August 13, 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
June 30, 1997, pursuant to the requirements of Section 13
of the Securities Exchange Act of 1934.
Very truly yours,
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 June 30, 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 22,581,424 July 31, 1997
Class Number of shares Date
TABLE OF CONTENTS
Page
Numbers
Part I - Financial Information
Consolidated Balance Sheets
at June 30, 1997, and 1996
and September 30, 1996
Consolidated Statements of Income
Three Months Ended June 30, 1997 and 1996,
Nine Months Ended June 30, 1997 and 1996,
and Twelve Months Ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1997 and 1996,
and Twelve Months Ended June 30, 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 6 - Exhibits and Reports on Form 8-K
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands - Unaudited)
June 30 September 30
1997 1996 1996
UTILITY PLANT:
Original cost $968,416 $904,479 $931,092
Less - Accumulated depreciation and amortization 357,694 339,651 344,268
610,722 564,828 586,824
NONUTILITY PLANT AND OTHER INVESTMENTS - NET 28,239 10,372 10,338
CURRENT ASSETS:
Cash and cash equivalents 20 36,249 20
Accounts receivable, less reserves of
$2,253, $1,511 and $1,853, respectively 20,657 33,040 14,598
Accrued unbilled revenues 7,994 6,929 8,158
Materials and supplies - at average cost 428 4,187 4,611
Liquefied petroleum gas - at average cost 847 509 507
Gas in underground storage - at last-in,
first-out cost 9,918 20,029 39,083
Recoverable gas costs 967 - 2,710
Prepayments and other 424 508 46
41,255 101,451 69,733
DEFERRED CHARGES:
Unamortized debt discount and expense 7,115 6,824 7,585
Other 5,497 9,386 7,983
12,612 16,210 15,568
$692,828 $692,861 $682,463
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
SHAREHOLDERS' EQUITY AND LIABILITIES
(Thousands - Unaudited)
June 30 September 30
1997 1996 1996
CAPITALIZATION:
Common stock (no par value) - authorized 64,000,000
shares - issued and outstanding 22,580,998,
22,474,402, and 22,474,402 shares, respectively $146,508 $143,875 $143,875
Less unearned compensation - restricted stock grants 1,798 624 525
144,710 143,251 143,350
Retained earnings 181,901 165,281 152,972
Total common shareholders' equity 326,611 308,532 296,322
Long-term debt 142,899 178,185 178,063
469,510 486,717 474,385
CURRENT LIABILITIES:
Maturities and sinking fund requirements
of long-term debt 35,272 19,217 272
Notes payable 12,550 3,800 28,036
Accounts payable (See Note 11) 23,327 30,768 34,192
Refundable gas costs - 6,522 -
Customer deposits and advance payments 6,670 3,572 14,256
Accrued taxes 12,319 15,641 4,206
Accrued interest 4,457 5,269 2,552
Other current liabilities 27,558 24,564 27,356
122,153 109,353 110,870
DEFERRED CREDITS:
Deferred income taxes 68,533 66,362 66,862
Unamortized investment tax credit 10,477 11,407 11,173
Regulatory income tax liability 2,835 3,797 2,835
Other 19,320 15,225 16,338
101,165 96,791 97,208
COMMITMENTS AND CONTINGENCIES (See Notes 8 & 10) - - -
$692,828 $692,861 $682,463
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share data)
(Unaudited)
Three Months Nine Months
Ended June 30 Ended June 30
1997 1996 1997 1996
UTILITY OPERATING REVENUES $ 83,733 $ 91,211 $ 471,909 $ 468,073
COST OF GAS (See Note 11) 40,084 52,464 290,265 285,678
MARGIN 43,649 38,747 181,644 182,395
UTILITY OPERATING EXPENSES:
Other operation and maintenance 20,755 19,986 60,370 61,694
