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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission 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, 1999, the aggregate market value of Common Stock held
by nonaffiliates was $507,808,003.
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 29,804,590 November 30, 1999
- ------------------------------ ------------------- -----------------
Class Number of shares Date
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss. 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]
Table of Contents
Page
Part I..................................................................... 3
Business............................................................... 3
Property............................................................... 6
Legal Proceedings...................................................... 7
Submission of Matters to a Vote of Security Holders.................... 7
Executive Officers of the Company...................................... 7
Part II.................................................................... 11
Market for the Registrant's Common Equity and
Related Stockholders Matters..................................... 11
Selected Financial Data................................................ 12
Management's Discussion and Analysis of Results of
Operations and Financial Condition............................... 13
Financial Statements and Supplementary Data............................ 25
Changes in and Disagreements with Accountants.......................... 52
Part III................................................................... 52
Directors and Executive Officers of the Registrant..................... 52
Executive Compensation................................................. 57
Securities Ownership of Certain Beneficial Owners and Management....... 63
Certain Relationships and Related Transactions......................... 67
Part IV.................................................................... 67
Exhibits, Financial Statements Schedules, and Reports on Form 8-K...... 67
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 five
subsidiaries: Indiana Gas Company, Inc., IEI Services, LLC, IEI
Capital Corp., IEI Investments, Inc., and Number-3CHK, 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 central and southern 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. provides the non-regulated
businesses with short-term financing for working capital
requirements, as well as secures 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. ProLiance
is also a power marketer, providing gas and power to over 1,000
commercial, industrial and municipal customers.
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, Citizens Gas,
and third parties throughout a fourteen-state area.
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 May 1999, Reliant purchased the assets of two
Indianapolis based companies and began operation. In August 1999,
Reliant entered the meter reading business as well. 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. Reliant's customer base includes
major utility companies in metropolitan areas in which it
currently operates.
Energy Realty, Inc. is a real estate company with investments in
affordable housing and historic rehabilitation projects.
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/briquettes 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 performs
third-party collections, energy-related equipment leasing and
related services. IEI Financial Services provides 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, has raised $77
million 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.
On June 14, 1999, Indiana Energy and SIGCORP, Inc. (SIGCORP)
jointly announced the signing of a definitive agreement to
combine into a new holding company named Vectren Corporation
(Vectren). SIGCORP is an investor-owned energy and
telecommunications company that through its subsidiaries provides
electric and gas service to southwest Indiana and energy and
telecommunication products and services throughout the Midwest
and elsewhere.
Indiana Gas Company, Inc. and Southern Indiana Gas and Electric
Company, Inc., Indiana Energy's and SIGCORP's utility companies
will operate as separate subsidiaries of Vectren.
The merger is conditioned, among other things, upon the approvals
of the shareholders of each company and customary regulatory
approvals. On December 17, 1999, the merger was approved by the
shareholders of each company. On December 20, 1999, the Federal
Energy Regulatory Commission (FERC) issued an order approving the
proposed merger. In approving the merger, the FERC concluded that
the merger was in the public interest and would not adversely
affect competition, rates or regulation. The companies anticipate
that the remaining regulatory processes can be completed in the
first quarter of calendar 2000.
On December 15, 1999, the company announced that the board of
directors had approved a definitive agreement under which the
company will acquire the natural gas distribution business of
Dayton Power and Light Co., Inc. The acquisition, with a purchase
price of $425 million, is expected to be funded with a bank
facility which will be replaced over time with permanent
financing. This transaction is conditioned upon the approval of
several regulatory bodies. Management hopes to complete the
transaction by the end of the second quarter of 2000.
(c) Narrative Description of the Business.
During fiscal 1999, Indiana Gas supplied gas to about 500,000
residential, small commercial and contract (large commercial and
industrial) customers in 284 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 Indianapolis, it does serve the
counties and communities which border that city.
For the fiscal year ended September 30, 1999, residential
customers provided 66 percent of revenues, small commercial 23
percent and contract 11 percent. Approximately 99 percent of
Indiana Gas' customers used gas for space heating, and revenues
from these customers for the fiscal year were approximately 90
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, 1999, Indiana Gas
added approximately 11,400 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 1999
represented 43 percent (51,213 MDth) of throughput compared to 40
percent (45,598 MDth) in 1998 and 34 percent (41,874 MDth) in
1997. 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 as well as winter delivery service from ProLiance.
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 858 full-time employees and 34 part-time employees as of
September 30, 1999.
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 and non-regulated services
provider. See Item 7, Growth Strategy and Corporate
Restructuring.
Information concerning the operating segments of the company is
incorporated herein by reference to the Note 17 of the Notes to
the Consolidated Financial Statements, included in Item 8.
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, 1999,
such properties included 10,948 miles of distribution mains;
512,351 meters; five reservoirs currently being used for the
underground storage of purchased gas with approximately 71,484
acres of land held under storage easements; 7,310,173 Dth of gas
in company-owned underground storage with a daily deliverability
of 134,160 Dth; 171,451 Dth of gas in contract storage with a
daily deliverability of 3,563 Dth; and four liquefied petroleum
(propane) air-gas manufacturing plants with a total daily
capacity of 32,700 Dth of gas.
The company's capital expenditures during the fiscal year ended
September 30, 1999, amounted to $70.7 million.
Item 3. Legal Proceedings
See Item 8, Note 4 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 15 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, 1999, to a vote of security holders.
On December 17, 1999, the shareholders of the company approved
the merger between Indiana Energy, Inc. and SIGCORP, Inc.
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 65 None Indiana Energy, Inc.
Chairman and Chief (Retired May 31, 1999)*
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 (Retired May 31, 1999)*
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)
*Continues role as Chairman of the Board of Indiana Energy, Inc.,
Indiana Gas Company, Inc. and IEI Investments, Inc.
Niel C. Ellerbrook 50 None Indiana Energy, Inc.
President and Chief
Executive Officer June 1, 1999
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 and Chief Executive
Officer June 1, 1999
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 59 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 58 None Indiana Energy, Inc.
Senior Vice President 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 44 None Indiana Energy, Inc.
Senior Vice President
and Chief Financial Officer Jan. 27, 1999
Assistant Treasurer Jan. 9, 1989
IEI Investments, Inc.
President Oct. 1, 1997
Assistant Secretary and
Assistant Treasurer May 5, 1986
(through
Jan. 26, 1996)
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 49 None Indiana Gas Company, Inc.
Vice President of Operations
and Engineering Jan. 9, 1995
Vice President of Sales
and Field Operations Jan. 14, 1991
Ronald E. Christian 41 None Indiana Energy, Inc.
Vice President - General July 19, 1999
Counsel
Jerome A. Benkert 41 None Indiana Energy, Inc.
Vice President and Apr. 1, 1996
Controller
Controller Oct. 1, 1993
Indiana Gas Co., Inc.
Vice President and Apr. 1, 1996
Controller
Controller Oct. 1, 1993
IEI Services, LLC
Executive Vice President Oct. 1, 1997
and Chief Operating
Officer
(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 1998 and 1999 are shown in the following
table (as adjusted for the four-for-three stock split October 2,
1998):
Fiscal Year 1998 High Low Dividend
---------------- ----- ---- --------
First Quarter $25.69 $20.34 22 1/8(cent)
Second Quarter $24.66 $21.19 22 1/8(cent)
Third Quarter $23.81 $21.61 22 1/8(cent)
Fourth Quarter $25.13 $19.59 23 1/4(cent)
Fiscal Year 1999 High Low Dividend
---------------- ----- ---- --------
First Quarter $26.38 $21.50 23 1/4(cent)
Second Quarter $24.63 $18.94 23 1/4(cent)
Third Quarter $22.63 $18.06 23 1/4(cent)
Fourth Quarter $21.81 $19.63 24 1/4(cent)
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 1999, there were 8,474 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 1999 1998 1997(3) 1996 1995
- ----------------------- ----- ----- -------- -------- -----
Operating revenues $420,463 $466,434 $530,559 $543,426 $405,552
Operating expenses 350,997 397,466 493,808 461,739 339,980
Operating income 69,466 68,968 36,751 81,687 65,572
Other income 9,697 9,725 11,832 518 656
Interest expense 16,657 16,640 17,131 16,279 15,938
Income taxes 20,755 21,849 10,949 23,725 17,334
Net income $ 41,751 $ 40,204 $ 20,503 $ 42,201 $ 32,956
Basic and diluted
earnings per average share
of common stock (1) $ 1.40 $ 1.33 $ .68 $ 1.41 $ 1.10
Dividends per share of
common stock (1) $ .94 $ .90 $ .86 $ .83 $ .80
Common shareholders' equity $311,625 $303,705 $292,597 $296,322 $280,715
Long-term debt (2) 183,363 193,608 193,063 178,335 176,563
-------- -------- -------- -------- --------
$494,988 $497,313 $485,660 $474,657 $457,278
-------- -------- -------- -------- --------
Total Assets at Year-End $777,378 $717,130 $690,845 $682,463 $663,397
Total throughput (MDth) 118,065 114,795 122,846 126,742 109,508
Annual heating degree days as
a percent of normal 87% 86% 100% 108% 87%
Utility customers served -
average 500,203 488,771 477,235 465,166 454,817
(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 3).
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
non-regulated administrative services provider, IEI Services, LLC
(IEI Services), and its non-regulated subsidiaries and investments
grouped under IEI Investments, Inc. (IEI Investments).
The non-regulated operations of IEI Investments include IGC Energy,
Inc. (IGC Energy), Energy Realty, Inc. (Energy Realty), Energy
Financial Group, Inc. and IEI Financial Services, LLC, all
indirect, wholly-owned subsidiaries of Indiana Energy, and
interests in ProLiance Energy, LLC, Energy Systems Group, LLC,
Reliant Services, LLC, CIGMA, LLC, Haddington Energy Partners, L.P.
and Pace Carbon Synfuels Investors, L.P.
The company's growth strategy provides for growing the earnings
contribution from non-regulated operations to over 35 percent of
its total annual earnings by 2004, and aggressively managing costs
within its utility operations and the non-regulated administrative
services provider (see Growth Strategy and Corporate
Restructuring).
Earnings
Income and earnings per average share of common stock for the last
three fiscal years were as follows:
(Millions except per share amounts) 1999 1998 1997(1)
----------------------------------- ------ ------ -------
Indiana Gas $31.4 $30.9 $13.1
IEI Investments 6.6 6.3 7.4
IEI Services/Other (2) 3.8 3.0 -
---- --- --
Net Income $41.8 $40.2 $20.5
----- ----- -----
Earnings per share:
Indiana Gas $1.05 $1.03 $ .43
IEI Investments .22 .21 .25
IEI Services/Other (2) .13 .09 -
---- ---- --
Total $1.40 $1.33 $ .68
----- ----- ------
(1) Reflects restructuring costs at Indiana Gas of $24.5 million
after-tax or $.81 per common share (see Growth Strategy and
Corporate Restructuring) and the $1.3 million after-tax or
$.04 per common share due to recognition of ProLiance
earnings from prior periods at IEI Investments.
(2) IEI Services was formed in October 1997. For the fiscal year
1997, all functions provided by IEI Services are in Indiana
Gas.
Dividends
On July 30, 1999, the board of directors of the company increased
the quarterly dividend on common stock to 24 1/4 cents per share
from 23 1/4 cents per share. This resulted in total dividends paid
in 1999 of 94 cents compared to 90 cents in 1998. This is the 27th
consecutive year that the company's dividends paid on common stock
increased.
Utility Margin (Utility Operating Revenues Less Utility Cost of
Gas) In 1999, utility margin increased 4 percent ($8.7 million)
when compared to 1998. The increase is primarily attributable to
the addition of new residential and commercial customers, the lower
cost of unaccounted for gas and a one-time sale of native gas.
Weather for the year was 1 percent colder than the same period last
year and 13 percent warmer than normal.
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 the prior year and 14 percent warmer than
normal, offset somewhat by the addition of new residential and
commercial customers.
In 1999, total system throughput (combined sales and
transportation) increased 3 percent (3.3 MMDth) when compared to
last year. In 1998, throughput decreased 7 percent (8.1 MMDth) when
compared to 1997. 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 $3.01 in 1999, $3.65 in 1998 and $3.64 in
1997. The price changes are due primarily to changing commodity
costs in the marketplace.
Operating Expenses (excluding Cost of Gas)
Other operating expenses increased $3.2 million in 1999 when
compared to 1998. The increase is due in part to lease expense
related to buildings previously owned and costs related to the
implementation of the company's new customer information system.
These increases were partially offset by an adjustment to the
company's severance accrual associated with its 1997 restructuring
plan (see Growth Strategy and Corporate Restructuring).
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.
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 1999 and
1998 as the result of additions to plant to serve new customers and
to maintain dependable service to existing customers.
Taxes other than income taxes increased in 1999 due to higher
property tax expense, the result of additions to plant. Taxes other
than income taxes decreased in 1998 due to lower property tax
expense and reduced gross receipts tax expense.
Other Income
Equity in earnings of unconsolidated affiliates was $9.2 million in
1999, $7.2 million in 1998 and $8.7 million in 1997. Equity in
earnings consist primarily of earnings recognized from the
company's energy marketing affiliate, ProLiance Energy, LLC
(ProLiance). Pretax earnings recognized from ProLiance totaled $9.2
million, $7.4 million and $8.9 million for 1999, 1998 and 1997,
respectively. Earnings recognized in 1997 include $2.0 million of
ProLiance's 1996 earnings which had been previously reserved.
Other - net decreased when compared to the prior years due in part
to the loss on disposal of certain assets by IEI Services in 1999
and gains on the sale of assets in prior years.
Interest Expense
In 1999, interest expense was consistent with 1998. Interest
expense decreased in 1998 due to a decrease in interest rates,
partially offset by an increase in the average outstanding debt.
Income Taxes
Federal and state income taxes decreased for the year ended
September 30, 1999, when compared to prior periods due primarily to
the company realizing more tax credits from its investments in Pace
Carbon, affordable housing and historic rehabilitation projects.
Other Operating Matters
Agreement to Merge with SIGCORP, Inc.
On June 14, 1999, Indiana Energy and SIGCORP, Inc. (SIGCORP)
jointly announced the signing of a definitive agreement to combine
into a new holding company named Vectren Corporation (Vectren).
SIGCORP is an investor-owned energy and telecommunications company
that through its subsidiaries provides electric and gas service to
southwest Indiana and energy and telecommunication products and
services throughout the Midwest and elsewhere.
Under the agreement, Indiana Energy shareholders will receive one
share of Vectren common stock for each share of Indiana Energy held
at the closing date. SIGCORP shareholders will receive 1.333 shares
of Vectren common stock for each share of SIGCORP held at the
closing date. The transaction, which has been approved by the
boards of directors of both companies, is intended to be accounted
for as a pooling of interests. The transaction is also intended to
be a tax-free exchange of shares.
