-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UAkWzif6XWQ0k9AJ/zvVWmBLBa9dNEdpvPWeVjk6WcJDrIuczcJU1Hf+GsBi379z VptuSojI3j/mlDnU47CmmQ== 0000092195-98-000010.txt : 19981118 0000092195-98-000010.hdr.sgml : 19981118 ACCESSION NUMBER: 0000092195-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN INDIANA GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000092195 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 350672570 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03553 FILM NUMBER: 98752615 BUSINESS ADDRESS: STREET 1: 20 NW FOURTH ST CITY: EVANSVILLE STATE: IN ZIP: 47741-0001 BUSINESS PHONE: 8124655300 10-Q 1 SIGCORP, Inc. AND SOUTHERN INDIANA GAS AND ELECTRIC COMPANY FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 TABLE OF CONTENTS
Page No. PART I. FINANCIAL INFORMATION: Item 1: Financial Statements SIGCORP, Inc. Consolidated Statements of Income 2 Consolidated Statements of Cash Flows 3 Consolidated Balance Sheets 4-5 Consolidated Statements of Capitalization 6 Consolidated Statements of Retained Earnings 7 SOUTHERN INDIANA GAS AND ELECTRIC COMPANY Statements of Income 8 Statements of Cash Flows 9 Balance Sheets 10-11 Statements of Capitalization 12 Statements of Retained Earnings 13 NOTES TO FINANCIAL STATEMENTS OF SIGCORP, Inc. AND SOUTHERN INDIANA GAS AND ELECTRIC COMPANY 14-15 Item 2: Management's Discussion and Analysis of Results of Operations and Financial Condition 16-20 SIGCORP, Inc. AND SOUTHERN INDIANA GAS AND ELECTRIC COMPANY Part II.OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders 21 Item 5: Other information 21 Item 6: Exhibits and Reports on Form 8-K 21 Signatures 22
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SIGCORP, Inc. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 (in thousands except per share amounts) OPERATING REVENUES: Electric utility $ 87,928 $ 84,169 $230,681 $211,267 Gas utility 5,431 9,189 45,643 56,223 Energy services and other 40,676 15,437 132,087 34,485 Total operating revenues 134,035 108,795 408,411 301,975 OPERATING EXPENSES: Fuel for electric generation 19,500 17,952 51,970 47,703 Purchased electric energy 5,286 6,846 12,693 11,886 Cost of gas sold 1,102 2,824 26,743 34,096 Cost of energy services and other 39,731 14,898 128,757 33,488 Other operation expenses 15,748 13,199 49,877 43,928 Maintenance 7,433 5,571 24,298 19,599 Depreciation and amortization 10,700 10,089 32,074 30,246 Property and other taxes 2,978 2,789 9,938 9,464 Total operating expenses 102,478 74,168 336,350 230,410 OPERATING INCOME 31,557 34,627 72,061 71,565 INTEREST AND OTHER CHARGES: Interest on long-term debt 5,005 4,482 15,423 13,509 Interest expense on short-term debt 709 1,094 1,964 2,674 Amortization of premium, discount and expense on debt 169 168 506 503 Allowance for funds used during construction (210) (402) (927) (875) Preferred dividend requirements of subsidiary 274 274 823 823 Interest income (1,493) (1,205) (4,445) (2,802) Other, net (879) (776) (6,042) (1,770) Total interest and other charges 3,575 3,635 7,302 12,062 INCOME BEFORE INCOME TAXES 27,982 30,992 64,759 59,503 Federal and state income taxes 10,106 11,045 21,451 20,179 NET INCOME $ 17,876 $ 19,947 $ 43,308 $ 39,324 AVERAGE COMMON SHARES OUTSTANDING 23,631 23,631 23,631 23,631 BASIC EARNINGS PER SHARE OF COMMON STOCK $0.76 $0.84 $1.83 $1.66 DILUTED EARNINGS PER SHARE OF COMMON STOCK $0.75 $0.84 $1.82 $1.66 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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SIGCORP, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1998 1997 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 43,308 $ 39,324 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 32,074 30,246 Preferred dividend requirements of subsidiary 823 823 Deferred income taxes and investment tax credits, net (7,502) (1,903) Allowance for other funds used during construction 73 (430) Change in assets and liabilities: Receivables, net (including accrued unbilled revenues) 7,703 16,482 Inventories (11,465) (2,167) Accounts payable (9,583) (13,894) Accrued taxes 1,800 (317) Refunds from gas suppliers (364) (301) Refunds to customers 761 5,702 Other assets and liabilities 12,847 (3,369) Net cash provided by operating activities 70,475 70,196 CASH FLOWS FROM INVESTING ACTIVITIES Construction expenditures (net of allowance for other funds used during construction) (32,098) (39,950) Demand side management program expenditures (1,150) (2,003) Sale of leveraged lease investment 7,323 - Purchases of investments (1,940) (323) Sale of investments 80 160 Investments in partnerships and other corporations (2,979) (80) Change in nonutility property 1,395 (5,145) Other 20 207 Net cash used in investing activities (29,349) (47,134) CASH FLOWS FROM FINANCING ACTIVITIES First mortgage bonds (14,000) - Dividends paid (22,268) (23,237) Reduction in preferred stock and long-term debt (116) - Change in environmental improvement funds held by trustee (153) (158) Payments on partnership obligations (2,205) (2,276) Change in long-term notes payable 3,476 1,793 Other (103) 1,844 Net cash used in financing activities (35,369) (22,034) NET INCREASE IN CASH AND CASH EQUIVALENTS 5,757 1,028 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,827 9,192 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,584 $ 10,220 The accompanying notes to Consolidated Financial Statements are an integral part of these statements.