Depreciation and amortization 8,767 8,391 26,178 24,739
Income taxes 2,499 1,063 26,361 27,061
Taxes other than income taxes 3,829 3,444 13,523 13,104
35,850 32,884 126,432 126,598
UTILITY OPERATING INCOME 7,799 5,863 55,212 55,797
INTEREST 3,906 4,040 12,640 12,120
OTHER (416) (450) (1,295) (1,354)
3,490 3,590 11,345 10,766
UTILITY INCOME 4,309 2,273 43,867 45,031
NONUTILITY INCOME 2,157 529 4,233 3,098
NET INCOME $ 6,466 $ 2,802 $ 48,100 $ 48,129
AVERAGE COMMON SHARES OUTSTANDING 22,581 22,501 22,580 22,525
EARNINGS PER AVERAGE SHARE OF
COMMON STOCK $ 0.29 $ 0.13 $ 2.13 $ 2.14
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share data)
(Unaudited)
Twelve Months
Ended June 30
1997 1996
UTILITY OPERATING REVENUES $ 534,430 $ 525,272
COST OF GAS (See Note 11) 324,718 315,408
MARGIN 209,712 209,864
UTILITY OPERATING EXPENSES:
Other operation and maintenance 82,812 81,600
Depreciation and amortization 34,671 32,730
Income taxes 22,474 24,695
Taxes other than income taxes 16,787 15,914
156,744 154,939
UTILITY OPERATING INCOME 52,968 54,925
INTEREST 16,427 15,890
OTHER (925) (1,838)
15,502 14,052
UTILITY INCOME 37,466 40,873
NONUTILITY INCOME 4,706 3,038
NET INCOME $ 42,172 $ 43,911
AVERAGE COMMON SHARES OUTSTANDING 22,554 22,534
EARNINGS PER AVERAGE SHARE OF
COMMON STOCK $ 1.87 $ 1.95
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)
Nine Months Twelve Months
Ended June 30 Ended June 30
1997 1996 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 48,100 $ 48,129 $ 42,172 $ 43,911
Adjustments to reconcile net income to cash
provided from operating activities -
Depreciation and amortization 26,318 24,904 34,858 32,950
Deferred income taxes 1,671 1,266 1,209 3,050
Investment tax credit (697) (697) (930) (930)
Gain on sale of nonutility assets (2,923) - (2,923) -
Undistributed earnings of unconsolidated affiliates (3,860) 79 (4,850) 156
20,509 25,552 27,364 35,226
Changes in assets and liabilities -
Receivables - net (5,895) (19,771) 11,318 (18,038)
Inventories 33,008 39,442 13,532 24,086
Accounts payable, customer deposits,
advance payments and other current liabilities (18,249) (31,701) (1,349) (7,156)
Accrued taxes and interest 10,018 10,408 (4,134) (3,011)
Refundable/recoverable gas costs 1,743 1,639 (7,489) (11,049)
Prepayments (378) (383) 103 70
Other - net 5,796 2,072 8,467 3,837
Total adjustments 46,552 27,258 47,812 23,965
Net cash flow from operations 94,652 75,387 89,984 67,876
CASH FLOWS REQUIRED FOR FINANCING
ACTIVITIES:
Repurchase of common stock - (2,116) - (2,116)
Sale of long-term debt 49 21,052 65 21,864
Reduction in long-term debt (213) (213) (19,296) (213)
Net change in short-term borrowings (15,486) (2,225) 8,750 -
Dividends on common stock (19,171) (18,515) (25,552) (24,689)
Net cash flow required for financing activities (34,821) (2,017) (36,033) (5,154)
CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (52,416) (35,732) (83,065) (52,099)
Nonutility investments - net (10,415) (1,409) (10,115) (1,994)
Proceeds from sale of nonutility assets 3,000 - 3,000 -
Net cash flow required for investing activities (59,831) (37,141) (90,180) (54,093)
NET INCREASE (DECREASE) IN CASH - 36,229 (36,229) 8,629
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 20 20 36,249 27,620
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20 $ 36,249 $ 20 $ 36,249
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 interests in ProLiance Energy, LLC (see Note 10)
and CIGMA, LLC (see Note 11).
