SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
- -
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
----
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant, State of Incorporation; IRS Employer
File Number Address and Telephone Number Identification No.
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1-15467 Vectren Corporation 35-2086905
(An Indiana Corporation)
20 N. W. Fourth Street
Evansville, Indiana 47741-0001
(812) 491-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Registrant Title of each class on which registered
-------------------- ------------------------- -----------------------
Vectren Corporation Common- Without Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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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) have been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X.
As of March 21, 2001, the aggregate market value of the Common Stock held by
nonaffiliates was $1,476,131,802.
Indicate the number shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Common Stock- Without Par Value 67,712,468 March 21, 2001
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Class Number of shares Date
Documents Incorporated by Reference
Information in the company's Current Report on Form 8-K which was filed with the
Securities and Exchange Commission on March 29, 2001, regarding gas cost
adjustment proceedings is incorporated by reference in Item 7 of this Form
10-K/A.
Table of Contents
Item Page
Number Number
7 Management's Discussion and Analysis
of Financial Condition and Results of Operations................. 2
8 Financial Statements and Supplementary Data........................ 21
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 57
Signatures......................................................... 60
2
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto:
Description of the Business
Vectren Corporation (Vectren) is an Indiana corporation that 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. The
common shareholders of SIGCORP received one and one-third shares of Vectren
common stock for each SIGCORP common share and the common shareholders of
Indiana Energy received one share of Vectren common stock for each Indiana
Energy common share, resulting in the issuance of 61.3 million shares of Vectren
common stock. The preferred stock and debt securities of Indiana Energy's and
SIGCORP's utility subsidiaries were not affected by the merger.
Vectren is a public utility holding company, whose wholly owned subsidiary,
Vectren Utility Holdings, Inc. (VUHI), is the intermediate holding company for
Vectren's three operating public utilities, Indiana Gas Company, Inc. (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 (defined hereafter). VUHI's regulated subsidiaries serve
approximately one million customers. Indiana Gas and its subsidiaries provide
natural gas and transportation services to a diversified base of customers in
311 communities in 49 of Indiana's 92 counties. SIGECO provides generation,
transmission, distribution and the sale of electric power to Evansville,
Indiana, and 74 other communities, and the distribution and sale of natural gas
to Evansville, Indiana, and 64 communities in ten counties in southwestern
Indiana. Vectren's Ohio operations provide natural gas distribution and
transportation services to Dayton, Ohio and 16 counties in west central Ohio.
Vectren is involved in non-regulated activities through three primary business
groups: Energy Services, Utility Services, and Communications. Energy Services
trades and markets natural gas and provides energy performance contracting
services. Utility Services provides utility products and services, such as
underground construction and facilities locating, meter reading and materials
management, and the mining and sale of coal. Communications provides integrated
broadband communications services, including local and long distance telephone,
Internet access and cable television. In addition, other businesses invest in
other energy-related opportunities and corporate technology.
Acquisition of Gas Distribution Assets of The Dayton Power and Light Company
On December 15, 1999, Indiana Energy, now Vectren, announced that the board of
directors had approved a definitive agreement under which it would acquire the
natural gas distribution assets of The Dayton Power and Light Company, which
would add 310,000 gas distribution customers in 16 counties in west central
Ohio. On October 31, 2000, Vectren completed the approximate $465 million
acquisition. Vectren acquired the natural gas distribution assets as a tenancy
in common through two wholly owned subsidiaries. Vectren Energy Delivery of
Ohio, Inc. (VEDO) holds a 53 percent undivided ownership interest in the assets
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and Indiana Gas holds a 47 percent undivided ownership interest in the assets.
VEDO is the operator of the assets, operations of which are herein referred to
as "the Ohio operations." VUHI established a $435 million commercial paper
program to fund the majority of the acquisition. This facility was utilized at
October 31, 2000, and will be replaced over time with permanent financing.
VEDO's portion of the acquisition was funded with short-term borrowings from
VUHI. Indiana Gas' portion of the acquisition was funded with a combination of
short-term borrowings from VUHI and its commercial paper program.
Common Stock Offering
On January 19, 2001, Vectren filed a registration statement with the Securities
and Exchange Commission with respect to a public offering of 5.5 million shares
of new common stock. On February 8, 2001, the registration became effective and
agreement was reached to sell 5.5 million shares to a group of underwriters. On
February 14, the shares were sold, at which time the underwriters exercised
their over-allotment option to sell an additional 825,000 shares for a total of
about 6.3 million shares. The net proceeds of $129.4 million will be used
principally to repay outstanding commercial paper utilized for recent
acquisitions.