Indiana Gas Company, Inc. and Southern Indiana Gas and Electric
Company, Inc., Indiana Energy's and SIGCORP's utility companies,
will operate as separate subsidiaries of Vectren.
The merger is conditioned, among other things, upon the approvals
of the shareholders of each company and customary regulatory
approvals. On December 17, 1999, the merger was approved by the
shareholders of each company. On December 20, 1999, the Federal
Energy Regulatory Commission (FERC) issued an order approving the
proposed merger. In approving the merger, the FERC concluded that
the merger was in the public interest and would not adversely
affect competition, rates or regulation. The companies anticipate
that the remaining regulatory processes can be completed in the
first quarter of calendar 2000.
Subsequent Acquisition Agreement
On December 15, 1999, the company announced that the board of
directors had approved a definitive agreement under which the
company will acquire the natural gas distribution business of
Dayton Power and Light Co., Inc. The acquisition, with a purchase
price of $425 million, is expected to be funded with a bank
facility which will be replaced over time with permanent financing.
This transaction is conditioned upon the approval of several
regulatory bodies. Management hopes to complete the transaction by
the end of the second quarter of 2000.
Number-3CHK, Inc. was formed in December, 1999 to serve as the
vehicle for the acquisition of this business.
Growth Strategy and Corporate Restructuring
In April 1997, the Board of Directors of Indiana Energy approved a
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 2004. To achieve such earnings growth, Indiana
Energy's aim is to grow the earnings contribution from
non-regulated operations to over 35 percent of its total annual
earnings by 2004 and to aggressively manage costs within its
utility operations and non-regulated administrative services
provider, while not sacrificing a focus on safety and reliability.
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 the
fourth quarter of fiscal 1997 related to the involuntary
terminations planned under the company's specific near-term
employee reduction plan, which was scheduled for completion by the
end of fiscal 1999. These costs include separation pay in
accordance with Indiana Gas' severance policy of $3.9 million, and
net curtailment losses related to these employees' postretirement
and pension benefits. As a result of initial work force reductions
during September 1997 and primarily attrition thereafter, most of
the reductions contemplated during the two-year period and accrued
originally have been achieved. During the second quarter of fiscal
1999, the company reviewed its remaining accruals for costs
associated with the involuntary work force reductions. Taking into
consideration an unexpectedly high level of voluntary terminations,
the company determined that no additional significant involuntary
work force reductions were likely to occur. Prior to September 30,
1998, $2.2 million of involuntary termination benefits had been
paid. As a result, the severance accrual and other operating
expenses were reduced by $1.7 million during fiscal year 1999.
Indiana Gas' management also 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 the fourth quarter of
fiscal 1997 to adjust the carrying value of those assets to
estimated fair value. These assets have been sold or are no longer
in use.
As a result of the restructuring, the company has realized
reductions in 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 also is a power marketer which
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 review 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, the Citizens Action Coalition
of Indiana and a small group of large-volume customers. 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 was that because the gas supply agreements provide for
index based pricing of gas commodity sold by ProLiance to the
utilities, the gas supply agreements should have been the subject
of an application for approval of an alternative regulatory plan
under Indiana statutory law.
On April 22, 1999, the Indiana Supreme Court granted a petition for
transfer of the case and will now consider the appeal of the IURC's
decision and issue its own decision on the merits of the appeal at
a later date. By granting transfer, the Supreme Court has vacated
the Court of Appeals' decision.
If the Supreme Court reverses the IURC's decision, the case will be
remanded to the IURC for further proceedings regarding the public
interest in the gas supply agreements. If the Supreme Court affirms
the IURC's decision, as described above, the reasonableness of
certain of the gas costs incurred by Indiana Gas under the gas
supply agreements will be further reviewed by the IURC in the
consolidated GCA proceeding. The existence of significant benefits
to the utilities and their customers resulting from ProLiance's
services has not been challenged on appeal. Indiana Gas and
Citizens Gas are continuing to utilize ProLiance for their gas
supplies.
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 and ProLiance have provided all information
requested and management continues to believe that there are no
significant issues in this matter.
Indiana Gas continues to record gas costs in accordance with the
terms of the ProLiance contract and Indiana Energy continues to
record its proportional share of ProLiance's earnings. Pretax
earnings recognized from ProLiance totaled $9.2 million, $7.4
million and $8.9 million for 1999, 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, 1999, Indiana Energy has reserved approximately
$1.8 million of ProLiance earnings after tax. Total after-tax
ProLiance earnings recognized to date approximate $16.6 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. Based on the IURC's findings described above, 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.
In the first quarter of fiscal 2000, Indiana Energy will recognize
lower earnings due to the change in ProLiance's net position on
financial instruments held during September 1999 to hedge storage
inventories. This occurred subsequent to the current financials
because Indiana Energy records ProLiance earnings on a one-month
lag. ProLiance's loss for September 1999 was $5.2 million, of which
IEI will recognize a loss of $1.5 million after taxes in October
1999. Management believes, in future periods, gains on these
storage inventories will be recognized to fully offset the losses
that ProLiance incurred since sales commitments are already in
place.
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/briquettes (briquettes) 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 $7.3 million was paid through September 30,
1999) for an 8.3 percent ownership interest in the partnership. IEI
Synfuels has also agreed to advance up to $1.8 million against
future tax credits. In addition to its initial investment, IEI
Synfuels has a continuing obligation to invest up to approximately
$43 million, with any such additional investments to be funded
solely from a portion of the federal tax credits that are earned
from the production and sale of briquettes 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
briquettes, and (3) the briquettes 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 briquettes in an extended ramp up
mode. Further enhancements to the production process and project
upgrades are expected to be completed and in full production in
early calendar year 2000.
Generally, all briquettes produced through September 30, 1999 have
been sold. However, due to a deterioration in the United States
coal export market, domestic companies' coal supplies and
capacities are up, which in turn has reduced the demand and created
some price pressure for Pace Carbon's coal-based synthetic product.
Management does not believe that the extended time required to make
necessary production process enhancements nor the current coal
market conditions will significantly affect the long-term success
of the projects. Accordingly, management continues to believe that
significant project benefits, primarily in the form of tax savings
and tax credits realized, will be achieved in the future, however,
no assurance can be given.
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, has raised $77 million 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. In addition to Haddington's initial
investment in high deliverability gas storage, additional
investments, in line with their original plan, are expected to be
announced in early 2000. Through September 30, 1999, IEI
Investments had paid approximately $1.9 million of its commitment
in Haddington, with additional amounts to be paid as Haddington's
portfolio grows.
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 May
1999, Reliant purchased the assets of two Indianapolis-based
companies and began operations. The asset purchase was completed
after Cinergy received all necessary regulatory approvals. In
August 1999, Reliant entered the meter reading business as well.
Reliant is based in the Indianapolis area and is initially focusing
on serving electric, gas, telephone, cable and water companies in
Indiana, Ohio and Kentucky. Reliant's customer base includes major
utility companies in metropolitan areas in which it currently
operates. Through September 30, 1999, IGC Energy had invested
approximately $3.1 million in Reliant.
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 has taken the steps
necessary to ensure that these worst case scenarios are addressed
and any impact has been minimized.
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, were placed into service in
January 1999. These new systems, driven by the need for additional
functionality and business flexibility, are designed to be Year
2000 compliant and have been tested. Other maintenance and project
activities conducted in 1998 and 1999 and activities scheduled for
the remainder of 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 -
completed in 1998, (b) Strategy - completed in 1998 and (c) Design,
Implementation, Testing and Validation - completed in 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 have
been evaluated 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 been completed, and few compliance issues
were found. Software upgrades for equipment in the gas control
system were completed in July 1999.
The company has contacted its major vendors, suppliers and
customers to gather information regarding the status of their Year
2000 compliance. Although compliance issues identified from these
inquiries have been 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 has developed its contingency plan related to Year 2000
issues. This plan includes modifying the company's already existing
plans for business resumption, information technology disaster
recovery and gas supply contingencies, and considers, among other
things, alternate recovery locations, backup power generation,
adequate material supplies and personnel requirements. The
company's contingency plan was filed with the IURC on September 30,
1999. This plan will 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 were originally estimated at $1.5 million, which
included costs to replace certain existing systems sooner than had
been planned. At September 30, 1999, the company estimates that $.1
million remains to be expensed and that total expenditures for the
remedy of Year 2000 issues will approximate the original estimate.
Management believes that Year 2000 issues have been 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.
Indiana Gas has filed a complaint in Indiana state court to
continue its pursuit of insurance coverage from three insurance
carriers, with the trial scheduled for early 2000. As of September
30, 1999, Indiana Gas has recorded settlements from other insurance
carriers in an aggregate amount of approximately $15.5 million.
Subsequent to September 30, 1999, an agreement in principle has
been reached with one of these insurers.
These environmental matters have had no material impact on earnings
since costs recorded to date approximate insurance settlements
received. 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 and financial reporting, see Note 15 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 fiscal 1999, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures about Segments of
an Enterprise and Related Information (see Note 17 of the Notes to
Consolidated Financial Statements). 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.
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. In June 1999, the FASB issued SFAS 137,
which defers the effective date of SFAS 133. ProLiance utilizes
derivative instruments to manage pricing decisions, minimize the
risk of price volatility, and minimize price risk exposure in the
energy markets. The standard will be effective for ProLiance in
fiscal 2001. 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 63 percent of total capitalization at September 30,
1999. Although Indiana Energy currently has no long-term debt
outstanding, it is currently rated A+ by Standard & Poor's
Corporation.
Because of its current capital structure, the company does have the
ability to issue additional long-term debt, if necessary, to fund
non-regulated investments or for other corporate purposes. This is
particularly important as it relates to its growth strategy which
provides for expansion of both its regulated and non-regulated
operations.
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. During 1999, the company repurchased
270,333 shares with an associated cost of $5,975,000. During 1998,
56,533 shares were repurchased with an associated cost of
$1,189,000. No shares were repurchased in 1997. Of the 700,000
shares authorized, 281,067 shares remain available for repurchase
at September 30, 1999. The last purchase occurred on April 1, 1999,
and as a result of the signing of the merger agreement (see
Agreement to Merge with SIGCORP, Inc.), the company is not planning
any future repurchases.
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 57 percent of its total capitalization at September
30, 1999.
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 1998 and 1999, along with
estimated amounts for 2000 through 2002, is as follows:
Thousands 1998 1999 2000 2001 2002
------ ------ ------ ------ -----
Capital expenditures $ 66,000 $ 71,000 $ 60,000 $ 65,000 $ 65,000
Refinancing requirements
(including non-regulated) 95,000 10,000 - - 3,000
------- -------- - -- --------
$161,000 $ 81,000 $ 60,000 $ 65,000 $ 68,000
-------- -------- -------- -------- --------
The recently announced acquisition of the gas distribution business
of Dayton Power and Light Co, Inc. is not included in the above
capital expenditures. This acquisition, with a purchase price of
$425 million, is expected to be funded with a bank facility which
will be replaced over time with permanent financing (See Subsequent
Acquisition Agreement). The capital expenditures above do not
include the investment activities of the non-regulated segment.
Non-regulated investments totaled approximately $9.0 million and
$7.0 million for 1998 and 1999, respectively. While the company
does expect to make additional non-regulated investments in the
future, including the continuing obligation to invest in Pace
Carbon and Haddington as previously discussed, it cannot provide
estimates at this time.
Indiana Gas' long-term goal has been to internally fund at least 75
percent of its capital expenditure program. This has helped Indiana
Gas 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 1999, 59 percent of
Indiana Gas' capital expenditures were funded internally (i.e.,
from utility income less dividends plus charges to utility income
not requiring funds). In 1998, 64 percent of capital expenditures
were provided by funds generated internally.
In July 1999, Indiana Gas retired $10 million of 8.90% Notes.
In July 1999, Indiana Gas filed a registration statement with the
Securities and Exchange Commission which has become effective with
respect to $100 million in debt securities. Indiana Gas expects to
issue this debt pursuant to a medium-term note program, denominated
as Series G. The net proceeds from the sale of these new debt
securities will be used for general corporate purposes, including
repayment of long-term debt and financing of Indiana Gas'
continuing construction program.
On October 5, 1999, Indiana Gas issued $30 million in principal
amount of Series G Medium Term Notes bearing interest at 7.08% with
a maturity date of October 5, 2029.
Provisions under which certain of Indiana Gas' Series E, Series F
and Series G Medium-Term Notes were issued entitle the holders of
$137 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 four
years following 1999 totals $20 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, prepaid gas
delivery service 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. Effective in March 1999, Indiana Gas
implemented a $100 million commercial paper program. Indiana Gas'
commercial paper is rated P-1 by Moody's and A-1+ by Standard &
Poor's. Prior to March 1999, bank lines of credit were 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, Indiana Energy's merger
with SIGCORP and the formation of Vectren, 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, the formation of Vectren, and the acquisition
of the gas distribution business of Dayton Power & Light
Co., Inc.
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 7a. Quantitative and Qualitative Disclosures about Market Risk
Indiana Energy's (the company's) debt portfolio contains a
substantial amount of fixed-rate long-term debt and, therefore,
does not expose the company to the risk of material earnings or
cash flow loss due to changes in market interest rates.
ProLiance engages in energy hedging activities to manage pricing
decisions, minimize the risk of price volatility, and minimize
price risk exposure in the energy markets. ProLiance's market
exposure arises from storage inventory, imbalances and fixed-price
purchase and sale commitments which are entered into to support
ProLiance's operating activities. Currently ProLiance buys and
sells physical commodities and utilizes financial instruments to
hedge its market exposure. However, net open positions in terms of
price, volume and specified delivery point do occur. ProLiance
manages open positions with policies which limit its exposure to
market risk and require reporting potential financial exposure to
its management and its members. As a result of ProLiance's risk
management policies, Indiana Energy does not believe that
ProLiance's exposure to market risk will result in material
earnings or cash flow loss to the company.
At September 30, 1999, the company was not engaged in other
contracts which would cause exposure to the risk of material
earnings or cash flow loss due to changes in market commodity
prices, foreign currency exchange rates, or interest rates.
