May 14, 1997
Securities and Exchange Commission
Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Gentlemen:
We are transmitting herewith Indiana Energy, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, pursuant to the requirements of Section 13
of the Securities Exchange Act of 1934.
Very truly yours,
/s/Douglas S. Schmidt
Douglas S. Schmidt
DSS:rs
Enclosures
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9091
INDIANA ENERGY, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1654378
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1630 North Meridian Street, Indianapolis, Indiana 46202
(Address of principal executive offices) (Zip Code)
317-926-3351
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Common Stock - Without par value 22,580,998 April 30, 1997
Class Number of shares Date
TABLE OF CONTENTS
Page
Numbers
Part I - Financial Information
Consolidated Balance Sheets
at March 31, 1997, and 1996
and September 30, 1996
Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996,
Six Months Ended March 31, 1997 and 1996,
and Twelve Months Ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1997 and 1996,
and Twelve Months Ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Part II - Other Information
Item 1 - Legal Proceedings
Item 4 - Submission of Matters to a Vote of Security
Holders
Item 6 - Exhibits and Reports on Form 8-K
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands - Unaudited)
March 31 September 30
1997 1996 1996
UTILITY PLANT:
Original cost $955,223 $896,411 $931,092
Less - Accumulated depreciation and amortization 350,362 334,684 344,268
604,861 561,727 586,824
NONUTILITY PLANT AND OTHER INVESTMENTS - NET 19,980 8,837 10,338
CURRENT ASSETS:
Cash and cash equivalents 18 36,694 20
Accounts receivable, less reserves of
$3,220, $2,990 and $1,853, respectively 45,841 67,940 14,598
Accrued unbilled revenues 25,104 33,300 8,158
Materials and supplies - at average cost 3,820 4,178 4,611
Liquefied petroleum gas - at average cost 860 527 507
Gas in underground storage - at last-in,
first-out cost 467 10,997 39,083
Recoverable gas costs 15,097 - 2,710
Prepayments and other 789 982 46
91,996 154,618 69,733
DEFERRED CHARGES:
Unamortized debt discount and expense 7,271 6,898 7,585
Other 7,674 9,799 7,983
14,945 16,697 15,568
$731,782 $741,879 $682,463
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
SHAREHOLDERS' EQUITY AND LIABILITIES
(Thousands - Unaudited)
March 31 September 30
1997 1996 1996
CAPITALIZATION:
Common stock (no par value) - authorized 64,000,000
shares - issued and outstanding 22,580,998,
22,531,102 and 22,474,402 shares, respectively $146,508 $145,231 $143,875
Less unearned compensation - restricted stock grants 2,002 723 525
144,506 144,508 143,350
Retained earnings 181,826 168,646 152,972
Total common shareholders' equity 326,332 313,154 296,322
Long-term debt 142,882 197,118 178,063
469,214 510,272 474,385
CURRENT LIABILITIES:
Maturities and sinking fund requirements
of long-term debt 35,272 267 272
Notes payable 42,300 3,800 28,036
Accounts payable 31,458 68,404 34,192
Refundable gas costs - 3,563 -
Customer deposits and advance payments 5,680 3,638 14,256
Accrued taxes 19,893 25,643 4,206
Accrued interest 2,632 2,910 2,552
Other current liabilities 25,259 27,773 27,356
162,494 135,998 110,870
DEFERRED CREDITS:
Deferred income taxes 67,977 65,787 66,862
Unamortized investment tax credit 10,709 11,639 11,173
Regulatory income tax liability 2,835 3,797 2,835
Other 18,553 14,386 16,338
100,074 95,609 97,208