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:
Nine Months Ended Twelve Months Ended
June 30 June 30
Thousands 1997 1996 1997 1996
Interest (net of
amount capitalized) $ 9,913 $ 9,437 $16,291 $14,736
Income taxes $17,701 $20,756 $27,553 $30,636
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 June 1997, the
cost of replacing the current portion of gas in
underground storage exceeded last-in, first-out cost at
June 30, 1997, by approximately $11,565,000.
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 Nine Months Ended Twelve Months Ended
June 30 June 30 June 30
Thousands 1997 1996 1997 1996 1997 1996
AFUDC-Borrowed Funds $129 $60 $437 $215 $505 $276
AFUDC-Equity Funds 106 49 358 176 414 226
Total AFUDC Capitalized $235 $109 $795 $391 $919 $502
7. Long-Term Debt.
During July 1997, Indiana Gas issued $15 million in
aggregate principal amount of its Medium-Term Notes,
Series E (Notes) as follows: $5.0 million of 6.42% Notes
due July 7, 2027; $3.5 million of 6.68% Notes due July
7, 2027; and $6.5 million of 6.54% Notes due July 9,
2007. The net proceeds from the sale of the Notes will
be used to finance Indiana Gas' continuing construction
program and for other corporate purposes.
8. 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 August 12, 1997, Indiana Gas signed an agreement with PSI
Energy, Inc. (PSI) with respect to thirteen of the nineteen
sites where PSI is a potentially responsible party (PRP),
which provides for an equal sharing between Indiana Gas and
PSI of past and future response costs at the thirteen sites.
Further, Indiana Gas and PSI must jointly approve future
management of the sites and the decisions to spend
additional funds. Indiana Gas previously entered into an
agreement with PSI providing for the sharing of costs
related to another site. Indiana Gas expects in the near
future to commence negotiations with PSI and Northern
Indiana Public Service Company (NIPSCO) regarding the other
five sites for which each is considered a PRP. These five
sites are already the subject of an agreement between
Indiana Gas and NIPSCO.
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
June 30, 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 $14.9 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.
9. 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.
10. Nonutility Income.
The components of nonutility income, shown net of tax,
are listed below.
Three Months Ended Nine Months Ended Twelve Months Ended
June 30 June 30 June 30
Thousands 1997 1996 1997 1996 1997 1996
Nonutility income (loss):
Gas marketing affiliates,
net of reserve $ 338 $ 84 $2,644 $2,768 $3,141 $2,792
Gain on sale of
nonutility assets 1,792 - 1,792 - 1,792 -
Other - net 27 445 (203) 330 (227) 246
$2,157 $ 529 $4,233 $3,098 $4,706 $3,038
During June 1997, IGC Energy sold certain nonutility
assets, resulting in an after-tax gain of approximately
$1.8 million.
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.
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.
The company is currently awaiting a decision from the
IURC.
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, at June 30,
1997, $4.6 million of Indiana Energy's cumulative share
of its gas marketing affiliates' net income has been
reserved until the outcome of these proceedings can be
determined.
11. Affiliate Transactions.
ProLiance began providing natural gas supply and related
services to Indiana Gas effective April 1, 1996.
Indiana Gas' purchases from ProLiance for resale and for
injections into storage for the three-, nine- and
twelve-month periods ended June 30, 1997, totaled $51.6
million, $252.6 million and $309.7 million,
respectively. Indiana Gas' purchases from ProLiance for
the three months ended June 30, 1996, totaled $60.8
million.
As of June 30, 1997, ProLiance has a standby letter of
credit facility with a bank for letters up to $30
million. This facility is secured by a support
agreement from Indiana Energy and Citizens Gas.
