December 18, 1998
Securities and Exchange Commission
Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Gentlemen:
We are transmitting herewith Indiana Energy, Inc.'s
Annual Report on Form 10-K for the year ended
September 30, 1998, 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:tmw
Enclosures
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 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)
Registrant's telephone number, including area code: 317-926-3351
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Indiana Energy, Inc.
Common Stock - Without Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
As of November 30, 1998, the aggregate market value of Common
Stock held by nonaffiliates was $584,486,037.
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable
date.
Common Stock-Without par value 29,919,672 November 30, 1998
Class Number of shares Date
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K ( 229.405 of this
chapter) is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K into which the
document is incorporated.
PART III - Definitive Proxy Statement for Annual
Meeting of Shareholders to be held on January 27,
1999, electronically filed with the Commission on
December 3, 1998, is incorporated by reference
into Part III of this report.
Table of Contents
Part I
Business
Property
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Executive Officers of the Company
Part II
Market for the Registrant's Common Equity and Related
Stockholders Matters
Selected Financial Data
Management's Discussion and Analysis of Results of Operations and
Financial Condition
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants
Part III
Directors and Executive Officers of the Registrant
Executive Compensation
Securities Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Part IV
Exhibits, Financial Statements Schedules, and Reports on Form 8-K
Part I
Item 1. Business
(a) General Development of the Business.
Indiana Energy, Inc. (Indiana Energy or the company) is
a publicly owned holding company with subsidiaries and
affiliates engaged in natural gas distribution, gas
portfolio administrative services and marketing of natural
gas, electric power and related services. It was
incorporated under the laws of the state of Indiana on
October 24, 1985. Indiana Energy has four subsidiaries,
Indiana Gas Company, Inc., IEI Services, LLC, IEI Capital
Corp. and IEI Investments, Inc.
Indiana Gas Company, Inc. (Indiana Gas), the principal
subsidiary and business entity of the holding company, is an
operating public utility engaged in the business of
providing gas utility service in the state of Indiana.
IEI Services, LLC, formed in October 1997, provides
support services to Indiana Energy and its subsidiaries.
These services include information technology, financial,
human resources, building and fleet services.
IEI Capital Corp. (Capital Corp.) was formed in October
1997 to conduct the financing for Indiana Energy and its
subsidiaries other than Indiana Gas. Capital Corp. will
provide the nonregulated businesses with short-term
financing for working capital requirements, as well as
secure permanent financing for those entities as necessary.
IEI Investments, Inc. (IEI Investments) was formed to
group the operations of nonregulated businesses and
segregate them from the regulated businesses. IEI
Investments has three subsidiaries, IGC Energy, Inc., Energy
Realty, Inc. and Energy Financial Group, Inc.
On November 1, 1994, IGC Energy, Inc. (IGC Energy) formed
a natural gas marketing subsidiary, Indiana Energy Services,
Inc. (IES), which provided natural gas and related services
to gas utilities and customers in Indiana and surrounding
states, and from January 1, 1996, to March 31, 1996 to
Indiana Gas. On March 15, 1996, IGC Energy and Citizens By-
Products Coal Company, a wholly owned subsidiary of Citizens
Gas and Coke Utility (Citizens Gas), formed ProLiance
Energy, LLC (ProLiance), a jointly and equally owned limited
liability company, to provide natural gas supply and related
marketing services. ProLiance assumed the business of IES
and began providing services to Indiana Gas and Citizens Gas
effective April 1, 1996.
On April 1, 1997, IGC Energy and Citizens By-Products
Coal Company 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.
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 provides a package of products, services and skills
to help energy users achieve enhanced energy and operational
performance. The packages provide for improvements to be paid
for by the customers from savings generated within their
existing operating budgets. ESG assumed the responsibilities of
ESGI, an energy related performance contracting firm and wholly
owned subsidiary of SIGCORP, Inc.
On June 30, 1998, IGC Energy and Cinergy Supply Network,
Inc., a subsidiary of Cinergy Corp. (Cinergy), formed Reliant
Services, LLC (Reliant), an equally owned limited liability
company, to perform underground facilities locating and
construction services. In September 1998, Reliant signed an
agreement to purchase two Indianapolis area companies to enable
it to enter the market once certain regulatory approvals are
received by Cinergy. Reliant is based in the Indianapolis area
and will focus initially on serving electric, gas, telephone,
cable and water companies in Indiana, Ohio and Kentucky.
Energy Realty, Inc. is a real estate company and also has
affordable housing investments.
Energy Financial Group, Inc. (EFGI) was formed on January
20, 1998, to hold all financial entities and investments of
IEI Investments. Also on January 20, 1998, IEI Synfuels,
Inc. was established as a wholly-owned subsidiary of EFGI
and on February 5, 1998, purchased one limited partnership
unit (representing an 8.3 percent ownership interest) in
Pace Carbon Synfuels Investors, L.P. (Pace Carbon), a
Delaware limited partnership formed to develop, own and
operate four projects to produce and sell coal-based
synthetic fuel. Pace Carbon converts coal fines (small coal
particles) into coal pellets that are sold to major coal
users such as utilities and steel companies. This process
is eligible for federal tax credits under Section 29 of the
Internal Revenue Code and the Internal Revenue Service has
issued a private letter ruling with respect to the four
projects.
On April 1, 1998, IEI Financial Services, LLC
(IEI Financial Services) began its operations. IEI Financial
Services will perform third-party collections, energy-related
equipment leasing and related services. IEI Financial Services
will provide these services to Indiana Gas and to other third
parties.
On October 9, 1998, IEI Investments committed to invest
$10 million in Haddington Energy Partners, L.P. (Haddington).
Haddington, a Delaware limited partnership, is expected to
raise $100 million of committed capital by December 31,
1998, to invest in six to eight projects that represent a
portfolio of development opportunities, including natural
gas gathering and storage and electric power generation.
Haddington's investment opportunities will focus on
acquiring and building on projects in progress rather than
start-up ventures. Haddington's initial closing, which
included the IEI Investments amount, achieved $72 million in
commitments.
(c) Narrative Description of the Business.
During fiscal 1998, Indiana Gas supplied gas to about
489,000 residential, small commercial and contract (large
commercial and industrial) customers in 281 communities in
48 of the 92 counties in the state of Indiana. The service
area has a population of approximately 2 million and contains
diversified manufacturing and agriculture-related enterprises.
The principal industries served include automotive parts and
accessories, feed, flour and grain processing, metal castings,
aluminum products, gypsum products, electrical equipment,
metal specialties and glass.
The largest communities served include Muncie,
Anderson, Lafayette-West Lafayette, Bloomington, Terre
Haute, Marion, New Albany, Columbus, Jeffersonville, New
Castle and Richmond. While Indiana Gas does not serve in
Indianapolis, it does serve the counties and communities
which border that city.
For the fiscal year ended September 30, 1998,
residential customers provided 65 percent of revenues, small
commercial 23 percent and contract 12 percent.
Approximately 99 percent of Indiana Gas' customers used gas
for space heating, and revenues from these customers for the
fiscal year were approximately 87 percent of total operating
revenues. Sales of gas are seasonal and strongly affected
by variations in weather conditions. Less than half of
total margin, however, is space heating related. During the
fiscal year ended September 30, 1998, Indiana Gas added
approximately 11,500 residential and commercial customers.
Indiana Gas sells gas directly to residential, small
commercial and contract customers at approved rates.
Indiana Gas also transports gas through its pipelines at
approved rates to contract customers which have purchased
gas directly from producers, or through brokers and
marketers. The total volumes of gas provided to both sales
and transportation customers is referred to as throughput.
Gas transported on behalf of end-use customers in
fiscal 1998 represented 40 percent (45,598 MDth) of
throughput compared to 34 percent (41,874 MDth) in 1997 and
27 percent (34,165 MDth) in 1996. Although revenues are
lower, rates for transportation generally provide the same
margins as would have been earned had the gas been sold
under normal sales tariffs.
Effective April 1, 1996, Indiana Gas purchases all of
its natural gas from ProLiance. Indiana Gas also holds
several contracts with pipelines for storage of natural gas
to meet a portion of its peaking requirements.
Prices for gas and related services purchased by
Indiana Gas are determined primarily by market conditions
and rates established by the Federal Energy Regulatory
Commission. Indiana Gas' rates and charges, terms of
service, accounting matters, issuance of securities, and
certain other operational matters are regulated by the
Indiana Utility Regulatory Commission (IURC).
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 IURC. The IURC has applied the statute authorizing
the GCA procedures to reduce rates when necessary so as to
limit utility operating income, after adjusting to normal
weather, to the level authorized in the last general rate
order. The earnings test provides that no refund be paid to
the extent a utility has not earned its authorized utility
operating income over the previous 60 months (or during the
period since the utility's last rate order, if longer).
Information regarding environmental matters affecting
the company is incorporated herein by reference to Item 7,
Environmental Matters.
The company and its direct and indirect wholly owned
subsidiaries had 890 full-time employees and 39 part-time
employees as of September 30, 1998.
The company is currently implementing a growth
strategy which provides for, among other things, growing the
earnings contribution from nonutility operations and
aggressively managing costs within its utility operations.
See Item 7, Growth Strategy and Corporate Restructuring.
Item 2. Property
Indiana Energy owns no real property.
The properties of Indiana Gas are used for the
purchase, production, storage and distribution of gas and
are located primarily within the state of Indiana. As of
September 30, 1998, such properties included 10,716 miles of
distribution mains; 496,281 meters; five reservoirs
currently being used for the underground storage of
purchased gas with approximately 71,484 acres of land held
under storage easements; 8,509,841 Dth of gas in company-
owned underground storage with a daily deliverability of
134,160 Dth; 5,184,527 Dth of gas in contract storage with a
daily deliverability of 53,563 Dth; and five liquefied
petroleum (propane) air-gas manufacturing plants with a
total daily capacity of 36,700 Dth of gas.
The company's capital expenditures during the fiscal
year ended September 30, 1998, amounted to $66.0 million.
Item 3. Legal Proceedings
See Item 8, Note 3 for discussion of litigation matters
relating to the gas supply and portfolio administration
agreements between ProLiance and Indiana Gas and ProLiance
and Citizens Gas.
See Item 8, Note 14 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
No matter was submitted during the fourth quarter of
the fiscal year ended September 30, 1998, to a vote of
security holders.
Item 4a. Executive Officers of the Company
The Executive Officers of the company are as follows:
Family
Relation- Office or Date Elected
Name Age ship Position Held Or Appointed(1)
Lawrence A. Ferger 64 None Indiana Energy, Inc.
Chairman and Chief
Executive Officer Oct. 1, 1997
Chairman, President and
Chief Executive Officer Jan. 26, 1996
President and Chief
Executive Officer July 1, 1987
Indiana Gas Company, Inc.
Chairman and Chief
Executive Officer Oct. 1, 1997
Chairman, President and
Chief Executive Officer Jan. 26, 1996
President and Chief
Executive Officer July 1, 1987
IEI Investments, Inc.
President and Chief
Executive Officer July 1, 1987
(through
Sep. 30, 1997)
Niel C. Ellerbrook 49 None Indiana Energy, Inc.
President and Chief
Operating Officer Oct. 1, 1997
Executive Vice President,
Treasurer and Chief
Financial Officer Jan. 22, 1997
Vice President and
Treasurer and Chief
Financial Officer Oct. 25, 1985
Indiana Gas Company, Inc.
President Oct. 1, 1997
Executive Vice President
and Chief Financial
Officer Jan. 22, 1997
Senior Vice President and
Chief Financial Officer July 1, 1987
IEI Services, LLC
President Oct. 1, 1997
IEI Capital Corp.
President Oct. 29, 1997
IEI Investments, Inc.
Vice President and
Treasurer May 5, 1986
(through
Sep. 30, 1997)
Paul T. Baker 58 None Indiana Gas Company, Inc.
Executive Vice President
and Chief Operating
Officer Oct. 1, 1997
Senior Vice President
and Chief Operating
Officer Aug. 1, 1991
Anthony E. Ard 57 None Indiana Energy, Inc.
Senior Vice President -
Corporate Affairs and
Secretary Jul. 31, 1998
Senior Vice President -
Corporate Affairs Oct. 1, 1997
Indiana Gas Company, Inc.
Secretary Jul. 31, 1998
Senior Vice President
of Corporate Affairs Jan. 9, 1995
(through
Sep. 30, 1997)
Vice President -
Corporate Affairs Jan. 11, 1993
IEI Investments, Inc.
Secretary Jul. 31, 1998
IEI Services, LLC
Secretary Jul. 1, 1998
IEI Capital Corp.
Secretary Jul. 1, 1998
Carl L. Chapman 43 None IEI Investments, Inc.
President Oct. 1, 1997
Assistant Secretary and
Assistant Treasurer May 5, 1986
(through
Jan. 26, 1996)
Indiana Energy, Inc.
Assistant Treasurer Jan. 9, 1989
Indiana Gas Company, Inc.
Senior Vice President of
Corporate Development Jan. 9, 1995
(through
Mar. 15, 1996)
Vice President - Planning Jul. 1, 1987
Timothy M. Hewitt 48 None Indiana Gas Company, Inc.
Vice President of
Operations and Engineering Jan. 9, 1995
Vice President of Sales
and Field Operations Jan. 14, 1991
(1) Each of the officers has served continuously since the dates
indicated unless otherwise noted.