COMMITMENTS AND CONTINGENCIES (see Notes 7 & 9) - - -
$731,782 $741,879 $682,463
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share data)
(Unaudited)
Three Months Six Months
Ended March 31 Ended March 31
1997 1996 1997 1996
UTILITY OPERATING REVENUES $ 215,695 $ 222,553 $ 388,176 $ 376,862
COST OF GAS 140,345 144,017 250,181 233,214
MARGIN 75,350 78,536 137,995 143,648
UTILITY OPERATING EXPENSES:
Other operation and maintenance 20,378 23,018 39,615 41,708
Depreciation and amortization 8,787 8,230 17,411 16,348
Income taxes 13,994 14,593 23,862 25,998
Taxes other than income taxes 5,038 5,415 9,694 9,660
48,197 51,256 90,582 93,714
UTILITY OPERATING INCOME 27,153 27,280 47,413 49,934
INTEREST 4,449 4,088 8,734 8,080
OTHER (435) (638) (879) (904)
4,014 3,450 7,855 7,176
UTILITY INCOME 23,139 23,830 39,558 42,758
NONUTILITY INCOME 1,210 2,404 2,076 2,569
NET INCOME $ 24,349 $ 26,234 $ 41,634 $ 45,327
AVERAGE COMMON SHARES OUTSTANDING 22,580 22,535 22,579 22,537
EARNINGS PER AVERAGE SHARE OF
COMMON STOCK $ 1.07 $ 1.16 $ 1.84 $ 2.01
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share data)
(Unaudited)
Twelve Months
Ended March 31
1997 1996
UTILITY OPERATING REVENUES $ 541,908 $ 517,142
COST OF GAS 337,098 306,649
MARGIN 204,810 210,493
UTILITY OPERATING EXPENSES:
Other operation and maintenance 82,043 79,866
Depreciation and amortization 34,295 32,220
Income taxes 21,038 26,010
Taxes other than income taxes 16,402 15,535
153,778 153,631
UTILITY OPERATING INCOME 51,032 56,862
INTEREST 16,561 15,787
OTHER (959) (1,852)
15,602 13,935
UTILITY INCOME 35,430 42,927
NONUTILITY INCOME 3,078 2,406
NET INCOME $ 38,508 $ 45,333
AVERAGE COMMON SHARES OUTSTANDING 22,534 22,549
EARNINGS PER AVERAGE SHARE OF
COMMON STOCK $ 1.71 $ 2.01
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)
Six Months Twelve Months
Ended March 31 Ended March 31
1997 1996 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41,634 $ 45,327 $ 38,508 $ 45,333
Adjustments to reconcile net income to cash
provided from operating activities -
Depreciation and amortization 17,505 16,459 34,487 32,440
Deferred income taxes 1,115 691 1,228 3,081
Investment tax credit (465) (465) (930) (930)
Undistributed earnings of unconsolidated affiliates (3,231) (58) (4,201) (226)
14,924 16,627 30,584 34,365
Changes in assets and liabilities -
Receivables - net (48,189) (81,042) 30,295 (44,056)
Inventories 39,054 48,465 10,555 22,864
Accounts payable, customer deposits,
advance payments and other current liabilities (13,407) 9,210 (37,418) 42,854
Accrued taxes and interest 15,767 18,051 (6,028) 2,099
Refundable/recoverable gas costs (12,387) (1,320) (18,660) (21,921)
Prepayments (743) (854) 209 75
Other - net 2,318 2,109 5,072 5,642
Total adjustments (2,663) 11,246 14,609 41,922
Net cash flows from operations 38,971 56,573 53,117 87,255
CASH FLOWS FROM (REQUIRED FOR) FINANCING
ACTIVITIES:
Repurchase of common stock - (760) (1,356) (760)
Sale of long-term debt 32 21,035 65 41,847
Reduction in long-term debt (213) (213) (19,296) (259)
Net change in short-term borrowings 14,264 (2,225) 38,500 (12,100)
Dividends on common stock (12,780) (12,348) (25,328) (24,470)
Net cash flows from (required for) financing activities 1,303 5,489 (7,415) 4,258
CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (36,676) (23,610) (79,447) (52,504)
Net change in nonutility plant and other investments (3,600) (1,778) (2,931) (2,335)
Net cash flows required for investing activities (40,276) (25,388) (82,378) (54,839)