On April 1, 1997, IGC Energy and Citizens By-Products
Coal Company, a wholly owned subsidiary of Citizens
Gas, formed CIGMA, LLC (CIGMA), a jointly and equally
owned limited liability company. CIGMA provides
materials acquisition and related services that are
used by Indiana Gas and Citizens Gas, as well as
similar services for third parties. Indiana Gas'
purchases of these services for the three-month period
ended June 30, 1997, totaled $4.6 million. IGC Energy
made an initial capital contribution of $3.6 million
to CIGMA, and will account for its 50-percent interest
under the equity method.
Amounts owed to affiliates totaled $18.0 million and
$16.7 million at June 30, 1997 and 1996, respectively,
and are included in Accounts Payable on the
Consolidated Balance Sheets.
12. Energy Systems Group, LLC.
On May 23, 1997, IGC Energy, Citizens By-Products Coal
Company and Energy Systems Group, Inc. (ESGI) formed
Energy Systems Group, LLC (ESG), an equally owned
limited liability company. ESG will provide a package
of products, services and skills to help energy users
achieve enhanced energy and operational performance.
The packages will provide for improvements to be paid
for by the customers from savings generated within their
existing operating budgets. ESG will assume the
responsibilities of ESGI, an energy related performance
contracting firm and wholly owned subsidiary of SIGCORP,
Inc. IGC Energy's initial investment in ESG was
recorded at $3.3 million and is payable over the next
five years. The final investment amount may be higher
depending on ESG's financial performance over that five-
year period. IGC Energy's one-third interest in ESG
will be accounted for under the equity method.
13. 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. (IGC Energy), Energy Realty, Inc. and Indiana Energy
Services, Inc. (IES), indirect wholly-owned subsidiaries
of Indiana Energy, as well as the 50-percent interests in
ProLiance Energy, LLC (see ProLiance Energy, LLC) and
CIGMA, LLC (see CIGMA, LLC). While Indiana Energy's
principal business is expected to continue to be gas
distribution, the company is actively seeking
opportunities for nonutility investments (see New Growth
Strategy).
Utility income, nonutility income, net income and
earnings per average share of common stock for the three-,
nine- and twelve-month periods ended June 30, 1997, when
compared to the same periods one year ago, are listed
below. The increase in net income for the three-month
period is primarily attributable to cooler weather and a
gain on the sale of certain nonutility assets.
Three Months Ended Nine Months Ended Twelve Months Ended
June 30 June 30 June 30
1997 1996 1997 1996 1997 1996
Utility income (millions of dollars) $ 4.3 $ 2.3 $43.9 $45.0 $37.5 $40.9
Nonutility income (millions
of dollars) $ 2.2 $ .5 $ 4.2 $ 3.1 $ 4.7 $ 3.0
Net income (millions of dollars) $ 6.5 $ 2.8 $48.1 $48.1 $42.2 $43.9
Earnings per average share of
common stock $ .29 $ .13 $2.13 $2.14 $1.87 $1.95
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 June 30, 1997, increased
$4.9 million compared to the same period last year. The
increase reflects cooler weather, as well as the addition
of new residential and commercial customers.
Margin for the nine-month period ended June 30, 1997,
decreased $.8 million compared to the same period last
year. The decrease is primarily attributable to weather 7
percent warmer than the same period last year and 1
percent colder than normal, offset somewhat by the
addition of new residential and commercial customers.
Margin for the twelve-month period ended June 30,
1997, decreased $.2 million compared to the same period
last year. Despite weather 7 percent warmer than the same
period last year and 1 percent colder than normal, margin
remained approximately the same due to additions of new
residential and commercial customers, as well as the
recognition of revenues associated with the recovery of
certain gas costs which had been recognized as expenses in
the prior period.
