to the same periods in 1998 due
primarily to Energy's increased sales. Other operation
expenses were down $1.6 million (8%) in the second quarter
reflecting a $1.8 million decrease in utility operation
expenses and a $.2 million increase in operation expenses
at SIGCORP's newer nonregulated subsidiaries. The decrease
in other operation expenses at SIGECO reflects the $2.0
million provision in June 1998 for uncollectible revenues
from a wholesale power marketer. SIGCORP's maintenance
expense decreased $1.5 million during the current three-
month period compared to the second quarter in 1998 when
maintenance expenditures at SIGECO's generating plants and
other facilities were greater than anticipated.
Maintenance expense for the first six months of 1999 was up
2% over the same period in 1998 due to greater scheduled
maintenance expenditures by SIGECO during the first quarter
of 1999.
INTEREST AND OTHER CHARGES Total interest and other
charges increased $.8 million in the second quarter of 1999
due to an equal decline in interest income on investments
by SIGCORP's Southern Indiana Properties, Inc. (SIPI)
subsidiary. During the six months ending June 30, 1999,
total interest and other charges rose $5.1 million due to a
substantial decrease in other nonutility income during the
first quarter of 1999 compared to the same period in 1998,
which included a $2.9 million after-tax gain on the
liquidation of SIPI's equity position in a
20
leveraged lease and a $1.4 million decrease in sales to
another utility of a portion of SIGECO's emission
allowances under a five year agreement beginning in 1995.
Total interest expense was comparable to the same period a
year ago. A $1.6 million decrease in interest on long-term
debt during the current quarter and a $2.8 million decline
in this expense for the first six months of 1999 reflected
lower average interest rates resulting from SIGECO's 1998
refunding of $80.3 million of tax-exempt bond issues with
an equal amount of tax-exempt bonds, and a reduction of
long-term debt due to the 1998 refunding of $14 million of
first mortgage bonds and the April 1999 refunding of $45
million of first mortgage bonds, with short-term debt (see
''Financing Activities''). The resultant increase in
SIGECO's short-term debt is reflected in increases in
short-term interest expense during the reporting periods.
EARNINGS For the second quarter of 1999, nonutility
earnings declined $.03 per share, primarily due to lower
earnings at SIPI; utility earnings were unchanged. During
the second quarter of 1999, utility earnings were favorably
impacted by SIGECO's substantially lower non-fuel operation
and maintenance expenses and the growth-related increases
in electric sales, all of which were fully offset by fewer
sales to other utilities and power marketers and related
lower unit prices, fewer sales to residential electric
customers and higher depreciation expense. Absent the $2.9
million ($.12 per share) after-tax gain realized at SIPI
during the first quarter of 1998, basic earnings for the
six-month period would have been $.08 per share below the
same period 1998 earnings.
PENDING MERGER On June 14, 1999, SIGCORP announced an
agreement to merge with Indiana Energy, Inc. (IEI) in an
all-stock pooling transaction through which a new holding
company, Vectren Corporation, would be formed. In a tax-
free exchange, SIGCORP shareholders would receive one and
one-third shares of Vectren stock for each share of SIGCORP
stock, while IEI shares would be exchanged on a one-for-one
basis. The merger would create a company with more than
650,000 customers providing gas and/or electric service in
adjoining service areas covering nearly two-thirds of
Indiana and assets of approximately $1.8 billion.
Completion of the merger is expected in six to nine months.
Management expects to generate $200 million in cost
savings/avoidance over a ten-year period, net of the one-
time merger transaction costs estimated to total $40
million.
ENVIRONMENTAL MATTERS (Refer to ''Environmental Matters''
in Management's Discussion and Analysis of Results of
Operations and Financial Condition in SIGCORP's 1998 Form
10-K for further discussion of environmental matters.) In
July 1997, the United States Environmental Protection
Agency (USEPA) issued its final rule which revised the
national ambient air quality standard for ozone by setting
a lower concentration limit and changing measurement
methods. It is anticipated that the number of ozone
nonattainment counties in the United States will increase
significantly. The USEPA has encouraged states to target
utility coal-fired boilers for the majority of the
reductions required, especially NOx emissions.