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 judgements, 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 Executive 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, 1999, and
1998, 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, 1999. 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, 1999,
and 1998, and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 1999,
in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Indianapolis, Indiana
October 29, 1999
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except earnings per share amounts)
Year Ended September 30
----------------------------------
1999 1998 1997
-------- -------- --------
Operating Revenues
Utility $419,061 $465,644 $530,407
Other 1,402 790 152
-------- -------- --------
420,463 466,434 530,559
-------- -------- --------
Operating Expenses
Cost of gas (See Note 1G) 215,691 269,487 322,141
Other operating 78,809 75,589 80,012
Restructuring costs (See Note 3) -- -- 39,531
Depreciation and amortization 40,612 37,655 35,162
Taxes other than income taxes 15,885 14,735 16,962
-------- -------- --------
350,997 397,466 493,808
-------- -------- --------
Operating Income 69,466 68,968 36,751
Other Income
Equity in earnings of unconsolidated
affiliates (See Note 4) 9,164 7,226 8,712
Other - net 533 2,499 3,120
-------- -------- --------
9,697 9,725 11,832
-------- -------- --------
Income Before Interest and Income Taxes 79,163 78,693 48,583
Interest Expense 16,657 16,640 17,131
-------- -------- --------
Income Before Income Taxes 62,506 62,053 31,452
Income Taxes 20,755 21,849 10,949
-------- -------- --------
Net Income $ 41,751 $ 40,204 $ 20,503
======== ======== ========
Average Common Shares Outstanding 29,848 30,116 30,107
Basic and Diluted Earnings per Average
Share of Common Stock $ 1.40 $ 1.33 $ 0.68
The accompanying notes are an integral part of these statements.
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Years Ended September 30
------------------------------------
1999 1998 1997
-------- -------- --------
Cash Flows from Operating Activities
Net income $ 41,751 $ 40,204 $ 20,503
-------- -------- --------
Adjustments to reconcile net income to cash
provided from operating activities -
Noncash restructuring costs -- -- 32,838
Depreciation and amortization 40,700 37,842 35,241
Deferred income taxes (480) 1,591 (12,618)
Investment tax credit (930) (930) (930)
Loss (gain) on sale or retirement of assets 730 (2,102) (2,923)
Undistributed earnings of unconsolidated affiliates (9,164) (7,226) (8,712)
-------- -------- --------
30,856 29,175 42,896
Changes in assets and liabilities -
Receivables - net (7,639) 13,890 (8,526)
Inventories 9,899 (272) 24,026
Accounts payable, customer deposits, advance
payments and other current liabilities (1,427) (12,568) 1,941
Accrued taxes and interest 7,340 (4,586) 4,530
Recoverable/refundable gas costs 462 16,573 (3,133)
Accrued postretirement benefits other than pensions 2,898 2,350 8,134
Prepaid gas delivery service (25,810) -- --
Other - net (3,230) (5,765) (4,491)
-------- -------- --------
Total adjustments 13,349 38,797 65,377
-------- -------- --------
Net cash flows from operations 55,100 79,001 85,880
-------- -------- --------
Cash Flows From (Required for) Financing Activities
Repurchase of common stock (5,975) (1,189) --
Sale of long-term debt -- 95,053 15,064
Reduction in long-term debt (10,245) (94,508) (336)
Net change in short-term borrowings 52,816 9,905 (4,236)
Dividends on common stock (27,905) (26,840) (25,787)
-------- -------- --------
Net cash flows from (required for) financing activities 8,691 (17,579) (15,295)
-------- -------- --------
Cash Flows From (Required for) Investing Activities
Capital expenditures (70,745) (66,030) (71,907)
Non-regulated investments in unconsolidated affiliates - net (7,272) (6,462) (1,650)
Cash distributions from unconsolidated affiliates 4,921 7,030 --
Proceeds from sale of assets -- 13,317 3,000
-------- -------- --------
Net cash flows from (required for) investing activities (73,096) (52,145) (70,557)
-------- -------- --------
Net increase (decrease) in cash (9,305) 9,277 28
Cash and cash equivalents at beginning of period 9,325 48 20
-------- -------- --------
Cash and cash equivalents at end of period $ 20 $ 9,325 $ 48
======== ======== ========
The accompanying notes are an integral part of these statements.
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
Assets
(Thousands)
September 30
---------------------
1999 1998
-------- --------
Current Assets
Cash and cash equivalents $ 20 $ 9,325
Accounts receivable, less reserves of
$733 and $900, respectively 16,895 10,939
Accrued unbilled revenues 8,136 6,453
Liquefied petroleum gas - at average cost 810 883
Gas in underground storage - at last-in,
first-out cost (See Note 1G) 9,501 19,373
Prepaid gas delivery service 25,810 --
Prepayments and other 13,479 9,056
-------- --------
74,651 56,029
-------- --------
Investments in Unconsolidated Affiliates 44,315 32,186
-------- --------
Utility Plant
Original cost 990,780 937,977
Less - accumulated depreciation and amortization 398,912 370,872
-------- --------
591,868 567,105
-------- --------
NonUtility Plant
Original cost 63,626 55,225
Less - accumulated depreciation and amortization 18,815 12,613
-------- --------
44,811 42,612
-------- --------
Deferred Charges (See Note 1K)
Unamortized debt discount and expense 11,954 12,954
Regulatory income tax asset 2,741 1,778
Other 7,038 4,466
-------- --------
21,733 19,198
-------- --------
$777,378 $717,130
======== ========
The accompanying notes are an integral part of these statements.
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
(Thousands)
September 30
---------------------
1999 1998
-------- --------
Current Liabilities
Maturities and sinking fund requirements of long-term debt $ 180 $ 10,119
Notes payable and commercial paper 86,521 33,705
Accounts payable 26,311 19,416
Refundable gas costs 11,192 10,730
Customer deposits and advance payments 14,713 19,229
Accrued taxes 12,860 4,728
Accrued interest 1,182 1,974
Other current liabilities 26,386 29,892
-------- --------
179,345 129,793
-------- --------
Deferred Credits and Other Liabilities
Deferred income taxes 60,931 60,448
Accrued postretirement benefits other than pensions 28,286 25,388
Unamortized investment tax credit 8,383 9,313
Other 5,625 4,994
-------- --------
103,225 100,143
-------- --------
Capitalization
Long-term debt (see schedule) 183,183 183,489
-------- --------
Common stock (no par value) - authorized 200,000
shares - issued and outstanding 29,787 and 30,064
shares, respectively 137,582 143,860
Less: Unearned Compensation - restricted stock grants 822 1,207
-------- --------
136,760 142,653
Retained earnings 174,865 161,052
-------- --------
Total common shareholders' equity 311,625 303,705
-------- --------
Total Capitalization 494,808 487,194
-------- --------
$777,378 $717,130
======== ========
The accompanying notes are an integral part of these statements.
INDIANA ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
Common Stock
--------------------------------------------------
Restricted
Stock Retained
(In thousands except shares) Shares Amount 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) (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 $143,350 $ (525) $152,972 $296,322
Net income 20,503 20,503
Common stock dividends ($.86 per share) (25,787) (25,787)
Common stock issuances for Executives' and
Directors' stock plans net of amortization 141,522 2,623 1,559 (1,064) 1,559
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 30,107,391 $146,498 $144,909 $ (1,589) $147,688 $292,597
Net income 40,204 40,204
Common stock dividends ($.90 per share) (26,840) (26,840)
Common stock issuances for Executives' and
Directors' stock plans net of amortization 12,809 (1,449) (1,067) 382 (1,067)
Common stock repurchases (56,533) (1,189) (1,189) (1,189)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 30,063,667 $143,860 $142,653 $(1,207) $161,052 $303,705
Net income 41,751 41,751
Common stock dividends ($.94 per share) (27,905) (27,905)
Common stock issue expense (33) (33)
Common stock issuances for Executives' and
Directors' stock plans net of amortization (5,950) (303) 82 385 82
Common stock repurchases (270,333) (5,975) (5,975) (5,975)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 29,787,384 $137,582 $136,760 $ (822) $174,865 $311,625
The accompanying notes are an integral part of these statements.
INDIANA ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF LONG-TERM DEBT
September 30
(In Thousands) 1999 1998
-------- --------
Unsecured Notes Payable - Utility
8.90% due July 15, 1999 $ - $ 10,000
5.75% Series F due January 15, 2003 15,000 15,000
6.36% Series F due December 6, 2004 15,000 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
9.375% due January 15, 2021 25,000 25,000
9.125%, Series A due February 15, 2021 7,000 7,000
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 20,000
6.75%,Series F due March 15, 2028 14,849 14,975
6.36%,Series F due May 1, 2028 10,000 10,000
6.55%,Series F due June 30, 2028 20,000 20,000
-------- --------
181,849 191,975
-------- --------
Unsecured Notes Payable - Non-regulated
Noninterest bearing note due August 1, 2005 564 633
Variable rate note due January 1, 2007 950 1,000
-------- --------
1,514 1,633
-------- --------
TOTAL LONG-TERM DEBT OUTSTANDING 183,363 193,608
Less: maturities and sinking fund requirements 180 10,119
-------- --------
TOTAL LONG-TERM DEBT OUTSTANDING $183,183 $183,489
======== ========
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
non-regulated administrative services provider, IEI Services, LLC,
its financing subsidiary, IEI Capital Corp. (Capital Corp.), and
its non-regulated subsidiaries and investments grouped under IEI
Investments, Inc. (IEI Investments).
Indiana Gas provides natural gas and transportation services to a
diversified base of customers in 284 communities in 48 of Indiana's
92 counties. The non-regulated operations of IEI Investments
include IGC Energy, Inc. (IGC Energy), Energy Realty, Inc. (Energy
Realty), Energy Financial Group, Inc. and IEI Financial Services,
LLC, all indirect wholly owned subsidiaries of Indiana Energy, and
interests in ProLiance Energy, LLC, Energy Systems Group, LLC,
Reliant Services, LLC, CIGMA, LLC, Haddington Energy Partners, L.P.
and Pace Carbon Synfuels Investors, L.P.
Investments in limited partnerships and less than majority-owned
affiliates are accounted for on the equity method.
B. Reclassifications
Certain reclassifications have been made to the prior periods'
financial statements to conform to the current year presentation.
These reclassifications have no impact on net income previously
reported.
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 4.3
percent, 3.9 percent and 4.1 percent for 1999, 1998 and 1997,
respectively.
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.
Depreciation for IEI Services is calculated applying the
straight-line method to the estimated useful life of the
appropriate asset.
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 1999 1998 1997
--------- ----- ----- -----
Interest (net of amount capitalized) $ 15,150 $ 15,598 $ 15,496
Income taxes $ 19,900 $ 24,730 $ 21,851
F. Revenues
To more closely match revenues and expenses, Indiana Gas records
revenues for all gas delivered to customers but not billed.
G. Gas in Underground Storage
Gas in underground storage at September 30, 1999, was $9.5 million
compared to $19.4 million at September 30, 1998. This decrease is
the result of the replacement of contract storage with increased
delivery services.
Based on the average cost of purchased gas during September 1999,
the cost of replacing the current portion of gas in underground
storage exceeded last-in, first-out cost at September 30, 1999, by
approximately $4.5 million.
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, over a period not to exceed two years 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 1999 and 1998, while an annual rate of 7.5
percent was used for 1997.
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 1999 1998 1997
--------- ----- ----- -----
AFUDC - borrowed funds $ 776 $ 766 $ 596
AFUDC - equity funds 376 371 487
---- ---- ------
Total AFUDC capitalized $1,152 $1,137 $1,083
------ ------ ------
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 1999 1998
------------------------------------------- ------- -------
Postretirement benefits other than pensions $ 891 $ 2,688
Unamortized debt discount and expense 10,639 11,388
Amounts due from customers - income
taxes net 2,741 1,778
Deferred acquisition costs 655 677
------- -------
$14,926 $16,531
------- -------
Regulatory Liabilities
Refundable gas costs $11,192 $10,730
------- -------
Of the above September 30, 1999 balances, $3.4 million is earning a
return, which is comprised of Amounts due from customers - income
taxes, net and Deferred acquisition costs.
The remaining net assets of $.3 million, while consisting of items
included in rates but not earning a return, are being recovered
over varying periods. Postretirement benefits other than pensions
will be fully recovered over less than one year. Unamortized debt
discount and expense will be recovered as discussed in Note 1D.
Refundable gas costs will be refunded as discussed in Note 1H.
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 such 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. Agreement to Merge with SIGCORP, Inc.
On June 14, 1999, Indiana Energy and SIGCORP, Inc. (SIGCORP)
jointly announced the signing of a definitive agreement to combine
into a new holding company named Vectren Corporation (Vectren).
SIGCORP is an investor-owned energy and telecommunications company
that through its subsidiaries provides electric and gas service to
southwest Indiana and energy and telecommunications products and
services throughout the Midwest and elsewhere.
Under the agreement, Indiana Energy shareholders will receive one
share of Vectren common stock for each share of Indiana Energy held
at the closing date. SIGCORP shareholders will receive 1.333 shares
of Vectren common stock for each share of SIGCORP held at the
closing date. The transaction, which has been approved by the
boards of directors of both companies, is intended to be accounted
for as a pooling of interests. The transaction is also intended to
be a tax-free exchange of shares.
Indiana Gas Company, Inc. and Southern Indiana Gas and Electric
Company, Indiana Energy's and SIGCORP's utility companies, will
operate as separate subsidiaries of Vectren.
The merger is conditioned, among other things, upon the approvals
of the shareholders of each company and customary regulatory
approvals. The companies anticipate that the regulatory processes
can be completed in the first quarter of calendar 2000. Transaction
and related costs incurred through September 30, 1999 were $2.7
million and have been deferred.
3. 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
were implemented through involuntary separation and attrition.
Indiana Gas recorded restructuring costs of $5.4 million during the
fourth quarter of fiscal 1997 related to the involuntary
terminations planned under the company's specific near-term
employee reduction plan, which was scheduled for completion by the
end of fiscal 1999. These costs include separation pay in
accordance with Indiana Gas' severance policy of $3.9 million, and
net curtailment losses related to these employees' postretirement
and pension benefits. As a result of initial work force reductions
during September 1997 and primarily attrition thereafter, most of
the reductions contemplated during the two-year period and accrued
originally have been achieved. During the second quarter of fiscal
1999, the company reviewed its remaining accruals for costs
associated with the involuntary work force reductions. Taking into
consideration an unexpectedly high level of voluntary terminations,
the company determined that no additional significant involuntary
work force reductions were likely to occur. Prior to September 30,
1998, $2.2 million of involuntary termination benefits had been
paid. As a result, the severance accrual and other operating
expenses were reduced by $1.7 million during fiscal year 1999.
Indiana Gas' management also 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 the fourth quarter of
fiscal 1997 to adjust the carrying value of those assets to
estimated fair value. These assets have been sold or are no longer
in use.
4. 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 also is a power marketer which
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 review 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, the Citizens Action Coalition
of Indiana and a small group of large-volume customers. 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 was that because the gas supply agreements provide for
index based pricing of gas commodity sold by ProLiance to the
utilities, the gas supply agreements should have been the subject
of an application for approval of an alternative regulatory plan
under Indiana statutory law.