NET INCREASE (DECREASE) IN CASH (2) 36,674 (36,676) 36,674
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 20 20 36,694 20
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18 $ 36,694 $ 18 $ 36,694
Indiana Energy, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
1. Financial Statements.
The consolidated financial statements include the
accounts of Indiana Energy, Inc. (Indiana Energy) and
its wholly- and majority-owned subsidiaries, after
elimination of intercompany transactions. The
consolidated financial statements separate the regulated
utility operations, principally Indiana Gas Company,
Inc. (Indiana Gas), from nonutility operations. The
nonutility operations include IGC Energy, Inc. (IGC
Energy), Energy Realty, Inc. (Energy Realty) and Indiana
Energy Services, Inc. (IES), indirect wholly-owned
subsidiaries of Indiana Energy as well as the 50-percent
interest in ProLiance Energy, LLC (see Note 9).
The interim condensed consolidated financial statements
included in this report have been prepared by Indiana
Energy, without audit, as provided in the rules and
regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
omitted as provided in such rules and regulations.
Indiana Energy believes that the information in this
report reflects all adjustments necessary to fairly
state the results of the interim periods reported, that
all such adjustments are of a normally recurring nature,
and the disclosures are adequate to make the information
presented not misleading. These interim financial
statements should be read in conjunction with the
financial statements and the notes thereto included in
Indiana Energy's latest annual report on Form 10-K.
Because of the seasonal nature of Indiana Energy's gas
distribution operations, the results shown on a
quarterly basis are not necessarily indicative of annual
results.
2. Cash Flow Information.
For the purposes of the Consolidated Statements of Cash
Flows, Indiana Energy considers cash investments with an
original maturity of three months or less to be cash
equivalents. Cash paid during the periods reported for
interest and income taxes were as follows:
Six Months Ended Twelve Months Ended
March 31 March 31
Thousands 1997 1996 1997 1996
Interest (net of
amount capitalized) $ 8,163 $ 7,806 $16,173 $14,802
Income taxes $12,015 $12,312 $30,311 $25,842
3. Revenues.
To more closely match revenues and expenses, revenues
are recorded for all gas delivered to customers but not
billed at the end of the accounting period.
4. Gas in Underground Storage.
Based on the cost of purchased gas during March 1997,
the cost of replacing the current portion of gas in
underground storage exceeded last-in, first-out cost at
March 31, 1997, by approximately $12,292,000.
5. Refundable or Recoverable Gas Costs.
The cost of gas purchased and refunds from suppliers,
which differ from amounts recovered through rates, are
deferred and are being recovered or refunded in
accordance with procedures approved by the Indiana
Utility Regulatory Commission (IURC).
6. Allowance For Funds Used During Construction.
An allowance for funds used during construction (AFUDC),
which represents the cost of borrowed and equity funds
used for construction purposes, is charged to
construction work in progress during the period of
construction and included in "Other" on the Consolidated
Statements of Income. An annual AFUDC rate of 7.5
percent was used for all periods reported.
The table below reflects the total AFUDC capitalized and
the portion of which was computed on borrowed and equity
funds for all periods reported.
Three Months Ended Six Months Ended Twelve Months Ended
March 31 March 31 March 31
Thousands 1997 1996 1997 1996 1997 1996
AFUDC-Borrowed Funds $151 $ 71 $308 $155 $436 $262
AFUDC-Equity Funds 124 58 252 127 357 215
Total AFUDC Capitalized $275 $129 $560 $282 $793 $477
7. Environmental Costs.
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
locations of former manufactured gas plants. It is
seeking to recover the costs of the investigations and
work from insurance carriers, other potentially
responsible parties (PRPs) and customers.
On May 3, 1995, Indiana Gas received an order from the
IURC in which the Commission concluded that the costs
incurred by Indiana Gas to investigate and, if
necessary, clean-up former manufactured gas plant sites
are not utility operating expenses necessary for the
provision of service and, therefore, are not recoverable
as operating expenses from utility customers. On
January 21, 1997, this ruling was affirmed by the
Indiana Court of Appeals. On February 19, 1997, the
company petitioned for transfer to the Indiana Supreme
Court.