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The common stock of the company is listed on the New
York Stock Exchange. The ranges of high and low sales prices
reported in the New York Stock Exchange composite tape and
dividends paid on these shares for fiscal 1997 and 1998 are
shown in the following table (as adjusted for the four-for-
three stock split October 2, 1998):
Fiscal Year 1997 High Low Dividend
First Quarter $19.22 $16.97 21 3/8 cents
Second Quarter $20.44 $17.16 21 3/8 cents
Third Quarter $20.06 $17.34 21 3/8 cents
Fourth Quarter $22.36 $18.19 22 1/8 cents
Fiscal Year 1998 High Low Dividend
First Quarter $25.69 $20.34 22 1/8 cents
Second Quarter $24.66 $21.19 22 1/8 cents
Third Quarter $23.81 $21.61 22 1/8 cents
Fourth Quarter $25.13 $19.59 23 1/4 cents
Cash dividends on common stock are considered quarterly
by the board of directors and historically have been paid on
March 1, June 1, September 1 and December 1 of each year. At
the end of fiscal 1998, there were 8,818 individual and
institutional investors who were shareholders of record.
Item 6. Selected Financial Data
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
(Thousands)
Year Ended September 30 1998 1997(3) 1996 1995 1994
Operating revenues $466,434 $530,559 $543,426 $405,552 $475,297
Operating expenses 397,466 493,808 461,739 339,980 408,146
Operating income 68,968 36,751 81,687 65,572 67,151
Other income 9,725 11,832 518 656 1,302
Interest expense 16,640 17,131 16,279 15,938 16,230
Income taxes 21,849 10,949 23,725 17,334 17,782
Net income $ 40,204 $ 20,503 $ 42,201 $ 32,956 $ 34,441
Basic and diluted
earnings per average
share of common stock (1)$ 1.33 $ .68 $ 1.41 $ 1.10 $ 1.15
Dividends per share of
common stock (1) $ .90 $ .86 $ .83 $ .80 $ .77
Common shareholders'
equity $305,431 $292,597 $296,322 $280,715 $271,245
Long-term debt (2) 193,608 193,063 178,335 176,563 158,979
$499,039 $485,660 $474,657 $457,278 $430,224
Total Assets at Year-End $712,350 $690,845 $682,463 $663,397 $656,645
Total throughput (MDth) 114,795 122,846 126,742 109,508 116,285
Annual heating degree
days as a percent of
normal 86% 100% 108% 87% 102%
Utility customers served-
average 488,771 477,235 465,166 454,817 443,498
(1)Adjusted to reflect the four-for-three stock split October 2, 1998.
(2)Includes current maturities, excludes sinking fund requirements.
(3)Reflects the recording of pre-tax restructuring costs of $39.5
million in fiscal 1997 (see Item 8, Note 2).
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Indiana Energy, Inc.'s (Indiana Energy or the company) consolidated
earnings are from the operations of its gas distribution subsidiary,
Indiana Gas Company, Inc. (Indiana Gas), its nonregulated administrative
services provider, IEI Services, LLC (IEI Services) and its non-utility
subsidiaries and investments grouped under its nonregulated subsidiary,
IEI Investments, Inc. (IEI Investments).
The non-utility operations of IEI Investments include IGC Energy, Inc.
(IGC Energy), Energy Realty, Inc. (Energy Realty), Indiana Energy
Services, Inc. (IES), Energy Financial Group, Inc. and IEI Financial
Services, LLC, all indirect wholly owned subsidiaries of Indiana Energy,
and interests in ProLiance Energy, LLC, CIGMA, LLC, Energy Systems
Group, LLC, Pace Carbon Synfuels Investors, L.P. and Reliant Services,
LLC.
The company's growth strategy provides for growing the earnings
contribution from non-utility operations to over 25 percent of its total
annual earnings by 2003, and aggressively managing costs within its
utility operations (see Growth Strategy and Corporate Restructuring).
Stock Split
On July 31, 1998, the board of directors of Indiana Energy authorized a
four-for-three stock split of the issued and outstanding shares of its
common stock to shareholders of record on September 18, 1998. The shares
were issued on October 2, 1998. All share and per share amounts have
been restated for all periods reported to reflect the stock split.
Earnings
Income and earnings per average share of common stock for the last three
fiscal years were as follows:
(Millions except per share amounts) 1998 1997(1) 1996
Indiana Gas & IEI Services $33.9 $13.1 $38.4
IEI Investments 6.3 7.4 3.8
Net Income $40.2 $20.5 $42.2
Earnings per share(2):
Indiana Gas & IEI Services $1.12 $ .43 $1.28
IEI Investments .21 .25 .13
Total $1.33 $ .68 $1.41
(1) Reflects restructuring costs of $24.5 million after-tax or $.81 per
common share at Indiana Gas (see Growth Strategy and Corporate
Restructuring).
(2) Adjusted to reflect the four-for-three stock split October 2, 1998.
Dividends
On July 31, 1998, the board of directors of the company increased the
quarterly dividend on common stock to 23 1/4 cents per share from 22 1/8
cents per share adjusted to reflect the four-for-three stock split. This
resulted in total dividends paid in 1998 of 90 cents compared to 86
cents in 1997. This is the 26th consecutive year that the company's
dividends paid on common stock increased over the previous year.
Utility Margin (Utility Operating Revenues Less Utility Cost of Gas)
In 1998, utility margin decreased 6 percent ($13.2 million) when
compared to 1997. The decrease is primarily attributable to weather 14
percent warmer than last year and 14 percent warmer than normal, offset
somewhat by the addition of new residential and commercial customers.
In 1997, utility margin decreased 1 percent ($2.6 million) when compared
to 1996. The decrease was primarily attributable to normal weather which
was 7 percent warmer than the prior year, offset substantially by the
addition of new residential and commercial customers.
In 1998, total system throughput (combined sales and transportation)
decreased 7 percent (8.1 MMDth) when compared to last year. In 1997,
throughput decreased 3 percent (3.9 MMDth) when compared to 1996.
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 dekatherm of gas purchased (average commodity and
demand) was $3.65 in 1998, $3.64 in 1997 and $3.14 in 1996. The price
changes are due primarily to changing commodity costs in the
marketplace.
Other Operating Margin
Included in Operating Revenues and Operating Expenses on the
Consolidated Statements of Income are the operations of IES. 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. IES' contribution to
consolidated margin for fiscal 1996 was $5.8 million. ProLiance Energy,
LLC (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). Earnings
recognized from ProLiance are included in Equity in Earnings of
Unconsolidated Affiliates on the Consolidated Statements of Income.
Operating Expenses (excluding Cost of Gas)
Other operating expenses decreased approximately $4.4 million in 1998
when compared to 1997. The decrease is due in part to lower labor costs
and related benefits resulting from work force reductions.
Other operating expenses decreased approximately $5.0 million in 1997
when compared to 1996. The decrease is due in part to lower distribution
system costs than in 1996 when certain projects were accelerated because
of the increased margin resulting from the very cold weather. Lower
costs for uncollectible accounts also contributed to the decrease.
Restructuring costs of $39.5 million (pre-tax) were recorded in 1997
related to the company's implementation of a new growth strategy during
that year (see Growth Strategy and Corporate Restructuring).
Depreciation and amortization expense increased in both 1998 and 1997 as
the result of additions to plant to serve new customers and to maintain
dependable service to existing customers.
Taxes other than income taxes decreased in 1998 due to lower property
tax expense and lower gross receipts tax expense. Taxes other than
income taxes remained approximately the same for 1997 when compared to
1996.
Other Income
Equity in earnings of unconsolidated affiliates decreased in 1998, while
increasing in 1997, due primarily to the earnings recognized from the
company's energy marketing affiliate, ProLiance Energy, LLC (ProLiance).
Pretax earnings recognized from ProLiance totaled $7.4 million and $8.9
million for 1998 and 1997, respectively. Earnings recognized in 1997
include $2.0 million of ProLiance's 1996 earnings which had previously
been reserved (see ProLiance Energy, LLC).
Other - net decreased in 1998, while increasing in 1997, due primarily
to the 1997 gain on the sale of certain non-utility assets by IGC
Energy.
Interest Expense
Interest expense decreased in 1998 due to a decrease in interest rates,
offset somewhat by an increase in average debt outstanding. Interest
expense increased in 1997 due to an increase in average debt
outstanding, slightly offset by a decrease in interest rates.
Income Taxes
Federal and state income taxes increased in 1998, while decreasing in
1997, due primarily to the recording of restructuring costs in 1997.
Other Operating Matters
Growth Strategy and Corporate Restructuring
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 the current 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
an average of 10 percent annually through 2003. To achieve such earnings
growth, Indiana Energy's aim is to grow the earnings contribution from
non-utility operations to over 25 percent of its total annual earnings
by 2003, and to aggressively manage costs within its utility operations.
During 1997, the Indiana Gas Board of Directors authorized management to
undertake the actions necessary and appropriate to restructure Indiana
Gas' operations and recognize a resulting restructuring charge of $39.5
million ($24.5 million after-tax) for fiscal 1997 as described below.
In July 1997, the company advised its employees of its plan to reduce
its work force from about 1,025 full-time employees at June 30, 1997, to
approximately 800 employees by 2002. The reductions are being
implemented through involuntary separation and attrition. Indiana Gas
recorded restructuring costs of $5.4 million during fiscal 1997 related
to the work force reductions. These costs include separation pay in
accordance with Indiana Gas' severance policy, and net curtailment
losses related to these employees' postretirement and pension benefits.
As a result primarily of initial work force reductions during September
1997 and attrition, employees totaled approximately 890 as of September
30, 1998.
Further, Indiana Gas' management committed to sell, abandon or otherwise
dispose of certain assets, including buildings, gas storage fields and
intangible plant. Indiana Gas recorded restructuring costs of $34.1
million during fiscal 1997 to adjust the carrying value of those assets
to estimated fair value. Net assets held for disposal totaled $8.0
million at September 30, 1997, and were disposed of during fiscal 1998.
In October 1997, Indiana Energy formed a new business unit, IEI
Services, LLC (IEI Services), to provide support services to Indiana
Energy and its subsidiaries. The formation of IEI Services was
established by a contribution of $32.2 million of fixed assets at net
book value from Indiana Gas, which subsequently dividended its
membership interest to Indiana Energy. These assets, which relate to the
provision of administrative services, are classified in Non-utility
Plant on the Consolidated Balance Sheet at September 30, 1998. IEI
Services provides information technology, financial, human resources,
building and fleet services. These services had been provided by Indiana
Gas in the past.
As a result of the restructuring, the company has already realized, and
expects further, reductions in future operating costs, which should help
the company to be more successful in an increasingly competitive energy
marketplace.
ProLiance Energy, LLC
ProLiance Energy, LLC (ProLiance) is owned jointly and equally by IGC
Energy and Citizens By-Products Coal Company, a wholly owned subsidiary
of Citizens Gas and Coke Utility (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 added power
marketing in late fiscal 1997 to the services it offers. Power marketing
involves buying electricity on the wholesale market and then reselling
it to marketers, utilities and other customers. To effectively manage
the risks associated with power marketing, ProLiance utilizes a
disciplined approach to credit analysis, obtains letters of credit or
corporate guarantees when appropriate, and does not "sleeve" or assume
the credit risk between the buyer and seller. IGC Energy's investment in
ProLiance is accounted for using the equity method.
On September 12, 1997, the Indiana Utility Regulatory Commission (IURC)
issued a decision finding the gas supply and portfolio administration
agreements between ProLiance and Indiana Gas and ProLiance and Citizens
Gas (the gas supply agreements) to be consistent with the public
interest. The IURC's decision reflected the significant gas cost savings
to customers obtained by ProLiance's services and suggested that all
material provisions of the agreements between ProLiance and the
utilities are reasonable. Nevertheless, with respect to the pricing of
gas commodity purchased from ProLiance and two other pricing terms, the
IURC concluded that additional findings in the gas cost adjustment (GCA)
process would be appropriate and directed that these matters be
considered further in the pending, consolidated GCA proceeding involving
Indiana Gas and Citizens Gas. The IURC has not yet established a
schedule for conducting these additional proceedings.
The IURC's September 12, 1997, decision was appealed to the Indiana
Court of Appeals by certain Petitioners including the Indiana Office of
Utility Consumer Counselor and the Citizens Action Coalition of Indiana.
On October 8, 1998, the Indiana Court of Appeals issued a decision which
reversed and remanded the case to the IURC with instructions that the
gas supply agreements be disapproved. The basis for the decision is that
because the gas supply agreements provide for index based pricing of gas
commodity sold by ProLiance to the utilities, they should have been the
subject of an application for approval of an alternative regulatory plan
under Indiana statutory law. The court held that absent this type of
application, the IURC exceeded its authority in implementing what the
court saw to be alternative regulatory treatment.
Management believes the decision incorrectly applies the statute and has
decided to petition for transfer of the case to the Indiana Supreme
Court. If the Supreme Court does not overturn the Court of Appeals'
decision, the matter will be remanded to the IURC for further
proceedings. Whether or not the Supreme Court reverses the Court of
Appeals' decision, the reasonableness of the gas costs incurred by
Indiana Gas under the gas supply agreements will be further reviewed in
the consolidated GCA proceeding. Management takes note of the fact that
the Court of Appeals has not challenged the IURC findings that the
agreements provide significant economic value to customers and are in
the public interest. Indiana Gas is continuing to utilize ProLiance for
its gas supply.
On or about August 11, 1998, Indiana Gas, Citizens Gas and ProLiance
each received a Civil Investigative Demand ("CID") from the United
States Department of Justice requesting information relating to Indiana
Gas' and Citizens Gas' relationship with and the activities of
ProLiance. The Department of Justice issued the CID to gather
information regarding ProLiance's formation and operations, and to
determine if trade or commerce has been restrained. Indiana Gas is
providing the Department of Justice with information regarding the
formation of ProLiance in connection with the CID.
Pretax earnings recognized from ProLiance totaled $7.4 million and $8.9
million for 1998 and 1997, respectively. Earnings recognized from
ProLiance are included in Equity in Earnings of Unconsolidated
Affiliates on the Consolidated Statements of Income. Earnings recognized
in 1997 include $2.0 million of ProLiance's 1996 earnings which had
previously been reserved.
