UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
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 number: 1-6494
INDIANA GAS COMPANY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
INDIANA 35-0793669
- ------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20 N.W. 4th Street, Evansville, Indiana, 47708
-------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
812-491-4000
-------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that 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 __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock- Without Par Value 690.001 August 1, 2003
- ------------------------------- ------- --------------
Class Number of Shares Date
Omission of Information by Certain Wholly Owned Subsidiaries
The Registrant is a wholly owned subsidiary of Vectren Utility Holdings, Inc.
and meets the conditions set forth in General Instructions (H)(1)(a) and (b) of
Form 10-Q and is therefore filing with the reduced disclosure format
contemplated thereby.
Table of Contents
Item Page
Number Number
PART I. FINANCIAL INFORMATION
1 Financial Statements (Unaudited)
Indiana Gas Company, Inc.
Condensed Balance Sheets 1-2
Condensed Statements of Income 3
Condensed Statements of Cash Flows 4
Notes to Unaudited Condensed Financial Statements 5-10
2 Management's Discussion and Analysis of Results of Operations 11-15
and Financial Condition (A)
3 Quantitative and Qualitative Disclosures About Market Risk (A) 15
4 Controls and Procedures 15
PART II. OTHER INFORMATION
1 Legal Proceedings 16
6 Exhibits and Reports on Form 8-K 16
Signatures 17
(A) Omitted or amended as the Registrant is a wholly-owned subsidiary of
Vectren Utility Holdings, Inc. and meets the conditions set forth in
General Instructions (H)(1)(a) and (b) of Form 10-Q and is therefore filing
with the reduced disclosure format contemplated thereby.
Access to Information
Vectren Corporation makes available all SEC filings and recent annual reports
free of charge, including those of its wholly owned subsidiaries, through its
website at www.vectren.com, or by request, directed to Investor Relations at the
mailing address, phone number, or email address that follows:
Mailing Address: Phone Number: Investor Relations Contact:
P.O. Box 209 (812) 491-4000 Steven M. Schein
Evansville, Indiana Vice President, Investor Relations
47702-0209 sschein@vectren.com
Definitions
AFUDC: allowance for funds used during MCF / BCF: millions / billions of
construction cubic feet
APB: Accounting Principles Board MDth / MMDth: thousands / millions of
dekatherms
EITF: Emerging Issues Task Force OUCC: Indiana Office of the Utility
Consumer Counselor
FASB: Financial Accounting Standards SFAS: Statement of Financial
Board Accounting Standards
IDEM: Indiana Department of Throughput: combined gas sales and
Environmental Management gas transportation volumes
IURC: Indiana Utility Regulatory
Commission
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDIANA GAS COMPANY, INC.
CONDENSED BALANCE SHEETS
(Unaudited - In thousands)
- ------------------------------------------------------------------------------
June 30, December 31,
2003 2002
- ---------------------------------------- ----------- ------------
ASSETS
Utility Plant
Original cost $ 1,169,149 $ 1,148,614
Less: accumulated depreciation
& amortization 510,879 492,673
- ------------------------------------------------------------------------------
Net utility plant 658,270 655,941
- ------------------------------------------------------------------------------
Current Assets
Cash & cash equivalents 4,717 3,729
Accounts receivable-less reserves of
$799 & $1,399, respectively 35,274 48,446
Receivables due from other Vectren
companies 421 10,754
Accrued unbilled revenues 12,765 53,192
Inventories 381 13,286
Recoverable fuel & natural gas costs - 10,241
Prepayments & other current assets 30,648 37,090
- ------------------------------------------------------------------------------
Total current assets 84,206 176,738
- ------------------------------------------------------------------------------
Investments in the Ohio operations 224,394 220,417
Other Investments 2,503 2,459
Non-Utility Property-Net 227 253
Regulatory Assets 18,604 18,132
Other Assets 3,576 4,207
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 991,780 $ 1,078,147
==============================================================================
The accompanying notes are an integral part of these condensed
financial statements.
INDIANA GAS COMPANY, INC.
