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 March 31, 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.
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(Exact name of registrant as specified in its charter)
INDIANA 35-0793669
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(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
20 N.W. 4th Street, Evansville, Indiana, 47708
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(Address of principal executive offices)
(Zip Code)
812-491-4000
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(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 May 1, 2003
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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 10-13
2 Management's Discussion and Analysis of Results of
Operations and Financial Condition (A) 13
3 Quantitative and Qualitative Disclosures About
Market Risk (A) 14
4 Controls and Procedures
PART II. OTHER INFORMATION
1 Legal Proceedings 14
6 Exhibits and Reports on Form 8-K 14-15
Signatures 16
Certifications 17-19
(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 47702-0209 Vice President, Investor
Relations
[email protected]
Definitions
AFUDC: allowance for funds used MCF / BCF: millions / billions
during construction of 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
Environmental Management and 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)
March 31, December 31,
2003 2002
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ASSETS
Utility Plant
Original cost $ 1,155,695 $ 1,148,614
Less: accumulated depreciation & amortization 501,806 492,673
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Net utility plant 653,889 655,941
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Current Assets
Cash & cash equivalents 9,205 3,729
Accounts receivable-less reserves of $1,711 &
$1,399, respectively 81,667 48,446
Receivables due from other Vectren companies 27 10,754
Accrued unbilled revenues 33,789 53,192
Inventories 197 13,286
Recoverable fuel & natural gas costs - 10,241
Prepayments & other current assets 3,290 37,090
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Total current assets 128,175 176,738
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Investments in the Ohio operations 225,943 220,417
Other investments 2,583 2,459
Non-utility property-net 240 253
Regulatory assets 20,003 18,132
Other assets 3,870 4,207
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TOTAL ASSETS $ 1,034,703 $ 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)
March 31, December 31,
2003 2002
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LIABILITIES & SHAREHOLDER'S EQUITY
Capitalization
Common shareholder's equity
Common stock (no par value) $ 242,995 $ 242,995
Retained earnings 101,953 79,061
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Total common shareholder's equity 344,948 322,056
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Long-term debt-net of current maturities 228,442 228,480
Long-term debt due to VUHI 147,275 147,275
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Total Capitalization 720,665 697,811
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Commitments & Contingencies (Notes 4, 7, & 8)
Current Liabilities
Accounts payable 9,111 33,728
Accounts payable to affiliated companies 30,412 47,255
Accounts payable due to other Vectren companies 7,604 38,818
Accrued liabilities 58,746 30,052
Short-term borrowings due to VUHI 123,935 108,182
Current maturities of long-term debt - 38,750
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Total current liabilities 229,808 296,785
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Deferred Income Taxes & Other Liabilities
Deferred income taxes 46,994 45,601
Deferred credits & other liabilities 37,236 37,950
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Total deferred credits & other liabilities 84,230 83,551
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TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $ 1,034,703 $ 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 Ended March 31
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2003 2002
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As Restated,
See Note 3
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OPERATING REVENUES $ 295,380 $ 200,201
COST OF GAS 208,984 126,760
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GAS OPERATING MARGIN 86,396 73,441
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OPERATING EXPENSES
Other operating 21,867 21,356
Depreciation & amortization 10,546 9,978
Income taxes 15,223 10,581
Taxes other than income taxes 6,129 4,916
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Total operating expenses 53,765 46,831
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OPERATING INCOME 32,631 26,610
OTHER INCOME (EXPENSE) - NET
Equity in earnings of the Ohio
operations - net of tax 5,526 4,749
Other - net (577) 409
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Total other income (expense) - net 4,949 5,158
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Interest expense 7,408 8,177
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NET INCOME $ 30,172 $ 23,591
=============================================================================
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 March 31,
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2003 2002
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As Restated,
See Note 3
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NET CASH FLOWS FROM OPERATING ACTIVITIES $ 44,997 $ 90,660
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CASH FLOWS REQUIRED FOR FINANCING ACTIVITIES
Requirements for:
Retirement of long-term debt, including premiums paid (39,907) (1,278)
Dividends on common stock (7,280) (6,874)
Net change in short-term borrowings due to VUHI 15,753 (69,878)
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Net cash flows required for financing activities (31,434) (78,030)
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CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES
Capital expenditures, excluding AFUDC-equity (8,087) (8,286)
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Net cash flows required for investing activities (8,087) (8,286)
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Net increase in cash & cash equivalents 5,476 4,344
Cash & cash equivalents at beginning of period 3,729 268
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Cash & cash equivalents at end of period $ 9,205 $ 4,612
=======================================================================================
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 footnote
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. 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 2002 quarterly financial statements,
management determined that previously issued financial statements should be
restated. As a result, the Company has restated its financial statements for the
three months ended March 31, 2002 for various reconciliation errors and other
errors related primarily to the recording of estimates.
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,
2002 earnings 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 $1.0
million after tax. In total, earnings increased $0.3 million from those
previously reported.