At September 30, 1998, Indiana Energy has reserved approximately $1.1
million of ProLiance earnings after tax. Total after-tax ProLiance
earnings recognized to date approximate $10.1 million. This amount
includes earnings from all of ProLiance's business activities, and
therefore is believed to be a conservative estimate of the upper risk
limit. Resolution of the above proceedings may also impact future
operations and earnings contributions from ProLiance. Management
believes the ProLiance issues may be resolved near the levels that are
already being reserved and, therefore, while these proceedings are
pending, does not anticipate changing the level at which it reserves
ProLiance earnings. However, no assurance of this outcome can be
provided.
Pace Carbon Synfuels Investors, L.P.
On February 5, 1998, IEI Synfuels, Inc. (IEI Synfuels), a wholly-owned,
indirect subsidiary of IEI Investments, purchased one limited
partnership unit in Pace Carbon Synfuels Investors, L.P. (Pace Carbon),
a Delaware limited partnership formed to develop, own and operate four
projects to produce and sell coal-based synthetic fuel. Pace Carbon
converts coal fines (small coal particles) into coal pellets that are
sold to major coal users such as utilities and steel companies. This
process is eligible for federal tax credits under Section 29 of the
Internal Revenue Code (Code) and the Internal Revenue Service has issued
a private letter ruling with respect to the four projects.
IEI Synfuels has committed an initial investment of $7.5 million in Pace
Carbon (of which $5.2 million was paid through September 30, 1998) for
an 8.3 percent ownership interest in the partnership. The balance of the
initial investment will be paid following the satisfaction by Pace
Carbon of certain project milestones regarding the operation of the coal
pellet production plants and long-term feedstock acquisition. In
addition to its initial investment, IEI Synfuels has a continuing
obligation to invest in Pace Carbon up to approximately $43 million,
with any such additional investments expected to be funded solely from
federal tax credits that are realized from the production and sale of
coal pellets by the projects.
The realization of the tax credits from this investment is dependent
upon a number of factors including among others (1) the production
facilities must have been in operation by June 30, 1998, (2) adequate
coal fines must be available to produce the coal pellets, and (3) the
coal pellets must be produced and sold. All four of Pace Carbon's coal-
based synthetic fuel production facilities were placed into service by
June 30, 1998, and are currently producing and selling pellets in a ramp
up mode, including refining the production process. Management believes
that significant project benefits, primarily in the form of tax savings
and tax credits realized, will be achieved in the future but cannot be
assured.
IEI Financial Services, LLC
On April 1, 1998, IEI Financial Services, LLC (IEI Financial Services),
a wholly-owned, indirect subsidiary of IEI Investments, began its
operations. IEI Financial Services will perform third-party collections,
energy-related equipment leasing and related services. IEI Financial
Services will provide these services to Indiana Gas and to other third
parties.
Reliant Services, LLC
On June 30, 1998, IGC Energy and Cinergy Supply Network, Inc., a
subsidiary of Cinergy Corp.(Cinergy), formed Reliant Services, LLC
(Reliant), an equally owned limited liability company, to perform
underground facilities locating and construction services. In September
1998, Reliant signed an agreement to purchase two Indianapolis area
companies to enable it to enter the market once certain regulatory
approvals are received by Cinergy. Reliant is based in the Indianapolis
area and will focus initially on serving electric, gas, telephone, cable
and water companies in Indiana, Ohio and Kentucky.
Haddington Energy Partners, L.P.
On October 9, 1998, IEI Investments committed to invest $10 million in
Haddington Energy Partners, L.P. (Haddington). Haddington, a Delaware
limited partnership, is expected to raise $100 million of committed
capital by December 31, 1998, to invest in six to eight projects that
represent a portfolio of development opportunities, including natural
gas gathering and storage and electric power generation. Haddington's
investment opportunities will focus on acquiring and building on
projects in progress rather than start-up ventures. Haddington's initial
closing, which included the IEI Investments amount, achieved $72 million
in commitments.
The Year 2000 Issue
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous
results by or at the year 2000. This issue relates not only to
information technology (IT) but also to non-IT related equipment and
plant that may contain embedded date-sensitive microcontrollers or
microchips.
The company has identified what it believes are its most significant
worst case Year 2000 scenarios for the purpose of helping it to focus
its Year 2000 efforts. These scenarios are the interference with the
company's ability to (1) receive and deliver gas to customers, (2)
monitor gas pressure throughout the company's gas distribution system,
(3) bill and receive payments from customers, and (4) maintain
continuous operation of its computer systems. As discussed below, the
company is taking the steps necessary to ensure that these worst case
scenarios are addressed.
The company has evaluated the Year 2000 readiness of all IT hardware and
software including the mainframe, network, servers, personal computers,
system and application software and telecommunications. Almost all
hardware was found to be in compliance as a result of projects conducted
in 1997 and 1998. Replacements of major customer information and billing
systems, which had already begun in 1997, are scheduled to be completed
by the first quarter of 1999. These new systems, driven by the need for
additional functionality and business flexibility, were also designed to
be Year 2000 compliant. Other maintenance and project activities
conducted in 1998 and scheduled for 1999 have been initiated to bring
the remaining software environment into compliance. The projects include
replacements, upgrades and rewrites. The company's plan for IT items
includes the following phases and timeline: (a) Assessment - will be
completed in 1998, (b) Strategy - will be completed in 1998 and (c)
Design, Implementation, Testing and Validation - in process and to be
substantially completed by June 30, 1999. The company has not found it
necessary to postpone work on any other critical IT projects because of
efforts to achieve Year 2000 compliance.
Non-IT systems with embedded microcontrollers or microchips are being
evaluated and tested to determine if they are Year 2000 compliant. These
systems include buildings, transportation, monitoring equipment, process
controls, engineering and construction. The internal assessment process
has generally been completed, and few compliance issues have been found
to date. These consist primarily of needed software upgrades for
equipment in the gas control system. It is anticipated these upgrades
will be completed and tested by December 31, 1998.
The company is currently in the process of contacting its major vendors,
suppliers and customers to gather information regarding the status of
their Year 2000 compliance. While compliance issues may be identified
from these inquiries and any issues raised will be addressed, this
process may not fully ensure these parties' Year 2000 compliance.
Disruptions in the operations of these parties could have an adverse
financial and operational effect on the company.
The company is also formulating a contingency plan related to Year 2000
issues. This plan will include modifying the company's already existing
plans for business resumption, information technology disaster recovery
and gas supply contingencies, and would allow for, among other things,
alternate recovery locations, backup power generation, adequate material
supplies and personnel requirements. This plan is expected to be in
place, tested and refined as needed by December 31, 1999.
Total costs expected to be incurred by the company to remedy its Year
2000 issues are estimated at $1.5 million, which include costs estimated
to replace certain existing systems sooner than otherwise planned.
Management expects that Year 2000 issues will be addressed on a schedule
and in a manner that will prevent such issues from having a material
impact on the company's financial position or results of operations.
However, while the company has and will continue to manage its Year 2000
compliance plan, there can be no assurance that the company will be
successful in identifying and addressing all material Year 2000 issues
including those related to the company's vendors, suppliers and
customers.
Environmental Matters
Indiana Gas is currently conducting environmental investigations and
work at 26 sites that were the locations of former manufactured gas
plants. It has been seeking to recover the costs of the investigations
and work from insurance carriers and other potentially responsible
parties (PRPs). The IURC has determined that these costs are not
recoverable from utility customers.
Indiana Gas has completed the process of identifying PRPs and now has
PRP agreements in place covering 19 of the 26 sites. The agreements
provide for coordination of efforts and sharing of investigation and
clean-up costs incurred and to be incurred at the sites. PSI Energy,
Inc. is a PRP on all 19 sites. Northern Indiana Public Service Company
is a PRP on 5 of the 19 sites. These agreements limit Indiana Gas'
share of past and future response costs at these 19 sites to between 20
and 50 percent. Based on the agreements, Indiana Gas has recorded a
receivable from PRPs for their unpaid share of the liability for work
performed by Indiana Gas to date, as well as accrued Indiana Gas'
proportionate share of the estimated cost related to work not yet
performed.
On April 14, 1995, Indiana Gas filed suit in the United States District
Court for the Northern District of Indiana, Fort Wayne Division (the
District Court) 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 District 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. Indiana Gas appealed
all adverse rulings to the United States Court of Appeals for the
Seventh Circuit. On April 6, 1998, the appeals court issued a decision
vacating the summary judgment and dismissing the District Court action
for lack of diversity jurisdiction. The insurers asked the United States
Supreme Court to review the Seventh Circuit's decision, however their
petition was denied. Because the District Court's adverse rulings have
been vacated, Indiana Gas has filed a complaint in Indiana state court
to continue its pursuit of insurance coverage. As of September 30, 1998,
Indiana Gas has obtained settlements from some insurance carriers in an
aggregate amount of approximately $14.7 million.
These environmental matters have had no material impact on earnings
since costs recorded to date total approximately $15.0 million. While
Indiana Gas has recorded all costs which it presently expects to incur
in connection with remediation activities, it is possible that future
events may require some level of additional remedial activities which
are not presently foreseen.
For further information regarding the status of investigation and
remediation of the sites, PRPs and financial reporting see Note 14 of
the Notes to Consolidated Financial Statements.
Gas Cost Adjustment
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 IURC. The GCA passes through
increases and decreases in the cost of gas to Indiana Gas' customers
dollar for dollar.
In addition, the IURC has applied the statute authorizing the GCA
procedures to reduce rates when necessary so as to limit utility
operating income, after adjusting to normal weather, to the level
authorized in the last general rate order. The earnings test provides
that no refund be paid to the extent a utility has not earned its
authorized utility operating income over the previous 60 months (or
during the period since the utility's last rate order, if longer).
New Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information. This statement
establishes standards for the way that public companies report
information about operating segments in annual financial statements and
requires that those companies report selected information about
operating segments in annual and interim financial reports issued to
shareholders. This statement becomes effective for the company's 1999
annual financial statements.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits. It does not
change measurement or recognition of amounts related to those plans. The
company has adopted the new disclosure requirements of this statement
for 1998 (see Note 11 of the Notes to Consolidated Financial
Statements).
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This statement provides
guidance primarily on whether costs incurred related to internal use
computer software should be capitalized or expensed. This statement is
effective for the company in fiscal 2000. The company does not expect
this statement to have a material impact on its financial position or
results of operations.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities. The statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that
receive hedge accounting. ProLiance utilizes derivative instruments to
manage pricing decisions, minimize the risk of price volatility, and
minimize price risk exposure in the energy markets. The statement is
effective for ProLiance in fiscal 2000. ProLiance has not yet quantified
the impact of adopting this statement on its financial position or
results of operations.
Liquidity and Capital Resources
Consolidated capitalization objectives for Indiana Energy are 55-65
percent common equity and preferred stock and 35-45 percent long-term
debt, but may vary from time to time, depending on particular business
opportunities. Indiana Energy's common equity component was 61 percent
of total capitalization at September 30, 1998.
Because of its current capital structure, the company does have the
ability to issue additional long-term debt, if necessary, to fund non-
utility investments or for other corporate purposes and still meet its
capitalization objectives. This is particularly important as it relates
to its growth strategy which provides for, among other things, expansion
of its non-utility operations.
In October 1997, Indiana Energy formed a new subsidiary, IEI Capital
Corp., to conduct the financing for Indiana Energy and its subsidiaries
other than Indiana Gas. IEI Capital Corp. will provide the nonregulated
businesses with short-term financing for working capital requirements,
as well as secure permanent financing for those entities as necessary.
On January 28, 1998, the shareholders of Indiana Energy approved an
amendment to the company's Articles of Incorporation to increase the
authorized shares of common stock from 64,000,000 shares to 200,000,000
shares.
On July 31, 1998, the Board of Directors of Indiana Energy authorized a
four-for-three stock split of the issued and outstanding shares of its
common stock to shareholders of record on September 18, 1998. The shares
were issued on October 2, 1998.
On July 28, 1995, Indiana Energy's Board of Directors authorized Indiana
Energy to repurchase up to 700,000 shares of its outstanding common
stock. Under this authorization, the company repurchased 92,100 and
42,400 pre-split shares during 1996 and 1998, respectively. No shares
were repurchased during 1997. Of the 700,000 shares authorized, 565,500
shares remain available for repurchase at September 30, 1998. As
adjusted for the four-for-three stock split, these repurchases totaled
122,800 and 56,533 shares for 1996 and 1998, respectively. The
associated cost of these repurchases totaled $2,116,000 and $1,189,000
for 1996 and 1998, respectively.
Indiana Gas' capitalization objectives, which are 55-65 percent common
equity and preferred stock and 35-45 percent long-term debt, remain
unchanged from prior years. Indiana Gas' common equity component was 56
percent of its total capitalization at September 30, 1998.
New construction, normal system maintenance and improvements, and
information technology investments needed to provide service to a
growing customer base will continue to require substantial expenditures.
Total capital required to fund capital expenditures and refinancing
requirements for 1997 and 1998, along with estimated amounts for 1999
through 2001, is as follows:
Thousands 1997 1998 1999 2000 2001
Capital expenditures $72,000 $ 66,000 $67,000 $62,000 $59,000
Refinancing requirements
(including non-utility) - 95,000 10,000 - -
$72,000 $161,000 $77,000 $62,000 $59,000
The capital expenditures above do not include non-utility investments.
Non-utility investments and commitments, excluding the continuing
obligation to invest in Pace Carbon as previously discussed, totaled
approximately $10.5 million and $9.0 million for 1997 and 1998,
respectively. In addition, in October 1998, the company committed to
invest $10 million in Haddington Energy Partners, L.P. (see Haddington
Energy Partners, L.P.). While the company does expect to make additional
non-utility investments in the future, it cannot provide estimates at
this time.