On April 14, 1995, Indiana Gas filed suit in the United
States District Court for the Northern District of
Indiana, Fort Wayne Division, against a number of
insurance carriers for payment of claims for
investigation and clean-up costs already incurred, as
well as for a determination that the carriers are
obligated to pay these costs in the future. On October
2, 1996, the Court granted several motions filed by
defendant insurance carriers for summary judgment on a
number of issues relating to the insurers' obligations
to Indiana Gas under insurance policies issued by these
carriers. For example, the Court held that because the
placement of residuals on the ground at the sites was
done intentionally, there was no "fortuitous accident"
and therefore no "occurrence" subject to coverage under
the relevant policies. Based on discussions with
counsel, the management of Indiana Gas believes that a
number of the Court's rulings are contrary to Indiana
law and has appealed all adverse rulings to the United
States Court of Appeals for the Seventh Circuit.
However, if these rulings are not reversed on appeal,
they would effectively eliminate coverage under most of
the policies at issue. There can be no assurance as to
whether Indiana Gas will prevail on this appeal. As of
March 31, 1997, Indiana Gas has obtained settlements
from some insurance carriers in an aggregate amount in
excess of $14.7 million.
The Court's rulings have had no material impact on
earnings since Indiana Gas has previously recorded all
costs (in aggregate $14.8 million) which it presently
expects to incur in connection with remediation
activities. It is possible that future events may
require additional remediation activities which are not
presently foreseen.
8. Postretirement Benefits Other Than Pensions
On May 3, 1995, the IURC issued an order authorizing
Indiana Gas to recover the costs related to
postretirement benefits other than pensions under the
accrual method of accounting consistent with Statement
of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than
Pensions (SFAS 106). The Office of Utility Consumer
Counselor appealed the order. On January 21, 1997, the
Indiana Court of Appeals affirmed the IURC decision
authorizing recovery.
9. Nonutility Income.
Nonutility income includes the earnings recognized from
Indiana Energy's gas marketing affiliates. Prior to
April 1, 1996, IES provided natural gas and related
services to other gas utilities and customers in Indiana
and surrounding states, and from January 1, 1996, to
March 31, 1996, to Indiana Gas. ProLiance Energy, LLC
(ProLiance), a nonregulated marketing affiliate, assumed
the business of IES effective April 1, 1996, and is the
supplier of gas and related services to both Indiana Gas
and Citizens Gas and Coke Utility (Citizens Gas). The
company's investment in ProLiance is accounted for using
the equity method. ProLiance's fiscal year ends on
August 31.
Indiana Energy's gas marketing affiliates' contribution
to nonutility income is listed below.
Three Months Ended Six Months Ended Twelve Months Ended
March 31 March 31 March 31
Thousands 1997 1996 1997 1996 1997 1996
Nonutility income (loss):
Gas marketing affiliates,
net of reserve $1,398 $2,521 $2,352 $2,684 $2,886 $2,710
Other - net (188) (117) (276) (115) 192 (304)
$1,210 $2,404 $2,076 $2,569 $3,078 $2,406
Two proceedings which may affect the formation,
operation or earnings of ProLiance are currently pending
before the IURC. The first proceeding was initiated by
a small group of Indiana Gas' and Citizens Gas' large-
volume customers who contend that the gas service
contracts between ProLiance and Indiana Gas and Citizens
Gas should be disapproved by the IURC or, alternatively,
that the IURC should regulate the operations of
ProLiance. On September 27, 1996, the IURC issued a
partial decision in that proceeding and found that
ProLiance is not subject to regulation as a public
utility. The IURC did confirm that it will continue to
monitor gas costs incurred by Indiana Gas. Hearings on
the remaining issues were concluded on October 9, 1996.