Recent Development
In March 2001, Vectren, Indiana Gas, and SIGECO reached agreement with the
Indiana Office of Utility Consumer Counselor (OUCC) and The Citizens Action
Coalition of Indiana, Inc. (CAC) regarding an Indiana Utility Regulatory
Commission (IURC) Order disallowing Indiana Gas the recovery of $3.8 million in
gas costs. Vectren recorded a $3.8 million reduction of 2000 fourth quarter
revenues as a result of the disallowance.
As part of the agreement, among other things, the company agreed to contribute
additional funds to the state of Indiana's Low Income Heating Assistance Program
in 2001 and to credit $3.3 million of the $3.8 million disallowed amount to
Indiana Gas customers' April 2001 utility bills in exchange for both the OUCC
and the CAC dropping their appeals of the IURC Order. The contributions to
Indiana's Low Income Heating Assistance Program totaling $1.9 million were made
in 2001 and were charged to operations and maintenance expense. There was no
impact to 2000 operations as a result of this contribution.
For further information on the $3.8 million disallowance refer to Rate and
Regulatory Matters below. For further information on the settlement refer to
Vectren's Current Report on Form 8-K dated March 29, 2001.
Results of Operations
Vectren's consolidated earnings result from the operations of its utility
subsidiaries, Indiana Gas, SIGECO and the Ohio operations, and from the
non-utility operations and investments of Vectren's non-regulated businesses.
(In millions, except per share amounts) 2000 1999 1998
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Net income, as reported $ 72.0 $ 90.7 $ 86.6
Merger and integration costs, net of tax 36.8 - -
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Net income before merger and integration costs $ 108.8 $ 90.7 $ 86.6
Attributable to:
Regulated $ 84.0 $ 75.4 $ 69.3
Non-regulated $ 24.8 $ 15.3 $ 17.3
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Basic earnings per share, as reported $ 1.18 $ 1.48 $ 1.41
Merger and integration costs 0.60 - -
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Basic earnings per share before merger and
integration costs $ 1.78 $ 1.48 $ 1.41
Attributable to:
Regulated $ 1.37 $ 1.23 $ 1.13
Non-regulated $ 0.41 $ 0.25 $ 0.28
Net Income
Consolidated net income was $72.0 million, or $1.18 on a basic earnings per
share basis, for the year ended December 31, 2000. Consolidated net income
before merger and integration costs of $52.5 million, including $11.4 million of
additional depreciation included in depreciation and amortization (see merger
and integration costs below), was $108.8 million, or $1.78 per share, for the
year ended December 31, 2000, as compared to net income of $90.7 million, or
$1.48 per share, and $86.6 million, or $1.41 per share, for 1999 and 1998,
respectively. Vectren's 2000 results reflect two months of results of the Ohio
operations.
Dividends
On October 28, 2000, Vectren's board of directors increased the quarterly
dividend on common stock to 25.5 cents per share from 24.25 cents per share.
This resulted in total dividends paid of 98 cents compared to 94 cents in 1999.
In 1998, dividends paid totaled 90 cents per share.
Utility Margin (Utility Operating Revenues Less Utility Cost of Gas, Cost of
Fuel for Electric Generation and Purchased Electric Energy)
Vectren's utility gas margin increased $33.1 million to $266.2 million compared
to the twelve-month period in 1999, $28.2 million of the increase reflected the
inclusion of the Ohio operations' results for two months. The remaining $4.9
million, or 2 percent, increase attributable to Indiana Gas and SIGECO gas
operations reflects 8 percent (11.9MMDth) greater throughput (combined sales and
transportation) due to much colder temperatures during the fourth quarter of
2000 than the 1999 period and a 2 percent growth in customers. Residential and
commercial sales rose 7 percent and 10 percent, respectively. Temperatures were
11 percent colder during the current twelve-month period and approached normal
for the year. These favorable impacts on gas margin were partially offset by a
$3.8 million disallowance of recoverable gas costs by the IURC, charged against
gas revenues in December 2000 (see Rate and Regulatory Matters).
In 1999, gas utility margin was $233.1 million, as compared to $217.3 million
for the prior year. The 1999 increase is primarily attributable to weather being
8 percent colder than the same period in 1998 and the addition of new
residential and commercial customers.
Vectren's utilities' rates for gas transportation generally provide for the same
margins as are earned on the sale of gas under their applicable sales tariffs.
Approximately one-half of total gas system throughput represents gas used for
space heating and is affected by weather.