Northeastern states have claimed that ozone transport from
midwestern states (including Indiana) is the primary reason
for their ozone concentration problems. Although this
premise is challenged by others based on various air
quality modeling studies, including studies commissioned by
the USEPA, the USEPA intends to incorporate a regional
control strategy to reduce ozone transport. In October
1997, the USEPA provided each state a proposed budget of
allowed NOx emissions, a key ingredient of ozone, which
requires a significant reduction of such emissions. Under
that budget, utilities may be required to reduce NOx
emissions to a rate of 0.15 lb/mmBtu from levels already
imposed by Phase I and Phase II of the Clean Air Act
Amendments of 1990. Midwestern states (the alliance) have
been working together to determine the most appropriate
compliance strategy as an alternative to the USEPA
proposal. The alliance submitted its proposal, which calls
for a smaller, phased in reduction of NOx levels, to the
USEPA and the Indiana Department of Environmental
Management in June 1998.
21
In July 1998, Indiana submitted its proposed plan to the
USEPA in response to the USEPA's proposed new NOx rule and
the emissions budget proposed for Indiana. The Indiana
plan, which calls for a reduction of NOx emissions to a
rate of 0.25 lb/mmBtu by 2003, is less stringent than the
USEPA proposal but more stringent than the alliance
proposal.
The USEPA issued its final ruling on September 24, 1998,
which was essentially unchanged from its July 1997 proposed
rule, after considering all filed comments. The USEPA's
final ruling is being litigated in the federal courts by
approximately ten midwestern states, including Indiana.
The proposed NOx emissions budget for Indiana stipulated in
the USEPA's final ruling requires a 36% reduction in total
NOx emissions from Indiana. The ruling could require
SIGECO to lower its system-wide emissions by approximately
70%. Depending on the level of system-wide emissions
reductions ultimately required, and the control technology
utilized to achieve the reductions, the estimated
construction costs of the control equipment could reach $90
million, and related additional operation and maintenance
expenses could be an estimated $10 million to $15 million,
annually. Under the USEPA implementation schedule, the
emissions reductions and required control equipment must be
implemented and in place by May 15, 2003.
During the second quarter of 1999, the USEPA lost two
federal court challenges to key air-pollution control
requirements. In the first ruling by the U.S. Circuit
Court of Appeals for the District of Columbia on May 14,
1999, the Court struck down the USEPA's attempt to tighten
the one-hour ozone standard to an eight-hour standard and
the attempt to tighten the standard for particulate
emissions, finding the actions unconstitutional. In the
second ruling by the same Court on May 25, 1999, the Court
placed an indefinite stay on the USEPA's attempts to reduce
the allowed NOx emissions rate from levels required by the
Clean Air Act Amendments of 1990. The USEPA has filed
appeals on both court rulings.
YEAR 2000 READINESS SIGCORP, primarily SIGECO, uses
various software, systems and technology that may be
affected by the date change in the Year 2000. A Year 2000
team was established in early 1997 to identify and address
Year 2000-readiness issues. A high-level assessment of the
mission-critical systems and items of all SIGCORP
subsidiaries was completed in early 1997. In 1998, this
process became more formalized with the establishment of
SIGCORP's Year 2000 Task Force. SIGECO has completed a
detailed inventory of all systems and devices, including
imbedded technology in the operational areas, determined to
be date-sensitive. All systems and devices in the
inventory have been rated on criticality and likelihood of
failure and prioritized for testing. Due to functional
obsolescence, under its general business plan SIGECO has
recently replaced, or is currently replacing, all of its
known major noncompliant mission-critical information and
control systems with systems incorporating Year 2000-ready
technology. As of June 30, 1999, SIGECO has tested all of
its mission-critical systems and devices and remediated
those systems and devices found not ready for 2000, thus
meeting the North American Electric Reliability Council
(NERC)-imposed deadline to ensure Y2K readiness of SIGECO's
operations.
SIGECO's noncompliant critical information systems, the
customer billing and financials/supply chain systems,
developed in the late 1960's, are being replaced to address
functional obsolescence. 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
modified its existing customer billing system to be Year
2000-ready, testing of which is substantially completed.
The first and largest phase of the financials/supply chain
systems project was successfully implemented September 1,
1998 and the smaller, final phase of the financials/supply
chain systems project, the payroll/HR information system
was successfully implemented in July 1999.