Indiana Gas' long-term goal is to internally fund at least 75 percent of
its capital expenditure program. This will help Indiana Gas to maintain
its high creditworthiness. The long-term debt of Indiana Gas is
currently rated Aa2 by Moody's Investors Service and AA- by Standard &
Poor's Corporation. In 1998, 64 percent of Indiana Gas' capital
expenditures was funded internally (i.e., from utility income less
dividends plus charges to utility income not requiring funds). In 1997,
58 percent of capital expenditures was provided by funds generated
internally. External funds required for the 1998 construction program
were obtained primarily through a combination of short-term and long-
term debt.
In October 1997, Indiana Gas filed a registration statement with the
Securities and Exchange Commission with respect to the issuance of up to
$95 million in debt securities and in November 1997 filed a prospectus
supplement with respect to $95 million in Medium-Term Notes, Series F.
Issues under this registration statement were as follows:
Interest Maturity
Issue Date Principal Rate Date
12-05-97 $15 million 6.36% 12-06-04
12-09-97 $20 million 6.34% 12-10-27
01-14-98 $15 million 5.75% 01-15-03
04-15-98 $15 million 6.75% 03-15-28
05-04-98 $10 million 6.36% 05-01-28
06-30-98 $20 million 6.55% 06-30-28
The net proceeds from the sale of these new debt securities were used to
refinance certain of Indiana Gas' long-term debt issues and to refinance
short-term obligations incurred in connection with Indiana Gas' ongoing
construction program and other corporate purposes.
In December 1997, Indiana Gas retired $35 million of 6 5/8% Series D
Notes and, called and redeemed $24.7 million of 8 1/2% Series B
Debentures. In March 1998, Indiana Gas redeemed $33 million of its
9 1/8% Series A Notes. The premiums paid in connection with the
redemptions, which totaled $5.5 million, have been deferred and are
being amortized over 15 years.
Provisions under which certain of Indiana Gas' Series E and Series F
Medium-Term Notes were issued entitle the holders of $60 million of
these notes to put the debt back to Indiana Gas at face value at certain
specified dates before maturity beginning in 2000. Long-term debt
subject to the put provisions during the three years following 1998
totals $5 million.
Short-term cash working capital is required primarily to finance
customer accounts receivable, unbilled utility revenues resulting from
cycle billing, gas in underground storage and capital 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. Indiana Gas' commercial paper is rated P-
1 by Moody's and A-1+ by Standard & Poor's. Recently, bank lines of
credit have been the primary source of short-term financing.
Forward-Looking Information
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 earnings growth strategy, ProLiance
and Year 2000 issues, 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
such as the ProLiance judicial and administrative proceedings.
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.
The inability of the company and its vendors, suppliers and
customers to achieve Year 2000 readiness.
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.
Item 8. Financial Statements and Supplementary Data
Management's Responsibility for Financial Statements
The management of the company is responsible for the preparation of the
consolidated financial statements and the related financial data
contained in this report. The financial statements are prepared in
conformity with generally accepted accounting principles.
The integrity and objectivity of the data in this report, including
required estimates and judgments, are the responsibility of management.
Management maintains a system of internal controls and utilizes an
internal auditing program to provide reasonable assurance of compliance
with company policies and procedures and the safeguard of assets.
The board of directors pursues its responsibility for these financial
statements through its audit committee, which meets periodically with
management, the internal auditors and the independent auditors, to
assure that each is carrying out its responsibilities. Both the internal
auditors and the independent auditors meet with the Audit Committee of
the company's board of directors, with and without management
representatives present, to discuss the scope and results of their
audits, their comments on the adequacy of internal accounting controls
and the quality of financial reporting.
/s/ Niel C. Ellerbrook
Niel C. Ellerbrook
President and Chief Operating Officer
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Indiana Energy, Inc.:
We have audited the accompanying consolidated balance sheets and
schedules of long-term debt of Indiana Energy, Inc. (an Indiana
corporation) and subsidiary companies as of September 30, 1998, and
1997, and the related consolidated statements of income, common
shareholders' equity and cash flows for each of the three years in the
period ended September 30, 1998. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Indiana
Energy, Inc. and subsidiary companies, as of September 30, 1998, and
1997, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 1998, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Indianapolis, Indiana
October 30, 1998
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
Year Ended September 30
1998 1997 1996
OPERATING REVENUES
Utility $ 465,644 $ 530,407 $ 530,594
Other 790 152 12,832
466,434 530,559 543,426
OPERATING EXPENSES
Cost of gas (See Note 15) 269,487 322,141 326,851
Other operating 75,589 80,012 84,984
Restructuring costs (See Note 2) - 39,531 -
Depreciation and amortization 37,655 35,162 33,340
Taxes other than income taxes 14,735 16,962 16,564
397,466 493,808 461,739
OPERATING INCOME 68,968 36,751 81,687
OTHER INCOME
Equity in earnings of unconsolidated
affiliates (See Note 3) 7,226 8,712 (88)
Other - net 2,499 3,120 606
9,725 11,832 518
INCOME BEFORE INTEREST AND
INCOME TAXES 78,693 48,583 82,205
INTEREST EXPENSE 16,640 17,131 16,279
INCOME BEFORE INCOME TAXES 62,053 31,452 65,926
INCOME TAXES 21,849 10,949 23,725
NET INCOME $ 40,204 $ 20,503 $ 42,201
AVERAGE COMMON SHARES
OUTSTANDING (1) (See Note 10) 30,116 30,107 30,017
BASIC AND DILUTED EARNINGS PER AVERAGE
SHARE OF COMMON STOCK (1) (See Notes 10 & 16) $ 1.33 $ 0.68 $ 1.41
(1) Adjusted to reflect the four-for-three stock split October 2, 1998.
The accompanying notes are an integral part of these statements.
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Year Ended September 30
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 40,204 $ 20,503 $ 42,201
Adjustments to reconcile net income to cash
provided from operating activities -
Noncash restructuring costs - 32,838 -
Depreciation and amortization 37,842 35,241 33,441
Deferred income taxes 1,591 (12,618) 804
Investment tax credit (930) (930) (930)
Gain on sale of assets (2,102) (2,923) -
Undistributed earnings of unconsolidated affiliates (7,226) (8,712) 88
29,175 42,896 33,403
Changes in assets and liabilities -
Receivables - net 13,890 (8,526) (2,558)
Inventories (272) 24,026 19,966
Accounts payable, customer deposits, advance
payments and other current liabilities (12,781) 1,941 (14,801)
Accrued taxes and interest (4,586) 4,530 (3,744)
Recoverable/refundable gas costs 16,573 (3,133) (7,593)
Accrued postretirement benefits other than pensions 2,350 8,134 3,505
Other - net (5,552) (4,491) 340
Total adjustments 38,797 65,377 28,518
Net cash flows from operations 79,001 85,880 70,719
CASH FLOWS REQUIRED FOR FINANCING ACTIVITIES:
Repurchase of common stock (1,189) - (2,116)
Sale of long-term debt 95,053 15,064 21,068
Reduction in long-term debt (94,508) (336) (19,296)
Net change in short-term borrowings 9,905 (4,236) 22,011
Dividends on common stock (26,840) (25,787) (24,896)
Net cash flows required for financing activities (17,579) (15,295) (3,229)
CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (66,030) (71,907) (66,381)
Nonutility investments in unconsolidated affiliates - net (6,462) (1,650) (1,109)
Cash distribution from unconsolidated affiliate 7,030 - -
Proceeds from sale of assets 13,317 3,000 -
Net cash flows required for investing activities (52,145) (70,557) (67,490)
NET INCREASE (DECREASE) IN CASH 9,277 28 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 48 20 20
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,325 $ 48 $ 20
The accompanying notes are an integral part of these statements.
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands)
September 30
1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 9,325 $ 48
Accounts receivable, less reserves of
$900 and $1,784, respectively (See Note 15) 10,939 22,318
Accrued unbilled revenues 6,453 8,964
Liquefied petroleum gas - at average cost 883 872
Gas in underground storage - at last-in,
first-out cost 19,373 19,240
Recoverable gas costs - 5,843
Prepayments and other 5,483 3,766
52,456 61,051
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 32,186 24,549
UTILITY PLANT:
Original cost 937,977 951,617
Less - accumulated depreciation and amortization 370,872 361,936
567,105 589,681
NONUTILITY PLANT:
Original cost 55,225 4,114
Less - accumulated depreciation and amortization 12,613 779
42,612 3,335
DEFERRED CHARGES:
Unamortized debt discount and expense 12,954 7,074
Regulatory income tax asset 1,778 -
Other 3,259 5,155
17,991 12,229
$ 712,350 $ 690,845
The accompanying notes are an integral part of these statements.
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Thousands except shares)
September 30
1998 1997
CURRENT LIABILITIES:
Maturities and sinking fund requirements of long-term debt $ 10,119 $ 35,272
Notes payable 33,705 23,800
Accounts payable (See Note 15) 19,416 25,523
Refundable gas costs 10,730 -
Customer deposits and advance payments 19,229 20,405
Accrued taxes 4,728 8,659
Accrued interest 1,974 2,629
Other current liabilities 26,319 31,817
126,220 148,105
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 60,448 55,205
Accrued postretirement benefits other than pensions 25,388 23,038
Unamortized investment tax credit 9,313 10,243
Regulatory income tax liability - 1,874
Other 2,061 1,992
97,210 92,352
COMMITMENTS AND CONTINGENCIES (See Notes 3, 12 & 14) - -
CAPITALIZATION:
Long-term debt (see schedule) 183,489 157,791
Common stock (no par value) - authorized 200,000,000
shares - issued and outstanding 30,063,667 and
30,107,391 shares, respectively (1) 145,586 146,498
Less unearned compensation - restricted stock grants 1,207 1,589
144,379 144,909
Retained earnings 161,052 147,688
Total common shareholders' equity 305,431 292,597
488,920 450,388
$ 712,350 $ 690,845
(1) Adjusted to reflect the four-for-three stock split October 2, 1998.
The accompanying notes are an integral part of these statements.
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
(Thousands except shares)
COMMON STOCK
RESTRICTED
STOCK RETAINED
SHARES (1) AMOUNT GRANTS EARNINGS TOTAL
BALANCE AT SEPTEMBER 30, 1995 30,082,140 $ 145,872 $ (824) $ 135,667 $ 280,715
Net income 42,201 42,201
Common stock dividends ($.83 per share) (1) (24,896) (24,896)
Common stock issuances for Executives' and
Directors' stock plans net of amortization 6,529 119 299 418
Common stock repurchases (122,800) (2,116) (2,116)
BALANCE AT SEPTEMBER 30, 1996 29,965,869 143,875 (525) 152,972 296,322
Net income 20,503 20,503
Common stock dividends ($.86 per share) (1) (25,787) (25,787)
Common stock issuances for Executives' and
Directors' stock plans net of amortization 141,522 2,623 (1,064) 1,559
BALANCE AT SEPTEMBER 30, 1997 30,107,391 146,498 (1,589) 147,688 292,597
Net income 40,204 40,204
Common stock dividends ($.90 per share) (1) (26,840) (26,840)
Common stock issuances for Executives' and
Directors' stock plans net of amortization 12,809 277 382 659
Common stock repurchases (56,533) (1,189) (1,189)
BALANCE AT SEPTEMBER 30, 1998 30,063,667 $ 145,586 $ (1,207) $ 161,052 $ 305,431
(1) Adjusted to reflect the four-for-three stock split October 2, 1998.
The accompanying notes are an integral part of these statements.
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED SCHEDULES OF LONG-TERM DEBT
(Thousands)
September 30
1998 1997
LONG-TERM DEBT:
Unsecured Notes Payable - Utility
6 5/8% Series D, due December 1, 1997 $ - $ 35,000
8.90%, due July 15, 1999 10,000 10,000
5.75% Series F, due January 15, 2003 15,000 -
6.36% Series F, due December 6, 2004 15,000 -
6.54% Series E, due July 9, 2007 6,500 6,500
6.69% Series E, due June 10, 2013 5,000 5,000
7.15% Series E, due March 15, 2015 5,000 5,000
6.69% Series E, due December 21, 2015 5,000 5,000
6.69% Series E, due December 29, 2015 10,000 10,000
9 3/8%, due January 15, 2021 25,000 25,000
9 1/8% Series A, due February 15, 2021 ($33 million redeemed March 31, 1998) 7,000 40,000
8 1/2% Series B Debentures, called and redeemed December 15, 1997 - 24,733
6.31% Series E, due June 10, 2025 5,000 5,000
6.53% Series E, due June 27, 2025 10,000 10,000
6.42% Series E, due July 7, 2027 5,000 5,000
6.68% Series E, due July 7, 2027 3,500 3,500
6.34% Series F, due December 10, 2027 20,000 -
6.75% Series F, due March 15, 2028 14,975 -
6.36% Series F, due May 1, 2028 10,000 -
6.55% Series F, due June 30, 2028 20,000 -
191,975 189,733
Unsecured Notes Payable - Nonutility
Variable rate term loan, redeemed September 29, 1998 - 1,632
Noninterest bearing note, due August 1, 2005 633 698
Variable rate note, due January 1, 2007 1,000 1,000
1,633 3,330
193,608 193,063
Less - Maturities and sinking fund requirements 10,119 35,272
$ 183,489 $ 157,791
The accompanying notes are an integral part of these statements.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Practices
A. Consolidation
The consolidated financial statements include the accounts of
Indiana Energy, Inc. (Indiana Energy or the company) and its
wholly and majority-owned subsidiaries, after elimination of
intercompany transactions. The company's consolidated
financial statements include the operations of its regulated
gas distribution subsidiary, Indiana Gas Company, Inc.
(Indiana Gas), its nonregulated administrative services
provider, IEI Services, LLC, its financing subsidiary, IEI
Capital Corp. (Capital Corp.) and its non-utility subsidiaries
and investments grouped under its nonregulated subsidiary, IEI
Investments, Inc. (IEI Investments).
Indiana Gas provides natural gas and transportation services
to a diversified base of customers in 281 communities in 48 of
Indiana's 92 counties. The non-utility operations of IEI
Investments include IGC Energy, Inc. (IGC Energy), Energy
Realty, Inc. (Energy Realty), Indiana Energy Services, Inc.