CONDENSED BALANCE SHEETS
(Unaudited - In thousands)
June 30, December 31,
2003 2002
- ------------------------------------------------ --------- ------------
LIABILITIES & SHAREHOLDER'S EQUITY
Capitalization
Common shareholder's equity
Common stock (no par value) $ 242,995 $ 242,995
Retained earnings 91,538 79,061
- --------------------------------------------------------------------------------
Total common shareholder's equity 334,533 322,056
- --------------------------------------------------------------------------------
Long-term debt-net of current maturities 228,437 228,480
Long-term debt due to VUHI 147,275 147,275
- --------------------------------------------------------------------------------
Total capitalization 710,245 697,811
- --------------------------------------------------------------------------------
Commitments & Contingencies (Notes 7 & 8)
Current Liabilities
Accounts payable 5,602 33,728
Accounts payable to affiliated companies 35,671 47,255
Accounts payable due to other Vectren
companies 6,306 38,818
Accrued liabilities 39,596 30,052
Short-term borrowings due to VUHI 113,209 108,182
Current maturities of long-term debt - 38,750
- --------------------------------------------------------------------------------
Total current liabilities 200,384 296,785
- --------------------------------------------------------------------------------
Deferred Income Taxes & Other Liabilities
Deferred income taxes 44,967 45,601
Deferred credits & other liabilities 36,184 37,950
- --------------------------------------------------------------------------------
Total deferred credits & other
liabilities 81,151 83,551
- --------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $ 991,780 $ 1,078,147
================================================================================
The accompanying notes are an integral part of these condensed financial
statements.
INDIANA GAS COMPANY, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited - In thousands)
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- ---------------------
2003 2002 2003 2002
- ----------------------------------------------------------------- ---------------------
As Restated, As Restated,
See Note 3 See Note 3
------------ ------------
OPERATING REVENUES $ 104,846 $ 83,953 $ 400,226 $ 284,154
COST OF GAS 64,534 45,469 273,518 172,229
- ---------------------------------------------------------------------------------------
GAS OPERATING MARGIN 40,312 38,484 126,708 111,925
- ---------------------------------------------------------------------------------------
OPERATING EXPENSES
Other operating 20,759 18,714 42,626 40,071
Depreciation & amortization 10,778 10,179 21,324 20,157
Income taxes (1,093) (1,444) 14,130 9,137
Taxes other than income taxes 3,693 3,396 9,822 8,311
- ---------------------------------------------------------------------------------------
Total operating expenses 34,137 30,845 87,902 77,676
- ---------------------------------------------------------------------------------------
OPERATING INCOME 6,175 7,639 38,806 34,249
OTHER INCOME (EXPENSE)-NET
Equity in earnings of
the Ohio operations-net of tax (1,549) 696 3,977 5,445
Other - net (643) 212 (1,220) 621
- ---------------------------------------------------------------------------------------
Total other income (expense)-net (2,192) 908 2,757 6,066
- ---------------------------------------------------------------------------------------
Interest expense 7,117 8,049 14,525 16,226
- ---------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (3,134) $ 498 $ 27,038 $ 24,089
=======================================================================================
The accompanying notes are an integral part of these condensed financial
statements.
INDIANA GAS COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited - In thousands)
Three Months Ended June 30,
---------------------------
2003 2002
- --------------------------------------------------------------------------------
As Restated,
See Note 3
------------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 73,048 $ 134,404
- --------------------------------------------------------------------------------
CASH FLOWS REQUIRED FOR FINANCING ACTIVITIES
Requirements for:
Retirement of long-term debt, including
premiums paid (39,912) (6,286)
Dividends on common stock (14,561) (14,607)
Net change in short-term borrowings due to VUHI 5,027 (86,089)
- --------------------------------------------------------------------------------
Net cash flows required for financing
activities (49,446) (106,982)
- --------------------------------------------------------------------------------
CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES
Capital expenditures, excluding AFUDC-equity (22,614) (25,003)
- --------------------------------------------------------------------------------
Net cash flows required for investing
activities (22,614) (25,003)
- --------------------------------------------------------------------------------
Net increase in cash & cash equivalents 988 2,419
Cash & cash equivalents at beginning of period 3,729 268
- --------------------------------------------------------------------------------
Cash & cash equivalents at end of period $ 4,717 $ 2,687
================================================================================
The accompanying notes are an integral part of these condensed financial
statements.
INDIANA GAS COMPANY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Nature of Operations
Overview
Indiana Gas Company, Inc. (the Company or Indiana Gas), an Indiana corporation,
provides natural gas distribution and transportation services to a diversified
customer base in 49 of Indiana's 92 counties. Indiana Gas is a direct wholly
owned subsidiary of Vectren Utility Holdings, Inc. (VUHI). VUHI is a direct,
wholly owned subsidiary of Vectren Corporation (Vectren).
Vectren, an Indiana corporation, is an energy and applied technology holding
company headquartered in Evansville, Indiana. Vectren was organized on June 10,
1999 solely for the purpose of effecting the merger of Indiana Energy, Inc.