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SIGCORP, Inc. CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 1998 1997 (in thousands) ASSETS UTILITY PLANT, at original cost: Electric $1,142,559 $1,091,349 Gas 150,318 141,646 1,292,877 1,232,995 Less accumulated provision for depreciation 585,579 557,631 707,298 675,364 Construction work in progress 2,227 32,241 Net utility plant 709,525 707,605 OTHER INVESTMENTS AND PROPERTY: Investments in leveraged leases 35,641 42,964 Investments in partnerships and other corporations 21,936 19,076 Environmental improvement funds held by trustee 4,255 4,102 Notes receivable 16,937 21,404 Nonutility property and other 17,696 14,624 Total other investments and property 96,465 102,170 CURRENT ASSETS: Cash and cash equivalents 11,584 5,827 Temporary investments, at market 812 749 Receivables, less allowance of $2,478 and $328, respectively 48,553 52,496 Accrued unbilled revenues 18,559 22,320 Inventories 44,920 32,930 Current regulatory assets 8,933 11,749 Other current assets 2,192 3,250 Total current assets 135,553 129,321 OTHER ASSETS: Unamortized premium on reacquired debt 4,345 4,704 Postretirement benefits other than pensions 1,663 3,263 Demand side management programs 25,165 24,467 Allowance inventory 2,093 2,093 Deferred charges 16,200 16,273 Total other assets 49,466 50,800 TOTAL $ 991,009 $ 989,896 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
5 SIGCORP, Inc. CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 1998 1997 (in thousands) SHAREHOLDERS' EQUITY AND LIABILITIES CAPITALIZATION: Common Stock $ 78,258 $ 78,258 Retained Earnings 292,698 270,828 Total common shareholders' equity 370,956 349,086 Cumulative Nonredeemable Preferred Stock of Subsidiary 11,090 11,090 Cumulative Redeemable Preferred Stock of Subsidiary 7,500 7,500 Cumulative Special Preferred Stock of Subsidiary 808 924 Long-Term Debt, net of current maturities 249,541 273,707 Long-Term Partnership Obligations, net of current maturities 715 2,424 Total capitalization, excluding bonds subject to tender (see Consolidated Statements of Capitalization) 640,610 644,731 CURRENT LIABILITIES: Current Portion of Adjustable Rate Bonds Subject to Tender 53,700 31,500 Current Maturities of Long-Term Debt, Interim Financing and Long-Term Partnership Obligations: Maturing long-term debt 400 12,695 Notes payable 44,637 41,368 Partnership obligations 1,642 2,139 Total current maturities of long-term debt, interim financing and long-term partnership obligations 46,679 56,202 Other Current Liabilities: Accounts payable 38,158 47,741 Dividends payable 120 123 Accrued taxes 7,669 5,868 Accrued interest 6,628 5,216 Refunds to customers 1,553 1,155 Other accrued liabilities 21,375 17,866 Total other current liabilities 75,503 77,969 Total current liabilities 175,882 165,671 OTHER LIABILITIES: Accumulated deferred income taxes 139,801 146,218 Accumulated deferred investment tax credits, being amortized over lives of property 19,164 20,249 Postretirement benefits other than pensions 13,851 11,271 Other 1,701 1,756 Total other liabilities 174,517 179,494 TOTAL $991,009 $989,896 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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SIGCORP, Inc. CONSOLIDATED STATEMENTS OF CAPITALIZATION (Unaudited) September 30, December 31, 1998 1997 (in thousands) COMMON SHAREHOLDERS' EQUITY Common stock, without par value, authorized 50,000,000 shares, issued 23,630,568 shares $ 78,258 $ 78,258 Retained earnings, $2,194,121 restricted as to payment of cash dividends on common stock 292,698 270,828 Total common shareholders' equity 370,956 349,086 PREFERRED STOCK OF SUBSIDIARY Cumulative, $100 par value, authorized 800,000 shares issuable, in series: Nonredeemable 4.8% Series, outstanding 85,895 shares, callable at $110 per share 8,590 8,590 4.75% Series, outstanding 25,000 shares, callable at $101 per share 2,500 2,500 Total nonredeemable preferred stock of subsidiary 11,090 11,090 Redeemable 6.50% Series, outstanding 75,000 shares redeemable at $100 per share December 1, 2002 7,500 7,500 SPECIAL PREFERRED STOCK OF SUBSIDIARY Cumulative, no par value, authorized 5,000,000 shares, issuable in series: 8-1/2% series, outstanding 8,077 shares, redeemable at $100 per share 808 924 LONG-TERM DEBT, NET OF CURRENT MATURITIES First mortgage bonds 214,515 238,420 Notes payable 36,205 36,000 Unamortized debt premium and discount, net (1,179) (713) Total long-term debt 249,541 273,707 LONG-TERM PARTNERSHIP OBLIGATIONS, NET OF CURRENT MATURITIES 715 2,424 CURRENT PORTION OF ADJUSTABLE RATE POLLUTION CONTROL BONDS SUBJECT TO TENDER, DUE 2025, Series A, presently 3.65% 31,500 31,500 2030, Series C, presently 3.70% 22,200 - 53,700 31,500 TOTAL CAPITALIZATION, including bonds subject to tender $694,310 $676,231 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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SIGCORP, Inc. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Unaudited) Nine Months Ended September 30, 1998 1997 (in thousands) Balance Beginning of Period $270,828 $252,626 Net Income 43,308 39,324 314,136 291,950 Common Stock Dividends ($0.9075 per share in 1998 and $0.8850 per share in 1997) 21,438 20,960 Balance End of Period (See Consolidated Statements of Capitalization for restriction) $292,698 $270,990 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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SOUTHERN INDIANA GAS AND ELECTRIC COMPANY, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 (in thousands except per share amounts) OPERATING REVENUES: Electric utility $87,929 $84,167 $230,682 $211,267 Gas utility 5,430 9,190 45,644 56,223 Total operating revenues 93,359 93,357 276,326 267,490 OPERATING EXPENSES: Fuel for electric generation 20,551 17,952 54,449 47,703 Purchased electric energy 5,286 6,847 12,693 11,886 Cost of gas sold 1,101 2,824 26,743 34,096 Other operation expenses 14,164 12,358 44,261 40,405 Maintenance 7,402 5,536 24,182 19,479 Depreciation and amortization 10,632 10,029 31,897 30,087 Federal and state income taxes 9,926 11,340 22,094 22,374 Property and other taxes 2,921 2,748 9,696 9,226 Total operating expenses 71,983 69,634 226,015 215,256 OPERATING INCOME 21,376 23,723 50,311 52,234 OTHER INCOME: Allowance for other funds used during construction (65) 169 (73) 430 Interest 107 158 268 406 Other, net 65 110 1,559 753 Total other income 107 437 1,754 1,589 INCOME BEFORE INTEREST AND OTHER CHARGES 21,483 24,160 52,065 53,823 INTEREST AND OTHER CHARGES: Interest on long-term debt 4,165 4,482 13,290 13,509 Amortization of premium, discount and expense on debt 169 167 506 503 Other interest 720 429 1,669 1,064 Allowance for borrowed funds used during construction (275) (233) (1,000) (445) Total interest and other charges 4,779 4,845 14,465 14,631 NET INCOME 16,704 19,315 37,600 39,192 Preferred dividend 275 275 823 823 EARNINGS APPLICABLE TO COMMON STOCK $16,429 $19,040 $ 36,777 $ 38,369 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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SOUTHERN INDIANA GAS AND ELECTRIC COMPANY STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1998 1997 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net Income $37,600 $39,192 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,897 30,087 Deferred income taxes and investment tax credits, net (1,242) (2,177) Allowance for other funds used during construction 73 (430) Change in assets and liabilities: Receivables, net (including accrued unbilled revenues) 7,645 18,759 Inventories (11,242) (2,117) Accounts payable (4,812) (14,863) Accrued taxes (788) (351) Refunds from gas suppliers (364) (301) Refunds to customers 761 5,702 Other assets and liabilities 11,922 (4,651) Net cash provided by operating activities 71,450 68,850 CASH FLOWS FROM INVESTING ACTIVITIES Construction expenditures (net of allowance for other funds used during construction) (32,098) (39,950) Demand side management program expenditures (1,150) (2,003) Other (1,728) (285) Net cash used in investing activities (34,976) (42,238) CASH FLOWS FROM FINANCING ACTIVITIES First mortgage bonds (14,000) - Dividends paid (22,268) (23,236) Change in environmental improvement funds held by trustee (153) (158) Change in long-term notes payable 475 967 Other (109) 390 Net cash used in financing activities (36,055) (22,037) NET INCREASE IN CASH AND CASH EQUIVALENTS 419 4,575 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,114 3,127 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,533 $ 7,702 The accompanying notes to Consolidated Financial Statements are an integral part of these statements.