Total system throughput (combined sales and
transportation) increased 3 percent (.6 MMDth) for the
third quarter of fiscal 1997, when compared to the same
period last year. Throughput decreased 4 percent (4.2
MMDth) for the nine-month period and 4 percent (4.6 MMDth)
for the twelve-month period, when 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 decreased
to $2.88 for the three-month period ended June 30, 1997,
compared to $3.31 for the same period one year ago. For
the nine-month period, cost of gas per unit increased to
$3.71 in the current period compared to $3.18 for the same
period last year. For the twelve-month period, cost of
gas per unit increased to $3.57 in the current period
compared to $3.00 for the same period last year.
Adjustments to Indiana Gas' rates and charges related
to the cost of gas are made through gas cost adjustment
(GCA) procedures established by Indiana law and
administered by the Indiana Utility Regulatory Commission
(IURC). The GCA passes through increases and decreases in
the cost of gas to Indiana Gas' customers dollar for
dollar.
Operating Expenses
Operation and maintenance expenses increased $.8
million for the three-month period ended June 30, 1997,
when compared to the same period one year ago due
primarily to the timing of accruals for performance-based
compensation.
Operation and maintenance expenses decreased $1.3
million for the nine-month period when compared to the
same period last year due in part to lower labor-related
costs.
Operation and maintenance expenses for the twelve-
month period increased $1.2 million when compared to the
same period last year due in part from the acceleration of
several distribution system maintenance projects into the
last portion 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-, nine- and twelve-month periods ended June 30,
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 increased for the three-
month period ended June 30, 1997, while decreasing for the
nine- and twelve-month periods when compared to the same
periods one year ago due to changes in taxable utility
income.
Taxes other than income taxes increased for the three-
, nine- and twelve-month periods ended June 30, 1997, when
compared to the same periods one year ago due primarily to
higher property tax expense as the result of additions to
utility plant.
Interest Expense
Interest expense remained approximately the same for
the three-month period ended June 30, 1997, when compared
to the same period one year ago. Interest expense
increased for the nine- and twelve-month periods due to an
increase in average debt outstanding slightly offset by a
decrease in interest rates.
Nonutility Income
Nonutility income increased for the three-, nine- and
twelve-month periods ended June 30, 1997, when compared to
the same periods one year ago. The increases for all
periods are due primarily to the June 1997 sale of certain
nonutility assets by IGC Energy, which resulted in an
after-tax gain of approximately $1.8 million. The changes
in nonutility income for all periods also 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 Energy, LLC 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 (Citizens Gas) (see ProLiance Energy, LLC
below).
Other Operating Matters
New Growth Strategy
In April 1997, the Board of Directors of Indiana
Energy approved a new growth strategy designed to
support the company's transition into a more
competitive environment. As part of this new growth
strategy, Indiana Energy will endeavor to become a
leading regional provider of energy products and
services and to grow its consolidated earnings per
share by at least 10 percent annually over the next
five years. To achieve such earnings growth, Indiana
Energy's aim is to grow the earnings contribution from
nonutility operations to at least 20 percent of its
total annual earnings within the next five years (see
ProLiance Energy, LLC, CIGMA, LLC and Energy Systems
Group, LLC), and to aggressively manage costs within
its utility operations.
As part of the company's cost control efforts, in
July 1997, Indiana Gas advised its employees of a
planned reduction of its work force to be implemented
in the near future through an involuntary separation
program and attrition. Currently, staffing levels are
expected to be reduced from about 1,025 full-time
employees to approximately 800 employees within five
years. The details of this staffing reduction plan
have not yet been finalized.
Since the company is in the early stages of
implementation, an estimate of the costs related to the
planned work force reductions and any other costs that
may be incurred in connection with the company's new
growth strategy cannot be made at this time.