(Indiana Energy) and SIGCORP, Inc. (SIGCORP). On March 31, 2000, the merger of
Indiana Energy with SIGCORP and into Vectren was consummated with a tax-free
exchange of shares and has been accounted for as a pooling-of-interests in
accordance with Accounting Principles Board (APB) Opinion No. 16 "Business
Combinations."
Vectren's wholly owned subsidiary, VUHI, serves as the intermediate holding
company for its three operating public utilities: Indiana Gas, formerly a wholly
owned subsidiary of Indiana Energy, Southern Indiana Gas and Electric Company
(SIGECO), formerly a wholly owned subsidiary of SIGCORP, and the Ohio
operations. Both Vectren and VUHI are exempt from registration pursuant to
Section 3(a)(1) and 3(c) of the Public Utility Holding Company Act of 1935.
Investment in the Gas Distribution Assets of The Dayton Power and Light Company
On October 31, 2000, Vectren acquired the natural gas distribution assets of The
Dayton Power and Light Company for approximately $471 million, including
transaction costs, as a tenancy in common through two separate wholly owned
subsidiaries. Vectren Energy Delivery of Ohio, Inc. (VEDO) holds a 53% undivided
ownership interest in the assets, and Indiana Gas holds a 47% undivided
ownership interest. VEDO is the operator of the assets, and these assets are
referred to as "the Ohio operations." Indiana Gas' ownership is accounted for
using the equity method in accordance with APB Opinion No. 18, "The Equity
Method of Accounting for Investments in Common Stock" and is included in
investment in the Ohio operations, and its interest in the results of operations
is included in equity in earnings of the Ohio operations. The Ohio operations
are a significant subsidiary of Indiana Gas that provide natural gas
distribution and transportation services to 17 counties in west central Ohio,
including counties surrounding Dayton.
2. Basis of Presentation
The interim condensed financial statements included in this report have been
prepared by the Company, without audit, as provided in the rules and regulations
of the Securities and Exchange Commission. Certain information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
omitted as provided in such rules and regulations. The Company believes that the
information in this report reflects all adjustments necessary to fairly state
the results of the interim periods reported. These condensed financial
statements and related notes should be read in conjunction with the Company's
audited annual financial statements for the year ended December 31, 2002, filed
on Form 10-K/A. Because of the seasonal nature of the Company's utility
operations, the results shown on a quarterly basis are not necessarily
indicative of annual results.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 statements
and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
3. Restatement of Previously Reported Information
Subsequent to the issuance of the Company's 2002 quarterly financial statements,
the Company's management determined that previously issued financial statements
should be restated. The restatement had the effect of increasing net income for
the three and six months ended June 30, 2002 by $0.7 million after tax and $1.0
million after tax, respectively.
During the six months ended June 30, 2002, the Company identified errors related
to the recording of estimates used in the calculation of unbilled revenue. As a
result of changes to unbilled revenue, earnings for the six months ended June
30, 2002, increased by $2.1 million ($1.3 million after tax). Additionally, the
Company identified reconciliation errors and errors related to the recording of
other estimates that were not significant, either individually or in the
aggregate, that decreased previously reported earnings by approximately $0.3
million after tax for the six months ended June 30, 2002 and increased
previously reported earnings for the three months ended June 30, 2002 by
approximately $0.7 million.
Following is a summary of the effects of the restatement on previously reported
results of operations for the three months ended June 30, 2002.
In Thousands
- -----------------------------------------------------------------------------------
As reported Restatement As Restated
----------- ----------- -----------
OPERATING REVENUES $ 83,611 $ 342 $ 83,953
COST OF GAS 45,469 - 45,469
- -----------------------------------------------------------------------------------
GAS OPERATING MARGIN 38,142 342 38,484
- -----------------------------------------------------------------------------------
OPERATING EXPENSES
Other operating 19,437 (723) 18,714
Depreciation & amortization 10,179 - 10,179
Income taxes (1,780) 336 (1,444)
Taxes other than income taxes 3,396 - 3,396
- -----------------------------------------------------------------------------------
Total operating expenses 31,232 (387) 30,845
- -----------------------------------------------------------------------------------
OPERATING INCOME 6,910 729 7,639
OTHER INCOME (EXPENSE) - NET
Equity in earnings of the Ohio
operations - net of tax 540 156 696
Other - net 200 12 212
- -----------------------------------------------------------------------------------
Total other income (expense) - net 740 168 908
- -----------------------------------------------------------------------------------
Interest expense 7,855 194 8,049
- -----------------------------------------------------------------------------------
NET INCOME $ (205) $ 703 $ 498
===================================================================================
Following is a summary of the effects of the restatement on previously reported
results of operations for the six months ended June 30, 2002.