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SOUTHERN INDIANA GAS AND ELECTRIC COMPANY BALANCE SHEETS (Unaudited) September 30, December 31, 1998 1997 (in thousands) ASSETS UTILITY PLANT, at original cost: Electric $1,142,559 $1,091,349 Gas 150,317 141,646 1,292,876 1,232,995 Less accumulated provision for depreciation 585,579 557,631 707,297 675,364 Construction work in progress 2,227 32,241 Net utility plant 709,524 707,605 OTHER INVESTMENTS AND PROPERTY: Environmental improvement funds held by trustee 4,255 4,102 Nonutility property and other 1,562 1,552 Total other investments and property 5,817 5,654 CURRENT ASSETS: Cash and cash equivalents 1,533 1,114 Receivables, less allowance of $2,436 and $144, respectively 28,397 32,281 Accrued unbilled revenues 18,559 22,320 Inventories 43,746 32,504 Current regulatory assets 8,933 11,749 Other current assets 1,322 1,443 Total current assets 102,490 101,411 OTHER ASSETS: Unamortized premium on reacquired debt 4,345 4,704 Postretirement benefits other than pensions 1,663 3,263 Demand side management program 25,165 24,467 Allowance inventory 2,093 2,093 Deferred charges 14,825 15,266 Total other assets 48,091 49,793 TOTAL $ 865,922 $ 864,463 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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SOUTHERN INDIANA GAS AND ELECTRIC COMPANY BALANCE SHEETS (Unaudited) September 30, December 31, 1998 1997 (in thousands) SHAREHOLDERS' EQUITY AND LIABILITIES CAPITALIZATION: Common Stock $ 78,258 $ 78,258 Retained Earnings 243,902 228,570 Total common shareholders' equity 322,160 306,828 Cumulative Nonredeemable Preferred Stock of Subsidiary 11,090 11,090 Cumulative Redeemable Preferred Stock of Subsidiary 7,500 7,500 Cumulative Special Preferred Stock of Subsidiary 808 924 Long-Term Debt, net of current maturities 214,336 238,707 Total capitalization, excluding bonds subject to tender (see Consolidated Statements of Capitalization) 555,894 565,049 CURRENT LIABILITIES: Current Portion of Adjustable Rate Bonds Subject to Tender 53,700 31,500 Current Maturities of Long-Term Debt and Interim Financing: Maturing long-term debt 400 12,695 Notes payable 33,026 31,643 Notes payable to Associated Company 20,092 20,886 Total current maturities of long-term debt and interim financing 53,518 65,224 Other Current Liabilities: Accounts payable 22,254 27,066 Dividends payable 120 123 Accrued taxes 5,137 5,925 Accrued interest 6,113 4,635 Refunds to customers 1,553 1,155 Other accrued liabilities 18,568 16,018 Total other current liabilities 53,745 54,922 Total current liabilities 160,963 151,646 OTHER LIABILITIES: Accumulated deferred income taxes 114,335 114,493 Accumulated deferred investment tax credits, being amortized over lives of property 19,164 20,249 Postretirement benefits other than pensions 13,851 11,271 Other 1,715 1,755 Other liabilities 149,065 147,768 TOTAL $865,922 $864,463 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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SOUTHERN INDIANA GAS AND ELECTRIC COMPANY STATEMENTS OF CAPITALIZATION (Unaudited) September 30, December 31, 1998 1997 (in thousands) COMMON SHAREHOLDERS' EQUITY Common stock, without par value, authorized 50,000,000 shares, issued 15,754,826 shares $ 78,258 $ 78,258 Retained earnings, $2,194,121 restricted as to payment of cash dividends on common stock 243,902 228,570 Total common shareholders' equity 322,160 306,828 PREFERRED STOCK OF SUBSIDIARY Cumulative, $100 par value, authorized 800,000 shares issuable, in series: Nonredeemable 4.8% Series, outstanding 85,895 shares, callable at $110 per share 8,590 8,590 4.75% Series, outstanding 25,000 shares, callable at $101 per share 2,500 2,500 Total nonredeemable preferred stock of subsidiary 11,090 11,090 Redeemable 6.50% Series, outstanding 75,000 shares redeemable at $100 per share December 1, 2002 7,500 7,500 SPECIAL PREFERRED STOCK OF SUBSIDIARY Cumulative, no par value, authorized 5,000,000 shares, issuable in series: 8-1/2% series, outstanding 8,077 shares, redeemable at $100 per share 808 924 LONG-TERM DEBT, NET OF CURRENT MATURITIES First mortgage bonds 214,515 238,420 Notes payable 1,000 1,000 Unamortized debt premium and discount, net (1,179) (713) Total long-term debt 214,336 238,707 CURRENT PORTION OF ADJUSTABLE RATE POLLUTION CONTROL BONDS SUBJECT TO TENDER, DUE 2025, Series A, presently 3.65% 31,500 31,500 2030, Series C, presently 3.70% 22,200 - 53,700 31,500 TOTAL CAPITALIZATION, including bonds subject to tender $609,594 $596,549 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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SOUTHERN INDIANA GAS AND ELECTRIC COMPANY STATEMENTS OF RETAINED EARNINGS (Unaudited) Nine Months Ended September 30, 1998 1997 (in thousands) Balance Beginning of Period $228,570 $213,688 Net Income 37,600 39,192 266,170 252,880 Preferred Stock Dividends 823 823 Common Stock Dividends 21,445 22,413 22,268 23,236 Balance End of Period (See Consolidated Statements of Capitalization for restriction) $243,902 $229,644 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
14 SIGCORP, Inc. AND SOUTHERN INDIANA GAS AND ELECTRIC COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION SIGCORP, Inc. (SIGCORP) is a holding company incorporated October 19, 1994 under the laws of the state of Indiana. SIGCORP has nine wholly-owned subsidiaries: Southern Indiana Gas and Electric Company (SIGECO), a gas and electric utility which accounts for over 80% of SIGCORP's net income for the nine months ended September 30, 1998, and eight nonregulated subsidiaries. 