22
At SIGECO's base-load generating stations, all noncompliant
critical control and data systems have been replaced or
were scheduled to be replaced in 1999 due to functional
obsolescence. The 1999 projects were completed by June 30,
1999.
Based on the findings of SIGECO's detailed inventory and
related testing completed to date, it is anticipated that
there will be a low number of smaller noncritical systems
and items requiring Year 2000-readiness upgrades or
replacement, most of which have been completed.
SIGCORP's contingency planning has been completed, and
SIGECO's detailed contingency plan was filed with the
Indiana Utility Regulatory Commission on June 30, 1999.
The planning encompasses external dependencies such as
critical suppliers, interconnected electricity and natural
gas transmission systems and major customers, as well as
SIGECO's electric generation facilities and other gas and
electric operations areas. SIGCORP does not yet know
whether the critical systems of its suppliers and major
customers will be Year 2000-ready, however it believes that
noncompliance of such systems would not have a material
adverse effect on its financial position or results of
operations.
SIGCORP estimates the remaining amounts required to be
expensed for Year 2000-readiness modifications and
replacements to total less than $250,000. SIGECO expects
to complete the replacement of all noncompliant mission-
critical information and control systems before 2000,
except its existing billing system which will have been
remediated and will be used until the new system is
completed.
Estimated
Incurred throughRemaining 1999
June 1999 Expenditures
Capital expenditure requirement
for replacement of critical:
information and generating station
control systems not in compliance
but replaced due to functional
obsolescence $24,700,000 $2,500,000
Expense of Year 2000-readiness
modifications to existing
critical systems or replacements
treated as expense $ 1,500,000 $ 250,000
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 June 30, 1999, management
believes exposure from these positions did not change
materially from December 31, 1998, and was not material.
(Refer to ''Market Risk'' in Management's Discussion and
Analysis of Results of Operations and Financial Condition
in SIGCORP's 1998 Form 10-K for further discussion of
market risk.)
SIGECO and Energy are also exposed to counterparty credit
risk when a customer or supplier defaults upon a contract
to pay or deliver product. To mitigate this risk, they
have established procedures to determine and monitor the
creditworthiness of counterparties.
23
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 six months ending
June 30, 1999 totaled $31.4 million and were 88% funded
with internally generated cash. Cash provided from
operations increased $7.3 million during the current six-
month period compared to the same period in 1998. Cash
required for investing and financing activities increased
$11.5 million for the six months ended June 30, 1999
compared to the same period a year ago.
SIGCORP estimates that SIGECO's construction expenditures
for the five-year period 1999-2003 will total approximately
$280 million, including approximately $10 million to
complete several comprehensive information systems which
are necessary to fulfill expanding customer service needs
and to better manage SIGECO's resources, but exclude
construction expenditures that may be required to comply
with new USEPA air quality standards discussed in
AEnvironmental 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 second quarter of 1999 was a $44.9 million increase in
short-term notes payable representing the April 1, 1999
refunding of $45 million of SIGECO's first mortgage bonds
with short-term debt. On July 26, 1999, $80 million in
short-term borrowings, including the above amount, were
refunded with the issue of $80 million of 6.72% Senior
Notes due August 1, 2029.
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.
24
PART TWO - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) 3) Exhibits:
SIGCORP and SIGECO
EX-4(a) Supplemental Indenture dated July
1, 1999 to the Mortgage and Deed of Trust between
Southern Indiana Gas and Electric Company and Bankers
Trust Company, as Trustee, for the First Mortgage Bonds,
6.72% Senior Note Series of 1999 due August 1, 2029.
EX-4(b) First Supplemental Indenture dated
July 1, 1999 between Southern Indiana Gas and Electric
Company and Bankers Trust Company, as Trustee, for the
6.72% Senior Notes due August 1, 2029.
(b) Reports on Form 8-K
The Agreement and Plan of Merger between
Indiana Energy, Inc., SIGCORP, Inc. and Vectren Corporation
dated June 11, 1999 was filed with the SEC on June 15,
1999.
25
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 August 16, 199 9
SOUTHERN INDIANA GAS AND
ELECTRIC COMPANY
s/ S. M. Kerney
S. M. Kerney
Controller
Date August 16, 1999