A decision from the IURC is expected during the first
half of calendar 1997.
The second proceeding involves the quarterly gas cost
adjustment applications of Indiana Gas and Citizens Gas
wherein these utilities are proposing to recover the
costs they have and will incur under their gas supply
and related agreements with ProLiance. This proceeding
will consider whether the recovery of those costs is
consistent with Indiana law governing gas cost recovery.
The hearing on the second proceeding has not yet been
scheduled.
As a result of the two on-going proceedings, $4.1
million of Indiana Energy's share of its gas marketing
affiliates' net income has been reserved until the
outcome of these proceedings can be determined.
10. Affiliate Transactions.
ProLiance began providing natural gas supply and related
services to Indiana Gas effective April 1, 1996.
Indiana Gas' purchases from ProLiance for the three-,
six- and twelve-month periods ended March 31, 1997,
totalled $97.7 million, $200.8 million and $318.8
million, respectively. Amounts owed by Indiana Gas to
ProLiance were $21.1 million at March 31, 1997, and are
included in Accounts Payable on the Consolidated Balance
Sheet.
As of March 31, 1997, ProLiance has an available letter
of credit with a bank to borrow up to $30 million.
Borrowings are secured by a support agreement signed by
Indiana Energy and Citizens Gas.
11. Reclassifications.
Certain reclassifications have been made to the prior
periods' financial statements to conform to the current
year presentation. These reclassifications have no
impact on net income previously reported.
Indiana Energy, Inc. and Subsidiary Companies
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Earnings
The majority of Indiana Energy Inc.'s (Indiana Energy)
consolidated earnings are from the operations of its gas
distribution subsidiary, Indiana Gas Company, Inc.
(Indiana Gas). Nonutility operations include IGC Energy,
Inc., Energy Realty, Inc. and Indiana Energy Services,
Inc. (IES), indirect wholly-owned subsidiaries of Indiana
Energy, as well as the 50-percent interest in ProLiance
Energy, LLC (see ProLiance Energy, LLC). Though Indiana
Energy will continue to consider nonutility opportunities
for investment, its principal business is expected to
continue to be gas distribution.
Utility income, net income and earnings per average
share of common stock for the three-, six- and
twelve-month periods ended March 31, 1997, when compared
to the same periods one year ago, are listed below. The
decreases in utility income for the three- and six-month
periods are primarily attributable to significantly warmer
weather than last year, offset somewhat by lower operation
and maintenance expenses, as well as the addition of new
residential and commercial customers. The twelve-month
utility earnings reflect weather 8 percent warmer than
last year, offset somewhat by the addition of new
residential and commercial customers. Higher operation
and maintenance expenses, resulting in part from the
acceleration of several distribution system maintenance
projects into the last half of fiscal year 1996, also
contributed to the decline in utility income for the
twelve-month period. The acceleration of these projects
was made possible by higher earnings attributable to
colder than normal weather during the 1996 heating season.
The differences in net income for all periods additionally
reflect the earnings recognized from Indiana Energy's gas
marketing affiliates.
Three Months Ended Six Months Ended Twelve Months Ended
March 31 March 31 March 31
1997 1996 1997 1996 1997 1996
Utility income
(millions of dollars) $23.1 $23.8 $39.6 $42.8 $35.4 $42.9
Net income
(millions of dollars) $24.3 $26.2 $41.6 $45.3 $38.5 $45.3
Earnings per average
share of common stock $1.07 $1.16 $1.84 $2.01 $1.71 $2.01
The following discussion of operating results relates
primarily to the operations of Indiana Gas.
Margin (Revenues Less Cost of Gas)
Margin for the quarter ended March 31, 1997, decreased
$3.2 million compared to the same period last year. The
decrease reflects weather 12 percent warmer than the same
period last year and 7 percent warmer than normal, offset
somewhat by the addition of new residential and commercial
customers.