On April 22, 1999, the Indiana Supreme Court granted a petition for
transfer of the case and will now consider the appeal of the IURC's
decision and issue its own decision on the merits of the appeal at
a later date. By granting transfer, the Supreme Court has vacated
the Court of Appeals' decision.
If the Supreme Court reverses the IURC's decision, the case will be
remanded to the IURC for further proceedings regarding the public
interest in the gas supply agreements. If the Supreme Court affirms
the IURC's decision, the reasonableness of certain of the gas costs
incurred by Indiana Gas under the gas supply agreements will be
further reviewed by the IURC in the consolidated GCA proceeding.
The existence of significant benefits to the utilities and their
customers resulting from ProLiance's services has not been
challenged on appeal. 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 and ProLiance have provided all information
requested and management continues to believe that there are no
significant issues in this matter.
Indiana Gas continues to record gas costs in accordance with the
terms of the ProLiance contract and Indiana Energy continues to
record its proportional share of ProLiance's earnings. Pretax
earnings recognized from ProLiance totaled $9.2 million, $7.4
million and $8.9 million for 1999, 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, 1999, Indiana Energy has reserved approximately
$1.8 million of ProLiance earnings after tax. Total after-tax
ProLiance earnings recognized to date approximate $16.6 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. Based on the IURC's findings described above, 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.
In the first quarter of fiscal 2000, Indiana Energy will recognize
lower earnings due to the change in ProLiance's net position on
financial instruments held during September 1999 to hedge storage
inventories. This occurred subsequent to the current financials
because Indiana Energy records ProLiance earnings on a one-month
lag. ProLiance's loss for September 1999 was $5.2 million, of which
IEI will recognize a loss of $1.5 million after taxes in October
1999. Management believes, in future periods, gains on these
storage inventories will be recognized to fully offset the losses
that ProLiance incurred since sales commitments are already in
place.
5. 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/briquettes (briquettes) 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 $7.3 million was paid through September 30,
1999) for an 8.3 percent ownership interest in the partnership. IEI
Synfuels has agreed to advance up to $1.8 million against future
tax credits. 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 to
be funded solely from a portion of the federal tax credits that are
earned from the production and sale of briquettes 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
briquettes, and (3) the briquettes 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 briquettes in an extended ramp up
mode. Further enhancements to the production process and project
upgrades are expected to be completed and in full production in
early calendar year 2000.
Generally, all briquettes produced through September 30, 1999 have
been sold. However, due to a deterioration in the United States
coal export market, domestic companies' coal supplies and
capacities are up, which in turn has reduced the demand and created
some price pressure for Pace Carbon's coal-based synthetic product.
Management does not believe that the extended time required to make
necessary production process enhancements nor the current coal
market conditions will significantly affect the long-term success
of the projects. Accordingly, management continues to believe that
significant project benefits, primarily in the form of tax savings
and tax credits realized, will be achieved in the future, however,
no assurance can be given.
6. 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, has raised $77 million 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. In addition to Haddington's initial
investment in high deliverability gas storage, additional
investments, in line with their original plan, are expected to be
announced in early 2000. Through September 30, 1999, IEI
Investments had paid approximately $1.9 million of its commitment
in Haddington, with additional amounts to be paid as Haddington's
portfolio grows.
7. 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 May
1999, Reliant purchased the assets of two Indianapolis-based
companies that will enable it to enter that market. The asset
purchase was completed after Cinergy received all necessary
regulatory approvals. In August 1999, Reliant entered the meter
reading business as well. 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. Through
September 30, 1999, IGC Energy had invested approximately $3.1
million in Reliant.
8. Short-Term Borrowings
Effective in March 1999, Indiana Gas implemented a $100 million
commercial paper program. Indiana Gas' commercial paper is priced
to the public at a rate determined by current money market
conditions. At September 30, 1999 Indiana Gas had approximately
$68.6 million outstanding.
In addition to Indiana Gas' $100 million committed facility for its
commercial paper program, Indiana Gas and Capital Corp. have an
aggregate $20 million line of credit. Capital Corp. also has an
additional $15 million line of credit. At September 30, 1999,
Capital Corp. had approximately $17.9 million outstanding. These
lines are renewable annually. Indiana Gas and Capital Corp.
compensate the participating banks with arrangements that vary from
no commitment fees to a combination of fees that are mutually
agreeable. Note payable to banks bore interest at rates negotiated
with the banks at the time of borrowing. Indiana Gas' Board of
Directors has authorized short-term borrowings of up to $150
million.
Bank loans and commercial paper outstanding during the reported
periods were as follows:
Thousands 1999 1998 1997
--------- ----- ----- -----
Outstanding at year end -
Bank loans $ 17,900 $ 33,705 $ 20,000
Commercial paper 68,621 - -
Weighted average interest rates at year end -
Bank loans 5.8% 5.6% 5.7%
Commercial paper 5.4% - -
Weighted average interest rates during the year -
Bank loans 5.4% 5.7% 5.5%
Commercial paper 5.3% - -
Weighted average total outstanding during the year $ 44,588 $ 32,293 $ 28,959
Maximum total outstanding during the year $ 86,521 $ 90,900 $ 89,725
9. Long-Term Debt
In July 1999, Indiana Gas retired $10 million of 8.90% Notes.
In July 1999, Indiana Gas filed a registration statement with the
Securities and Exchange Commission with respect to $100 million in
debt securities. Indiana Gas expects to issue this debt pursuant to
a medium term note program, denominated as Series G. The net
proceeds from the sale of these new debt securities will be used
for general corporate purposes, including repayment of long term
debt and financing of Indiana Gas' continuing construction program.
On October 5, 1999, Indiana Gas issued $30 million in principal
amount of Series G Medium Term Notes bearing interest at the per
annum rate of 7.08% with a maturity date of October 5, 2029.
Consolidated maturities and sinking fund requirements on long-term
debt subject to mandatory redemption during the five years
following 1999 (in millions) are $3.25 in 2002, $18.25 in 2003 and
$3.25 in 2004.
Provisions under which certain of Indiana Gas' Series E, Series F
and Series G Medium Term Notes were issued entitle the holders of
$137 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 (in millions) subject to the put provisions
during the five years following 1999 totals $5.0 in 2000, $11.5 in
2002 and $3.5 in 2004.
10. Fair Value of Financial Instruments
The estimated fair value of the company's financial instruments
were as follows:
September 30, 1999 September 30, 1998
------------------- -------------------
Carrying Fair Carrying Fair
Thousands Amount Value Amount Value
--------- ------ ------- ------- ------
Cash and cash equivalents $ 20 $ 20 $ 9,325 $ 9,325
Notes payable $ 86,521 $ 86,521 $ 33,705 $ 33,705
Long term debt (includes
amounts due within one year) $183,363 $175,872 $193,608 $210,503
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 and 1K). Accordingly, any reacquisition would not be expected to
have a material effect on the company's financial position or
results of operations.
11. Capital Stock
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. During 1999, the company repurchased
270,333 shares with an associated cost of $5,975,000. During 1998,
56,533 shares were repurchased with an associated cost of
$1,189,000. No shares were repurchased in 1997. Of the 700,000
shares authorized, 281,067 shares remain available for repurchase
at September 30, 1999. The last repurchase occurred on April 1,
1999, and as a result of the signing of the agreement to merge (see
Note 2), the company is not planning any future repurchases.
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. Grants under the plan are made annually and shares
issued are original issue shares of the company, carry
transferability restrictions and are subject to performance and
forfeiture provisions according to the terms of the plan. The
current vesting period for the shares is four years from the date
of grant. 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. Vesting in the shares occurs over the directors'
terms, which are three years. 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. The value of shares under
both the Executive and Directors' Restricted Stock Plans can also
be transferred to the company's Nonqualified Deferred Compensation
Plan once the restrictions on those shares have lifted. On the
completion of the merger, as discussed in Note 2, restrictions on
shares granted under the Executive Restricted Stock Plan and the
Directors Restricted Stock Plans will lift.
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, 1999, the shares of the company's stock reserved
for issuance under each of those plans were as follows:
Dividend Reinvestment and Stock Purchase Plan 450,764
Executive Restricted Stock Plan 388,706
Directors Restricted Stock Plan 54,994
Retirement Savings Plan 32,466
The company currently accounts for its Executive Restricted Stock
Plan under Accounting Principles Bulletin Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees, while applying the
disclosure requirements of Statement of Financial Accounting
Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation. The number and weighted-average grant-date fair value
of shares granted under the plan were as follows:
1999 1998 1997
----- ----- -----
Shares granted 15,238 14,303 73,789
Weighted-average fair value per
share at grant date $23.20 $20.26 $18.55
Compensation expense related to the Executive Restricted Stock Plan
totaled $751,188, $726,712 and $914,680 for 1999, 1998 and 1997,
respectively. Compensation expense recognized under APB 25 was not
different than it would be under SFAS 123.
Indiana Gas and Indiana Energy also each have 4 million 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, 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 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. Pursuant to
action by the Board of Directors in approving the merger, the
rights agreements will not be triggered by this transaction.
12. Retirement Plans 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 1999 1998 1997 1999 1998 1997
--------- ------ ----- ------ ------ ------ -----
Service cost $2,033 $1,417 $1,268 $ 882 $ 721 $ 770
Interest cost 4,913 4,966 4,847 3,136 3,199 3,311
Expected return
on plan assets (7,310) (6,757) (6,606) - - -
Amortization of
transition
obligation (asset) (316) (316) (309) 1,955 1,955 2,280
Amortization of
loss (gain)
and other 115 78 884 (132) 1,337 1,397
---- --- ---- ----- ------ ------
Net periodic
benefit cost $ (565) $ (612) $ 84 $5,841 $7,212 $7,758
------- ------ ------- ------ ------ ------
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 1999 1998 1999 1998
--------- ------ ------ ------ -----
Benefit obligation at
beginning of year $77,097 $65,977 $48,069 $ 42,883
Service cost 2,033 1,417 882 721
Interest cost 4,913 4,966 3,136 3,199
Actuarial loss
(gain) and other (9,525) 9,197 (5,772) 4,330
Benefits paid (4,715) (4,460) (2,944) (3,064)
-------- ------- ------- -------
Benefit obligation at
the end of the year 69,803 77,097 43,371 48,069
------- ------- ------- -------
Fair value of plan assets
at beginning of year 97,628 87,801 - -
Actual return on plan assets 8,179 14,194 - -
Employer contributions 119 93 2,944 3,064
Benefits paid (4,715) (4,460) (2,944) (3,064)
------- ------- ------- -------
Fair value of plan assets
at end of year 101,211 97,628 - -
------- ------- -- --
Funded status 31,408 20,531 (43,371) (48,069)
Unrecognized prior service cost 459 3,693 - -
Unrecognized net obligation
(assets) from transition (882) (1,198) 27,375 29,330
Unrecognized net (gain)
loss and other (26,192) (19,173) (12,290) (6,649)
------- ------- -------- -------
Net amount recognized $ 4,793 $ 3,853 $(28,286) $(25,388)
------- -------- -------- --------
Amounts recognized in the statement of financial position consist
of:
Pension Benefits Other Benefits
Thousands 1999 1998 1999 1998
--------- ------ ------ ------ -----
Prepaid benefit cost $ 7,885 $ 8,056 $ - $ -
Accrued benefit liability (4,477) (4,203) (28,286) (25,388)
Intangible asset 1,385 - - -
------ -- --- --
Net amount recognized $ 4,793 $ 3,853 $(28,286) $(25,388)
------- ------- -------- --------
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, $5,518 and $0, respectively as of
September 30, 1999, and $5,568 and $0, respectively as of September
30, 1998.
Weighted-average assumptions used in the accounting for these plans
were as follows:
Pension Benefits Other Benefits
Thousands 1999 1998 1999 1998
--------- ------ ------ ------ -----
Discount rate 7.50% 6.75% 7.50% 6.75%
Expected return
on plan assets 9.00% 9.00% n/a n/a
Rate of compensation
increase 5.00% 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, 1999, was 6.5% percent for
fiscal 2000. This rate is assumed to decrease gradually through
fiscal 2004 to 5.0 percent and remain at that level thereafter.
A 1.0 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 $ 70 $ ( 63)
Effect on the postretirement
benefit obligation $775 $ (701)
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 1999, 1998 and 1997, the company made
contributions, in thousands, to this plan of $1,555, $2,165 and
$2,360, respectively.
13. Commitments
Estimated capital expenditures for 2000 are $60 million. Lease
commitments, in millions, are $2.4 in 2000, $1.6 in 2001, $1.6 in
2002, $1.4 in 2003, $1.0 in 2004 and $3.7 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, in millions, was $2.8 in 1999, $1.7 in 1998 and $2.2
in 1997.
14. Income Taxes
The components of consolidated income tax expense were as follows:
Thousands 1999 1998 1997
--------- ----- ----- -----
Current:
Federal $20,496 $19,149 $21,459
State 3,184 2,879 3,368
------ ------ ------
23,680 22,028 24,827
------- ------- -------
Deferred:
Federal (476) 1,435 (11,678)
State (4) 156 (940)
--- ---- ---------
(480) 1,591 (12,618)
----- ------ -------
Amortization of investment tax credits (930) (930) (930)
----- ------- -------
Other tax credits realized (1,515) (840) (330)
------- ------- -------
Consolidated income tax expense $20,755 $21,849 $10,949
------- ------- -------
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 33.20 percent, 35.21 percent and
34.81 percent of pretax income for 1999, 1998 and 1997,
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 1999 were not
significant except investment tax credits which amounted to (1.5%)
and other tax credits which amounted to (2.4 %). Investment tax
credits were (1.5%) and (3.0%) for 1998 and 1997, 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, 1999, and 1998, are as follows:
Thousands 1999 1998
--------- ----- -----
Deferred tax liabilities:
Accelerated depreciation $ 51,988 $ 50,775
Property basis differences 6,713 6,435
Acquisition adjustment 5,908 6,097
Other (3,285) (6,792)
Deferred tax assets:
Deferred investment tax credit (3,180) (3,533)
Regulatory income tax asset 1,039 674
Less deferred income taxes related
to current assets and liabilities 1,748 6,792
------ ------
Balance as of September 30 $ 60,931 $ 60,448
-------- --------
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 investments in affordable housing and
historical rehabilitation projects from which federal tax credits
are being realized. Also, see Note 5 for a discussion of federal
tax credits associated with IEI Synfuels' investment in Pace
Carbon.