ProLiance Energy, LLC
ProLiance Energy, LLC (ProLiance) is a limited
liability company owned jointly and equally by IGC Energy,
Inc., an indirect and wholly owned subsidiary of Indiana
Energy, and Citizens By-Products Coal Company, a wholly
owned subsidiary of Citizens Gas. ProLiance is the
supplier of gas and related services to both Indiana Gas
and Citizens Gas, as well as a provider of similar
services to other utilities and customers in Indiana and
surrounding states.
ProLiance recently announced plans to add power
marketing to its services offered beginning in late fiscal
1997. Power marketing involves buying electricity on the
wholesale market and then reselling it to other marketers,
utilities and other customers.
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. The company is currently awaiting a
decision from the IURC.
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, at June
30, 1997, $4.6 million of Indiana Energy's cumulative
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 and Citizens By-Products
Coal Company, a wholly owned subsidiary of Citizens Gas,
formed CIGMA, LLC (CIGMA), a jointly and equally owned
limited liability company. CIGMA provides materials
acquisition and related services that are used by Indiana
Gas and Citizens Gas, as well as similar services for
third parties. CIGMA is expected to generate cost savings
for the utilities by enabling more efficient purchasing,
warehousing and distribution of materials and equipment.
Energy Systems Group, LLC
On May 23, 1997, IGC Energy, Citizens By-Products Coal
Company and Energy Systems Group, Inc. (ESGI) formed
Energy Systems Group, LLC (ESG), an equally owned limited
liability company. ESG will provide a package of
products, services and skills to help energy users achieve
enhanced energy and operational performance. The packages
will provide for improvements to be paid for by the
customers from savings generated within their existing
operating budgets. ESG will assume the responsibilities
of ESGI, an energy related performance contracting firm
and wholly owned subsidiary of SIGCORP, Inc.
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 August 12, 1997, Indiana Gas signed an agreement with PSI
Energy, Inc. (PSI) with respect to thirteen of the nineteen
sites where PSI is a potentially responsible party (PRP),
which provides for an equal sharing between Indiana Gas and
PSI of past and future response costs at the thirteen sites.
Further, Indiana Gas and PSI must jointly approve future
management of the sites and the decisions to spend
additional funds. Indiana Gas previously entered into an
agreement with PSI providing for the sharing of costs
related to another site. Indiana Gas expects in the near
future to commence negotiations with PSI and Northern
Indiana Public Service Company (NIPSCO) regarding the other
five sites for which each is considered a PRP. These five
sites are already the subject of an agreement between
Indiana Gas and NIPSCO.
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
June 30, 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 $14.9 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 $69.8 million
of which $52.4 million have been expended during the nine-
month period ended June 30, 1997. For the twelve months
ended June 30, 1997, Indiana Gas' capital expenditures
totaled $83.1 million. Of this amount, 61 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 at
least 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.
During July 1997, Indiana Gas issued $15 million in
aggregate principal amount of its Medium-Term Notes, Series
E (Notes) as follows: $5.0 million of 6.42% Notes due July
7, 2027; $3.5 million of 6.68% Notes due July 7, 2027; and
$6.5 million of 6.54% Notes due July 9, 2007. The net
proceeds from the sale of the Notes will be used to finance
Indiana Gas' continuing construction program and for other
corporate purposes.
Indiana Gas plans to finance the redemption of its $35
million of 6 5/8% Series D Notes, due December 1, 1997, and
its near-term working capital requirements by the use of
short-term and long-term debt.
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
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform
Act of 1995.