2. GENERAL It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in SIGCORP's and SIGECO's 1997 Annual Report or Form 10-K. The consolidated statements include the accounts of SIGCORP, Inc. and its wholly-owned subsidiaries: Southern Indiana Gas and Electric Company (SIGECO), Southern Indiana Properties, Inc. (SIPI), Energy Systems Group, Inc. (ESGI), Southern Indiana Minerals, Inc. (SIMI), SIGCORP Energy Services, Inc. (Energy), SIGCORP Capital, Inc. (Capital), SIGCORP Communications, Inc. (Communications), SIGCORP Fuels, Inc. (Fuels) and SIGECO Advanced Communications, Inc. (Advanced Communications), and include all adjustments which are, in the opinion of management, necessary for a fair statement of the financial position and results of operations. Effective June 30, 1998, ComSource, Inc., a former subsidiary of SIGCORP, was merged into Advanced Communications. Because of seasonal and other factors, the earnings for the nine months ending September 30, 1998 should not be taken as an indication for all or any part of the balance of 1998. 3. CASH FLOW INFORMATION For the purposes of the Consolidated Balance Sheets and Consolidated Statements of Cash Flows, SIGCORP and SIGECO consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. SIGCORP, for the nine months ended September 30, 1998 and 1997, paid interest (net of amounts capitalized) of $14,973,000 and $12,127,000, respectively, and income taxes of $25,050,000 and $19,791,000, respectively. Additionally, SIGCORP is involved in several partnerships which are partially financed by partnership obligations amounting to $2,358,000 and $4,563,000 at September 30, 1998 and December 31, 1997, respectively. SIGECO, for the nine months ended September 30, 1998 and 1997, paid interest (net of amounts capitalized) of $12,480,000 and $11,040,000, respectively, and income taxes of $22,453,000 and $20,427,000, respectively. 4. LONG-TERM DEBT On March 25, 1998, SIGECO refunded the following four tax-exempt bond issues: * 1985 Series B Adjustable Rate Pollution Control Bonds, $31,500,000, at time of redemption a 4.05% interest rate, due 2015 * 1973 Series A Fixed Rate Pollution Control Bonds, $4,640,000, at a 5.6% interest rate, due 2003 * 1978 Series A Fixed Rate Pollution Control Bonds, $22,000,000, at a 6.05% interest rate, due 2008 * 1983 Series A Adjustable Rate Pollution control Bonds, $22,200,000, at time of redemption a 4.65% interest rate, due 2028 14 The above issues were refunded with the following bond issues: * 1998 Series A Adjustable Rate Pollution Control Bonds, $31,500,000, presently at a 3.65% interest rate, due 2025 * 1998 Series B Fixed Rate Pollution Control Bonds, $4,640,000, presently at a 4.4% interest rate, due 2020 * 1998 Series B Fixed Rate Pollution Control Bonds, $22,000,000, presently at a 4.4% interest rate, due 2030 * 1998 Series C Adjustable Rate Pollution Control Bonds, $22,200,000, presently at a 3.7% interest rate, due 2030 The interest rates on the 1998 Series A and C Adjustable Rate Pollution Control Bonds are fixed through February 28, 1999. The interest rates on the Series B Fixed Rate Pollution Control Bonds are fixed through February 28, 2003. The Series A and C Adjustable Rate Pollution Control Bonds are subject to tender on March 1, 1999 and accordingly, are presented as current liabilities on the financial statements. The Series B Fixed Rate Pollution Control Bonds are subject to tender March 1, 2003. In January 1998, SIGECO borrowed $20 million under a floating rate long term bank note, due April 1, 1999, and refunded an equal amount of short-term bank notes. The interest rate, presently 6.3%, will be reset every 90 days based upon the 90-day LIBOR plus 62.5 basis points. 5. EARNINGS PER SHARE The following table illustrates the basic and diluted earnings per share calculations:
Nine Months Ended Nine Months Ended September 30, 1998 September 30, 1997 Net Per Share Net Per Share Income Shares Amount Income Shares Amount (in thousands except for per share amounts) Basic EPS $43,308 23,631 $1.83 $39,324 23,631 $1.66 Effect of dilutive securities 107 52 Diluted EPS $43,308 23,738 $1.82 $39,324 23,683 $1.66 Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share were determined using the treasury stock method for dilutive stock options. 6. COMPREHENSIVE INCOME Effective January 1, 1998, SIGCORP adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which requires expanded disclosures regarding financial results. For all periods presented, there were no elements of comprehensive income other than net income. 16 SIGCORP, Inc. AND SOUTHERN INDIANA GAS AND ELECTRIC COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The consolidated financial statements of SIGCORP, Inc. (SIGCORP), an investor-owned holding company, include SIGCORP's principal subsidiary, Southern Indiana Gas and Electric Company (SIGECO), a regulated gas and electric utility, and eight nonregulated subsidiaries. The following discussion and analysis includes those factors which have, or may, materially affect the results of operations and financial condition of SIGCORP and its subsidiaries. This discussion includes forward looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements typically contain, but are not limited to the term "anticipate", "expect", "potential", "estimate" and similar words, and actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric and gas utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy market prices, legislative and regulatory changes including revised environmental requirements, availability and cost of capital, and other similar factors. RESULTS OF OPERATIONS Basic earnings per share were $.76 and $1.83, respectively, for the three month and nine month periods ending September 30, 1998 compared to basic earnings of $.84 and $1.66 per share, respectively, for the third quarter and first nine months of 1997. The factors effecting the changes in earnings follow:
Qtr 9 Mos Period ended September 30, 1997 $.84 $1.66 Weather .04 .11 Electric sales to other utilities and power marketers .06 .16 Utility O&M expense (.09) (.22) Utility depreciation expense (.02) (.05) Correction of unbilled gas revenues in September 1997 (.05) (.05) Nonregulated gas energy services and nonutility operations .02 .24 Other (.04) (.02) Period ended September 30, 1998 $.76 $1.83 Includes $.05 per share provision for uncollectible Federal Energy revenues in the second quarter of 1998.