15. 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) has been completed at one
of the sites under an agreed order between Indiana Gas and the
Indiana Department of Environmental Management (IDEM), with a
Record of Decision (ROD) expected to be issued by IDEM by the end
of calendar year 1999. Although Indiana Gas has not begun an RI/FS
at additional sites, Indiana Gas has submitted several of the sites
to IDEM's Voluntary Remediation Program (VRP) and is currently
conducting some level of remedial activities including groundwater
monitoring at certain sites where deemed appropriate and will
continue remedial activities at 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 site specific remedial alternative, 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.
Indiana Gas has filed a complaint in Indiana state court to
continue its pursuit of insurance coverage from three insurance
carriers, with the trial scheduled for early 2000. As of September
30, 1999, Indiana Gas has recorded settlements from other insurance
carriers in an aggregate amount of approximately $15.5 million.
Subsequent to September 30, 1999, an agreement in principle has
been reached with one of these insurers.
These environmental matters have had no material impact on earnings
since costs recorded to date approximate insurance settlements
received. 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.
16. Affiliate Transactions
The obligations of Capital Corp., which handles financing for the
company and its non-regulated 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-regulated assets of the company
are available as recourse to holders of Capital Corp.'s securities.
The carrying value of such non-regulated assets reflected in the
consolidated financial statements of the company is approximately
$95 million at September 30, 1999.
ProLiance provides natural gas supply and related services to
Indiana Gas. Indiana Gas' purchases from ProLiance for resale and
for injections into storage for 1999, 1998 and 1997 totaled $231.9
million, $269.2 million and $306.1 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, 1999, totaled $4.75 million.
CIGMA, LLC provides materials acquisition and related services that
are used by the company. The company's purchases of these services
during 1999, 1998 and 1997 totaled $18.5 million, $21.3 million and
$9.6 million, respectively.
Reliant Services, LLC provides underground facilities locating,
construction and meter reading services that are used by the
company. The company's purchases of these services during 1999
totaled $1.0 million.
Indiana Energy is a one-third guarantor of certain surety bond
obligations of Energy Systems Group, LLC. Indiana Energy's share
totaled $11.1 million at September 30, 1999.
Amounts owed to affiliates totaled $20.8 million and $15.6 million
at September 30, 1999 and 1998, respectively, and are included in
Accounts Payable on the Consolidated Balance Sheets.
17. Segment Reporting
The Company adopted SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information" in 1999. SFAS No. 131
establishes standards for the reporting of information about
operating segments in financial statements and disclosures about
products, services and geographical areas. Operating segments are
defined as components of an enterprise for which separate financial
information is available and evaluated regularly by the chief
operating decision-makers in deciding how to allocate resources and
in the assessment of performance.
The operating segments of the Company are defined as: (1) Gas
Distribution, which provides local distribution and transportation
of natural gas to a diversified base of customers in 284
communities throughout Indiana, (2) Non-regulated operations, which
includes the various non-regulated subsidiaries and investments of
the Company, and (3) Administrative Services/Other, which provides
administrative, financial and technical services to Indiana Energy
and its subsidiaries.
The company's identified operating segments are strategic business
units that offer different products and services and which are
managed and aligned with the Company's strategic and financial
goals. The accounting policies of the identified segments are
consistent with those policies and procedures described in the
summary of significant accounting policies (See Note 1).
Intersegment sales are generally based on prices that reflect the
current market conditions.
Certain financial information relating to IEI's significant
segments of business is presented below:
Year Ended September 30 (in thousands) 1999 1998 1997(2)
--------------------------------------------------------------------------------------------------
Operating revenues:
Gas Distribution $419,061 $465,644 $530,407
Non-regulated Operations 1,824 1,050 99
Administrative Services/Other 31,050 25,679 -
--------------------------------------------------------------------------------------------------
Total $451,935 $492,373 $530,506
--------------------------------------------------------------------------------------------------
Interest expense:
Gas Distribution $ 16,012 $ 16,234 $ 16,774
Non-regulated Operations 158 294 357
Administrative Services/Other 1,496 624 -
--------------------------------------------------------------------------------------------------
Total $ 17,664 $ 17,152 $ 17,131
--------------------------------------------------------------------------------------------------
Income Taxes:
Gas Distribution (1) $ 16,967 $ 17,449 $ 7,852
Non-regulated Operations 1,460 2,510 2,928
Administrative Services/Other 2,336 1,829 (219)
--------------------------------------------------------------------------------------------------
Total $ 20,763 $ 21,788 $ 10,561
--------------------------------------------------------------------------------------------------
Net income:
Gas Distribution (1) $ 31,377 $ 30,883 $ 13,478
Non-regulated Operations 6,551 6,326 7,382
Administrative Services/Other 3,883 3,053 (357)
--------------------------------------------------------------------------------------------------
Total $ 41,811 $ 40,262 $ 20,503
-------------------------------------------------------------------------------------------------
Depreciation and amortization expense:
Gas Distribution $ 34,026 $ 32,353 $ 35,054
Non-regulated Operations 44 90 108
Administrative Services/Other 6,542 5,212 -
--------------------------------------------------------------------------------------------------
Total $ 40,612 $ 37,655 $ 35,162
--------------------------------------------------------------------------------------------------
Capital expenditures:
Gas Distribution $ 60,173 $ 57,335 $ 71,907
Non-regulated Operations - - -
Administrative Services/Other 10,572 8,695 -
--------------------------------------------------------------------------------------------------
Total $ 70,745 $ 66,030 $ 71,907
--------------------------------------------------------------------------------------------------
Identifiable assets:
Gas Distribution $682,524 $642,940 $667,401
Non-regulated Operations 48,915 45,322 41,687
Administrative Services/Other 67,972 53,525 -
-------------------------------------------------------------------------------------------------
Total $799,411 $741,787 $709,088
-------------------------------------------------------------------------------------------------
The following is a reconciliation to the financial statements:
Year Ended September 30 (in thousands) 1999 1998 1997
--------------------------------------------------------------------------------------------------
Operating revenues:
Total revenues for segments $451,935 $492,373 $530,506
Elimination of intersegment revenues (31,472) (25,939) 53
--------------------------------------------------------------------------------------------------
Total Consolidated Revenues $420,463 $466,434 $530,559
--------------------------------------------------------------------------------------------------
Interest expense:
Total interest expense for segments $ 17,664 $ 17,152 $ 17,131
Elimination of intersegment interest (1,007) (512) -
--------------------------------------------------------------------------------------------------
Total Consolidated Interest Expense $ 16,657 $ 16,640 $ 17,131
--------------------------------------------------------------------------------------------------
Income Taxes:
Total income taxes for segments $ 20,763 $ 21,788 $ 10,561
Elimination of intersegment income taxes (8) 61 388
--------------------------------------------------------------------------------------------------
Total consolidated income taxes $ 20,755 $ 21,849 $ 10,949
--------------------------------------------------------------------------------------------------
Net income:
Total net income for segments $ 41,811 $ 40,262 $ 20,503
Elimination of intersegment net income (60) (58) -
--------------------------------------------------------------------------------------------------
Total consolidated net income $ 41,751 $ 40,204 $ 20,503
--------------------------------------------------------------------------------------------------
Identifiable assets:
Total assets for segments $799,411 $741,787 $709,088
Elimination of intersegment assets (22,033) (24,657) (18,243)
--------------------------------------------------------------------------------------------------
Total consolidated assets $777,378 $717,130 $690,845
--------------------------------------------------------------------------------------------------
(1) In 1997, Gas Distribution reflects restructuring costs which
reduced income taxes by $15.0 million and net income by
$24.5 million.
(2) The Administrative Services segment was formed in October
1997. For the fiscal year 1997, all functions provided by
Administrative Services are included in Gas Distribution.
18. New Accounting Standards
For fiscal 1999, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures about Segments of
an Enterprise and Related Information (see Note 17). 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.
In June 1998, the FASB issued SFAS 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. In June 1999, the FASB
issued SFAS 137, which defers the effective date of SFAS 133.
ProLiance utilizes derivative instruments to manage pricing
decisions, minimize the risk of price volatility, and minimize
price risk exposure in the energy markets. SFAS 133 is now
effective for ProLiance in fiscal 2001. ProLiance has not yet
quantified the impact of adopting this statement on its financial
position or results of operations.
19. Summarized Financial Data (Unaudited)
Summarized quarterly financial data (in thousands of dollars except
per share amounts) for 1999 and 1998 are as follows:
1999: THREE MONTHS ENDED DEC. 31 MAR. 31 JUNE 30 SEP. 30
Operating revenues $125,241 $161,839 $72,470 $60,913
Operating income (loss) 23,812 44,107 6,409 (4,862)
Net income (loss) 14,276 28,103 3,383 (4,011)
Basic and diluted earnings (loss) per
average share of common stock $ .48 $ .94 $ .11 $ (.13)
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 $ .61 $ .77 $ .09 $ (.14)
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
The members of Board of Directors are:
Has Been a Director of
Name and Principal Occupation During the Past 5 Years and Indiana Gas or the Company
Business Location Age Other Information (1) Since
- ------------------------------------------------------------------------------------------------------------------------------------
Directors whose terms expire in 2000:
NIEL C. ELLERBROOK 50 President and Chief Executive Officer of the 1991
Indianapolis, Indiana Company since June, 1999: prior to that President
and Chief Operating Officer of the Company since
October 1997; prior to that time and
since January 1997, Executive Vice
President, Treasurer and Chief
Financial Officer; prior to that
time and since 1986, Vice President,
Treasurer and Chief Financial
Officer. President and Chief
Executive Officer of Indiana Gas
since June, 1999: prior to that
President of Indiana Gas since
October 1997; prior to that time and
since January 1997, Executive Vice
President and Chief Financial
Officer; and prior to that time and
since 1987, Senior Vice President
and Chief Financial Officer.
Mr. Ellerbrook is a Director of Indiana Gas and
IEI Investments. He is also a Director of Fifth
Third Bank, Indiana.
J. TIMOTHY MCGINLEY 59 Managing Partner and principal owner of House 1999
Indianapolis, Indiana Investments and House Investment Securities, Inc.
Mr. McGinley is also an Indiana Gas and IEI
Investments Director. He is also a Director of
Bindley Western Industries, Inc.
WILLIAM G. MAYS 53 President, Mays Chemical Company. Mr. Mays is an 1998
Indianapolis, Indiana Indiana Gas Director. He is also a Director of
Anthem, Inc.
JEAN L. WOJTOWICZ 42 President since 1983 and founder of Cambridge 1996
Indianapolis, Indiana Capital Management Corp. (a consulting and venture
capital firm). Ms. Wojtowicz is also an IEI
Investments Director. She is also a Director of
First Internet Bank of Indiana.
Has Been a Director of
Name and Principal Occupation During the Past 5 Years and Indiana Gas or the Company
Business Location Age Other Information (1) Since
- ------------------------------------------------------------------------------------------------------------------------------------
Directors whose terms expire in 2001:
PAUL T. BAKER 59 Executive Vice President and Chief Operating 1991
Indianapolis, Indiana Officer of Indiana Gas since October 1997; prior
to October 1997 and since 1991, Senior Vice
President and Chief Operating Officer of Indiana
Gas. Mr. Baker is also an Indiana Gas Director.
DON E. MARSH 61 Chairman, President, Chief Executive Officer and 1986
Indianapolis, Indiana Director of Marsh Supermarkets, Inc. Mr. Marsh is
also an IEI Investments Director. He is also a
Director of National City Bank, Indiana.
RICHARD P. RECHTER 60 Chairman of the Board of Rogers Group, Inc.; 1984
Bloomington, Indiana President, Chief Executive Officer and Director of
Rogers Management, Inc.; and President, Chief
Executive Officer and Director of Mid-South Stone,
Inc. Mr. Rechter is also an IEI Investments
Director. He is also a Director of Monroe County
Bank and Monroe Bancorp.
Has Been a Director of
Name and Principal Occupation During the Past 5 Years and Indiana Gas or the Company
Business Location Age Other Information (1) Since
- ------------------------------------------------------------------------------------------------------------------------------------
Directors whose terms expire in 2002:
L. A. FERGER 65 Chairman of the Company and Indiana Gas since June 1984
Indianapolis, Indiana 1999; prior to that and since October 1997,
Chairman and Chief Executive Officer
of the Company and Indiana Gas;
prior to that time and since January
1996, Chairman, President and Chief
Executive Officer of the Company and
Indiana Gas; and prior to that time
and since 1987, President and Chief
Executive Officer of the Company and
Indiana Gas. Mr. Ferger is also a
Director of Indiana Gas and IEI
Investments.
ANTON H. GEORGE 40 President since December 1989, and a Director of 1990
Indianapolis, Indiana Indianapolis Motor Speedway Corporation (auto
racing); and President since January 1994,
Executive Vice President since June 1989, and a
Director of Hulman & Company (manufacturer and
distributor of baking powder). Mr. George is also
an IEI Investments Director. He is also a
Director of First Financial Corporation.
JAMES C. SHOOK 68 Mr. Shook is a Director of The Shook Agency, Inc 1983
Lafayette, Indiana (residential, commercial and industrial real
estate brokerage and development), Crossmann
Communities, Inc. and a member of the advisory
board of Bank One Indiana N.A. Mr. Shook is also
an IEI Investments Director.
JOHN E. WORTHEN 66 President, Ball State University, Muncie, 1997
Muncie, Indiana Indiana. Mr. Worthen is an Indiana Gas Director.
He is also a Director of First Merchants Corp.
(1) Includes, but is not limited to, directorships in corporations with a class
of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, or which are subject to the requirements of
Section 15(d) of that Act or in a company registered as an investment
company under the Investment Company Act of 1940, as amended.
See Item 4a which is incorporated by reference into this Item 10 for information
concerning executive officers.
DIRECTORS' COMPENSATION
Non-employee directors of the Company and of Indiana Gas or Investments receive
combined fees totaling $21,000 per year for service on the boards of these
companies. The fees are paid under the Directors Restricted Stock Plan approved
by the shareholders at their January 13, 1992, meeting. Under the plan, $7,000
of the combined directors' fees paid by the Company and Indiana Gas or
Investments to non-employee directors is in the form of restricted shares of the
Company. The restricted shares are issued to each non-employee director at the
beginning of their three-year term, and the number of restricted shares is
determined by dividing $21,000 ($7,000 for each year) by the per share market
price of the Company's stock during the period specified in the plan. To receive
the restricted shares, a director must consent to the restrictions in writing.
Directors may elect to receive the remaining $14,000 in unrestricted shares or
in cash. To elect to receive unrestricted shares instead of cash, a director
must provide an irrevocable written election to the secretary of the Company
before the beginning of the calendar year for which the election relates.
Moreover, if during the calendar year a non-employee is elected to fill a
vacancy in the board of directors, under the plan, a one time election is
permitted to allow the director to receive the balance of that calendar year's
compensation in unrestricted shares.