Total cost of gas sold was $552.5 million in 2000, $266.4 million in 1999 and
$270.0 million in 1998. Excluding $83.2 million related to the Ohio operations
for two months, total cost of gas sold increased $202.9 million, or 76 percent,
for the year ended December 31, 2000 compared to 1999, primarily due to
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significantly higher average per unit purchased gas costs. The total average
cost per dekatherm of gas purchased by Indiana Gas and SIGECO was $5.77 in 2000
compared to $3.58 in 1999. The price changes are due primarily to changing
commodity costs in the marketplace. Lower average per unit costs of gas sold
during 1999 as compared to 1998 more than offset the impact of the increased
throughput, causing the slight decline in 1999 cost of gas sold. Vectren's
utility subsidiaries are generally allowed full recovery of such changes in
purchased gas costs from their retail customers through commission-approved gas
cost adjustment mechanisms. (see Rate and Regulatory Matters).
Electric margin rose $8.3 million, or 4 percent, to $228.8 million for the
twelve-month period in 2000 compared to the same period in 1999. Although unit
prices were lower than in 1999, sales to the wholesale energy markets
contributed $4.4 million of the margin increase with volumes up 39 percent for
2000 compared to 1999. Additionally, the impact of much colder temperatures on
electric heating sales and a 5 percent growth in commercial customers
contributed to the 2000 electric margin increase. Mild summer temperatures
impacted both 2000 and 1999. Retail and firm wholesale electric sales for 2000
increased 2 percent and total electric sales increased 8 percent.
Electric utility margin for the year ended December 31, 1999 was $220.5 million,
compared to $211.9 million for the prior year. The $8.6 million increase in
margin reflects a 5 percent increase in retail and firm wholesale electric sales
primarily due to stronger industrial and commercial sales and a $1.0 million
increase in margin from sales to other wholesale customers. Although sales to
other wholesale customers declined 17 percent in 1999 due to milder summer
temperatures which eased demand in these markets, several new sales contracts
produced higher average unit sales prices to these customers.
A 1 percent increase in electric generation and higher per unit coal costs
resulted in a $4.9 million, or 7 percent, increase in fuel costs for electric
generation for 2000 compared to the prior year. Fuel costs for electric
generation increased $1.1 million, or 2 percent, in 1999.
Although SIGECO's sales of electric energy to other wholesale customers are
provided primarily from otherwise unutilized capacity, SIGECO's purchases of
electricity from other utilities for resale to other wholesale customers
typically represent the majority of SIGECO's total purchased electric energy
costs. The 39 percent increase in sales to other wholesale customers combined
with higher average market prices caused purchased electric energy costs to
increase $15.6 million, or 75 percent, for the year ended December 31, 2000
compared to 1999. During 1999, total purchases of electric energy declined 13
percent due to the 17 percent decline in sales to wholesale customers, however
higher average market prices for energy purchased resulted in total costs
remaining comparable to 1998 costs.
Non-Utility Margin (Energy Services and Other Revenues Less Cost of Energy
Services and Other)
Total margin from Vectren's non-utility operations (primarily the operating
companies of its Energy Services, Utility Services, and Communications groups)
for the twelve month period in 2000 was $20.3 million compared to $13.7 million
and $10.1 million for the same periods in 1999 and 1998, respectively. The $6.6
million increase in 2000 and $3.6 million increase in 1999 were primarily from
the Energy Services group reflecting the continued growth of its natural gas
marketing operations and its performance contracting and energy efficiency
project operations, including several large government contracts in progress.
Energy Services' margin increased $3.6 million and $3.7 million for 2000 and
1999, respectively. Expanded coal mining operations at Utility Services and
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additional municipal projects at Communications also contributed an additional
$2.5 million to the rise in 2000 non-utility margin.
During 2000, the cost of energy services and other, which was chiefly the cost
of natural gas purchased for resale by Energy Services and project contract
costs at Energy Services and Communications, rose $225.7 million, or 91 percent,
compared to 1999 due primarily to significantly higher per unit purchased gas
costs and growth in gas sales at Energy Services, following $45.1 million higher
costs in 1998.
Operating Expenses (excluding Cost of Gas Sold, Cost of Fuel for Electric
Generation, Purchased Electric Energy and Cost of Energy Services and Other)
Excluding $7.1 million in expenses related to the Ohio operations, Vectren's
other operating expenses increased $2.9 million, or less than 2 percent, for the
year ended December 31, 2000, compared to the same period in 1999. The increase
is attributable to higher operating expenses related to continued growth in
operations at certain non-regulated subsidiaries, primarily Energy Services.