REVENUES Third quarter electric revenues rose $3.8 million, or 4%, due primarily to an increase in retail electric sales and higher unit prices for power sales to other utilities and power marketers. Warmer temperatures, registering 32% warmer than a year ago (in terms of cooling degree days), were the primary reason for a 5% rise in residential electric sales during the third quarter. Combined with a 14% increase in sales to industrial customers, total electric sales to retail and municipal customers rose 8% compared to a year ago. The warmer weather, coupled with market supply constraints, held wholesale market power prices substantially higher, increasing average wholesale unit sales margins compared to the same period in 1997. SIGECO aggressively markets electric power to other utilities and many power marketers in the evolving deregulated wholesale power market. 17 The correction of SIGECO's unbilled gas revenues in September 1997 for the twelve-month period ended September 1997 was the chief cause of a $3.8 million (41%) decrease in gas revenues during the quarter ended September 30, 1998. The net effect of this adjustment was a $2.0 million increase in September 1997 revenues. In addition to the effect of the 1997 sales correction, gas sales during the third quarter of 1998 declined 25% due primarily to fewer sales of natural gas to SIGECO transportation customers compared to the third quarter of 1997. The greater activity of SIGCORP's natural gas marketing subsidiary, SIGCORP Energy Services (Energy), whose revenues were up $23.3 million, was the primary reason for a $25.2 million increase in energy services and other nonregulated revenues during the quarter ending September 30, 1998. For the nine month period ending September 30, 1998, electric revenues were $19.4 million (9%) greater than the same period a year ago due primarily to stronger system sales and to higher unit prices for power sales to other utilities and power marketers throughout the second and third quarters of 1998 which represented $7.8 million of the total revenue increase. Total electric sales were up 6% for the nine month period reflecting a 7% increase in sales to retail and municipal customers. Sales to other utilities and power marketers were comparable to the same period in 1997. Gas revenues declined $10.6 million (19%) for the current nine month period compared to a year ago due chiefly to 22% fewer gas sales resulting from much warmer temperatures throughout the period and fewer sales to commercial and industrial transportation customers and to the 1997 gas revenue adjustment. Revenues from Energy rose $92.7 million during the nine months ending September 30, 1998 from continued growth in sales and services throughout the period, accounting for the majority of the $97.6 million increase in energy services and other nonregulated revenues during the current period. OPERATING EXPENSES In total, costs for fuel for electric generation and purchased electric energy during the third quarter of 1998 were comparable to the same period in 1997, but rose $5.1 million during the first nine months of 1998 due to the increased electric sales and higher prices for wholesale market power purchased for resale. The decline in cost of gas sold, down $1.7 million and $7.4 million, respectively, during the current three month and nine month periods, reflects the decrease in gas sales during the same periods. The cost of energy services and other revenues, which was chiefly the cost of natural gas purchased for resale by Energy, rose $24.8 million during the third quarter and $95.3 million during the first nine months of 1998 compared to the same periods in 1997. Other operation expenses, were up $2.5 million (19%) in the third quarter. The major factor causing the increase was a $1.0 million reduction in SIGECO's provisions for potential claims and other anticipated costs during the third quarter of 1997 due to favorable resolution of these matters. The $5.9 million increase in other operation expenses for the nine month period in 1998 reflects a second quarter $2.0 million provision for potentially uncollectible revenues from a power marketer and higher operation expenses at SIGCORP's newer nonregulated subsidiaries. SIGCORP's maintenance expense was up $1.9 million (33%) during the third quarter of 1998 and $5.0 million (24%) for the nine month period due primarily to increased scheduled maintenance expenditures at SIGECO's generating plants. INTEREST AND OTHER CHARGES Total interest and other charges during the three months ending September 30, 1998, were comparable to the third quarter of 1997. During the first nine months of 1998, total interest and other charges declined $4.8 million due to substantially greater other nonutility income which included a first quarter $2.9 million after-tax gain on the sale of Southern Indiana Properties' ownership interest in a paper mill, the operation of the company's new SIGCORP Fuels, Inc. subsidiary and improved results of other nonutility subsidiaries. Increases in total interest expense reflected increased financial investment activities by Southern Indiana Properties, Inc. and the related costs. 18 EARNINGS Absent the adjustments recorded in the third quarter of 1997 for the correction of unbilled gas revenues and for the favorable resolution of potential claims and other anticipated costs, current quarter basic earnings would have equaled third quarter 1997 earnings. Earnings per share for the third quarter of 1998 decreased $.08 (10%) compared to the same period in 1997. Earnings were favorably impacted by the increased electric sales to retail and municipal customers, higher unit margins on sales to other utilities and power marketers and improved nonregulated operations, all of which were fully offset by the increase in SIGECO's scheduled maintenance and nonfuel operation expenses and higher depreciation expense. For the nine months ended September 30, 1998, earnings per share increased $.17 (10%) due to the stronger results from SIGCORP's non-utility operations, up $.24 per share during the period, which were partially offset by a $.07 per share decline in utility net income. ENVIRONMENTAL MATTERS