Restricted shares may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution until the first to occur of: (1) the expiration of the director's
term of office for which the grant relates; (2) the grantee's death or
disability; (3) the termination of the grantee's status as a director pursuant
to the mandatory retirement policy for directors; (4) the involuntary
termination of the grantee's status as a director; (5) approval by a majority of
the other directors of the grantee's voluntary termination of his/her status as
a director because of the relocation of his/her principal place of residence
outside of Indiana; or (6) a change in control of the Company. In no event,
however, are the restricted shares transferable and free of restrictions before
the expiration of a six-month period beginning the first day of the director's
term of office or, if later, the date of issuance of the shares.
All restricted shares bear a legend citing the restrictions contained in the
plan. When the restrictions lapse, the grantee is entitled to have the legend
removed from any shares or certificates. Restrictions are lifted automatically
upon the expiration of the period to which the restrictions apply. On the
completion of the merger, as discussed in Note 2, restrictions on shares granted
under the Directors Restricted Stock Plans will lift. If a director voluntarily
terminates his/her status as such before the expiration of the period of
restriction, any shares still subject to restriction are immediately forfeited.
The Company has reserved 85,919 shares for grant under the plan. As of September
30, 1999, 54,994 shares remain in reserve. Those shares may consist of
authorized but unissued shares or shares reacquired by the Company, including
shares purchased in the open market. If any shares subject to the grants are
forfeited, the forfeited shares become available for reissuance under the plan.
The board may amend, modify, alter or terminate the plan at any time.
Amendments, modifications or alterations which would: (1) increase the number of
shares reserved for issuance under the plan, (2) materially modify the class of
individuals to whom grants of shares may be made, (3) materially modify the
manner in which shares are granted, or (4) materially increase the benefits
accruing to grantees under the plan, must be approved by the Company's
shareholders.
Non-employee directors also receive a fee of $500 for each Company board meeting
attended and $500 for each board meeting of Indiana Gas or Investments attended.
Each non-employee member of a committee of the board is paid a fee of $1,000 for
each meeting of the committee attended, and each non-employee chair of a
committee is paid a retainer of $3,000 and an additional fee of $500 for each
meeting attended.
There is a unfunded plan under which non-employee directors may defer all or any
part of fees received in cash until the occurrence of certain conditions
specified in the plan. Under the plan, which has been in place since January 1,
1999, at the election of the participant, amounts deferred are considered for
accounting purposes to be invested in one of several measurement funds,
including a company phantom stock fund, with returns measured pursuant to
formulas specified in the plan. Currently, the investment funds are consistent
with the investment funds available under the company's retirement savings plan.
This plan replaced a deferred compensation plan that had been in effect since
fiscal year 1995.
Item 11. Executive Compensation
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION
The following tabulation shows for the fiscal years ended September 30, 1997,
1998 and 1999, the compensation paid by the Company and its subsidiaries to each
of the six most highly compensated executive officers of the Company
(considering for this purpose Mr. Baker and Mr. Hewitt, who were executive
officers of Indiana Gas during the past fiscal year, to be executive officers of
the Company) in all capacities in which they served.
Summary Compensation Table
(a) (b) (c) (d) (e) (h) (i)
Long-Term
Compensation All Other
Annual Compensation Payouts Compensation
----------------------------------------------------------- ------------------- ---------------
Other Annual
Name and Principal Position in Compensation (2) LTIP Payouts (3)
Group Year Salary Bonus (1) (4)
- ---------------------------------- ---------------------- -------------------------------- ------------------- -------------------
L. A. Ferger, 1997 $396,692 $ 222,577 $ 55,052 $ 297,232 $39,225
Chairman and Chief Executive 1998 408,481 238,015 48,850 313,468 35,195
Officer (5) 1999 323,961 293,569 42,157 267,257 37,016
Niel C. Ellerbrook, President 1997 217,923 89,271 21,050 114,419 21,117
and Chief Operating Officer (6) 1998 284,054 107,508 19,658 0 21,053
1999 339,715 174,132 19,421 215,699 23,112
Paul T. Baker, 1997 257,785 118,561 20,134 99,068 28,991
Executive V.P. and Chief 1998 260,000 123,881 18,668 0 26,791
Operating Officer, Indiana Gas 1999 263,577 125,663 18,018 186,760 26,457
Anthony E. Ard, 1997 147,477 68,485 10,678 20,037
Sr. V.P. - Corporate Affairs 1998 149,304 71,526 9,421 58,102 19,068
and Secretary 1999 161,881 71,206 8,667 0 20,409
109,551
Timothy M. Hewitt, 1997 136,977 50,510 7,577 14,662
V.P. - Operations and 1998 143,175 53,772 6,810 41,739 15,243
Engineering, Indiana Gas 1999 152,154 54,853 6,407 0 16,871
78,667
Carl L. Chapman, 1997 0 62,519 12,557 81,664 0
Sr. V.P. & CFO 1998 87,115 0 9,768 0 7,406
President, Investments (7) 1999 207,885 28,500 9,965 153,932 18,695
(1) The amounts shown in this column are payments under the Annual Management
Incentive Plan. Amounts paid in any fiscal year are attributable to the
Company's performance in the prior fiscal year. The following payments (in
thousands) were earned in fiscal year 1999 and have been determined and
approved for distribution by the Company's compensation committee: L.A.
Ferger ($ 227);N. C. Ellerbrook ($204); Paul T. Baker ($ 123); Anthony E.
Ard ($ 77); Timothy M. Hewitt ($ 56) and, Carl L. Chapman ($ 120). These
payments will be shown in next year's summary compensation tables as fiscal
year 2000 Bonus. With the exception of the Chief Executive Officer, these
payments were determined based upon the company's financial performance as
determined by the consolidated return on equity relative to a peer group of
companies, and, with the exception of the Chief Executive Officer, the
achievement of individual performance objectives.
(2) The amounts shown in this column are dividends paid on restricted shares
issued under the Stock Plan relating to "Long-Term Incentive Compensation".
(3) The amounts shown in this column represent the value of shares issued under
the Executive Restricted Stock Plan (Stock Plan) and for which restrictions
were lifted in each of those fiscal years. For instance, the amounts shown
for fiscal year 1997 represent the value of one-third of the Third
Measuring Period shares, including the performance grant, issued under the
Stock Plan and for which restrictions were lifted as of September 30, 1997.
For fiscal year 1998, in contemplation of additional changes to the Stock
Plan, the board of directors approved an amendment to the Stock Plan to
postpone the lapsing of the restrictions on shares from September 30, 1998
until February 1, 1999. With the exception of L. A. Ferger, the executive
officers consented to the postponement of the lapsing of restrictions on
their respective shares; consequently, after 1998 this column only reflects
a value for the issuance of shares to Mr. Ferger under the Stock Plan.
After the lifting of those restrictions, the executive officers, as a
group, held 75,914 restricted shares, with an aggregate market value of
those shares as of that date of $1,522,835. Those shares continue to be
subject to restrictions imposed by the Stock Plan, and they represent
one-third of the initial grant of the Fourth Measuring Period shares, and
all of the initial grants of the Fifth and Sixth Measuring Periods. The
number and value of restricted shares held by each executive officer on
September 30, 1999, follows: L. A. Ferger - 31,528 shares, $632,452; Niel
C. Ellerbrook - 14,264 shares, $286,136; Paul T. Baker - 13,630 shares,
$273,418; Anthony E. Ard - 5,971 shares, $119,778; Timothy M. Hewitt -
4,484 shares, $89,949; and Carl L. Chapman - 6,037 shares, $121,102.
(4) The amounts shown in this column are Company contributions to the
Retirement Savings Plan and the dollar value of insurance premiums paid by,
or on behalf of, the Company and its subsidiaries with respect to
split-dollar life insurance for the benefit of executive officers.
(5) Mr. Ferger retired as Chief Executive Officer of the company and Indiana
Gas on May 31, 1999. He continues in his position as Chairman of the Board
of Directors Indiana Energy, Inc., Indiana Gas Company, Inc. and IEI
Investments, Inc..
(6) Mr. Ellerbrook was elected President and Chief Executive Officer of the
Company and Indiana Gas effective June 1, 1999.
(7) Mr. Chapman's compensation reflected in the table for fiscal year 1997
consists of compensation earned prior to, but paid in fiscal year 1997
(column d), dividends received on restricted stock (column e) and the
lifting of restrictions on stock previously granted (column h). Mr.
Chapman's compensation reflected in the table for fiscal year 1998, began
on May 1, 1998, when he ceased his employment with ProLiance and commenced
full-time employment as President of Investments.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
Estimated Future Payouts Under Non-Stock
Price-Based Plans
--------------------------------------------------
(a) (b) (c) (d) (e) (f)
Performance or Other
Periods Until Target
Number of Shares, Maturation or Payout Threshold Number of Maximum Number of
Name and Principal Position in Units or Other (2) Number of Shares Shares (5)
Group Rights (1) Shares (3) (4)
- ------------------------------------ --------------------- ---------------------- -------------- -------------- --------------------
L. A. Ferger,
Chairman and Chief Executive
Officer 3,664 - 0 3,664 7,328
Niel C. Ellerbrook,
President and Chief Executive
Officer 2,587 - 0 2,587 5,174
Paul T. Baker,
Executive V.P. and Chief Operating
Officer, Indiana Gas 1,681 - 0 1,681 3,362
Anthony E. Ard,
Sr. V.P. - Corporate Affairs and
Secretary 668 - 0 668 1,336
Timothy M. Hewitt,
V. P. - Operations and
Engineering, Indiana Gas 625 - 0 625 1,250
Carl L. Chapman,
Sr. V.P. & CFO,
President, Investments 2,457 - 0 2,457 4,914
(1) This column shows the restricted shares awarded during fiscal year 1999
under the Stock Plan. The market value of the shares on the dates of the
grants is determined according to a formula in the Stock Plan based on an
average price over a period of time preceding the grant. Dividends are paid
directly to the holders of the stock. Included is the initial grant of
shares for the Sixth Measuring Period.
(2) The granting of additional shares, if any, and the application of
forfeiture provisions depends upon certain measurements of the Company's
total return to shareholders in comparison to the total return to
shareholders of a predetermined group of comparable companies.
(3) The Sixth Measuring Period initial grant shares, which are included in the
total number of shares shown in column (b) and are also set forth in column
(e), are subject to forfeiture. If the Company's performance compared to
the peer group (peer group) during this measuring period places it in the
bottom quartile, the executive officers will forfeit all of the shares
granted for this period. For fiscal year, 1999, companies in the peer group
were as follows: AGL Resources Inc., Atmos Energy Corp., Cascade Natural
Gas Corp., CTG Resources, Inc., Eastern Enterprises, Energen Corp., Laclede
Gas Co., MCN Energy Group, Inc. (formerly MCN Corp.), National Fuel gas
Co., New Jersey Resources Corp., NICOR, Inc., NW Natural, NUI Corp.,
Pennsylvania Enterprises, Inc., Peoples Energy Corp., Piedmont Natural Gas
Co. Inc., Public Service Co. of North Carolina, Inc., South Jersey
Industries, Inc., SEMCO Energy, Inc., Southern Union Co., Southwest Gas
Corp., Southwestern Energy Co., UGI Corp., Washington Gas Light Co. and
WICOR, Inc. In fiscal year 1999, Bay State Gas Co. was removed from the
peer group, as it was merged out of existence. The companies to be included
in the peer group were determined by one of the company's investment
bankers and approved by the company's Compensation Committee.
(4) The Sixth Measuring Period initial grant shares, which are the same as the
total number of shares in column (b) are presented in this column. If the
Company's performance compared to the peer group during this measuring
period places it in the middle two quartiles, these shares will vest.
(5) Under the Stock Plan, if the Company's performance compared to the peer
group during the Sixth Measuring Period places it in the top quartile, an
additional performance grant equal to the original Sixth Measuring Period
grant will be made. In that event, the shares shown in column (e) will be
doubled.
LONG TERM INCENTIVE COMPENSATION
The purpose of the Stock Plan is to retain and motivate the Company's principal
officers and to increase their incentive to work toward the attainment of the
Company's long-term growth and profit objectives by providing them with a means
of acquiring or increasing their proprietary interests. Under the Stock Plan,
the compensation committee recommends to the board of directors, and the
non-employee directors determine the executive officers, as well as other
principal officers, to whom grants will be made and the percentage of each
officers base salary to be used for determining the number of shares to be
granted.
To be eligible for a grant, a principal must consent in writing to observe the
restrictions imposed on the shares. The shares may not be sold, transferred,
pledged, or assigned until restrictions are lifted. For the three-year grants
that were provided under the Stock Plan through the end of fiscal year 1997, the
restrictions are lifted in 33 1/3 percent increments on the fourth, fifth and
sixth anniversaries of the calendar day immediately preceding the first calendar
day of the measuring period. On the completion of the merger with SIGCORP, as
discussed in Note 2 to the Consolidated Financial Statements, restrictions on
shares granted under the Stock Plan will lift.
The granting of additional shares, if any, and the application of the forfeiture
provisions, depends upon two primary criteria: (i) certain measurements of the
total return of the Company's shareholders in comparison to the total return of
shareholders of the companies in the peer group: and (ii) the continued
employment of the officer during the period of the restriction.
Effective October 1, 1997, the Stock Plan was amended to provide that grants
would be provided on an annual basis instead of every three years. To reflect
the change from three-year grants, the percentage of the participant's annual
salary that is used to determine the grant is no longer subject to a multiplier
of three. Although grants will still be subject to a three year total return
performance measuring period, all of the restrictions will be lifted on the
fourth anniversary of the calendar day immediately preceding the first calendar
day of the measuring period applicable to that grant.
RETIREMENT SAVINGS PLAN
During the past fiscal year, the Company sponsored the Retirement Savings Plan,
which covers both bargaining and non-bargaining employees. In general, the
Savings Plan permits participants to elect to have not more than 19 percent of
their qualified compensation (subject to certain maximums imposed on highly
compensated employees by the Internal Revenue Code) invested on a tax-deferred
basis in shares of the Company's Common Stock or various investment funds.
Non-bargaining participants in the Savings Plan have matching Company
contributions made to the plan on their behalf equal to 100 percent of their
contributions not in excess of 6 percent of their individual redirected
compensation.
The Summary Compensation Table shows the value of contributions made to the plan
for executive officers in the column marked "All Other Compensation."