(IES), Energy Financial Group, Inc. and IEI Financial
Services, LLC, all indirect wholly owned subsidiaries of
Indiana Energy, and interests in ProLiance Energy, LLC, CIGMA,
LLC, Energy Systems Group, LLC, Pace Carbon Synfuels
Investors, L.P. and Reliant Services, LLC.
Investments in limited partnerships and less than majority-
owned affiliates are accounted for on the equity method.
B. Financial Statement Presentation
The consolidated financial statements of Indiana Energy, Inc.
and Subsidiary Companies are presented in the conventional
classified format rather than a regulated utility format,
which has been used in the past. 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.
C. Utility Plant and Depreciation
Except as described below, utility plant is stated at the
original cost and includes allocations of payroll-related
costs and administrative and general expenses, as well as an
allowance for the cost of funds used during construction. Upon
normal retirement of a depreciable unit of property, the cost
is credited to utility plant and charged to accumulated
depreciation together with the cost of removal, less any
salvage. No gain or loss is recognized upon normal retirement.
Provisions for depreciation of utility property are determined
by applying straight-line rates to the original cost of the
various classifications of property. The average depreciation
rate was 3.9 percent for 1998, and 4.1 percent for 1997 and 1996.
Cost in excess of underlying book value of acquired gas
distribution companies is reflected as a component of utility
plant and is being amortized primarily over 40 years.
D. Unamortized Debt Discount and Expense
Indiana Gas was authorized as part of an August 17, 1994,
order from the Indiana Utility Regulatory Commission (IURC) to
amortize over a 15-year period the debt discount and expense
related to new debt issues and future premiums paid for debt
reacquired in connection with refinancing. Debt discount and
expense for issues in place prior to this order are being
amortized over the lives of the related issues. Premiums paid
prior to this order for debt reacquired in connection with
refinancing are being amortized over the life of the refunding
issue.
E. Cash Flow Information
For the purposes of the Consolidated Statements of Cash Flows,
the company 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:
Thousands 1998 1997 1996
Interest (net of amount capitalized) $ 15,598 $ 15,496 $ 15,816
Income taxes $ 24,730 $ 21,851 $ 30,608
F. Revenues
To more closely match revenues and expenses, Indiana Gas
records revenues for all gas delivered to customers but not
billed at the end of the accounting period.
G. Gas in Underground Storage
Based on the average cost of purchased gas during September
1998, the cost of replacing the current portion of gas in
underground storage exceeded last-in, first-out cost at
September 30, 1998, by approximately $10,627,000.
H. Refundable or Recoverable Gas Cost
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 IURC.
I. 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 - net" on the Consolidated Statements of Income. An
annual AFUDC rate of 6.0 percent was used for 1998, while an
annual rate of 7.5 percent was used for 1997 and 1996.
The table below reflects the total AFUDC capitalized and the
portion of which was computed on borrowed and equity funds for
all periods reported.
Thousands 1998 1997 1996
AFUDC - borrowed funds $ 766 $ 596 $ 283
AFUDC - equity funds 371 487 232
Total AFUDC capitalized $1,137 $1,083 $ 515
J. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
K. Regulatory Assets and Liabilities
Indiana Gas is subject to the provisions of Statement of
Financial Accounting Standards No. 71, Accounting for the
Effects of Certain Types of Regulation (SFAS 71). Regulatory
assets represent probable future revenue to Indiana Gas
associated with certain costs which will be recovered from
customers through the ratemaking process. Regulatory
liabilities represent probable future reductions in revenues
associated with amounts that are to be credited to customers
through the ratemaking process. Regulatory assets and
liabilities reflected in the Consolidated Balance Sheet as of
September 30 (in thousands) relate to the following:
Regulatory Assets 1998
Postretirement benefits other than pensions $ 2,688
Unamortized debt discount and expense 11,388
Amounts due from customers - income taxes, net 1,778
Deferred acquisition costs 677
$16,531
Regulatory Liabilities
Gas costs due to customers, net $10,730
$10,730
It is Indiana Gas' policy to continually assess the
recoverability of costs recognized as regulatory assets and
the ability to continue to account for its activities in
accordance with SFAS 71, based on the criteria set forth in
SFAS 71. Based on current regulation, Indiana Gas believes
that its use of regulatory accounting is appropriate. If all
or part of Indiana Gas' operations cease to meet the criteria
of SFAS 71, a write-off of related regulatory assets and
liabilities would be required. In addition, Indiana Gas would
be required to determine any impairment to the carrying costs
of deregulated plant and inventory assets.
2. Corporate Restructuring
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.
During 1997, the Indiana Gas Board of Directors authorized
management to undertake the actions necessary and appropriate
to restructure Indiana Gas' operations and recognize a
resulting restructuring charge of $39.5 million ($24.5 million
after-tax) for fiscal 1997 as described below.
In July 1997, the company advised its employees of its plan to
reduce its work force from about 1,025 full-time employees at
June 30, 1997, to approximately 800 employees by 2002. The
reductions are being implemented through involuntary
separation and attrition. Indiana Gas recorded restructuring
costs of $5.4 million during fiscal 1997 related to the work
force reductions. These costs include separation pay in
accordance with Indiana Gas' severance policy, and net
curtailment losses related to these employees' postretirement
and pension benefits. As a result primarily of initial work
force reductions during September 1997 and attrition,
employees totaled approximately 890 as of September 30, 1998.
Further, Indiana Gas' management committed to sell, abandon or
otherwise dispose of certain assets, including buildings, gas
storage fields and intangible plant. Indiana Gas recorded
restructuring costs of $34.1 million during fiscal 1997 to
adjust the carrying value of those assets to estimated fair
value. Net assets held for disposal totaled $8.0 million at
September 30, 1997, and were disposed of during fiscal 1998.
In October 1997, Indiana Energy formed a new business unit,
IEI Services, LLC (IEI Services), to provide support services
to Indiana Energy and its subsidiaries. The formation of IEI
Services was established by a contribution of $32.2 million of
fixed assets at net book value from Indiana Gas, which
subsequently dividended its membership interest to Indiana
Energy. These assets, which relate to the provision of
administrative services, are classified in Non-utility Plant
on the Consolidated Balance Sheet at September 30, 1998. IEI
Services provides information technology, financial, human
resources, building and fleet services. These services had
been provided by Indiana Gas in the past.
3. ProLiance Energy, LLC
ProLiance Energy, LLC (ProLiance) is owned jointly and equally
by IGC Energy and Citizens By-Products Coal Company, a wholly
owned subsidiary of Citizens Gas and Coke Utility (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 added power marketing in
late fiscal 1997 to the services it offers. Power marketing
involves buying electricity on the wholesale market and then
reselling it to marketers, utilities and other customers. To
effectively manage the risks associated with power marketing,
ProLiance utilizes a disciplined approach to credit analysis,
obtains letters of credit or corporate guarantees when
appropriate, and does not "sleeve" or assume the credit risk
between the buyer and seller. IGC Energy's investment in
ProLiance is accounted for using the equity method.
On September 12, 1997, the Indiana Utility Regulatory
Commission (IURC) issued a decision finding the gas supply and
portfolio administration agreements between ProLiance and
Indiana Gas and ProLiance and Citizens Gas (the gas supply
agreements) to be consistent with the public interest. The
IURC's decision reflected the significant gas cost savings to
customers obtained by ProLiance's services and suggested that
all material provisions of the agreements between ProLiance
and the utilities are reasonable. Nevertheless, with respect
to the pricing of gas commodity purchased from ProLiance and
two other pricing terms, the IURC concluded that additional
findings in the gas cost adjustment (GCA) process would be
appropriate and directed that these matters be considered
further in the pending, consolidated GCA proceeding involving
Indiana Gas and Citizens Gas. The IURC has not yet established
a schedule for conducting these additional proceedings.
The IURC's September 12, 1997, decision was appealed to the
Indiana Court of Appeals by certain Petitioners including the
Indiana Office of Utility Consumer Counselor and the Citizens
Action Coalition of Indiana. On October 8, 1998, the Indiana
Court of Appeals issued a decision which reversed and remanded
the case to the IURC with instructions that the gas supply
agreements be disapproved. The basis for the decision is that
because the gas supply agreements provide for index based
pricing of gas commodity sold by ProLiance to the utilities,
they should have been the subject of an application for
approval of an alternative regulatory plan under Indiana
statutory law. The court held that absent this type of
application, the IURC exceeded its authority in implementing
what the court saw to be alternative regulatory treatment.
Management believes the decision incorrectly applies the
statute and has decided to petition for transfer of the case
to the Indiana Supreme Court. If the Supreme Court does not
overturn the Court of Appeals' decision, the matter will be
remanded to the IURC for further proceedings. Whether or not
the Supreme Court reverses the Court of Appeals' decision, the
reasonableness of the gas costs incurred by Indiana Gas under
the gas supply agreements will be further reviewed in the
consolidated GCA proceeding. Management takes note of the fact
that the Court of Appeals has not challenged the IURC findings
that the agreements provide significant economic value to
customers and are in the public interest. Indiana Gas is
continuing to utilize ProLiance for its gas supply.
On or about August 11, 1998, Indiana Gas, Citizens Gas and
ProLiance each received a Civil Investigative Demand ("CID")
from the United States Department of Justice requesting
information relating to Indiana Gas' and Citizens Gas'
relationship with and the activities of ProLiance. The
Department of Justice issued the CID to gather information
regarding ProLiance's formation and operations, and to
determine if trade or commerce has been restrained. Indiana
Gas is providing the Department of Justice with information
regarding the formation of ProLiance in connection with
the CID.
Pretax earnings recognized from ProLiance totaled $7.4 million
and $8.9 million for 1998 and 1997, respectively. Earnings
recognized from ProLiance are included in Equity in Earnings
of Unconsolidated Affiliates on the Consolidated Statements of
Income. Earnings recognized in 1997 include $2.0 million of
ProLiance's 1996 earnings which had previously been reserved.
At September 30, 1998, Indiana Energy has reserved
approximately $1.1 million of ProLiance earnings after tax.
Total after-tax ProLiance earnings recognized to date
approximate $10.1 million. This amount includes earnings from
all of ProLiance's business activities, and therefore is
believed to be a conservative estimate of the upper risk
limit. Resolution of the above proceedings may also impact
future operations and earnings contributions from ProLiance.
Management believes the ProLiance issues may be resolved near
the levels that are already being reserved and, therefore,
while these proceedings are pending, does not anticipate
changing the level at which it reserves ProLiance earnings.
However, no assurance of this outcome can be provided.
4. Pace Carbon Synfuels Investors, L.P.
On February 5, 1998, IEI Synfuels, Inc. (IEI Synfuels), a
wholly-owned, indirect subsidiary of IEI Investments,
purchased one limited partnership unit in Pace Carbon Synfuels
Investors, L.P. (Pace Carbon), a Delaware limited partnership
formed to develop, own and operate four projects to produce
and sell coal-based synthetic fuel. Pace Carbon converts coal
fines (small coal particles) into coal pellets that are sold
to major coal users such as utilities and steel companies.
This process is eligible for federal tax credits under Section
29 of the Internal Revenue Code (Code) and the Internal
Revenue Service has issued a private letter ruling with
respect to the four projects.
IEI Synfuels has committed an initial investment of $7.5
million in Pace Carbon (of which $5.2 million was paid through
September 30, 1998) for an 8.3 percent ownership interest in
the partnership. The balance of the initial investment will be
paid following the satisfaction by Pace Carbon of certain
project milestones regarding the operation of the coal pellet
production plants and long-term feedstock acquisition. In
addition to its initial investment, IEI Synfuels has a
continuing obligation to invest in Pace Carbon up to
approximately $43 million, with any such additional
investments expected to be funded solely from federal tax
credits that are realized from the production and sale of coal
pellets by the projects.
The realization of the tax credits from this investment is
dependent upon a number of factors including among others (1)
the production facilities must have been in operation by June
30, 1998, (2) adequate coal fines must be available to produce
the coal pellets, and (3) the coal pellets must be produced
and sold. All four of Pace Carbon's coal-based synthetic fuel
production facilities were placed into service by June 30,
1998, and are currently producing and selling pellets in a
ramp up mode, including refining the production process.
Management believes that significant project benefits,
primarily in the form of tax savings and tax credits realized,
will be achieved in the future but cannot be assured.
5. IEI Financial Services, LLC
On April 1, 1998, IEI Financial Services, LLC (IEI Financial
Services), a wholly-owned, indirect subsidiary of IEI
Investments, began its operations. IEI Financial Services will
perform third-party collections, energy-related equipment
leasing and related services. IEI Financial Services will
provide these services to Indiana Gas and to other third
parties.
6. Reliant Services, LLC
On June 30, 1998, IGC Energy and Cinergy Supply Network, Inc.,
a subsidiary of Cinergy Corp. (Cinergy), formed Reliant
Services, LLC (Reliant), an equally owned limited liability
company, to perform underground facilities locating and
construction services. In September 1998, Reliant signed an
agreement to purchase two Indianapolis area companies to
enable it to enter the market once certain regulatory
approvals are received by Cinergy. Reliant is based in the
Indianapolis area and will focus initially on serving
electric, gas, telephone, cable and water companies in
Indiana, Ohio and Kentucky. IGC Energy's initial investment in
Reliant was $500,000, and this investment is being accounted
for under the equity method.
7. Short-Term Borrowings
Indiana Gas has available committed lines of credit of $65
million with approximately $33.7 million outstanding at
September 30, 1998. These lines of credit are renewable
annually and may be adjusted quarterly as borrowings fluctuate
with seasonal needs and other short-term funding requirements.