In July 1997, the United States Environmental Protection Agency (USEPA) issued its proposed rule which revised the national ambient air quality standard for ozone by setting a lower concentration limit and changing measurement methods. In October 1997, the USEPA provided each state a proposed budget of allowed nitrogen oxide (NOx) emissions, a key ingredient of ozone, which requires a significant reduction of such emissions. An alliance of electric utilities, including SIGECO, from the Midwestern states have been working together to determine the most appropriate compliance strategy as an alternative to the USEPA proposal. The alliance submitted its proposal, which calls for a smaller, phased in reduction of NOx levels, to the USEPA and the Indiana Department of Environmental Management in June 1998. In July 1998, Indiana submitted its proposed plan to the USEPA in response to the USEPA's proposed new NOx rule and the emissions budget proposed for Indiana. The Indiana plan, which calls for a reduction of NOx emissions to a rate of 0.25 lb/mmBtu by 2003, is less stringent than the USEPA proposal but more stringent than the alliance proposal. The USEPA issued its final ruling on September 24, 1998, which was essentially unchanged from its July 1997 proposed rule, after considering all filed comments. The USEPA's final ruling is expected to be litigated in the federal courts. Several Midwestern states have already filed lawsuits against the USEPA regarding the ruling and more states are expected to soon file. The proposed NOx emissions budget for Indiana stipulated in the USEPA's final ruling requires a 36% reduction in total NOx emissions from Indiana. The ruling would require SIGECO to lower its system-wide emissions by approximately 70%. Depending on the level of system-wide emissions reductions ultimately required, and the control technology utilized to achieve the reductions, control equipment expenditures ranging from estimates of $10 million to $90 million could be required by SIGECO. If SIGECO would be required to achieve the level of NOx reductions stipulated in the USEPA ruling, the estimated construction cost of the control equipment could reach $90 million, and related additional operation and maintenance expenses are estimated to be $10 million, annually. Under the USEPA implementation schedule, the emissions reductions and required control equipment must be implemented and in place by May 15, 2003. (Refer to "Environmental Matters" in Management's Discussion and Analysis of Results of Operations and Financial Condition in SIGCORP's 1997 Form 10-K for further discussion.) YEAR 2000 COMPLIANCE ISSUES AND RELATED COSTS SIGCORP is using one of the standard planning processes to evaluate the IT systems and imbedded technology of non-IT equipment of its subsidiaries for Year 2000 compliance and to address the resulting issues. A Year 2000 team was established in 1997 to administer this process, led by an internal Year 2000 project manager. In 1998, this process became more formalized with the establishment of SIGCORP's Year 2000 Compliance Task Force. A high-level assessment of the mission-critical systems and items of all SIGCORP subsidiaries was completed at the beginning of 1997. SIGECO has completed its high level assessment and detailed inventory of all mission-critical systems and devices for testing for noncompliance, which includes imbedded 19 technology in the operational areas of SIGECO. Such testing is currently being conducted and is expected to be completed by June 30, 1999. SIGECO's noncompliant critical information systems are being replaced by two major information systems projects, the customer billing and financials/supply chain systems initiated in 1996 and 1997, respectively, to address functional obsolescence, and are expected to be completed by the third quarter of 1999. Of the two noncompliant critical information systems being replaced, the customer billing system carries the most risk since it has experienced project delays and problems with the supplying vendor. Due to the risk of not completing this project by 2000, SIGECO initiated its contingency plan in the second quarter of 1998 to modify its existing customer billing system to be Year 2000 compliant. The upgrade is expected to be completed in the first quarter of 1999 at a cost of less than $400,000. In a worst-case scenario, in which the new system would not be completed by 2000 and the existing system could not be upgraded in time, SIGECO would outsource the preparation of its customer bills. The first and largest phase of the financials/supply chain systems project was successfully implemented September 1, 1998. Although the second and final phase of the financials/supply chain systems project, the payroll/HR information system, is expected to be completed on schedule by mid-1999, SIGECO will monitor the status of this project and if necessary, modify the singular noncompliant component of its existing financials system during 1999 for use in 2000. Based on the findings of the detailed inventory and testing completed to date, it is anticipated that there will be a low number of smaller noncritical systems and items also requiring compliance upgrades or replacement at a projected cost of $500,000, to be performed in 1999. Critical suppliers and other external dependencies are currently being evaluated. SIGCORP does not yet know whether the critical systems of its suppliers and major customers will be year 2000 compliant, however it believes that noncompliance of such systems would not have a material adverse effect on its financial position or results of operation. SIGCORP does not expect the amounts required to be expensed during 1998 and 1999 for the above Year 2000 compliance modifications and replacements, estimated to be $2.0 million, to have a material effect on its financial position or results of operations. SIGECO expects to complete the replacement of both mission-critical noncompliant information systems before 2000; if, however, the new customer billing system is not implemented before 2000, its existing billing system will have been modified for compliance and will be used until the new system is completed.