Following is a summary of the effects of the restatement on previously reported
results of operations for the three months ended March 31, 2002.
As reported Restatement As Restated
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OPERATING REVENUES $ 197,897 $ 2,304 $ 200,201
COST OF GAS 126,760 - 126,760
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GAS OPERATING MARGIN 71,137 2,304 73,441
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OPERATING EXPENSES
Other operating 20,261 1,095 21,356
Depreciation & amortization 9,978 - 9,978
Income taxes 10,120 461 10,581
Taxes other than income taxes 4,915 1 4,916
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Total operating expenses 45,274 1,557 46,831
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OPERATING INCOME 25,863 747 26,610
OTHER INCOME (EXPENSE) - NET
Equity in earnings of the Ohio
operations - net of tax 5,167 (418) 4,749
Other - net 402 7 409
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Total other income (expense) - net 5,569 (411) 5,158
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Interest expense 8,177 - 8,177
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NET INCOME $ 23,255 $ 336 $ 23,591
===============================================================================
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 $14.3 million and $13.5 million for the three months ended March 31,
2003 and 2002, respectively.
Guarantees of Parent Company Debt
Vectren's three operating utility companies, VEDO, Indiana Gas, and SIGECO are
guarantors of VUHI's $475.0 million commercial paper program, of which
approximately $312.6 million is outstanding at March 31, 2003 and VUHI's $350.0
million unsecured senior notes outstanding at March 31, 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 March 31, 2003 and 2002 totaled $149.3 million and $79.9
million, respectively. Amounts owed to ProLiance at March 31, 2003 and December
31, 2002 for those purchases were $29.7 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.
In thousands Three Months Ended March 31,
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2003 2002
----------------- ----------------
Operating revenues $ 162,286 $ 124,548
Gas operating margin 47,904 38,500
Operating income 11,521 10,034
Net income 11,758 10,104
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, net income would have been
$9.4 million for the three months ended March 31, 2003 and $7.9 million for the
three months ended March 31, 2002.
7. 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.
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.
The Company records a net cost of removal to its utility plant through normal
depreciation rates. As of March 31, 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 149
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS 149). SFAS 149 amends and
clarifies the accounting guidance on (1) derivative instruments, including
certain derivative instruments embedded in other contracts, and (2) hedging
activities that fall within the scope of FASB Statement No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging Activities. SFAS 149 amends
SFAS 133 to reflect decisions that were made (1) as part of the process
undertaken by the Derivatives Implementation Group (DIG), which necessitated
amending SFAS 133; (2) in connection with other projects dealing with financial
instruments; and (3) regarding implementation issues related to the application
of the definition of a derivative. SFAS 149 also amends certain other existing
pronouncements, which will result in more consistent reporting of contracts that
are derivatives in their entirety or that contain embedded derivatives that
warrant separate accounting. SFAS 149 is effective (1) for contracts entered
into or modified after June 30, 2003, with certain exceptions and (2) for
hedging relationships designated after June 30, 2003. The guidance is to be
applied prospectively. Although management is still evaluating the impact of
SFAS 149 on its financial position and results of operations, the adoption is
not expected to have a material effect.
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 obligations it has undertaken. The objective of
the initial measurement of that liability is the fair value of the guarantee at
its inception. 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.
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
months ended March 31, 2002 by $0.3 million after tax. 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
Net income was $30.2 million for the three months ended March 31, 2003 compared
to $23.6 million for the same period in 2002. The increase in net income results
primarily from the effects of colder weather offset somewhat by the effect of
higher gas costs that increased operating expenses, such as uncollectible
accounts expense.
Gas Utility Margin
Gas utility margin by customer type and separated between volumes sold and
transported follows:
Three Months Ended March 31,
- --------------------------------------------------------------------
(In Millions) 2003 2002
- --------------------------------------------------------------------
Residential $ 57.8 $ 49.5
Commercial 19.7 15.7
Contract 8.0 8.1
Other 0.9 0.1
- --------------------------------------------------------------------
Total $ 86.4 $ 73.4
- --------------------------------------------------------------------
Volumes in MMDth
Sold 35.6 29.2
Transported 16.1 15.7
Gas utility margin for the three months ended March 31, 2003, increased $13.0
million, or 18%, compared to 2002. The increase is primarily due to weather 24%
colder than the prior year and 8% colder than normal. The effects of colder
weather resulted in a 15% increase in total throughput. The total average cost
per dekatherm of gas purchased for the three months ended March 31, 2003, was
$6.50 compared to $4.27 for the same period in 2002.
Operating Expenses
Other Operating
Other operating expenses increased $0.5 million for the three months ended March
31, 2003 compared to the prior year. The increase results principally from
increased uncollectible accounts expense and the timing of maintenance
expenditures. Uncollectible accounts expense has increased $0.2 million due
primarily to higher gas costs.
Depreciation & Amortization
Depreciation and amortization increased $0.6 million for the three months ended
March 31, 2003 compared to the prior year due to additions to utility plant.