Margin for the six-month period ended March 31, 1997,
decreased $5.7 million compared to the same period last
year. The decrease is primarily attributable to weather
10 percent warmer than the same period last year and 4
percent warmer than normal, offset somewhat by the
addition of new residential and commercial customers.
Margin for the twelve-month period ended March 31,
1997, decreased $5.7 million compared to the same period
last year. The decrease is primarily attributable to
weather that was 8 percent warmer than the same period
last year and 2 percent warmer than normal, offset
somewhat by the addition of new residential and commercial
customers.
Total system throughput (combined sales and
transportation) decreased 6 percent (3.1 MMDth) for the
second quarter of fiscal 1997, 5 percent (4.9 MMDth) for
the six-month period and 3 percent (3.6 MMDth) for the
twelve-month period ended March 31, 1997, compared to the
same periods one year ago. Indiana Gas' rates for
transportation generally provide the same margins as are
earned on the sale of gas under its sales tariffs.
Approximately one-half of total system throughput
represents gas used for space heating and is affected by
weather.
Total average cost per unit of gas purchased increased
to $3.89 for the three-month period ended March 31, 1997,
compared to $3.56 for the same period one year ago. For
the six-month period, cost of gas per unit increased to
$3.97 in the current period compared to $3.14 for the same
period last year. For the twelve-month period, cost of
gas per unit increased to $3.65 in the current period
compared to $2.83 for the same period last year.
Adjustments to Indiana Gas' rates and charges related
to the cost of gas are made through gas cost adjustment
(GCA) procedures established by Indiana law and
administered by the Indiana Utility Regulatory Commission
(IURC). The GCA passes through increases and decreases in
the cost of gas to Indiana Gas' customers dollar for
dollar.
Operating Expenses
Operation and maintenance expenses decreased $2.6
million and $2.1 million for the three- and six-month
periods ended March 31, 1997, respectively, when compared
to the same periods one year ago. The decreases are
primarily due to lower labor-related costs, including
performance-based compensation.
Operation and maintenance expenses for the twelve-
month period increased $2.2 million when compared to the
same period last year due in part from the acceleration of
several distribution system maintenance projects into the
last half of fiscal 1996. The acceleration of these
projects was made possible by higher earnings attributable
to colder than normal weather during the 1996 heating
season.
Depreciation and amortization expense increased for
the three-, six- and twelve-month periods ended March 31,
1997, when compared to the same periods one year ago as
the result of additions to utility plant to serve new
customers and to maintain dependable service to existing
customers.
Federal and state income taxes decreased for the three-
, six- and twelve-month periods ended March 31, 1997, when
compared to the same periods one year ago due to lower
taxable utility income.
Taxes other than income taxes remained approximately
the same for the three- and six-month periods ended March
31, 1997, when compared to the same periods one year ago.
Taxes other than income taxes increased for the twelve-
month period due to higher property tax expense and higher
gross receipts tax expense resulting from increased
revenue.
Interest Expense
Interest expense increased for the three-, six- and
twelve-month periods ended March 31, 1997, when compared
to the same periods one year ago due to an increase in
average debt outstanding slightly offset by a decrease in
interest rates.
Nonutility Income
Nonutility income decreased for the three- and six-
month periods ended March 31, 1997, while increasing for
the twelve-month period, when compared to the same periods
one year ago. The changes in nonutility income for all
periods primarily reflect the earnings recognized from
Indiana Energy's gas marketing affiliates. Prior to April
1, 1996, IES provided natural gas and related services to
other gas utilities and customers in Indiana and
surrounding states, and from January 1, 1996, to March 31,
1996, to Indiana Gas. ProLiance assumed the business of
IES effective April 1, 1996, and now is the supplier of
gas and related services to both Indiana Gas and Citizens
Gas and Coke Utility (see ProLiance Energy, LLC below).