Indiana Gas' Board of Directors has authorized borrowings of
up to $150 million under bank lines of credit. Indiana Gas has
agreed to compensate the participating banks with arrangements
that vary from no commitment fees to a combination of fees
that are mutually agreeable. Notes payable to banks bore
interest at rates negotiated with the bank at the time of
borrowing.
Bank loans outstanding during the reported periods were as
follows:
Thousands 1998 1997 1996
Outstanding at year end $ 33,705 $ 20,000 $ 24,236
Weighted average interest rates at year end 5.6% 5.7% 5.4%
Weighted average interest rates during the year 5.7% 5.5% 5.7%
Weighted average total outstanding during the year $ 32,293 $ 28,959 $ 5,930
Maximum total outstanding during the year $ 90,900 $ 89,725 $ 28,150
Capital Corp. is authorized to borrow up to $50 million under
available lines of credit. Capital Corp.'s borrowing activity
was minimal during 1998, with no balances outstanding at
September 30, 1998.
8. Long-Term Debt
In October 1997, Indiana Gas filed a registration statement
with the Securities and Exchange Commission with respect to
the issuance of up to $95 million in debt securities and in
November 1997 filed a prospectus supplement with respect to
$95 million in Medium-Term Notes, Series F. Issues under this
registration statement were as follows:
Interest Maturity
Issue Date Principal Rate Date
12-05-97 $15 million 6.36% 12-06-04
12-09-97 $20 million 6.34% 12-10-27
01-14-98 $15 million 5.75% 01-15-03
04-15-98 $15 million 6.75% 03-15-28
05-04-98 $10 million 6.36% 05-01-28
06-30-98 $20 million 6.55% 06-30-28
The net proceeds from the sale of these new debt securities
were used to refinance certain of Indiana Gas' long-term debt
issues and to refinance short-term obligations incurred in
connection with Indiana Gas' ongoing construction program and
other corporate purposes.
In December 1997, Indiana Gas retired $35 million of 6 5/8%
Series D Notes and, called and redeemed $24.7 million of 8
1/2% Series B Debentures. In March 1998, Indiana Gas redeemed
$33 million of its 9 1/8% Series A Notes. The premiums paid in
connection with the redemptions, which totaled $5.5 million,
have been deferred and are being amortized over 15 years.
Consolidated maturities and sinking fund requirements on long-
term debt subject to mandatory redemption during the five
years following 1998 are $10,119,000 in 1999, $180,000 in
2000, $197,000 in 2001, $3,454,000 in 2002 and $18,471,000 in
2003.
Provisions under which certain of Indiana Gas' Series E and
Series F Medium Term Notes were issued entitle the holders of
$60 million of these notes to put the debt back to Indiana Gas
at face value at certain specified dates before maturity
beginning in 2000. Long-term debt subject to the put
provisions during the five years following 1998 totals
$5,000,000 in 2000 and $11,500,000 in 2002.
9. Fair Value of Financial Instruments
The estimated fair values of the company's financial
instruments were as follows:
September 30, 1998 September 30, 1997
Carrying Fair Carrying Fair
Thousands Amount Value Amount Value
Cash and cash equivalents $ 9,325 $ 9,325 $ 48 $ 48
Notes payable $ 33,705 $ 33,705 $ 23,800 $ 23,800
Long-term debt (includes
amounts due within one year) $193,608 $210,503 $193,063 $200,080
Certain methods and assumptions must be used to estimate the
fair value of financial instruments. Because of the short
maturity of cash and cash equivalents and notes payable, the
carrying amounts approximate fair values for these financial
instruments. The fair value of the company's long-term debt
was estimated based on the quoted market prices for the same
or similar issues or on the current rates offered to the
company for debt of the same remaining maturities.
Under current regulatory treatment, call premiums on
reacquisition of long-term debt are generally recovered in
customer rates over the life of the refunding issue or over a
15-year period (see Note 1D). Accordingly, any reacquisition
would not be expected to have a material effect on the
company's financial position or results of operations.
10. Capital Stock
On January 28, 1998, the shareholders of Indiana Energy
approved an amendment to the company's Articles of
Incorporation to increase the authorized shares of common
stock from 64,000,000 shares to 200,000,000 shares.
On July 31, 1998, the Board of Directors of Indiana Energy
authorized a four-for-three stock split of the issued and
outstanding shares of its common stock to shareholders of
record on September 18, 1998. The shares were issued on
October 2, 1998. All share and per share amounts have been
restated for all periods reported to reflect the stock split.
On July 28, 1995, Indiana Energy's Board of Directors
authorized Indiana Energy to repurchase up to 700,000 shares
of its outstanding common stock. Under this authorization, the
company repurchased 92,100 and 42,400 pre-split shares during
1996 and 1998, respectively. No shares were repurchased during
1997. Of the 700,000 shares authorized, 565,500 shares remain
available for repurchase at September 30, 1998. As adjusted
for the four-for-three stock split, these repurchases totaled
122,800 and 56,533 shares for 1996 and 1998, respectively. The
associated cost of these repurchases totaled $2,116,000 and
$1,189,000 for 1996 and 1998, respectively.
Common stock dividends of the company may be reinvested under
a Dividend Reinvestment and Stock Purchase Plan. Common shares
purchased in connection with the plan are currently being
acquired through the open market.
The company has an Executive Restricted Stock Plan for the
principal officers of the company and participating subsidiary
companies. Shares issued are original issue shares of the
company, carry transferability restrictions and are subject to
forfeiture provisions according to the terms of the plan.
The company also has a Directors' Restricted Stock Plan
through which non-employee directors receive one-third of
their combined compensation (exclusive of attendance fees) as
directors of the company, Indiana Gas or IEI Investments, Inc.
in shares of the company's common stock subject to certain
restrictions on transferability. They may also elect to
receive the remaining two-thirds of their combined
compensation (exclusive of attendance fees) in cash or in
shares of the company's common stock which are not subject to
restrictions on transferability other than those imposed by
federal and state laws.
Additionally, under the terms of the company's retirement
savings plan, eligible participants may direct a specified
percentage of their compensation to be invested in shares of
the company's common stock.
At September 30, 1998, the shares of the company's common
stock reserved for issuance under each of those plans adjusted
for the four-for-three stock split were as follows:
Dividend Reinvestment and Stock Purchase Plan 366,181
Executive Restricted Stock Plan 353,583
Directors' Restricted Stock Plan 58,987
Retirement Savings Plan 213,941
Indiana Gas and Indiana Energy also each have 4 million of
authorized and unissued shares of preferred stock.
On July 25, 1986, the Board of Directors of Indiana Energy
declared a dividend distribution of one common share purchase
right for each outstanding share of common stock of Indiana
Energy. The distribution was made to shareholders of record
August 11, 1986. In addition, one right has been and will be
distributed for each share issued following August 11, 1986.
On April 26, 1996, the Board of Directors of Indiana Energy
authorized the amendment and restatement of the shareholder
rights agreement relating to the common share purchase rights,
which occurred effective May 31, 1996. If and when the rights
become exercisable, each right will entitle the registered
holder to purchase from Indiana Energy one share of common
stock at a price of $45 per share (as adjusted for the stock
split), subject to certain adjustments described in the rights
agreement. The rights become exercisable only when a person or
group acquires beneficial ownership of 15 percent or more of
Indiana Energy's common stock, or becomes the beneficial owner
of an amount of Indiana Energy's common stock (but not less
than 10 percent) which the board of directors determines to be
substantial and whose ownership the board of directors
determines is intended or may be reasonably anticipated, in
general, to cause Indiana Energy to take actions determined by
the board of directors to be not in Indiana Energy's best long-
term interests or when any person or group announces a tender
or exchange offer for 15 percent or more of Indiana Energy's
common stock.
In the event that (1) Indiana Energy is acquired in a merger
or other business combination transaction and Indiana Energy
is not the surviving corporation, or (2) any person
consolidates or merges with Indiana Energy and all or part of
Indiana Energy common shares are exchanged for securities,
cash or property of any other person, or (3) 50 percent or
more of Indiana Energy's consolidated assets or earning power
are sold, each holder of a right will have the right to
receive, upon exercise at the then-current exercise price of
the right, that number of shares of common stock of the
acquiring company having a market value of two times the
exercise price of the right. In the event that a person (1)
acquires 15 percent or more of the outstanding common stock or
(2) is declared an adverse person (i.e., a person who becomes
the owner of at least 10 percent of Indiana Energy's common
stock, whose share ownership is determined by the board of
directors to be directed toward causing Indiana Energy to take
actions determined by the board of directors not to be in
Indiana Energy's long-term best interests) by the board of
directors of Indiana Energy, each holder of a right, other
than rights beneficially owned by the acquiring person (which
will thereafter be void), will have the right to receive upon
exercise that number of common shares having a market value of
two times the exercise price of the right.
At any time after a person becomes an acquiring person, and
prior to the acquisition by such acquiring person of 50
percent or more of the outstanding common shares, the board of
directors of Indiana Energy may exchange the rights (other
than rights owned by such person or group which have become
void), in whole or in part, at an exchange ratio of one common
share per right (subject to adjustment).
Under the terms and conditions provided in the rights
agreement, Indiana Energy may redeem the rights in whole, but
not in part, at a price of $.0075 per right (as adjusted for
the stock split) at any time prior to the time a person or
group of affiliated or associated persons becomes an acquiring
person as defined by the rights agreement. The rights
agreement, as amended and restated as of May 31, 1996, was
filed with the Securities and Exchange Commission on June 17,
1996, and will remain in effect for an extended term of 10
years.
11. Retirement Plans and Other Postretirement Benefits
The following reflects the new disclosure requirements set
forth by Statement of Financial Accounting Standards No. 132,
Employers' Disclosures about Pensions and Other Postretirement
Benefits.
The company has multiple defined benefit pension and other
postretirement benefit plans. The nonpension plans include
plans for health care and life insurance. All of the plans are
non-contributory with the exception of the health care plan
which contains cost-sharing provisions whereby employees
retiring after January 1, 1996, are required to make
contributions to the plan when increases in the company's
health care costs exceed the general rate of inflation, as
measured by the Consumer Price Index (CPI).
The IURC has authorized 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. Amounts
accrued prior to that authorization were deferred as allowed
by the IURC and are currently being amortized.
Net periodic benefit cost, excluding the 1997 curtailment loss
related to the postretirement health care and life insurance
plans, consisted of the following components:
Pension Benefits Other Benefits
Thousands 1998 1997 1996 1998 1997 1996
Service cost $1,417 $1,268 $1,174 $ 721 $ 770 $ 806
Interest cost 4,966 4,847 4,730 3,199 3,311 3,264
Expected return
on plan assets (6,757) (6,606) (6,058) - - -
Amortization of
transition
obligation (asset) (316) (309) (309) 1,955 2,280 2,280
Amortization of
loss (gain)
and other 78 884 757 1,337 1,397 978
Net periodic
benefit cost $ (612) $ 84 $ 294 $7,212 $7,758 $7,328
A reconciliation of the plans' benefit obligations, fair value
of plan assets, funded status and amounts recognized in the
company's statement of financial position follows:
Pension Benefits Other Benefits
Thousands 1998 1997 1998 1997
Benefit obligation at
beginning of year $65,977 $62,963 $ 42,883 $ 45,070
Service cost 1,417 1,268 721 770
Interest cost 4,966 4,847 3,199 3,311
Actuarial loss
(gain) and other 9,197 1,301 4,330 (3,425)
Benefits paid (4,460) (4,402) (3,064) (2,843)
Benefit obligation at
the end of the year 77,097 65,977 48,069 42,883
Fair value of plan assets
at beginning of year 87,801 75,748 - -
Actual return on plan assets 14,194 16,013 - -
Employer contributions 93 442 3,064 2,843
Benefits paid (4,460) (4,402) (3,064) (2,843)
Fair value of plan assets
at end of year 97,628 87,801 - -
Funded status 20,531 21,824 (48,069) (42,883)
Unrecognized prior service cost 3,693 2,527 - -
Unrecognized net obligation
(assets) from transition (1,198) (1,514) 29,330 31,286
Unrecognized net (gain)
loss and other (19,173) (19,380) (6,649) (11,441)
Prepaid (accrued) benefit cost
at end of year $ 3,853 $ 3,457 $(25,388) $(23,038)
The aggregate benefit obligation and aggregate fair value of
plan assets for pension plans with benefit obligations in
excess of plan assets were, in thousands, $5,568 and $0,
respectively as of September 30, 1998, and $4,485 and $0,
respectively as of September 30, 1997.
Weighted-average assumptions used in the accounting for these
plans were as follows:
Pension Benefits Other Benefits
Thousands 1998 1997 1998 1997
Discount rate 6.75% 7.75% 6.75% 7.75%
Expected return
on plan assets 9.00% 9.00% n/a n/a
Rate of compensation
increase 5% to 5.5% 5% to 5.5% n/a n/a
CPI rate n/a n/a 3.5% 3.5%
The assumed health care cost trend rate for medical gross
eligible charges used in measuring the postretirement benefit
obligation for the health care plan as of September 30, 1998,
was 7.1 percent for fiscal 1999. This rate is assumed to
decrease gradually through fiscal 2004 to 5.0 percent and
remain at that level thereafter.
A 1 percent change in the assumed health care cost trend rates
for the company's postretirement health care plan would have
the following effects:
Thousands 1% Increase 1% Decrease
Effect on the aggregate of the service
and interest cost components $ 78 $ (70)
Effect on the postretirement
benefit obligation $1,037 $ (932)
The company also has a defined contribution retirement savings
plan which is qualified under sections 401(a) and 401(k) of
the Internal Revenue Code. During 1998, 1997 and 1996, the
company made contributions to this plan of $2,165,000,
$2,360,000 and $2,445,000, respectively.