RETIREMENT PLANS
During the past fiscal year, the Company and Indiana Gas each sponsored a
defined benefit pension plan covering full-time employees of the Company and
certain of its subsidiaries, and of Indiana Gas, respectively, who meet certain
age and service requirements. The Company's plan covers salaried employees,
including executive officers, and provides fixed benefits at normal retirement
age based upon compensation and length of service, the costs of which are fully
paid by the employer and are computed on an actuarial basis. The pension plan
also provides for benefits upon death, disability and early retirement under
conditions specified therein. The remuneration covered by this plan includes all
compensation for regular work periods (excluding overtime, bonuses and other
forms of additional compensation).
On January 1, 1999, this plan was converted to a cash balance pension plan which
provides participants the opportunity to receive lump sum benefits in lieu of
fixed monthly benefits. The amount of the lump sum benefit is based on annual
accruals which relate to the participant's compensation. In order to ease the
transition of the plan conversion, the plan has special grandfather rules
applicable to participants at certain service levels and ages to avoid any
reduction in their benefits under the plan.
During the past fiscal year, the Company had a supplemental pension plan
covering the principal officers of the Company and its subsidiaries. The
supplemental pension plan provides fixed benefits at normal retirement age based
upon compensation and is computed on an actuarial basis. The supplemental
pension plan also provides for benefits upon death, disability and early
retirement under conditions specified therein, including service requirements.
This supplemental pension plan also provides a reduced benefit to a participant
who voluntarily terminates his employment with a participating employer (which
may consist of the Company or one or more of its subsidiaries) before normal
retirement age (65), but following a change in control of the Company. The
remuneration covered by the supplemental pension plan includes all compensation
for regular work periods (including incentive payments and other forms of
additional compensation).
Upon retirement at or after age 65, any participant in the supplemental pension
plan will, in general, be entitled to an annual pension for life which, when
added to primary Social Security benefits, defined benefit pension plan
benefits, described above, and benefits under the Retirement Savings Plan
attributable to contributions by participants' employers, will equal
approximately 65 percent of the participant's average annual compensation during
the 60 consecutive calendar months immediately preceding the participant's
retirement date. The amounts paid under the supplemental pension plan are
unfunded and are paid from the general assets of the Company.
The following table illustrates the estimated normal annual retirement benefits
payable to a covered participant retiring at age 65 under the supplemental
pension plan and under the defined benefit plan based on the specified
remuneration and under the Retirement Savings Plan attributable to contributions
made by the Company and, as pertinent, one or more of its subsidiaries. The
compensation included in the Summary Compensation Table under salary and
payments under the annual Incentive Plan qualifies as remuneration for purposes
of these plans. The amounts shown do not reflect reductions, which would result
from joint and survivor elections.
Pension Table
15 or More Years of Service (1)
Remuneration Level Amount of Benefits (2)
$125,000 $ 81,250
150,000 97,500
175,000 113,750
200,000 130,000
225,000 146,250
250,000 162,500
300,000 195,000
350,000 227,500
400,000 260,000
450,000 292,500
500,000 325,000
(1) The compensation covered by the plans includes the salary and incentive
payments shown on the Summary Compensation Table. Years of service are not
used in calculating the benefit amount under the Unfunded Supplemental
Retirement Plan. The amounts shown above are offset by Social Security and
benefits under the Retirement Savings Plan attributable to contributions
made by the Company and, as pertinent, one or more of its subsidiaries.
(2) Although the benefit attributable to the Savings Plan may be paid in a
single lump sum payment, it has been converted to an annual benefit for
purposes of this table. The estimated aggregate annual pension plan benefit
may be greater than the amounts in the table to the extent that the Savings
Plan benefit, after conversion to an annual benefit and when added to the
annual benefit under the applicable defined benefit plan, exceeds the
amount specified in the table. Since the Savings Plan has only been in
effect for a few years, it is unlikely in the near future that the
aggregated Savings Plan benefit and defined benefit plan benefits will
exceed the amount specified in the table.
EMPLOYMENT AND TERMINATION BENEFITS AGREEMENTS
The Company, with approval of the board of directors, has entered into three
year employment agreements with the executive officers listed in the Summary
Compensation Table. Each agreement continues unless notice of termination is
given be either party, in which event the agreement will terminate approximately
three years from the date of notice. The period between notice and termination
is defined as an "employment period" under each agreement. Each officer is
entitled to compensation consisting of the annual aggregate base salary or
salaries, and such additional compensation as the board determines throughout
the employment period. Each agreement is also subject to termination in the
event of disability, death, or voluntary retirement by the individual or his
termination for cause.
There is also additional termination benefits payable to the executives in the
event of their termination for reasons other than disability, death, voluntary
retirement or termination for cause. These termination benefits are payable
under the following conditions if the employment of an executive is terminated
during the employment period:
The Company terminates the employment of the executive for any
reason (other than for cause, death, the executive's attainment of
age 65, or the executive's disability): or
The executive voluntary terminates his employment for good reason
(as defined below): or
The executive voluntarily terminates his employment without reason
during the thirty day period immediately following the first
anniversary of an acquisition of control of the Company.
For purposes of the employment agreements, the term "good reason" before an
acquisition of control means a material breach of the employment agreement by
the Company. After an acquisition of control, the term "good reason" means any
material change in the terms of the executive's employment with the Company.
The benefits payable to the executive upon the early termination of the
employment period include a lump sum payment of the remaining salary payable to
the executive if he continued his employment for the duration of the employment
period, a minimum bonus or bonuses (determined based on his highest bonus
payable to the executive during the immediately preceding three years) for each
of the years, or portion thereof, remaining in the employment period and the
actuarial equivalent of any benefits which will not be earned by the executive
as a result of his termination before the completion of the employment period,
including benefits under nonqualified retirement and welfare plans maintained by
the Company. In addition, any restricted stock held by the executive will become
fully vested. Finally to the extent that payment of the benefits would result in
an excise tax payable by the executive under Section 280G of the Internal
Revenue Code, the Company will make an additional payment to the executive to
offset completely the effect of the excise tax.
The benefits described above apply to all executive officers listed in the
Summary Compensation Table other than Timothy M. Hewitt. Mr. Hewitt's benefits
are predicated upon a 24 month employment period versus a 36 month period. In
addition, Mr. Hewitt is not entitled to the gross-up payment, if applicable, for
any excise tax payable under the Internal revenue Code Section 280G.
Item 12. Securities Ownership of Certain Beneficial Owners and Management
The Company has one class of capital stock outstanding, consisting as of
November 30, 1999, of 29,804,590 shares of Common Stock without par value. The
number of shares contained in this report reflects adjustments for the
four-for-three stock split, which was approved by the board of directors on July
31, 1998, and became effective on October 2, 1998. The holders of the
outstanding shares of Common Stock are entitled to one vote for each share held
of record on each matter presented to a vote of the shareholders.
In connection with the Company's acquisition of Richmond Gas Corporation
("Richmond") and Terre Haute Gas Corporation ("Terre Haute"), shares of Common
Stock of the Company were issued to certain members of the Anton Hulman, Jr.
family, certain corporations controlled by them, certain trusts established for
their benefit and certain other persons with personal or business relationships
with the family (collectively, the "Hulman Interests"). At November 30, 1999,
the Hulman Interests beneficially owned an aggregate of 3,615,603 shares of the
Company, which comprised 12.13 percent of the Company's outstanding Common
Stock. At November 30, 1999, the following beneficial owners held more than 5
percent of the outstanding Common Stock of the Company, the only class of voting
securities outstanding:
Nature of
Title of Name and Address of Number of Shares Beneficial Percent
Class Beneficial Owner Beneficially Owned Ownership of Class
- --------------------------------------------------------------------------------
Common Hulman & Company 2,113,247 Voting & 7.09%
900 Wabash Avenue Investment
Terre Haute, Indiana 47807
As a result of the attribution to certain persons of shares held by Hulman &
Company, the following persons are deemed to be beneficial owners of more than 5
percent of the outstanding Common Stock of the Company:
Title of Name of Number of Shares Percent of
Class Beneficial Owner Beneficially Owned Class
---------- ---------------- ------------------ --------
Common Mari H. George 2,691,469 9.03%
Common Anton H. George 2,415,603 8.11%
Common Katherine M. George 2,122,133 7.12%
Common Laura L. George 2,415,603 8.11%
Common Nancy L. George 2,123,184 7.12%
Common M. Josephine George 2,119,193 7.11%
The number of shares held beneficially by Mari H. George, Anton H. George,
Katherine M. George, Nancy L. George and M. Josephine George each includes
2,113,247 shares held by Hulman & Company as to which each, as a director of
Hulman & Company, may be deemed to share voting power and investment power. The
number of shares held beneficially by Mari H. George and Anton H. George each
includes 289,864 shares held by Rose-Hulman Institute of Technology
("Rose-Hulman") as to which Anton H. George, as a member of the Investment
Management Committee of the Board of Trustees of Rose-Hulman, and as to which
Mari H. George, as a member of the Board of Trustees, may be deemed to share
voting power and investment power, and as to which each disclaims beneficial
ownership. Laura L. George is the wife of Anton H. George, and the shares listed
for her are those beneficially owned by Mr. George. Laura L. George disclaims
beneficial ownership of all such shares. The information furnished here
regarding beneficial ownership is derived from the Schedule 13D, as amended most
recently on June 29, 1994, filed by the Hulman Interests with the Securities and
Exchange Commission, and Forms 3, 4 and 5 filed through September 30, 1999. The
filing of the Schedule 13D by the Hulman Interests did not affirm the existence
of a "group" within the meaning of Section 13(d)(3) of the Securities Exchange
Act of 1934 or the regulations promulgated under it.
The following table sets forth the number of shares of Common Stock of the
Company beneficially owned by the directors, the chief executive officer, the
five additional named executive officers, and all directors and executive
officers as a group, as of September 30, 1999. Except as otherwise indicated,
each individual has sole voting and investment power with respect to the shares
listed below.
Name of Individuals or Identity of Group Shares Owned Beneficially (1)
---------------------------------------- -----------------------------
ANTHONY E. ARD 27,229 (2)(3)
Indianapolis, Indiana
PAUL T. BAKER 48,471 (2)
Indianapolis, Indiana
CARL L. CHAPMAN 21,054 (2)(4)
Indianapolis, Indiana
NIEL C. ELLERBROOK 49,021 (2)(5)
Indianapolis, Indiana
L. A. FERGER 137,529 (2)(7)
Indianapolis, Indiana
ANTON H. GEORGE 2,415,603 (1)(6)
Indianapolis, Indiana
TIMOTHY M. HEWITT 17,161 (2)(3)(4)
Indianapolis, Indiana
DON E. MARSH 9,287 (6)
Indianapolis, Indiana
WILLIAM G. MAYS 1,395 (6)
Indianapolis, Indiana
J. TIMOTHY MCGINLEY 2,311 (6)
Indianapolis, Indiana
RICHARD P. RECHTER 11,676 (3)(6)
Bloomington, Indiana
JAMES C. SHOOK 57,488 (6)(8)
Lafayette, Indiana
JEAN L. WOJTOWICZ 2,472 (6)
Indianapolis, Indiana
JOHN E. WORTHEN 1,574 (6)
Muncie, Indiana
All directors and executive officers 2,802,271 (1)
as a group (14 persons)
(1) Except for Anton H. George, no director or executive officer owned
beneficially as of September 30, 1999, more than .46 percent of Common
Stock of the Company. Excluding Anton H. George, all directors and
executive officers owned beneficially an aggregate of 386,668 shares or
1.30 percent of Common Stock of the Company outstanding as of that date.
The beneficial ownership by Anton H. George of 2,415,603 shares or 8.11
percent of Common Stock of the Company is discussed above in "Voting
Securities".
(2) Includes shares awarded to Messrs. Ard, Baker, Chapman, Ellerbrook, Ferger
and Hewitt under the Company Executive Restricted Stock Plan, which are
subject to certain transferability restrictions and forfeiture provisions.
(3) Some or all of the shares owned by Messrs. Ard, Hewitt and Rechter are
owned jointly with their wives.
(4) As of May 1, 1998, when he returned to Investments on a full-time basis,
Mr. Chapman resumed his status as a named executive officer of Company.
(5) Includes 1,170 shares held by Mr. Ellerbrook's wife, and he disclaims
beneficial interest therein.
(6) Includes shares granted to non-employee directors under the Company
Directors Restricted Stock Plan, some of which shares are subject to
certain transferability restrictions and forfeiture provisions.
(7) Includes 77,571 shares held in a family limited partnership, in which Mr.
Ferger is a general partner and owns limited partnership interests. Mr.
Ferger shares voting and investment power over these shares with his wife.
(8) Includes 2,000 shares held by Mr. Shook's wife, and he disclaims beneficial
interest therein.
MERGER AND RELATED MATTERS
At the time the merger agreement among SIGCORP, Indiana Energy and Vectren was
executed, Indiana Energy and SIGCORP entered into cross option agreements. See
Item 7 - Other Operating Matters for more information about this merger. The
first, entitled "SIGCORP Inc. Stock Option Agreement" grants an option to
Indiana Energy to purchase 4,702,483 SIGCORP common shares. The SIGCORP Option
Agreement provides for an exercise price of $29.70 per SIGCORP common share. The
second, entitled "Indiana Energy, Inc. Stock Option Agreement" grants an option
to SIGCORP to purchase 5,927,524 Indiana Energy common shares. The Indiana
Energy Option Agreement provides for an exercise price of $22.27 per Indiana
Energy common share. Neither Indiana Energy nor SIGCORP paid any consideration
in connection with the Option agreements other than the execution of the merger
agreement.
The Indiana Energy Option and the SIGCORP Option may be exercised at any time
after the merger agreement becomes terminable as a result of a "Trigger Event."
A Trigger Event is:
1) a material breach of any material representation or warranty or any
covenant or agreement under the merger agreement: or,
2) any one of the following,
the expiration of the merger agreement,
o receipt by a party of a competing bid which the board of
directors of that party determines must, in the exercise of their
fiduciary duties, be accepted,
o failure to obtain shareholder approval of the merger: withdrawal
or modification of the recommendation of the Indiana Energy board
or the SIGCORP board that the shareholders approve the merger,
o the acquisition by a third party of more than 25% of the voting
power of Indiana Energy or SIGCORP: or
o failure to approve replacement executive officers of Vectren if
the officers contemplated by the merger agreement are unable or
unwilling to serve, provided that in each case, Indiana Energy or
SIGCORP fails to reject a third party tender or exchange offer.
Upon exercise of the SIGCORP or the Indiana Energy Option, the exercising
company would own up to 16.6% of the outstanding common shares of the other
company.
The Indiana Energy and SIGCORP Option terminate upon the earliest of
the effective time of the merger;
the termination of the merger agreement for reasons other than a Trigger
Event; or
o 180 days following the termination of the merger agreement upon
or during the continuance of a Trigger Event (or if the option
cannot be exercised at the end of the 180 day period due to legal
action, until ten business days after the impediment is removed,
but in no event later than June 11, 2002).