Other Operating Matters
ProLiance Energy, LLC
Two proceedings which may affect the formation,
operation or earnings of ProLiance are currently pending
before the IURC. The first proceeding was initiated by a
small group of Indiana Gas' and Citizens Gas' large-volume
customers who contend that the gas service contracts
between ProLiance and Indiana Gas and Citizens Gas should
be disapproved by the IURC or, alternatively, that the
IURC should regulate the operations of ProLiance. On
September 27, 1996, the IURC issued a partial decision in
that proceeding and found that ProLiance is not subject to
regulation as a public utility. The IURC did confirm that
it will continue to monitor gas costs incurred by Indiana
Gas. Hearings on the remaining issues were concluded on
October 9, 1996. A decision from the IURC is expected
during the first half of calendar 1997.
The second proceeding involves the quarterly gas cost
adjustment applications of Indiana Gas and Citizens Gas
wherein these utilities are proposing to recover the costs
they have and will incur under their gas supply and
related agreements with ProLiance. This proceeding will
consider whether the recovery of those costs is consistent
with Indiana law governing gas cost recovery. The hearing
on the second proceeding has not yet been scheduled.
As a result of the two on-going proceedings, $4.1
million of Indiana Energy's share of its gas marketing
affiliates' net income has been reserved until the outcome
of these proceedings can be determined.
CIGMA, LLC
On April 1, 1997, IGC Energy, Inc., an indirect wholly
owned subsidiary of Indiana Energy, and Citizens By-
Products Coal Company, a wholly owned subsidiary of
Citizens Gas and Coke Utility (Citizens Gas), formed
CIGMA, a jointly and equally owned limited liability
company. CIGMA will provide materials acquisition and
related services for Indiana Gas and Citizens Gas, as well
as similar services for third parties.
Environmental Matters
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
locations of former manufactured gas plants. It is
seeking to recover the costs of the investigations and
work from insurance carriers, other potentially
responsible parties (PRPs) and customers.
On May 3, 1995, Indiana Gas received an order from the
IURC in which the Commission concluded that the costs
incurred by Indiana Gas to investigate and, if necessary,
clean-up former manufactured gas plant sites are not
utility operating expenses necessary for the provision of
service and, therefore, are not recoverable as operating
expenses from utility customers. On January 21, 1997,
this ruling was affirmed by the Indiana Court of Appeals.
On February 19, 1997, the company petitioned for transfer
to the Indiana Supreme Court.
On April 14, 1995, Indiana Gas filed suit in the
United States District Court for the Northern District of
Indiana, Fort Wayne Division, against a number of
insurance carriers for payment of claims for investigation
and clean-up costs already incurred, as well as for a
determination that the carriers are obligated to pay these
costs in the future. On October 2, 1996, the Court
granted several motions filed by defendant insurance
carriers for summary judgment on a number of issues
relating to the insurers' obligations to Indiana Gas under
insurance policies issued by these carriers. For example,
the Court held that because the placement of residuals on
the ground at the sites was done intentionally, there was
no "fortuitous accident" and therefore no "occurrence"
subject to coverage under the relevant policies. Based on
discussions with counsel, the management of Indiana Gas
believes that a number of the Court's rulings are contrary
to Indiana law and has appealed all adverse rulings to the
United States Court of Appeals for the Seventh Circuit.
However, if these rulings are not reversed on appeal, they
would effectively eliminate coverage under most of the
policies at issue. There can be no assurance as to
whether Indiana Gas will prevail on this appeal. As of
March 31, 1997, Indiana Gas has obtained settlements from
some insurance carriers in an aggregate amount in excess
of $14.7 million.
The Court's rulings have had no material impact on
earnings since Indiana Gas has previously recorded all
costs (in aggregate $14.8 million) which it presently
expects to incur in connection with remediation
activities. It is possible that future events may require
additional remediation activities which are not presently
foreseen.
Postretirement Benefits Other Than Pensions
On May 3, 1995, the IURC issued an order authorizing
Indiana Gas to recover the costs related to postretirement
benefits other than pensions under the accrual method of
accounting consistent with Statement of Financial
Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (SFAS 106).