12. Commitments
Estimated capital expenditures for 1999 are $67 million. Lease
commitments, including the lease of the company's corporate
headquarters, are $1,975,000 in 1999, $1,756,000 in 2000,
$1,661,727 in 2001, $1,661,727 in 2002, $1,511,727 in 2003 and
$4,605,000 in total for all later years. There are no leases
that extend beyond 2036. Indiana Gas has storage and supply
contracts that extend up to six years. Total lease expense was
$1,704,000 in 1998, $2,200,000 in 1997 and $2,863,000 in 1996.
13. Income Taxes
The components of consolidated income tax expense were as
follows:
Thousands 1998 1997 1996
Current:
Federal $19,149 $21,459 $20,851
State 2,879 3,368 3,277
22,028 24,827 24,128
Deferred:
Federal 1,435 (11,678) 709
State 156 (940) 95
1,591 (12,618) 804
Amortization of investment tax credits (930) (930) (930)
Other tax credits realized (840) (330) (277)
Consolidated income tax expense $21,849 $10,949 $23,725
The recording of restructuring costs of $39.5 million in 1997
had the effect of decreasing deferred income tax expense by
approximately $15.0 million.
Effective income tax rates were 35.21 percent, 34.81 percent
and 35.99 percent of pretax income for 1998, 1997 and 1996,
respectively. This compares with a combined federal and state
income tax statutory rate of 37.93 percent for all years
reported. Individual components of the rate difference for
1998 were not significant except investment tax credit which
amounted to (1.5%) and other tax credits which amounted to
(1.4 %). Investment tax credit was (3.0%) and (1.4%) for 1997
and 1996, respectively.
As required by the IURC, Indiana Gas uses a normalized method
of accounting for deferred income taxes. Deferred income taxes
reflect the net tax effect of temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes. Deferred income taxes are provided for taxes not
currently payable due to, among other things, the use of
various accelerated depreciation methods, shorter depreciable
lives and the deduction of certain construction costs for tax
purposes. Taxes deferred in prior years are being charged and
income credited as these tax effects reverse over the lives of
the related assets.
Significant components of the company's net deferred tax
liability as of September 30, 1998, and 1997, are as follows:
Thousands 1998 1997
Deferred tax liabilities:
Accelerated depreciation $ 50,775 $ 51,413
Property basis differences 6,435 2,101
Acquisition adjustment 6,097 6,286
Other (6,792) (1,645)
Deferred tax assets:
Deferred investment tax credit (3,533) (3,884)
Regulatory income tax asset
(liability) 674 (711)
Less deferred income taxes related
to current assets and liabilities 6,792 1,645
Balance as of September 30 $ 60,448 $ 55,205
Investment tax credits have been deferred and are being
credited to income over the life of the property giving rise
to the credit. The Tax Reform Act of 1986 eliminated
investment tax credits for property acquired after January 1,
1986.
Energy Realty has several affordable housing investments from
which federal tax credits are being realized. Also, see Note 4
for discussion of federal tax credits associated with IEI
Synfuels' investment in Pace Carbon.
14. Environmental Costs
In the past, Indiana Gas and others, including former
affiliates, and/or previous landowners, operated facilities
for the manufacturing of gas and storage of manufactured gas.
These facilities are no longer in operation and have not been
operated for many years. Under currently applicable
environmental laws and regulations, Indiana Gas, and the
others, may now be required to take remedial action if certain
byproducts are found above a regulatory threshold at these
sites.
Indiana Gas has identified the existence, location and certain
general characteristics of 26 gas manufacturing and storage
sites. Based upon the site work completed to date, Indiana Gas
believes that a level of contamination that may require some
level of remedial activity may be present at a number of the
sites. Removal activities have been conducted at several sites
and a remedial investigation/feasibility study (RI/FS) is
nearing completion at one of the sites under an agreed order
between Indiana Gas and the Indiana Department of
Environmental Management. Although Indiana Gas has not begun
an RI/FS at additional sites, Indiana Gas is currently
conducting some level of remedial activities including
groundwater monitoring at certain sites where deemed
appropriate and will continue its evaluation of the sites as
appropriate and necessary.
Based upon the work performed to date, Indiana Gas has accrued
investigation, remediation, groundwater monitoring and related
costs for the sites. Estimated costs of certain remedial
actions that may likely be required have also been accrued.
Costs associated with environmental remedial activities are
accrued when such costs are probable and reasonably estimable.
Indiana Gas does not believe it can provide an estimate of the
reasonably possible total remediation costs for any site prior
to completion of an RI/FS and the development of some sense of
the timing for implementation of the potential remedial
alternatives, to the extent such remediation is required.
Accordingly, the total costs which may be incurred in
connection with the remediation of all sites, to the extent
remediation is necessary, cannot be determined at this time.
Indiana Gas has been seeking to recover the costs it has
incurred and expects to incur relating to the 26 sites from
insurance carriers and other potentially responsible parties
(PRPs). The IURC has determined that these costs are not
recoverable from utility customers.
Indiana Gas has completed the process of identifying PRPs and
now has PRP agreements in place covering 19 of the 26 sites.
The agreements provide for coordination of efforts and sharing
of investigation and clean-up costs incurred and to be
incurred at the sites. PSI Energy, Inc. is a PRP on all 19
sites. Northern Indiana Public Service Company is a PRP on 5
of the 19 sites. These agreements limit Indiana Gas' share of
past and future response costs at these 19 sites to between 20
and 50 percent. Based on the agreements, Indiana Gas has
recorded a receivable from PRPs for their unpaid share of the
liability for work performed by Indiana Gas to date, as well
as accrued Indiana Gas' proportionate share of the estimated
cost related to work not yet performed.
On April 14, 1995, Indiana Gas filed suit in the United States
District Court for the Northern District of Indiana, Fort
Wayne Division (the District Court) 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 District 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. Indiana Gas appealed all adverse
rulings to the United States Court of Appeals for the Seventh
Circuit. On April 6, 1998, the appeals court issued a decision
vacating the summary judgment and dismissing the District
Court action for lack of diversity jurisdiction. The insurers
asked the United States Supreme Court to review the Seventh
Circuit's decision, however, their petition was denied.
Because the District Court's adverse rulings have been
vacated, Indiana Gas has filed a complaint in Indiana state
court to continue its pursuit of insurance coverage. As of
September 30, 1998, Indiana Gas has obtained settlements from
some insurance carriers in an aggregate amount of
approximately $14.7 million.
These environmental matters have had no material impact on
earnings since costs recorded to date total approximately
$15.0 million. While Indiana Gas has recorded all costs which
it presently expects to incur in connection with remediation
activities, it is possible that future events may require some
level of additional remedial activities which are not
presently foreseen.
15. Affiliate Transactions
The obligations of Capital Corp., which handles financing for
the company and its non-utility subsidiaries, are subject to a
support agreement between the company and Capital Corp., under
which the company has committed to make payments of interest
and principal on Capital Corp.'s securities in the event of
default. Under the terms of the support agreement in addition
to the cash flow of cash dividends paid to the company by any
of its consolidated subsidiaries, the non-utility assets of
the company are available as recourse to holders of Capital
Corp.'s securities. The carrying value of such non-utility
assets reflected in the consolidated financial statements of
the company is approximately $73.0 million at September 30,
1998.
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 1998, 1997 and 1996 totaled $269.2 million, $306.1
million and $117.9 million, respectively.
ProLiance has a standby letter of credit facility with a bank
for letters up to $30 million. This facility is secured in
part by a support agreement from Indiana Energy. Letters of
credit outstanding at September 30, 1998, totaled $.9 million.
CIGMA, LLC provides materials acquisition and related services
that are used by the company and Citizens Gas, as well as
similar services for third parties. The company's purchases of
these services during 1998 and 1997 totaled $21.3 million and
$9.6 million, respectively.
Indiana Energy is a one-third guarantor of certain surety bond
obligations of Energy Systems Group, LLC. Indiana Energy's
share totaled $8.1 million at September 30, 1998.
Amounts owed to affiliates totaled $15.6 million and $21.7
million at September 30, 1998 and 1997, respectively, and are
included in Accounts Payable on the Consolidated Balance
Sheets.
Amounts due from affiliates totaled $8.7 million at September
30, 1997, and are included in Accounts Receivable on the
Consolidated Balance Sheet.
16. New Accounting Standards
For fiscal 1998, the company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which
requires the computation of basic and diluted earnings per
share. Since the company has a simple capital structure with
no outstanding dilutive securities, the computation is the
same for both earnings per share amounts. The adoption of this
statement had no impact on earnings per share previously
reported.
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related
Information. This statement establishes standards for the way
that public companies report information about operating
segments in annual financial statements and requires that
those companies report selected information about operating
segments in annual and interim financial reports issued to
shareholders. This statement becomes effective for the
company's 1999 annual financial statements.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. This statement
standardizes the disclosure requirements for pensions and
other postretirement benefits. It does not change measurement
or recognition of amounts related to those plans. The company
has adopted the new disclosure requirements of this statement
for 1998 (see Note 11).
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for
Internal Use. This statement provides guidance primarily on
whether costs incurred related to internal use computer
software should be capitalized or expensed. This statement is
effective for the company in fiscal 2000. The company does not
expect this statement to have a material impact on its
financial position or results of operations.
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes
accounting and reporting standards requiring that every
derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the
income statement, and requires that a company must formally
document, designate, and assess the effectiveness of
transactions that receive hedge accounting. ProLiance utilizes
derivative instruments to manage pricing decisions, minimize
the risk of price volatility, and minimize price risk exposure
in the energy markets. The statement is effective for
ProLiance in fiscal 2000. ProLiance has not yet quantified the
impact of adopting this statement on its financial position or
results of operations.
17. Summarized Financial Data (Unaudited)
Summarized quarterly financial data (in thousands of dollars
except per share amounts) for 1998 and 1997 are as follows:
1998: THREE MONTHS ENDED DEC. 31 MAR. 31 JUNE 30 SEP. 30
Operating revenues $170,335 $163,286 $70,770 $ 62,043
Operating income (loss) 31,444 36,843 5,223 (4,542)
Net income (loss) 18,356 23,142 2,711 (4,005)
Basic and diluted earnings
(loss) per average share of
common stock (1) $ .61 $ .77 $ .09 $ (.14)
1997: THREE MONTHS ENDED DEC. 31 MAR. 31 JUNE 30 SEP. 30(2)
Operating revenues $172,481 $215,695 $83,828 $ 58,555
Operating income (loss) 30,064 41,246 10,233 (44,792)
Net income (loss) 17,285 24,349 6,466 (27,597)
Basic and diluted earnings
(loss) per average share of
common stock (1) $ .58 $ .80 $ .22 $ (.92)
(1) Adjusted to reflect the four-for-three stock split October 2, 1998
(see Note 10).
(2) Reflects the recording of restructuring costs of $39.5
million ($24.5 million after-tax or $.81 per common share),
during the fourth quarter of fiscal 1997 (see Note 2).
Note: Because of the seasonal factors that significantly
affect the companies' operations, the results of operations
for interim periods within fiscal years are not comparable.
Item 9. Changes in and Disagreements with Accountants
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Except for the list of the executive officers, which can
be found in Part I, Item 4(a) of this report, and as
noted below, the information required to be shown in this
part for Item 10, Directors and Executive Officers of the
Registrant is incorporated by reference here from the
registrant's definitive proxy statement. That statement
was prepared according to Regulations 14A and S-K and
filed electronically with the Securities and Exchange
Commission on December 3, 1998.
Item 11. Executive Compensation
The information required to be shown in this part for
Item 11, Executive Compensation, is incorporated by
reference here from the registrant's definitive proxy
statement. That statement was prepared according to
Regulations 14A and S-K and filed electronically with the
Securities and Exchange Commission on December 3, 1998.
Item 12. Securities Ownership of Certain Beneficial Owners and
Management
The information required to be shown in this part for
Item 12, Securities Ownership of Certain Beneficial
Owners and Management is incorporated by reference here
from the registrant's definitive proxy statement. That
statement was prepared according to Regulations 14A and S-
K and filed electronically with the Securities and
Exchange Commission on December 3, 1998.
Item 13. Certain Relationships and Related Transactions
The information required to be shown in this part for
Item 13, Certain Relationships and Related Transactions
is incorporated by reference here from the registrant's
definitive proxy statement. That statement was prepared
according to Regulations 14A and S-K and filed
electronically with the Securities and Exchange
Commission on December 3, 1998.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
The following documents are filed as part of this report:
(a)-1 Financial Statements
Location in 10-K
Report of Independent Public Accountants Item 8
Consolidated Statements of Income - 1998,
1997 and 1996 Item 8
Consolidated Statements of Cash Flows - 1998,
1997 and 1996 Item 8
Consolidated Balance Sheets at September 30,
1998 and 1997 Item 8
Consolidated Statements of Common Shareholders'
Equity - 1998, 1997 and 1996 Item 8
Consolidated Schedules of Long-Term Debt
as of September 30, 1998 and 1997 Item 8
Notes to Financial Statements Item 8
(a)-2 Financial Statement Schedules
Report of Independent Public Accountants on Schedules
Schedule II.