A "safe harbor" for forward-looking statements is
provided by the Private Securities Litigation Reform
Act of 1995 (Reform Act of 1995). The Reform Act of
1995 was adopted to encourage such forward-looking
statements without the threat of litigation, provided
those statements are identified as forward-looking and
are accompanied by meaningful cautionary statements
identifying important factors that could cause the
actual results to differ materially from those
projected in the statement. Certain matters described
in Management's Discussion And Analysis Of Results Of
Operations And Financial Condition, including, but not
limited to, Indiana Energy's new earnings growth
strategy, are forward-looking statements. Such
statements are based on management's beliefs, as well
as assumptions made by and information currently
available to management. When used in this filing the
words "aim," "anticipate," "endeavor," "estimate,"
"expect," "objective," "projection," "forecast,"
"goal," and similar expressions are intended to
identify forward-looking statements. In addition to
any assumptions and other factors referred to
specifically in connection with such forward-looking
statements, factors that could cause Indiana Energy's
actual results to differ materially from those
contemplated in any forward-looking statements include,
among others, the following:
Factors affecting utility operations such as unusual
weather conditions; catastrophic weather-related
damage; unusual maintenance or repairs; unanticipated
changes to gas supply costs, or availability due to
higher demand, shortages, transportation problems or
other developments; environmental or pipeline
incidents; or gas pipeline system constraints.
Increased competition in the energy environment,
including effects of: industry restructuring and
unbundling.
Regulatory factors such as unanticipated changes in
rate-setting policies or procedures; recovery of
investments made under traditional regulation, and the
frequency and timing of rate increases.
Financial or regulatory accounting principles or
policies imposed by the Financial Accounting Standards
Board, the Securities and Exchange Commission, the
Federal Energy Regulatory Commission, state public
utility commissions, state entities which regulate
natural gas transmission, gathering and processing, and
similar entities with regulatory oversight.
Economic conditions including inflation rates and
monetary fluctuations.
Changing market conditions and a variety of other
factors associated with physical energy and financial
trading activities, including, but not limited to,
price, basis, credit, liquidity, volatility, capacity,
interest rate, and warranty risks.
Availability or cost of capital, resulting from changes
in: Indiana Energy, interest rates, and securities
ratings or market perceptions of the utility industry
and energy-related industries.
Employee workforce factors, including changes in key
executives, collective bargaining agreements with union
employees, or work stoppages.
Legal and regulatory delays and other obstacles
associated with mergers, acquisitions, and investments
in joint ventures.
Costs and other effects of legal and administrative
proceedings, settlements, investigations, claims, and
other matters, including, but not limited to, those
described in the Other Operating Matters section of
Management's Discussion And Analysis Of Results Of
Operations And Financial Condition.
Changes in Federal, state or local legislative
requirements, such as changes in tax laws or rates,
environmental laws and regulations.
Indiana Energy undertakes no obligation to publicly
update or revise any forward-looking statements,
whether as a result of changes in actual results,
changes in assumptions, or other factors affecting such
statements.
Indiana Energy, Inc. and Subsidiary Companies
Part II - Other Information
Item 1. Legal Proceedings
See Note 8 of the Notes to Consolidated Financial
Statements for litigation matters involving insurance
carriers pertaining to Indiana Gas' former manufactured
gas plants and storage facilities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10-A Indiana Energy, Inc. Directors Compensation
Deferral Plan, as amended and restated
effective May 1, 1997, filed herewith.
10-B Indiana Energy, Inc. Directors Restricted Stock
Plan, as amended and restated effective
May 1, 1997, filed herewith.
27 Financial Data Schedule, filed herewith.
(b) On July 31, 1997, Indiana Energy and Indiana
Gas filed a Current Report on Form 8-K to provide information
related to Indiana Energy's new growth strategy. Items reported
include:
Item 5. Other Events
Information related to Indiana Energy's new
growth strategy.
On August 11, 1997, Indiana Energy filed a Current Report
on Form 8-K in connection with the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Items
reported include:
Item 5. Other Events
Filing of cautionary statements for the purpose
of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
Item 7. Financial Statements and Exhibits
Exhibit 99 Cautionary Statement for Purpose
of "safe harbor" provisions of the
Private Securities Litigation Reform
Act of 1995.
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 August 13, 1997 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
Executive Vice President, Treasurer
and Chief Financial Officer
Dated August 13, 1997 /s/Jerome A. Benkert
Jerome A. Benkert
Controller