Estimated Incurred through to September 30, 1998 complete Capital expenditure requirement for replacement of information systems not in compliance but already scheduled for replacement due to functional obsolescence $ 9,000,000 $ 2,000,000 Expense of compliance modifications to existing systems or replacement of minor items treated as expense $ 300,000 $ 1,700,000
20 LIQUIDITY AND CAPITAL RESOURCES CAPITAL REQUIREMENTS SIGCORP's demand for capital is primarily related to SIGECO's construction of utility plant and equipment necessary to meet customers' electric and gas energy needs, as well as environmental compliance requirements, and expenditures for SIGECO's demand side management (DSM) programs. Additionally, SIGCORP may periodically make capital investments in nonregulated operations such as SIGECOM. Construction expenditures (excluding allowance for other funds used during construction) and DSM program expenditures incurred during the quarter and nine months ending September 30, 1998 totaled $8.5 million and $33.2 million, respectively, and were fully funded with internally generated cash during the respective periods. Cash provided from operations increased $5.3 million and $300,000 during the current three month and nine month periods, respectively, compared to the same periods in 1997. Cash used in investing and financing activities during 1998 increased $8.0 million during the third quarter, but decreased $4.5 million for the nine month period, compared to a year ago. SIGCORP estimates that SIGECO's construction expenditures for the five year period 1998-2002 will total approximately $315 million, including approximately $15 million to complete several comprehensive information systems which are necessary to fulfill expanding customer service needs and to better manage SIGECO's resources, and approximately $5 million to develop and implement DSM programs, but exclude construction expenditures that may be required to comply with new USEPA air quality standards discussed in "Environmental Matters" which could range from estimates of $10 million to $90 million. Additionally, SIGCORP will contribute a minimum of $10 million to its nonregulated subsidiary, Advanced Communications, for the joint venture SIGECOM during the five year period, as previously reported. FINANCING ACTIVITIES During the third quarter of 1998, SIGECO refunded its $12 million 6-3/8% series first mortgage bonds due in 1998 and $2 million of its $25 million 8-7/8% series first mortgage bonds due 2016, with short-term notes payable. Financing activity during the first quarter of 1998 included a $20 million increase in long-term notes payable to refund $20 million of SIGECO's short-term notes payable. Additionally, SIGECO refunded $80.3 million of tax-exempt bond issues with an equal amount of tax-exempt bonds (see Note 4 of the Notes to Consolidated Financial Statements in this filing) which will reduce total interest expense on a present value basis by $8.5 million over the remaining lives of the original bond issues. Over the five year period, SIGCORP expects the majority of the construction requirements, the capital contributions to its nonregulated subsidiaries and an estimated $66 million in debt security redemptions to be provided by internally generated funds. External financing requirements of $60-70 million are anticipated and will be used primarily to redeem long-term debt. These estimates do not reflect construction expenditures that may be required to comply with new USEPA air quality standards. 21 PART TWO - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders NONE Item 5. Other Information NONE Item 6. Exhibits and Reports on Form 8-K NONE 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIGCORP, Inc (Registrant) /s/ T. L. Burke T. L. Burke Secretary and Treasurer Date November 16, 1998 SOUTHERN INDIANA GAS AND ELECTRIC COMPANY /s/ S. M. Kerney S. M. Kerney Controller 27 Date November 16, 1998 28 EX-27 2
UT 0000092195 SOUTHERN INDIANA GAS & ELECTRIC CO 9-MOS DEC-31-1998 SEP-30-1998 PER-BOOK 709,524 5,817 102,490 48,091 0 865,922 78,258 0 243,902 322,160 0 19,398 214,336 53,518 0 0 53,700 0 0 0 202,810 865,922 276,326 22,094 203,921 226,015 50,311 1,754 52,065 14,465 37,600 823 36,777 22,268 13,290 71,450 0 0
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