In thousands
- -------------------------------------------------------------------------------------
As reported Restatement As Restated
----------- ----------- -----------
OPERATING REVENUES $ 281,508 $ 2,646 $ 284,154
COST OF GAS 172,229 - 172,229
- -------------------------------------------------------------------------------------
GAS OPERATING MARGIN $ 109,279 2,646 111,925
- -------------------------------------------------------------------------------------
OPERATING EXPENSES
Other operating 39,698 373 40,071
Depreciation & amortization 20,157 - 20,157
Income taxes 8,340 797 9,137
Taxes other than income taxes 8,311 - 8,311
- -------------------------------------------------------------------------------------
Total operating expenses 76,506 1,170 77,676
- -------------------------------------------------------------------------------------
OPERATING INCOME 32,773 1,476 34,249
OTHER INCOME (EXPENSE) - NET
Equity in earnings of the Ohio
operations - net of tax 5,707 (262) 5,445
Other - net 602 19 621
- -------------------------------------------------------------------------------------
Total other income (expense) - net 6,309 (243) 6,066
- -------------------------------------------------------------------------------------
Interest expense 16,032 194 16,226
- -------------------------------------------------------------------------------------
NET INCOME $ 23,050 $ 1,039 $ 24,089
=====================================================================================
4. Transactions with Other Vectren Companies
Support Services and Purchases
Vectren and certain subsidiaries of Vectren provided corporate and general and
administrative services to the Company including legal, finance, tax, risk
management, human resources, which includes charges for restricted stock
compensation and for pension and other postretirement benefits not directly
charged to subsidiaries. These costs have been allocated using various
allocators, primarily number of employees, number of customers and/or revenues.
Allocations are based on cost. Indiana Gas received corporate allocations
totaling $14.5 million and $12.5 million, respectively, for the three months
ended June 30, 2003 and 2002,and $28.8 million and $26.0 million, respectively,
for the six months ended June 30, 2003 and 2002.
Guarantees of Parent Company Debt
Vectren's three operating utility companies, VEDO, Indiana Gas, and SIGECO are
guarantors of VUHI's $366.0 million in short-term credit facilities, of which
approximately $318.6 million is outstanding at June 30, 2003 and VUHI's $350.0
million unsecured senior notes outstanding at June 30, 2003. The guarantees are
full and unconditional and joint and several, and VUHI has no subsidiaries other
than the subsidiary guarantors.
Stock-Based Incentive Plans
Indiana Gas does not have stock-based compensation plans separate from Vectren.
An insignificant number of Indiana Gas' employees participate in Vectren's
stock-based compensation plans.
5. Transactions with ProLiance Energy, LLC
ProLiance Energy, LLC (ProLiance), a nonregulated energy marketing affiliate of
Vectren and Citizens Gas and Coke Utility (Citizens Gas), provides natural gas
and related services to Indiana Gas, the Ohio operations, Citizens Gas and
others. ProLiance also began providing service to SIGECO and Vectren Retail, LLC
(Vectren's retail gas marketer) in 2002. ProLiance's primary businesses include
gas marketing, gas portfolio optimization, and other portfolio and energy
management services.
Purchases from ProLiance for resale and for injections into storage for the
three months ended June 30, 2003 and 2002 totaled $96.0 million and $63.7
million, respectively, and for the six months ended June 30, 2003 and 2002
totaled $245.3 million and $143.6 million, respectively. Amounts owed to
ProLiance at June 30, 2003 and December 31, 2002 for those purchases were $34.4
million and $46.1 million, respectively, and are included in accounts payable to
affiliated companies. Amounts charged by ProLiance for gas supply services are
established by supply agreements with each utility.
6. Investment in the Ohio Operations
Unaudited summarized financial information of the Ohio operations for the three
months ended March 31, 2003 and 2002 is presented below.