Other operating expenses rose $7.8 million, or 4 percent, for 1999 as compared
to 1998. This increase reflects greater other general operating expenses at
Vectren's utility subsidiaries, including expenses associated with the new
customer information and work management systems and rental expense related to
buildings previously owned. Higher other operating expenses were also
experienced at Energy Services and Communications due to the continuing growth
in their operations.
Depreciation and amortization increased $18.7 million, or 21 percent, and $5.4
million, or 7 percent, for the years ended December 31, 2000 and December 31,
1999, respectively. The increase in 2000 expense is chiefly the result of
additional depreciation related to merger integration activities (see below) and
$1.7 million of depreciation of utility plant and amortization of goodwill
related to the Ohio operations. Goodwill related to the acquisition of the Ohio
operations of approximately $198 million is being amortized on a straight-line
basis over a 40 year period. The remaining $5.6 million, or 6 percent, increase
in expense over 1999 and the increase in expense over 1998 reflects depreciation
of normal additions of utility plant at Indiana Gas and SIGECO.
Taxes other than income taxes rose $8.1 million, or 27 percent, during 2000 due
to $7.1 million related to the Ohio operations, primarily Ohio excise tax, and
increased $2.5 million, or 9 percent, in 1999 due to higher gross receipts and
property tax expense.
Merger and Integration Costs
Merger and integration costs incurred for the year ended December 31, 2000
totaled $41.1 million, including $1.8 million related to the integration of the
Ohio operations Vectren expects to realize net merger savings of nearly $200
million over the next ten years from the elimination of duplicate corporate and
administrative programs and greater efficiencies in operations, business
processes and purchasing. The continued merger integration activities, which
will contribute to the merger savings, will be substantially completed in 2001.
Of the $41.1 million of merger and integration costs incurred in 2000, accruals
were established at March 31, 2000 totaling $20.7 million. Of this amount, $5.5
million related to employee and executive severance costs, $13.1 million related
to transaction costs and regulatory filing fees, and the remaining $2.1 million
related to employee relocations that occurred prior to or coincident with the
merger closing. At December 31, 2000, the accrual remaining for such costs
totaled $1.8 million, all related to severance costs. Of the $41.1 million, the
remaining $20.4 million was expensed throughout the remainder of the year as
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expenses were incurred. Such expenses included $6.0 million related to sign
changes at all company facilities to display the Vectren name, changes to all
fleet vehicles to reflect the new corporate name and logo, and changes to
company stationery. An additional $13.9 million was incurred over the course of
the year for accounting fees resulting from merger related filing requirements,
consulting fees related to integration activities such as organization
structure, employee travel between company locations as part of integration
activities, internal labor of employees assigned to integration teams, investor
relations, communications activities, and certain benefit costs. In addition,
$0.5 million was recorded related to severance costs associated with the
integration of the Ohio operations.
During the merger planning process, approximately 135 positions were identified
for elimination. As of December 31, 2000, approximately 70 positions had been
vacated, with the remaining 65 positions to be eliminated in 2001
The integration activities experienced by the company included such things as
information system consolidation, process review and definition, organization
design and consolidation, and knowledge sharing.
As a result of merger integration activities, management has identified certain
information systems that are expected to be retired in 2001. Accordingly, the
useful lives of these assets have been shortened to reflect this decision,
resulting in additional depreciation expense of approximately $11.4 million for
the year ended December 31, 2000.
In total, merger and integration costs were $52.5 million ($36.8 million after
tax), or $.60 on a basic earnings per share basis, in 2000.
Other Income
Equity in earnings of unconsolidated investments increased $2.4 million for the
year ended December 31, 2000, compared to the prior year. The increase in 2000
is due primarily to a $7.0 million pre-tax net gain related to the restructuring
of Communications' investment in SIGECOM. The increase was partially offset by
lower pre-tax earnings recognized from ProLiance Energy Services, LLC
(ProLiance), Energy Services' energy marketing joint venture, and lower other
investment earnings.
Equity in earnings of unconsolidated investments decreased $3.2 million for
1999, compared to 1998. The decrease in 1999 reflected lower pre-tax earnings
recognized from ProLiance.
Other-net increased $11.6 million for the year ended December 31, 2000, compared
to the prior year due primarily to increased interest income mainly from
Vectren's investments in structured finance and investment transactions,
including leveraged leases and increased capitalized interest on utility
construction expenditures.
Other-net increased 1.5 million for the year ended December 31, 1999, compared
to the prior year due primarily to increased leveraged lease income, partially
offset by less sales of emission allowance credits.