Income Tax
Federal and state income taxes increased $4.6 million for the three months ended
March 31, 2003, when compared to the prior year. The increase results
principally from higher pre-tax earnings. The effective tax rate increased from
31.0% in 2002 to 33.5% 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
Taxes other than income taxes increased $1.2 million for the three months ended
March 31, 2003 compared to the prior year. The increase results from higher
utility receipts taxes as a result of higher volumes sold and higher gas prices.
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. Earnings increased $0.8 million in 2003 compared to 2002 primarily due
to increased sales volume resulting from colder weather.
Other- net
Other, net decreased $1.0 million for the three months ended March 31, 2003
compared to the prior year. The decrease results principally from increased
contributions to low-income heating assistance programs.
Interest Expense
Interest expense decreased $0.8 million for the three months ended March 31,
2003, 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.
The Company records a net cost of removal to its utility plant through normal
depreciation rates. As of March 31, 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 149
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS 149). SFAS 149 amends and
clarifies the accounting guidance on (1) derivative instruments, including
certain derivative instruments embedded in other contracts, and (2) hedging
activities that fall within the scope of FASB Statement No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging Activities. FAS 149 amends
SFAS 133 to reflect decisions that were made (1) as part of the process
undertaken by the Derivatives Implementation Group (DIG), which necessitated
amending SFAS 133; (2) in connection with other projects dealing with financial
instruments; and (3) regarding implementation issues related to the application
of the definition of a derivative. SFAS 149 also amends certain other existing
pronouncements, which will result in more consistent reporting of contracts that
are derivatives in their entirety or that contain embedded derivatives that
warrant separate accounting. SFAS 149 is effective (1) for contracts entered
into or modified after June 30, 2003, with certain exceptions and (2) for
hedging relationships designated after June 30, 2003. The guidance is to be
applied prospectively. Although management is still evaluating the impact of
SFAS 149 on its financial position and results of operations, the adoption is
not expected to have a material effect.
Financial Accounting 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 obligations it has undertaken. The objective of
the initial measurement of that liability is the fair value of the guarantee at
its inception. 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 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
Within 90 days prior to the filing of the report, 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 are
effective in bringing to their attention on a timely basis 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).
Disclosure controls and procedures, as defined by the Exchange Act in Rules
13a-14(c) and 15d-14(c), 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
Since the evaluation of disclosure controls and procedures, there have been no
significant changes to the Company's internal controls and procedures or
significant changes in other factors that could significantly affect the
Company's internal controls and procedures.
Internal control, as defined in American Institute of Certified Public
Accountants Codification of Statements on Auditing Standards (AU ss.319), is a
process, effected by an entity's board of directors, management, and other
personnel, designed to provide reasonable assurance regarding the achievement of
objectives in the following categories: (a) reliability of financial reporting,
(b) effectiveness and efficiency of operations and (c) compliance with
applicable laws and regulations.
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 8 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
(b) Reports On Form 8-K During The Last Calendar Quarter
On January 31, 2003, The Company filed a Current Report on Form 8-K with respect
to the release of Vectren Corporation's preliminary financial information to the
investment community regarding the Company's results of operations, for the
three and twelve month periods ended December 31, 2002.
Item 5. Other Events
Item 7. Exhibits
99.1 - Press Release - Vectren Reports Preliminary 2002 Results
99.2 - 2002 Selected Financial Data and Effects of Restatement
99.3 - Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform
Act of 1995
On March 14, 2003, The Company filed a Current Report on Form 8-K with respect
to the release of Vectren Corporation's financial information to the investment
community regarding the Company's results of operations, financial position and
cash flows for the three and twelve month periods ended December 31, 2002.
Item 9. Regulation FD Disclosure
Item 7. Exhibits
99.1 - Press Release - Vectren Reports Final 2002 Earnings
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
May 15, 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)
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Niel C. Ellerbrook, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Indiana Gas Company,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/ Niel C. Ellerbrook
----------------------------------
Niel C. Ellerbrook
Chairman & Chief Executive Officer
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Jerome A. Benkert, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Indiana Gas Company,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/ Jerome A. Benkert, Jr.
-----------------------------------------
Jerome A. Benkert, Jr.
Executive Vice President &
Chief Financial Officer
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
By signing below, each of the undersigned officers hereby certifies pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that, to his or her knowledge, (i) this report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and (ii) the information contained in this report fairly presents, in all
material respects, the financial condition and results of operations of Indiana
Gas Company, Inc.
Signed this 15th day of May, 2003.
/s/ Jerome A. Benkert, Jr. /s/ Niel C. Ellerbrook
- ----------------------------------- --------------------------------------
(Signature of Authorized Officer) (Signature of Authorized Officer)
Jerome A. Benkert, Jr. Niel C. Ellerbrook
- ----------------------------------- --------------------------------------
(Typed Name) (Typed Name)
Executive Vice President &
Chief Financial Officer Chairman & Chief Executive Officer
- ----------------------------------- --------------------------------------
(Title) (Title)