- -------------------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- -----------------------
In thousands 2003 2002 2003 2002
------------------------------------------------------------------------------
Operating revenues $ 45,276 $ 42,259 $ 207,562 $ 166,807
Gas operating margin 14,615 16,997 62,519 55,497
Operating income (loss) (3,367) 1,294 8,154 11,328
Net income (loss) (3,296) 1,479 8,462 11,583
Interest costs arising from financing arrangements utilized to purchase the Ohio
operations are not reflected in the above summarized financial information. Had
the financing arrangements of Indiana Gas and VEDO used to facilitate the
acquisition been pushed down to the Ohio operations, the net loss would have
been $5.7 million for the three months ended June 30, 2003 and $0.8 million for
the three months ended June 30, 2002. For the six months ended June 30, 2003 and
2002, net income would have been $3.7 million and $7.1 million, respectively.
7. Commitments & Contingencies
Legal Proceedings
The Company is party to various legal proceedings arising in the normal course
of business. In the opinion of management, there are no legal proceedings
pending against the Company that are likely to have a material adverse effect on
its financial position or results of operations.
United States Securities and Exchange Commission (SEC) Informal Inquiry
As more fully described in Note 3 to these condensed financial statements and in
Note 3 to the 2002 financial statements filed on Form 10-K/A, the Company
restated its financial statements for 2000, 2001, and quarterly results issued
in 2002. The Company is cooperating with the SEC in an informal inquiry with
respect to this previously announced restatement, has met with the staff of the
SEC, and is providing information in response to their requests.
8. Environmental Matters
In the past, Indiana Gas and others operated facilities for the manufacture of
gas. Given the availability of natural gas transported by pipelines, these
facilities have not been operated for many years. Under currently applicable
environmental laws and regulations, Indiana Gas and others may now be required
to take remedial action if certain byproducts are found above the regulatory
thresholds at these sites.
Indiana Gas has identified the existence, location, and certain general
characteristics of 26 gas manufacturing and storage sites for which it may have
some remedial responsibility. Indiana Gas has completed a remedial
investigation/feasibility study (RI/FS) at one of the sites under an agreed
order between Indiana Gas and the IDEM, and a Record of Decision was issued by
the IDEM in January 2000. Although Indiana Gas has not begun an RI/FS at
additional sites, Indiana Gas has submitted several of the sites to the IDEM's
Voluntary Remediation Program 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.
In conjunction with data compiled by environmental consultants, Indiana Gas has
accrued the estimated costs for further investigation, remediation, groundwater
monitoring, and related costs for the sites. While the total costs that may be
incurred in connection with addressing these sites cannot be determined at this
time, Indiana Gas has recorded costs that it reasonably expects to incur
totaling approximately $20.4 million.
The estimated accrued costs are limited to Indiana Gas' proportionate share of
the remediation efforts. Indiana Gas has arrangements in place for 19 of the 26
sites with other potentially responsible parties (PRP), which serve to limit
Indiana Gas' share of response costs at these 19 sites to between 20% and 50%.
With respect to insurance coverage, Indiana Gas has received and recorded
settlements from all known insurance carriers in an aggregate amount
approximating $20.4 million.
Environmental matters related to manufactured gas plants have had no material
impact on earnings since costs recorded to date approximate PRP and insurance
settlement recoveries. While Indiana Gas has recorded all costs which it
presently expects to incur in connection with activities at these sites, it is
possible that future events may require some level of additional remedial
activities which are not presently foreseen.
9. Impact of Recently Issued Accounting Guidance
SFAS 143
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" (SFAS 143). SFAS 143 requires entities to record the fair value of
a liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value, and the capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The Company adopted this statement on
January 1, 2003. The adoption was not material to the Company's results of
operations or financial condition.
In accordance with regulatory treatment, the Company collects an estimated net
cost of removal of its utility plant in rates through normal depreciation. As of
June 30, 2003 and December 31, 2002 such removal costs approximated $170 million
of accumulated depreciation as presented in the condensed balance sheets based
upon the Company's latest depreciation studies.
SFAS 150
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" (SFAS 150).
SFAS 150 requires issuers to classify as liabilities the following three types
of freestanding financial instruments: mandatorily redeemable financial
instruments; obligations to repurchase the issuer's equity shares by
transferring assets; and certain obligations to issue a variable number of
shares. SFAS 150 is effective immediately for all financial instruments entered
into or modified after May 31, 2003. For all other instruments, SFAS 150 applies
to the Company's third quarter of 2003. SFAS 150's adoption will not affect the
Company's results of operations or financial condition.
FASB Interpretation (FIN) 45
In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). FIN 45 clarifies the requirements for a
guarantor's accounting for and disclosure of certain guarantees issued and
outstanding and that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligations it has undertaken.
The initial recognition and measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
Since that date, the adoption has not had a material effect on the Company's
results of operations or financial condition.