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Interest Expense
Interest expense for the twelve-month period in 2000 rose $14.3 million, or 33
percent, compared to 1999. The increase was due primarily to increased working
capital requirements resulting from extremely high natural gas prices,
additional debt required for Vectren's increased financial investment
activities, interest related to the financing of the acquisition of the Ohio
operations, and higher average interest rates on utility debt and short-term
borrowings than incurred during 1999. Interest expense increased $2.5 million to
$42.9 million for 1999, as compared to 1998, due to increased average debt
outstanding required primarily to fund Vectren's increased financial investment
activities and higher average interest rates on utility debt.
Income Taxes
Federal and state income taxes declined $11.5 million in 2000, compared to 1999
due primarily to $30.1 million lower pre-tax earnings and to additional tax
benefits realized from certain non-regulated investments, which were partially
offset by the non-deductibility of certain merger costs. Federal and state
income taxes increased $3.4 million, or 8 percent during 1999 compared to 1998
due primarily to higher pre-tax income in 1999 and the favorable impact on the
1998 effective tax rate of the liquidation of a leveraged lease investment.
Other Operating Matters
Acquisition of Miller Pipeline Corporation
On December 13, 2000, Reliant Services, LLC (Reliant), a 50 percent owned,
non-regulated utility services affiliate of Vectren and Cinergy Corporation
(Cinergy), purchased the common stock of Miller Pipeline Corporation from
NiSource, Inc. for $68.3 million. Vectren and Cinergy each contributed $16
million of equity, and the remaining $36.3 million was funded with 7-year
intermediate bank loans. Miller Pipeline Corporation is one of the nation's
premier natural gas distribution contractors with over 50 years of experience in
the construction industry, currently providing such services to Indiana Gas,
among other customers. The acquisition will expand Vectren's utility services
business by adding underground pipeline construction, replacement and repair to
existing utility services.
Additional Investment with Utilicom Networks
Vectren Advanced Communications (VAC), a wholly owned non-regulated subsidiary,
was formed to hold Vectren's investments in Utilicom Networks, LLC (Utilicom )
and related entities. Utilicom Networks is a provider of bundled communications
services through high capacity broadband networks, including high speed internet
service, cable television and telephone service. VAC has a 14 percent interest
in Class A units of Utilicom, which is accounted for using the equity method of
accounting.
In January 2000, VAC completed the restructuring of its investment in SIGECOM,
LLC (SIGECOM), which is a venture between VAC and Utilicom which provides
communications services to the greater Evansville, Indiana area. On January 28,
2000, affiliates of The Blackstone Group, a private equity fund, invested in
Class B units of Utilicom. In connection with the Blackstone Group investment,
VAC exchanged its 49 percent preferred equity interest in SIGECOM for $16.5
million of convertible subordinated debt of Utilicom and a 14 percent indirect
common equity interest in SIGECOM, which was valued at $6.5 million The debt is
convertible into Class A units of Utilicom at the option of VAC or upon the
event of a public offering of stock by Utilicom. The carrying value of VAC's 49%
preferred equity interest was $15 million prior to the exchange. The
consideration received by VAC in the exchange was valued based upon an
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investment bank analysis of the fair value of SIGECOM at the transaction date.
The investment restructuring resulted in a pre-tax gain of $8 million, which is
classified in equity in earnings in unconsolidated investments in the
accompanying Consolidated Statements of Income. For the year ended December 31,
2000, Vectren also recognized losses of $1 million to reflect its share of
Utilicom and SIGECOM's operating results. At December 31, 2000, VAC's equity
investment in SIGECOM-related entities was $8.2 million.
In December 2000, VAC invested an additional $8.1 million with Utilicom in the
form of convertible subordinated debt as part of Utilicom's plans to raise $600
million in capital to establish operating ventures in Indianapolis, Indiana and
Dayton, Ohio and to recapitalize the SIGECOM venture. Vectren is committed to
invest up to $100 million, inclusive of the $8.1 million already invested, in
the form of convertible subordinated debt, subject to Utilicom obtaining all
required funding. The debt is convertible into common equity interests in the
Indianapolis and Dayton ventures at the option of VAC or upon the event of a
public offering of stock by Utilicom. At December 31, 2000, VAC's investment in
convertible debt totals approximately $25 million and, upon conversion, VAC
would have up to a 31 percent interest in the Indianapolis and Dayton ventures
and up to a 10 percent interest in Utilicom, assuming completion of all required
funding.
Both the Indianapolis and Dayton projects have received all necessary regulatory
approvals and are in advanced stages of pre-engineering and pre-construction
planning. Pole attachment rights have been secured, and launch dates of early
2002 are expected.