Valuation and Qualifying Accounts - 1998, 1997 and 1996
(a)-3 Exhibits
See Exhibit Index
(b) Reports on Form 8-K
On July 31, 1998, Indiana Energy filed a Current Report
on Form 8-K with respect to board of director
authorization for a four-for-three stock split of the
issued and outstanding shares of its common stock, and
with respect to the release of unaudited summary
financial information to the investment community
regarding Indiana Energy's consolidated results of
operations, financial position and cash flows for the
three-, nine- and twelve-month periods ended June 30,
1998. Items reported include:
Item 5. Other Events
Item 7. Exhibits
99 Financial Analyst Report - Third Quarter 1998
On July 31, 1998, Indiana Gas filed a Current Report on
Form 8-K with respect to the release of unaudited summary
financial information to the investment community
regarding Indiana Energy's consolidated results of
operations, financial position and cash flows for the
three-, nine- and twelve-month periods ended June 30,
1998. Items reported include:
Item 5. Other Events
Item 7. Exhibits
99 Financial Analyst Report - Third Quarter 1998
On August 17, 1998, Indiana Energy filed a Current Report
on Form 8-K with respect to a press release (dated August
17, 1998), announcing the formation of Reliant Services,
LLC. Items reported include:
Item 5. Other Events
Press release dated August 17, 1998
On September 23, 1998, Indiana Energy filed a Current
Report on Form 8-K with respect to a press release (dated
September 23, 1998), announcing the agreement of Reliant
Services, LLC for the purchase of two companies. Items
reported include:
Item 5. Other Events
Press release dated September 23, 1998
On October 9, 1998, Indiana Energy and Indiana Gas filed
a Current Report on Form 8-K with respect to a press
release (dated October 9, 1998), announcing the decision
by Indiana Gas, Citizens Gas and ProLiance to appeal the
October 8, 1998, Indiana Court of Appeals decision
regarding ProLiance. Items reported include:
Item 5. Other Events
Press release dated October 9, 1998
On October 13, 1998, Indiana Energy filed a Current
Report on Form 8-K with respect to a press release (dated
October 12, 1998), announcing IEI Investments' commitment
to invest $10 million in Haddington Energy Partners, L.P.
Items reported include:
Item 5. Other Events
Press release dated October 12, 1998
On October 30, 1998, Indiana Energy and Indiana Gas filed
a Current Report on Form 8-K with respect to the release
of summary financial information to the investment
community regarding Indiana Energy's consolidated results
of operations, financial position and cash flows for the
three- and twelve-month periods ended September 30, 1998.
Items reported include:
Item 5. Other Events
Item 7. Exhibits
99 Financial Analyst Report - Fourth Quarter 1998
EXHIBIT INDEX
Exhibit No. Description Reference
3-A Amended and Restated Exhibit 3-A to
Articles of Incorporation. Indiana Energy's
Quarterly Report on
Form 10-Q for the
quarterly period
ended December 31,
1997.
3-B Amended and Restated Code Exhibit 3-A to
of By-Laws. Indiana Energy's
Quarterly Report on
Form 10-Q for the
quarterly period
ended March 31,
1997.
4-A Applicable provisions of Exhibit 3-A to
Indiana Energy's Amended Indiana Energy's
and Restated Articles of 1993 Annual Report
Incorporation, as amended, on Form 10-K.
as set forth as Exhibit 3-A
above.
4-B Amended and Restated Rights Exhibit 1 to
Agreement between Indiana Indiana Energy's
Energy and Continental Amendment to its
Bank, N.A. (Now First Registration
Chicago Trust Company of Statement on Form
New York), as Rights Agent, 8-A, filed
including form of Right June 17, 1996.
Certificate, dated as of
July 30, 1986, as amended
and restated as of December
8, 1989 and as further
amended and restated as of
May 31, 1996.
4-C Indenture dated February 1, Exhibit 4(a) to
1991, between Indiana Gas Indiana Gas
and Continental Bank, Company, Inc.'s
National Association. Current Report on
Form 8-K dated
February 1, 1991,
and filed February
15, 1991; First
Supplemental
Indenture thereto
dated as of
February 15, 1991,
(incorporated by
reference to
Exhibit 4(b) to
Indiana Gas
Company, Inc.'s
Current Report on
Form 8-K dated
February 1, 1991,
and filed February
15, 1991); Second
Supplemental
Indenture thereto
dated as of
September 15, 1991,
(incorporated by
reference to
Exhibit 4(b) to
Indiana Gas
Company, Inc.'s
Current Report on
Form 8-K dated
September 15, 1991,
and filed September
25, 1991); Third
Supplemental
Indenture thereto
dated as of
September 15, 1991
(incorporated by
reference to
Exhibit 4(c) to
Indiana Gas
Company, Inc.'s
Current Report on
Form 8-K dated
September 15, 1991
and filed September
25, 1991); Fourth
Supplemental
Indenture thereto
dated as of December
2, 1992,
(incorporated by
reference to Exhibit
4(b) to Indiana Gas
Company, Inc.'s
Current Report on
Form 8-K dated
December 1, 1992,
and filed December
8, 1992); Officers'
Certificate pursuant
to Section 301 of
the Indenture dated
as of April 5, 1995,
(incorporated by
reference to Exhibit
4(a) to Indiana Gas
Company, Inc.'s
Current Report on
Form 8-K dated and
filed April 5,
1995); and Officers'
Certificate pursuant
to Section 301 of
the Indenture dated
as of November 19,
1997 (incorporated
by reference to
Exhibit 4 to Indiana
Gas Company, Inc.'s
Report on Form 8-K
dated November 19,
1997 and filed
December 5, 1997).
10-A Employment Agreement Exhibit 10-A to
between Indiana Energy, Indiana Energy's
Inc. and Lawrence A. 1997 Annual Report
Ferger, effective October on Form 10-K.
1, 1997.
10-B Employment Agreement Exhibit 10-B to
between Indiana Energy, Indiana Energy's
Inc. and Niel C. 1997 Annual Report
Ellerbrook, effective on Form 10-K.
October 1, 1997.
10-C Employment Agreement Exhibit 10-C to
between Indiana Energy, Indiana Energy's
Inc. and Paul T. Baker, 1997 Annual Report
effective October 1, 1997. on Form 10-K.
10-D Employment Agreement Exhibit 10-D to
between Indiana Energy, Indiana Energy's
Inc. and Anthony E. Ard, 1997 Annual Report
effective October 1, 1997. on Form 10-K.
10-E Employment Agreement Filed herewith.
between Indiana Energy,
Inc. and Carl L. Chapman,
effective October 1, 1997.
10-F Termination Benefits Exhibit 10-E to
Agreement between Indiana Indiana Energy's
Energy, Inc. and Lawrence 1997 Annual Report
A. Ferger as amended and on Form 10-K.
restated effective October
1, 1997.
10-G Termination Benefits Exhibit 10-F to
Agreement between Indiana Indiana Energy's
Energy, Inc. and Paul T. 1997 Annual Report
Baker as amended and on Form 10-K.
restated effective October
1, 1997.
10-H Termination Benefits Exhibit 10-G to
Agreement between Indiana Indiana Energy's
Energy, Inc. and Niel C. 1997 Annual Report
Ellerbrook as amended and on Form 10-K.
restated effective October
1, 1997.
10-I Termination Benefits Exhibit 10-H to
Agreement between Indiana Indiana Energy's
Energy, Inc. and Anthony E. 1997 Annual Report
Ard as amended and restated on Form 10-K.
effective October 1, 1997.
10-J Termination Benefits Filed herewith.
Agreement between Indiana
Energy, Inc. and Carl L.
Chapman as amended and
restated effective October
1, 1997.
10-K Termination Benefits Exhibit 10-I to
Agreement between Indiana Indiana Energy's
Energy, Inc. and Timothy M. 1997 Annual Report
Hewitt as amended and on Form 10-K.
restated effective October
1, 1997.
10-L Indiana Energy, Inc. Exhibit 10-J to
Unfunded Supplemental Indiana Energy's
Retirement Plan for a 1997 Annual Report
Select Group of Management on Form 10-K.
Employees as amended and
restated effective October
1, 1997.
10-M Indiana Energy, Inc. Exhibit 10-K to
Executive Compensation Indiana Energy's
Deferral Plan as amended 1997 Annual Report
and restated effective on Form 10-K.
October 1, 1997.
10-N Indiana Energy, Inc. Exhibit 10-A to
Directors Compensation Indiana Energy's
Deferral Plan as amended Quarterly Report on
and restated effective May Form 10-Q for the
1, 1997. quarterly period
ended June 30, 1997.
10-O Indiana Energy, Inc. Filed herewith.
Executive Restricted Stock
Plan as amended and
restated effective October
1, 1998.
10-P Indiana Energy, Inc. Annual Exhibit 10-D to
Management Incentive Plan Indiana Energy's
effective October 1, 1987. 1987 Annual Report
on Form 10-K.
10-Q First Amendment to the Filed herewith.
Indiana Energy, Inc. Annual
Management Incentive Plan
(set forth in 10-P above)
effective October 1, 1997.
10-R Indiana Energy, Inc. Exhibit 10-B to
Directors' Restricted Stock Indiana Energy's
Plan, as amended and Quarterly Report on
restated effective May 1, Form 10-Q for the
1997. quarterly period
ended June 30, 1997.
10-S Fundamental Operating Exhibit 10-B to
Agreement of ProLiance Indiana Energy's
Energy, LLC between IGC Quarterly Report on
Energy, Inc. and Citizens Form 10-Q for the
By-Products Coal Company, quarterly period
effective March 15, 1996. ended March 31,
1996.
10-T Formation Agreement among Exhibit 10-C to
Indiana Energy, Inc., Indiana Energy's
Indiana Gas Company, Inc., Quarterly Report on
IGC Energy, Inc., Indiana Form 10-Q for the
Energy Services, Inc., quarterly period
Citizens Gas & Coke ended March 31,
Utility, Citizens By- 1996.
Products Coal Company,
Citizens Energy Services
Corporation, and ProLiance
Energy, LLC, effective
March 15, 1996.
10-U Gas Sales and Portfolio Exhibit 10-C to
Administration Agreement Indiana Gas'
between Indiana Gas Quarterly Report on
Company, Inc. and ProLiance Form 10-Q for the
Energy, LLC, effective quarterly period
March 15, 1996, for ended March 31,
services to begin April 1, 1996.
1996.
10-V Amended appendices to the Exhibit 10-R to
Gas Sales and Portfolio Indiana Gas'
Administration Agreement 1997 Annual
between Indiana Gas Report on Form
Company, Inc. and 10-K.
ProLiance Energy, LLC
referred to above in
Exhibit 10-U, effective
November 1, 1997.
10-W Exhibit 10-W schedules material gas
contracts which are in effect between
Indiana Gas Company, Inc. and suppliers
other than its affiliate, ProLiance Energy,
LLC.
Exh. Days of Effect. Expir.
No. Type of Contract Supplier Contract No. Wthdrwl. Dth/Day Date Date Reference
10-W.1 Firm Transportation Panhandle Eastern P PLT 011716 51,431 5/1/93 3/31/99 6/30/93
Form 10-Q,
Exh. 10-A,
File 1-6494.
10-W.2 Firm Storage ANR T,E & S 05787 100 50,000 4/1/92 3/31/02 1992 Form
10K, Exh.
10-R,
File 1-6494.
10-W.3 Firm Storage-
Related ANR T,E & S 05788 50,000 4/1/92 3/31/02 1992 Form
Transportation 10K, Exh.
10-S,
File 1-6494.
21 Subsidiaries of Indiana Energy, Inc. Filed herewith.
23 Consent of Independent Public Accountants Filed herewith.
27 Financial Data Schedule Filed herewith.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Indiana Energy, Inc.:
We have audited in accordance with generally accepted
auditing standards, the consolidated financial statements
included in Item 8, in this Form 10-K, and have issued our
report thereon dated October 30, 1998. Our audit was made for
the purpose of forming an opinion on those statements taken as
a whole. The schedules listed in Item 14(a)-2 are the
responsibility of the company's management and are presented
for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Indianapolis, Indiana
October 30, 1998
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED SEPTEMBER 30, 1998
(Thousands)
Col. A Col. B Col. C Col. D Col. E Col. F
Additions Deductions
(1) (2)
For Purposes
Balance at Charged to For Which Balance at
September 30, Costs and Reserves Other September 30,
Description 1997 Expenses Other Were Created Changes 1998
RESERVE DEDUCTED FROM APPLICABLE
ASSETS:
Reserve for uncollectible accounts $ 1,784 $ 3,470 $ 0 $ 4,354 $ 0 $ 900
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED SEPTEMBER 30, 1997
(Thousands)
Col. A Col. B Col. C Col. D Col. E Col. F
Additions Deductions
(1) (2)
For Purposes
Balance at Charged to For Which Balance at
September 30, Costs and Reserves Other September 30,
Description 1996 Expenses Other Were Created Changes 1997
RESERVE DEDUCTED FROM APPLICABLE
ASSETS:
Reserve for uncollectible accounts $ 1,853 $ 2,655 $ 0 $ 2,724 $ 0 $ 1,784
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED SEPTEMBER 30, 1996
(Thousands)
Col. A Col. B Col. C Col. D Col. E Col. F
Additions Deductions
(1) (2)
For Purposes
Balance at Charged to For Which Balance at
September 30, Costs and Reserves Other September 30
Description 1995 Expenses Other Were Created Changes 1996
RESERVE DEDUCTED FROM APPLICABLE
ASSETS:
Reserve for uncollectible accounts $ 1,662 $ 3,803 $ 0 $ 3,612 $ 0 $ 1,853
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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.
Dated December 18, 1998 /s/ Lawrence A. Ferger
Lawrence A. Ferger,
Chairman and
Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Lawrence A. Ferger Chairman and
Lawrence A. Ferger Chief Executive
Officer December 18, 1998
/s/ Niel C. Ellerbrook President,
Niel C. Ellerbrook Chief Operating
Officer and Director December 18, 1998
/s/ Jerome A. Benkert Vice President and
Jerome A. Benkert Controller December 18, 1998
/s/ Paul T. Baker Director December 18, 1998
Paul T. Baker
/s/ Loren K. Evans Director December 18, 1998
Loren K. Evans
/s/ Otto N. Frenzel III Director December 18, 1998
Otto N. Frenzel III
/s/ Anton H. George Director December 18, 1998
Anton H. George
/s/ Don E. Marsh Director December 18, 1998
Don E. Marsh
/s/ William G. Mays Director December 18, 1998
William G. Mays
/s/ Richard P. Rechter Director December 18, 1998
Richard P. Rechter
/s/ James C. Shook Director December 18, 1998
James C. Shook
/s/ Jean L. Wojtowicz Director December 18, 1998
Jean L. Wojtowicz
/s/ John E. Worthen Director December 18, 1998
John E. Worthen