FIN 46
In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable
Interest Entities" (FIN 46). FIN 46 addresses consolidation by business
enterprises of variable interest entities and significantly changes the
consolidation requirements for those entities. FIN 46 is intended to achieve
more consistent application of consolidation policies to variable interest
entities and, thus improves comparability between enterprises engaged in similar
activities when those activities are conducted through variable interest
entities. FIN 46 applies to variable interest entities created after January 31,
2003 and to variable interest entities in which an enterprise obtains an
interest after that date. FIN 46 applies to the Company's third quarter of 2003
for variable interest entities in which the Company holds a variable interest
acquired before February 1, 2003. Although management is still evaluating the
impact of FIN 46 on its financial position and results of operations, the
adoption is not expected to have a material effect.
10. Subsequent Event
In August 2003, the Company initiated steps to call a senior unsecured note with
a principal amount of $13.5 million, an interest rate of 6.75%, originally due
in 2028, and redeemable at the principal amount. The transaction is expected to
take place in September 2003. Pursuant to regulatory authority, the premium paid
to retire the net carrying value of this note will be deferred as a regulatory
asset. The proceeds to fund the early redemption will be received from VUHI in
the form of new long-term debt and additional equity. To generate the initial
proceeds to fund these transactions, in August 2003, VUHI completed a public
offering of long-term debt netting proceeds of approximately $203 million, and
Vectren completed a public offering of common stock netting proceeds of
approximately $143 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Pursuant to General Instructions H(2)(a) of Form 10-Q, the following analysis of
the results of operations is presented in lieu of Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Results of Operations
The following discussion and analysis should be read in conjunction with the
unaudited condensed financial statements and notes thereto. Subsequent to the
issuance of the Company's 2002 quarterly financial statements, the Company's
management determined that previously issued financial statements should be
restated. The restatement had the effect of increasing net income for the three
and six months ended June 30, 2002 by $0.7 million after tax and $1.0 million
after tax, respectively. Note 3 to the condensed financial statements includes a
summary of the effects of the restatement. The Company's results of operations
give effect to the restatement.
Net Income
For the three months ended June 30, 2003, the net loss was $3.1 million compared
to net income of $0.5 million, for the same period last year. For the six months
ended June 30, 2003, earnings were $27.0 million compared to $24.1 million for
the same period in 2002.
The 2003 second quarter results declined $3.6 million due primarily to milder
weather and increased operating expenses due to higher gas costs. Heating
weather experienced in the second quarter 2003 was 10% warmer than the same
period last year. The estimated quarter over quarter impact of milder weather
was $1.1 million after tax. Year to date earnings in 2003 were primarily driven
by weather that on the year was favorably impacted by an estimated $4.8 million
after tax compared to last year, offset by increased operating expenses caused
by higher gas costs.
Gas Utility Margin
Gas utility margin by customer type and separated between volumes sold and
transported follows:
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ----------------------
In millions 2003 2002 2003 2002
- -------------------------- --------------------- ----------------------
Residential $ 25.9 $ 23.9 $ 83.8 $ 73.4
Commercial 6.4 9.2 26.0 25.0
Contract 5.5 5.1 13.5 13.2
Other 2.5 0.3 3.4 0.3
- -------------------------------------------------------------------------------
Total gas margin $ 40.3 $ 38.5 $ 126.7 $ 111.9
===============================================================================
Volumes in MMDth
Sold 8.6 8.3 44.3 37.5
Transported 10.4 11.4 26.5 27.1
- -------------------------------------------------------------------------------
Total throughput 19.0 19.7 70.8 64.6
===============================================================================
Gas margins were $40.3 million, an increase of $1.8 million over the same
quarter in 2002. The increase is primarily due to increased late payment charges
and recovery of utility receipts taxes on higher gas costs. The increase was
partially offset by heating weather which was 8% below normal and 10% warmer
than the prior year period. The estimated quarter over quarter impact of the
warmer weather on gas utility margins was a decrease of approximately $1.8
million. Weather and an overall decline in customer usage were the primary
factors resulting in the 3% decrease in throughput.
Gas margins were $126.7 million, an increase of $14.8 million over the first six
months of 2002. It is estimated that weather, 18% colder than the prior year and
6% colder than normal, contributed $8.1 million to the increased margin. The
remaining $6.7 million increase is primarily attributable to gross receipts and
excise taxes and increased late payment fees. The colder weather is the primary
reason for the 10% increase in throughput.
Higher gas costs and a slowly recovering economy have impacted customer usage.