Operation of Warrick Generating Station
On August 21, 2000, SIGECO announced that no later than April 18, 2001, ALCOA,
INC. (ALCOA) would begin operating the Warrick Generating Station. In 1956,
arrangements were made for SIGECO to operate the Warrick Generating Station as
an agent for ALCOA. Three generating units at the plant are owned by ALCOA.
SIGECO owns the fourth unit equally with ALCOA. The operating change will have
no impact on SIGECO's generating capacity and is not expected to have any
negative impact on Vectren's financial results. Additionally, SIGECO will retain
ALCOA as a wholesale power and transmission services customer. Transition of the
plant operations was completed in March 2001.
Realignment
Effective January 1, 2001, the utility operations were realigned into two
primary business units, Energy Delivery and Power Supply.
ProLiance Energy, LLC
ProLiance, a 50 percent owned, non-regulated, energy marketing affiliate of
Vectren, began providing natural gas and related services to Indiana Gas,
Citizens Gas and Coke Utility (Citizens Gas) and others effective April 1, 1996.
The sale of gas and provision of other services to Indiana Gas by ProLiance is
subject to regulatory review through the quarterly gas cost adjustment (GCA)
process administered by the IURC.
On September 12, 1997, the IURC issued a decision finding the gas supply and
portfolio administration agreements between ProLiance and Indiana Gas and
ProLiance and Citizens Gas to be consistent with the public interest and that
ProLiance is not subject to regulation by the IURC as a public utility. The
IURC's decision reflected the significant gas cost savings to customers obtained
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through ProLiance's services and suggested that all material provisions of the
agreements between ProLiance and the utilities are reasonable. Nevertheless,
with respect to the pricing of gas commodity purchased from ProLiance, the
pricing of fees paid by ProLiance to the utilities for the prospect of using
pipeline entitlements if and when they are not required to serve the utilities'
firm customers, and the pricing of fees paid by the utilities to ProLiance for
portfolio administration services, the IURC concluded that additional review in
the GCA process would be appropriate and directed that these matters be
considered further in the pending, consolidated GCA proceeding involving Indiana
Gas and Citizens Gas. The IURC has not yet established a schedule for conducting
these additional proceedings. Through a series of appeals, the order was finally
considered by the Indiana Supreme Court.
On September 22, 2000, the Indiana Supreme Court issued a decision affirming the
IURC's decision on ProLiance in all respects. However, until the three pricing
issues reserved by the IURC are resolved, Vectren will continue to reserve a
portion of its share of ProLiance earnings.
In August 1998, Indiana Gas, Citizens Gas and ProLiance each received a Civil
Investigative Demand (CID) from the United States Department of Justice
requesting information relating to Indiana Gas' and Citizens Gas' relationship
with and the activities of ProLiance. The Department of Justice issued the CID
to gather information regarding ProLiance's formation and operations, and to
determine if trade or commerce has been restrained. Indiana Gas has provided all
information requested and management continues to believe that there are no
significant issues in this matter.
Indiana Gas continues to record gas costs in accordance with the terms of the
ProLiance contract and Vectren continues to record its proportional share of
ProLiance's earnings. Pretax income of $5.4 million and $6.7 million was
recognized as ProLiance's contribution to earnings for the years ended December
31, 2000 and 1999, respectively. Earnings recognized from ProLiance are included
in equity in earnings of unconsolidated investments on the Consolidated
Statements of Income. At December 31, 2000 and 1999, Vectren has reserved
approximately $2.4 million and $1.7 million, respectively, of ProLiance's
earnings after tax pending resolution of the remaining issues. The reserve
represents 10% of ProLiance's pretax earnings and serves as management's best
estimate of potential exposure arising from the three pricing issues.
Environmental Matters
Clean Air Act
NOx SIP Call Matter. In October 1997, the United States Environmental Protection
Agency (USEPA) proposed a rulemaking that could require uniform nitrogen oxide
(NOx) emissions reductions of 85 percent by utilities and other large sources in
a 22-state region spanning areas in the Northeast, Midwest, Great Lakes,
Mid-Atlantic and South. This rule is referred to as the "NOx SIP call." The
USEPA provided each state a proposed budget of allowed NOx emissions, a key
ingredient of ozone, which requires a significant reduction of such emissions.