The Office of Utility Consumer Counselor appealed the
order. On January 21, 1997, the Indiana Court of Appeals
affirmed the IURC decision authorizing recovery.
Liquidity and Capital Resources
New construction, normal system maintenance and
improvements, and information technology investments to
provide service to a growing customer base will continue to
require substantial capital expenditures. Capital
expenditures for fiscal 1997 are estimated at $68.0 million
of which $36.7 million have been expended during the six-
month period ended March 31, 1997. For the twelve months
ended March 31, 1997, Indiana Gas' capital expenditures
totaled $79.4 million. Of this amount, 56 percent was
provided by funds generated internally (utility income less
dividends plus charges to utility income not requiring
funds).
Indiana Gas' long-term goal is to fund internally
approximately 75 percent of its construction program.
Capitalization objectives for Indiana Gas are 55-65
percent common equity and 35-45 percent long-term debt.
This will help Indiana Gas to maintain its high
creditworthiness. The long-term debt of Indiana Gas is
currently rated Aa3 by Moody's Investors Service and AA- by
Standard & Poor's Corporation.
The nature of Indiana Gas' business creates large short-
term cash working capital requirements primarily to finance
customer accounts receivable, unbilled utility revenues
resulting from cycle billing, gas in underground storage
and construction expenditures until permanently financed.
Short-term borrowings tend to be greatest during the
heating season when accounts receivable and unbilled
utility revenues are at their highest. Depending on cost,
commercial paper or bank lines of credit are used as
sources of short-term financing. Indiana Gas' commercial
paper is rated P-1 by Moody's and A-1+ by Standard &
Poor's. Long-term financial strength and flexibility
require maintaining throughput volumes, controlling costs
and, if absolutely necessary, securing timely increases in
rates to recover costs and provide a fair and reasonable
return to shareholders.
Forward-Looking Information
Certain matters discussed in Management's Discussion and
Analysis are forward-looking. These forward-looking
discussions reflect the company's current best estimates
regarding future operations. Since these are only
estimates, actual results could be materially different.
Several factors, some of which are outside of the company's
control and cannot be accurately and conclusively
predicted, may materially affect estimates of future
operations. Such factors include the effect of weather on
gas consumption, particularly in the residential market,
the effect of general economic conditions on gas
consumption, particularly in industrial and commercial
markets, the direction and pace of change in state and
federal regulation on both the gas and electric industries,
and the effects of competition on markets where prices and
providers have been regulated.
Indiana Energy, Inc. and Subsidiary Companies
Part II - Other Information
Item 1. Legal Proceedings
See Note 7 of the Notes to Consolidated Financial
Statements for litigation matters involving insurance
carriers pertaining to Indiana Gas' former manufactured
gas plants and storage facilities.
Item 4. Submission of Matters to a Vote of Security
Holders
At the annual meeting of shareholders of Indiana
Energy, Inc. on January 22, 1997, (the "Annual
Meeting"), the shareholders elected the following
directors by the vote specified opposite each
director's name:
Broker
Director Votes For Votes Withheld Abstentions Non-Vote
Loren K. Evans 18,362,502 243,677 - -
Niel C. Ellerbrook 18,368,794 237,385 - -
Fred A. Poole 18,357,807 248,372 - -
Jean L. Wojtowicz 18,355,443 250,736 - -
The terms of the other seven board members, Paul T.
Baker, Lawrence A. Ferger, Otto N. Frenzel III, Anton
H. George, Don E. Marsh, Richard P. Rechter and James
C. Shook will expire in January 1998 or January 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3-A Code of By-Laws as Amended and Restated
on April 25, 1997, filed herewith.
27 Financial Data Schedule, filed herewith.
(b) No Current Reports on Form 8-K were filed
during the quarter ended March 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
INDIANA ENERGY, INC.
Registrant
Dated May 14, 1997 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
Executive Vice President, Treasurer
and Chief Financial Officer
Dated May 14, 1997 /s/Jerome A. Benkert
Jerome A. Benkert
Controller