The total average cost per dekatherm of gas purchased for the three and six
months ended June 30, 2003, was $6.99 and $6.67, respectively, compared to $4.90
and $4.50, respectively, for the same periods in 2002.
Operating Expenses
Other Operating
For the three and six months ended June 30, 2003, other operating expenses
increased $2.0 million and $2.6 million, respectively, compared to the same
periods in the prior year. The increased expenses were principally due to higher
uncollectible accounts expenses and higher gas distribution expenses and
maintenance costs. Year-to-date uncollectible accounts expense has increased
$1.0 million compared to the prior year.
Depreciation & Amortization
For the three and six months ended June 30, 2003, depreciation and amortization
increased $0.6 million and $1.2 million, respectively, due to additions to
utility plant that have upgraded existing transmission and distribution
facilities.
Income Tax
For the six months ended June 30, 2003, federal and state income taxes increased
$5.0 million when compared to 2002. The increase is primarily due to
fluctuations in pre-tax income. Year to date, the effective tax rate increased
from 32.9% in 2002 to 38.0% in 2003 principally due to an increase in the
Indiana state income tax rate from 4.5% to 8.5% that was effective January 1,
2003.
Taxes Other Than Income Taxes
For the three and six months ended June 30, 2003, taxes other than income taxes
increased $0.3 million and $1.5 million, respectively, compared to the prior
year. The increase results from higher utility receipts taxes as a result of
higher gas prices and for the year to date period more volumes sold.
Other Income - Net
Equity in Earnings of the Ohio operations
As described in Note 1 to the financial statements, Indiana Gas has a 47%
undivided interest in the Ohio operations acquired by Vectren on October 31,
2000. Equity in earnings of the Ohio operations represents Indiana Gas' portion
of the Ohio operations' net income. The financing costs associated with VEDO's
53% ownership interest are not included in the Ohio operations' equity in
earnings. For the three and six months ended June 30, 2003, earnings decreased
$2.2 million and $1.5 million, respectively, primarily due to higher operating
expenses caused partly by higher gas costs and, for the quarter, warmer weather.
Other- net
For the three and six months ended June 30, 2003, other, net decreased $0.9
million and $1.8 million, respectively, compared to the prior year. The decrease
results principally from increased contributions to low-income heating
assistance programs resulting from the ProLiance settlement previously approved
by the IURC.
Interest Expense
For the three and six months ended June 30, 2003, interest expense decreased
$0.9 million and $1.7 million, respectively, when compared to the prior year.
The decrease results from lower interest rates on variable rate debt.
Impact of Recently Issued Accounting Guidance
SFAS 143
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" (SFAS 143). SFAS 143 requires entities to record the fair value of
a liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value, and the capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The Company adopted this statement on
January 1, 2003. The adoption was not material to the Company's results of
operations or financial condition.
SFAS 150
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" (SFAS 150).
SFAS 150 requires issuers to classify as liabilities the following three types
of freestanding financial instruments: mandatorily redeemable financial
instruments; obligations to repurchase the issuer's equity shares by
transferring assets; and certain obligations to issue a variable number of
shares. SFAS 150 is effective immediately for all financial instruments entered
into or modified after May 31, 2003. For all other instruments, SFAS 150 applies
to the Company's third quarter of 2003. SFAS 150's adoption will not affect the
Company's results of operations or financial condition.
FASB Interpretation (FIN) 45
In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). FIN 45 clarifies the requirements for a
guarantor's accounting for and disclosure of certain guarantees issued and
outstanding and that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligations it has undertaken.
The initial recognition and measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
Since that date, the adoption has not had a material effect on the Company's
results of operations or financial condition.
FIN 46
In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable
Interest Entities" (FIN 46). FIN 46 addresses consolidation by business
enterprises of variable interest entities and significantly changes the
consolidation requirements for those entities. FIN 46 is intended to achieve
more consistent application of consolidation policies to variable interest
entities and, thus improves comparability between enterprises engaged in similar
activities when those activities are conducted through variable interest
entities. FIN 46 applies to variable interest entities created after January 31,
2003 and to variable interest entities in which an enterprise obtains an
interest after that date. FIN 46 applies to the Company's third quarter of 2003
for variable interest entities in which the Company holds a variable interest
acquired before February 1, 2003. Although management is still evaluating the
impact of FIN 46 on its financial position and results of operations, the
adoption is not expected to have a material effect.