Under that budget, utilities may be required to reduce NOx emissions to a rate
of 0.15 lb/mmBtu below levels already imposed by Phase I and Phase II of the
Clean Air Act Amendments of 1990 (the Act). Midwestern states (the alliance)
have been working together to determine the most appropriate compliance strategy
as an alternative to the USEPA proposal. The alliance submitted its proposal,
which calls for a smaller, phased in reduction of NOx levels, to the USEPA and
the Indiana Department of Environmental Management (IDEM) in June 1998.
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In July 1998, Indiana submitted its proposed plan to the USEPA in response to
the USEPA's proposed new NOx rule and the emissions budget proposed for Indiana.
The Indiana plan, which calls for a reduction of NOx emissions to a rate of 0.25
lb/mmBtu by 2003, is less stringent than the USEPA proposal but more stringent
than the alliance proposal.
On October 27, 1998, USEPA issued a final rule "Finding of Significant
Contribution and Rulemaking for Certain States in the Ozone Transport Assessment
Group Region for Purposes of Reducing Regional Transport of Ozone," (63 Fed.
Reg. 57355). The final rule requires that 23 states and jurisdictions must file
revised state implementation plans (SIPs) with the USEPA by no later than
September 30, 1999, which was essentially unchanged from its October 1997,
proposed rule. The USEPA has encouraged states to target utility coal-fired
boilers for the majority of the reductions required, especially NOx emissions.
Northeastern states have claimed that ozone transport from midwestern states
(including Indiana) is the primary reason for their ozone concentration
problems. Although this premise is challenged by others based on various air
quality modeling studies, including studies commissioned by the USEPA, the USEPA
intends to incorporate a regional control strategy to reduce ozone transport.
The USEPA's final ruling is being litigated in the federal courts by
approximately ten midwestern states, including Indiana.
During the second quarter of 1999, the USEPA lost two federal court challenges
to key air-pollution control requirements. In the first ruling by the U.S.
Circuit Court of Appeals for the District of Columbia on May 14, 1999, the Court
struck down the USEPA's attempt to tighten the one-hour ozone standard to an
eight-hour standard and the attempt to tighten the standard for particulate
emissions, finding the actions unconstitutional. In the second ruling by the
same Court on May 25, 1999, the Court placed an indefinite stay on the USEPA's
attempts to reduce the allowed NOx emissions rate from levels required by the
Clean Air Act Amendments of 1990. The USEPA appealed both court rulings. On
October 29, 1999, the Court refused to reconsider its May 14, 1999 ruling.
On March 3, 2000, the D.C. Circuit of Appeals upheld the USEPA's October 27,
1998 final rule requiring 23 states and the District of Columbia to file revised
SIPs with the USEPA by no later than September 30, 1999. Numerous petitioners,
including several states, have filed petitions for rehearing with the U.S. Court
of Appeals for the District of Columbia in Michigan v. the USEPA. On June 22,
2000, the D.C. Circuit Court of Appeals denied petition for rehearing en banc
and lifted its May 25, 1999 stay. Following this decision, on August 30, 2000,
the D.C. Circuit Court of Appeals issued an extension of the SIP Call
implementation deadline, previously May 1, 2003, to May 31, 2004. On September
20, 2000, petitioners filed a Petition of Writ of Certiori with the United
States Supreme Court requesting review of the D.C. Circuit Court's March 3, 2000
Order. The Court has not yet ruled on the Petition for Certiorari. The USEPA
granted Section 126 Petitions filed by northeastern states that require named
sources in the eastern half of Indiana to achieve NOx reduction by May 1, 2003.
No SIGECO facilities are named in the Section 126 Petitions filed by
northeastern states, therefore SIGECO's compliance date remains May 31, 2004.
The proposed NOx emissions budget for Indiana stipulated in the USEPA's final
ruling requires a 36 percent reduction in total NOx emissions from Indiana. The
ruling, pending finalization of state rule making, could require SIGECO to lower
its system-wide emissions by approximately 70 percent. Depending on the level of
system-wide emissions reductions ultimately required, and the control technology
utilized to achieve the reductions, the estimated construction costs of the
control equipment could reach $160 million, which are expected to be expended
during the 2001-2004 period, and related additional operation and maintenance
expenses could be an estimated $8 million to $10 million, annually. No accrual
has been recorded by the company related to the NOx SIP Call matter. The rules
12
governing NOx emissions, once finalized, are to be applied prospectively.
Mercury Emissions. Under the Act, the USEPA is required to study emissions from
power plants in order to determine if additional regulations are necessary to
protect public health. The USEPA reported its study to Congress in February
1998. That study concluded that of all toxic pollution examined, mercury posed
the greatest concern to public health. An earlier USEPA study concluded that the
largest single source of human-caused mercury pollution in the United States was
coal-fired power plants.