Item 13. Certain Relationships and Related Transactions
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The disclosure contained in this Section is not required pursuant to Item 404 of
Regulation S-K. On December 29, 1995, IGC Energy, an indirect, wholly owned
subsidiary of the Company, entered into a subscription agreement to purchase an
interest in a limited partnership known as the Cambridge Ventures, L.P.
(Partnership) ("CVLP"). CVLP is licensed by the United States Small Business
Administration as a small business investment company. As such, CVLP operates as
a venture fund and invests in equities, debt securities with equity
participation and secured short and long-term loans; CVLP also participates in
other funds. IGC Energy has invested a total of $275,000 in CVLP, which
represents, in the opinion of the board of directors, a fair and reasonable
investment for IGC Energy. IGC Energy holds ten (10) out of the two hundred and
nineteen (219) partnership units that have been sold in CVLP as of December 31,
1997. On January 26, 1996, Jean L. Wojtowicz was elected to the board of
directors of the Company. Ms. Wojtowicz is also an Investments Director. Ms.
Wojtowicz owns six (6) units in CVLP.
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 - 1999,
1998 and 1997 Item 8
Consolidated Statements of Cash Flows - 1999,
1998 and 1997 Item 8
Consolidated Balance Sheets at September 30,
1999 and 1998 Item 8
Consolidated Statements of Common Shareholders'
Equity - 1999, 1998 and 1997 Item 8
Consolidated Schedules of Long-Term Debt
as of September 30, 1999 and 1998 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 - 1999, 1998 and 1997
(a)-3 Exhibits
See Exhibit Index
(b) Reports on Form 8-K
On July 30, 1999, Indiana Energy and 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, 1999. Items reported include:
Item 5. Other Events
Item 7. Exhibits
99 Financial Analyst Report - Third Quarter
1999
On October 29, 1999, 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, 1999.
Items reported include:
Item 5. Other Events
Item 7. Exhibits
99 Financial Analyst Report and Press
Release - Fourth Quarter 1999
On November 22, 1999, Indiana Energy and Indiana Gas filed a
Current Report on Form 8-K with respect to a analyst
teleconference call., held on November 21, 1999.
Item 5. Other Events
Item 7. Exhibits
99.01 Analyst script teleconference call
dated November 21, 1999
On December 15, 1999, Indiana Energy filed a Current Report on Form
8-K with respect to the signing of an Asset Purchase Agreement
between Indiana Energy and Dayton Power & Light Co., Inc. Items
reported include:
Item 5. Other Events
Item 7. Exhibits
99.1 Press release announcing Asset Purchase
Agreement dated December 15, 1999.
On December 15, 1999, Indiana Energy filed a Current Report on
Form 8-K with respect to an Analyst Call Script announcing the
signing of an Asset Purchase Agreement between Indiana Energy and
Dayton Power & Light Company.
Items reported include:
Item 5. Other Events
Item 7. Exhibits
99.1 Analyst Call Script for telephone
conference held December 15, 1999.
On December 16, 1999, Indiana Energy filed a Current Report on
Form 8-K with respect to the First Amendment to the Agreement and
Plan of Merger with SIGCORP, Inc. Items reported include:
Item 5. Other Events
Item 7. Exhibits
2 Amendment No. 1 dated December 14,
1999, to the Agreement and Plan of
Merger dated as of June 11, 1999,
among Indiana Energy, Inc., SIGCORP,
Inc. and Vectren Corporation.
On December 17, 1999 Indiana Energy filed a Current Report on Form
8-K announcing the results of the special shareholders meeting
held on December 17, 1999 to approve the merger of Indiana Energy,
Inc. and SIGCORP.
Item 5. Other Events
Item 7. Exhibits
99.1 Presentation schedules provided to
shareholders at special shareholders
meeting of December 17, 1999
On December 28, 1999, Indiana Energy filed a Current Report on Form
8-K with respect to the filing of the Asset Purchase Agreement with
Dayton Power and Light Co., Inc.and the execution of a commitment
letter pertaining to a 364-Day Revolving Credit Facility.
Item 5. Other Events
Item 7. Exhibits
2 Asset Purchase Agreement between
Indiana Energy, Inc., Dayton Power and
Light Company, and Number-3CHK dated
December 14, 1999
99.1 Commitment letter between Indiana
Energy, Inc and Merrill Lynch Capital
Corporation for a 364 -Day Revoloving
Credit Facility dated December 16,
1999.
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 29, 1999 /s/ Niel C. Ellerbrook
----------------------------------
Niel C. Ellerbrook, President 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/ Niel C. Ellerbrook President, Chief Executive December 29, 1999
- ----------------------- Officer and Director
Niel C. Ellerbrook
/s/ Carl L. Chapman Senior Vice President and
- ----------------------- Chief Financial Officer December 29, 1999
Carl L. Chapman
/s/ Jerome A. Benkert Vice President and Controller December 29, 1999
- -----------------------
Jerome A. Benkert
/s/ Lawrence A. Ferger Chairman and Director December 29, 1999
- -----------------------
Lawrence A. Ferger
/s/ Paul T. Baker Director December 29, 1999
- -----------------------
Paul T. Baker
/s/ Anton H. George Director December 29, 1999
- -----------------------
Anton H. George
/s/ Don E. Marsh Director December 29, 1999
- -----------------------
Don E. Marsh
/s/ William G. Mays Director December 29, 1999
- -----------------------
William G. Mays
/s/ J. Timothy McGinley Director December 29, 1999
- -----------------------
J. Timothy McGinley
/s/ Richard P. Rechter Director December 29, 1999
- -----------------------
Richard P. Rechter
/s/ James C. Shook Director December 29, 1999
- -----------------------
James C. Shook
/s/ Jean L. Wojtowicz Director December 29, 1999
- -----------------------
Jean L. Wojtowicz
/s/ John E. Worthen Director December 29, 1999
- -----------------------
John E. Worthen
EXHIBIT INDEX
Exhibit No. Description Reference
2-A Agreement and Plan of Merger dated as Exhibit 2 to Indiana
of June 11, 1999, among Indiana Energy, Energy's Current Report on
Inc., SIGCORP, Inc. and Vectren Form 8-K dated as of June
Corporation. 11, 1999, and filed as of
June 15, 1999.
2-B Amendment No.1, dated December 14, 1999 Exhibit 2 to Indiana
to Agreement and Plan of Merger (Set Energy's Current Report on
forth in 2-A, above) Form 8-K dated as of
December 16, 1999, and filed as of
December 16, 1999.
2-C Asset Purchase Agreement dated December Exhibit 2 and 99.1 to
14, 1999 between Indiana Energy, Inc., Indiana Energy, Inc.
Dayton Power and Light Co., Inc. and Current Report on Form 8-K
Number -3CHK with commitment letter for dated as of December 14,
364-Day Credit Facility dated December 1999 and filed as of
16, 1999 December 28, 1999.
3-A Amended and Restated Articles of Exhibit 3-A to Indiana
Incorporation. Energy's Quarterly Report
on Form 10-Q for the
quarterly period ended
December 31, 1997.
3-B Amended and Restated Code of By-Laws. Exhibit 3-A to Indiana
Energy's Quarterly Report on Form
10-Q for the quarterly period
ended March 31, 1997.
4-A Applicable provisions of Indiana Exhibit 3-A to Indiana
Energy's Amended and Restated Articles Energy's 1993 Annual
of Incorporation, as amended, as set Report on Form 10-K.
forth as Exhibit 3-A above.
4-B Amended and Restated Rights Agreement Exhibit 1 to Indiana Energy's
between Indiana Energy and Continental Amendment to its Registration
Bank, N.A. (Now First Chicago Trust Statement on Form 8-A, filed
Company of New York), as Rights Agent, June 17, 1996.
including form of Right 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, 1991, Exhibit 4(a) to Indiana Gas
between Indiana Gas and Continental Company, Inc.'s Current Report on
Bank, National Association. 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); Officer's
Certificate pursuant to Section
301 of the Indenture dated as of
August 13, 1999 (incorporated by
reference to Exhibit 4 to Indiana
Gas Company Inc.,'s Current Report
on Form 8-K dated August 13, 1999,
and filed August 17, 1999.)
4-D Indiana Energy, Inc. Stock Option Exhibit 4.1 to Indiana
Agreement dated as of June 11, 1999. Energy's Current Report on
Form 8-K dated as of June
11, 1999, and filed as of
June 15, 1999.
4-E SIGCORP, Inc. Stock Option Agreement Exhibit 4.2 to Indiana
dated as of June 11, 1999. Energy's Current Report on
Form 8-K dated as of June
11, 1999, and filed as of
June 15, 1999.
10-A Employment Agreement between Indiana Exhibit 10-A to Indiana
Energy, Inc. and Lawrence A. Ferger, Energy's Quarterly Report
effective January 1, 1999. on Form 10-Q for the
quarterly period ended
December 31, 1998.
10-B Employment Agreement between Indiana Exhibit 10-B to Indiana
Energy, Inc. and Niel C. Ellerbrook, Energy's Quarterly Report
effective January 1, 1999. on Form 10-Q for the
quarterly period ended
December 31, 1998.
10-C Employment Agreement between Indiana Exhibit 10-C to Indiana
Energy, Inc. and Paul T. Baker, Energy's Quarterly Report
effective January 1, 1999. on Form 10-Q for the
quarterly period ended
December 31, 1998.
10-D Employment Agreement between Indiana Exhibit 10-D to Indiana
Energy, Inc. and Anthony E. Ard, Energy's Quarterly Report
effective January 1, 1999. on Form 10-Q for the
quarterly period ended
December 31, 1998.
10-E Employment Agreement between Indiana Exhibit 10-E to Indiana
Energy, Inc. and Carl L. Chapman, Energy's Quarterly Report
effective January 1, 1999. on Form 10-Q for the
quarterly period ended
December 31, 1998.
10-F Employment Agreement between Indiana Exhibit 10-F to Indiana
Energy, Inc. and Timothy M. Hewitt, Energy's Quarterly Report
effective January 1, 1999. on Form 10-Q for the
quarterly period ended
December 31, 1998.
10-G Employment Agreement between Indiana Filed herewith.
Energy, Inc. and Jerome A. Benkert,
effective January 1, 1999.
10-H Employment Agreement between Indiana Filed herewith.
Energy, Inc. and Ronald E. Christian,
effective July 30, 1999.
10-I Indiana Energy, Inc. Unfunded Exhibit 10-G to Indiana
Supplemental Retirement Plan for a Energy's Quarterly Report
Select Group of Management Employees as on Form 10-Q for the
amended and restated effective December quarterly period ended
1, 1998. December 31, 1998.
10-J Indiana Energy, Inc. Nonqualified Exhibit 10-H to Indiana
Deferred Compensation Plan effective Energy's Quarterly Report
January 1, 1999. on Form 10-Q for the
quarterly period ended
December 31, 1998.
10-K Amendment to Indiana Energy, Inc. Executive Exhibit 10-I to Indiana
Restricted Stock Plan effective December Energy's Quarterly Report
1, 1998. on Form 10-Q for the
quarterly period ended
December 31, 1998.
10-L Indiana Energy, Inc. Annual Management Exhibit 10-D to Indiana
Incentive Plan effective October 1, Energy's 1987 Annual
1987. Report on Form 10-K.
10-M First Amendment to the Indiana Energy, Exhibit 10-Q to Indiana
Inc. Annual Management Incentive Plan Energy's 1998 Annual
(set forth in 10-L above) effective Report on Form 10-K.
October 1, 1997.
10-N Amendment to Indiana Energy, Inc. Directors' Exhibit 10-J to Indiana
Restricted Stock Plan, effective Energy's Quarterly Report
December 1, 1998. on Form 10-Q for the
quarterly period ended
December 31, 1998.
Exhibit No. Description Reference
10-O Fundamental Operating Agreement of Exhibit 10-B to Indiana
ProLiance Energy, LLC between IGC Energy's Quarterly Report
Energy, Inc. and Citizens By-Products on Form 10-Q for the
Coal Company, effective March 15, 1996. quarterly period ended
March 31, 1996.
10-P Formation Agreement among Indiana Exhibit 10-C to Indiana
Energy, Inc., Indiana Gas Company, Energy's Quarterly Report
Inc., IGC Energy, Inc., Indiana Energy on Form 10-Q for the
Services, Inc., Citizens Gas & Coke quarterly period ended
Utility, Citizens By-Products Coal March 31, 1996.
Company, Citizens Energy Services
Corporation, and ProLiance Energy, LLC,
effective March 15, 1996.
10-Q Gas Sales and Portfolio Administration Exhibit 10-C to Indiana
Agreement between Indiana Gas Company, Gas' Quarterly Report on
Inc. and ProLiance Energy, LLC, Form 10-Q for the
effective March 15, 1996, for services quarterly period ended
to begin April 1, 1996. March 31, 1996.
10-R Amended appendices to the Gas Sales and Exhibit 10-A to Indiana
Portfolio Administration Agreement between Gas' Quarterly Report on
Indiana Gas Company, Inc. and ProLiance Form 10-Q for the
Energy, LLC effective November 1, 1998. quarterly period ended
March 31, 1999.
10-S Amended appendices to the Gas Sales and Exhibit 10-V to Indiana
Portfolio Administration Agreement between Gas' 1999 Annual Report on
Indiana Gas Company, Inc. and ProLiance Form 10-K.
Energy, LLC, effective November 1, 1999.
10-T Indiana Energy, Inc. Executive Restricted Exhibit 10-O to Indiana
Stock Plan as amended and restated effective Energy, Inc.'s 1998 Annual
October 1, 1998 report on Form 10-K.
10-U Indiana Energy, Inc. Director's Restricted Exhibit 10-B to Indiana
Stock Plan as amended and restated effective Energy, Inc.'s Quarterly
May 1, 1997 Report on Form 10-Q for
the quarterly period ended
June 30, 1997.
21 Subsidiaries of Indiana Energy, Inc. Filed herewith.
23 Consent of Independent Public Accountants Filed herewith.
27 Financial Data Schedule Filed herewith.
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30
Col. A Col B. Col C. Col. D Col. E Col. F Col. G
Additions Deductions
For Purposes
Charged to For Which
Beginning Costs and Reserves Other Ending
Description Year Balance Expenses Other Were Created Changes Balance
RESERVE DEDUCTED FROM APPLICABLE ASSET
Reserve for uncollectible accounts 1997 $1,853 2,655 - 2,724 - $1,784
1998 $1,784 3,470 - 4,354 - $900
1999 $900 2,580 - 2,747 - $733
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 29, 1999. 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 29, 1999