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 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 "believe," "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 the
Company's actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following:
o Factors affecting utility operations such as unusual weather conditions;
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; transmission or
distribution incidents; availability due to demand, shortages, transmission
problems or other developments; or gas pipeline system constraints.
o Increased competition in the energy environment including effects of
industry restructuring and unbundling.
o Regulatory factors such as unanticipated changes in rate-setting policies
or procedures, recovery of investments and costs made under traditional
regulation, and the frequency and timing of rate increases.
o Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board; the Securities and Exchange
Commission; state public utility commissions; state entities which regulate
natural gas transmission and distribution, natural gas gathering and
processing; and similar entities with regulatory oversight.
o Economic conditions including the effects of an economic downturn,
inflation rates, and monetary fluctuations.
o 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.
o Direct or indirect effects on our business, financial condition or
liquidity resulting from a change in credit ratings, changes in interest
rates, and/or changes in market perceptions of the utility industry and
other energy-related industries.
o Employee workforce factors including changes in key executives, collective
bargaining agreements with union employees, or work stoppages.
o Legal and regulatory delays and other obstacles associated with mergers,
acquisitions, and investments in joint ventures.
o Costs and other effects of legal and administrative proceedings,
settlements, investigations, claims, and other matters, including, but not
limited to, those described in Management's Discussion and Analysis of
Results of Operations and Financial Condition.
o Changes in federal, state or local legislature requirements, such as
changes in tax laws or rates, environmental laws and regulations.
The Company 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to General Instructions H(2)(c) of Form 10-Q, the following is
intentionally omitted.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of June 30, 2003, the Company carried out an evaluation under the supervision
and with the participation of the Chief Executive Officer and Chief Financial
Officer of the effectiveness and the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that the
Company's disclosure controls and procedures provide reasonable assurance that
material information relating to the Company required to be disclosed by the
Company in its filings under the Securities Exchange Act of 1934 (Exchange Act)
is brought to their attention on a timely basis.
Disclosure controls and procedures, as defined by the Exchange Act in Rules
13a-15(e) and 15d-15(e), are controls and other procedures of the Company that
are designed to ensure that information required to be disclosed by the Company
in the reports filed or submitted by it under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms. "Disclosure controls and procedures" include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in its Exchange Act reports is accumulated and
communicated to the Company's management, including its principal executive and
financial officers, as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2003, there have been no significant changes
to the Company's internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Internal control over financial reporting is defined by the SEC in Final Rule:
Management's Reports on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports. The final rule
defines internal control over financial reporting as a process designed by, or
under the supervision of, the registrant's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
registrant's board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that: (1) Pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of the registrant; (2) Provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the registrant are being made only in accordance with
authorizations of management and directors of the registrant; and (3) Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the registrant's assets that could have a
material effect on the financial statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to various legal proceedings arising in the normal course
of business. In the opinion of management, there are no legal proceedings
pending against the Company that are likely to have a material adverse effect on
its financial position or results of operations. See Note 7 of its unaudited
condensed financial statements included in Part 1 Item 1 Financial Statements
regarding the Clean Air Act and related legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Certifications
31.1 Certification Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002-
Chief Executive Officer
31.2 Certification Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002-
Chief Financial Officer
32 Certification Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002
Other Exhibits
None
(b) Reports On Form 8-K During The Last Calendar Quarter
On April 25, 2003, Indiana Gas filed a Current Report on Form 8-K with respect
to the release of Vectren Corporation's financial information to the investment
community regarding its results of operations, for the three and twelve month
periods ended March 31, 2003. The financial information was released to the
public through this filing.
Item 12. Results of Operations and Financial Condition
Item 7. Exhibits
99.1 - Press Release - Vectren Corporation Reports 1st Quarter
2003 Increase
99.2 - Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
On June 30, 2003, SIGECO filed a Current Report on Form 8-K to announce 1) on
June 26, 2003, VUHI's revolving credit facility was renewed and 2) on June 27,
2003, a registration statement filed by Vectren and VUHI, originally filed on
March 31, 2003, was declared effective.
Item 9. Regulation FD Disclosure
Item 7. Exhibits
99.1 - Press Release - Vectren Renews Credit Facility and
Announces Effectiveness of Registration Statement
99.2 - Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDIANA GAS COMPANY, INC.
-------------------------
Registrant
August 14, 2003 /s/Jerome A. Benkert, Jr.
-------------------------
Jerome A. Benkert, Jr.
Executive Vice President &
Chief Financial Officer
(Principal Financial Officer)
/s/M. Susan Hardwick
------------------------------
M. Susan Hardwick
Vice President & Controller
(Principal Accounting Officer)