After completion of the study, the Act required the USEPA to determine whether
to proceed with the development of regulations. The USEPA announced that it had
affirmatively decided that mercury air emissions from power plants should be
regulated.
On December 14, 2000, the USEPA released a statement announcing that reductions
of mercury emissions from coal-fired plants will be required in the near future.
The USEPA has indicated they will propose regulations by December 2003 and will
begin developing those regulations shortly. Industry, the public, and state,
local and tribal governments will have an opportunity to participate in the
process. The USEPA will then issue final regulations by December 2004. Because
rules governing mercury emissions are under development, the determination of
exposure, if any, is impossible as there are no standards or rules by which
compliance (or lack thereof) can be measured. Accordingly, no accrual has been
recorded by the company related to the mercury emissions matter.
Culley Generating Station Investigation Matter. The USEPA initiated an
investigation under Section 114 of the Act of SIGECO's coal-fired electric
generating units in commercial operation by 1977 to determine compliance with
environmental permitting requirements related to repairs, maintenance,
modifications and operations changes. The focus of the investigation was to
determine whether new source performance standards should be applied to the
modifications and whether the best available control technology was, or should
have been, used. Numerous other electric utilities were, and are currently,
being investigated by the USEPA under an industry-wide review for similar
compliance. SIGECO responded to all of the USEPA's data requests during the
investigation. In July 1999, SIGECO received a letter from the Office of
Enforcement and Compliance Assurance of the USEPA discussing the industry-wide
investigation, vaguely referring to the investigation of SIGECO and inviting
SIGECO to participate in a discussion of the issues. No specifics were noted;
furthermore, the letter stated that the communication was not intended to serve
as a notice of violation. Subsequent meetings were conducted in September and
October with the USEPA and targeted utilities, including SIGECO, regarding
potential remedies to the USEPA's general allegations.
On November 3, 1999, the USEPA filed a lawsuit against seven utilities,
including SIGECO. The USEPA alleges that, beginning in 1992, SIGECO violated the
Act by: (i) making modifications to its Culley Generating Station in Yankeetown,
Indiana without obtaining required permits; (ii) making major modifications to
the Culley Generating Station without installing the best available emission
control technology; and (iii) failing to notify the USEPA of the modifications.
In addition, the lawsuit alleges that the modifications to the Culley Generating
Station required SIGECO to begin to comply with federal new source performance
standards.
SIGECO believes it performed only maintenance, repair and replacement activities
at the Culley Generating Station, as allowed under the Act. Because proper
maintenance does not require permits, application of the best available emission
13
control technology, notice to the USEPA, or compliance with new source
performance standards, SIGECO believes that the lawsuit is without merit, and
intends to vigorously defend the lawsuit.
The lawsuit seeks fines against SIGECO in the amount of $27,500 per day per
violation. The lawsuit does not specify the number of days or violations the
USEPA believes occurred. The lawsuit also seeks a court order requiring SIGECO
to install the best available emissions technology at the Culley Generating
Station. If the USEPA is successful in obtaining an order, SIGECO estimates that
it would incur capital costs of approximately $40 million to $50 million
complying with the order. In the event that SIGECO is required to install
system-wide NOx emission control equipment, as a result of the NOx SIP call
issue, the majority of the $40 million to $50 million for best available
emissions technology at Culley Generating Station would be included in the $160
million expenditure previously discussed.
The USEPA has also issued an administrative notice of violation to SIGECO making
the same allegations, but alleging that violations began in 1977.
While it is possible that SIGECO could be subjected to criminal penalties if the
Culley Generating Station continues to operate without complying with the new
source performance standards and the allegations are determined by a court to be
valid, SIGECO believes such penalties are unlikely as the USEPA and the electric
utility industry have a bonafide dispute over the proper interpretation of the
Act. Accordingly, no accrual has been recorded by the company, and SIGECO
anticipates at this time that the plant will continue to operate while the
matter is being decided.
Information Request. On January 23, 2001, SIGECO received an information request
from the USEPA under Section 114(a) of the Act for historical operational
information on the Warrick and A.B. Brown generating stations. SIGECO plans to
provide all information requested, and management believes that no significant
issues will arise from this request.
Manufactured Gas Plants
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 the 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 Indiana Department of Environmental Management
(IDEM), and a Record of Decision (ROD) was issued by 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 IDEM's Voluntary Remediation Program (VRP) and
is currently conducting some level of remedial activities including groundwater
monitoring at certain sites where deemed appropriate and will continue remedial
activities at the sites as appropriate and necessary.
In conjunction with data compiled by expert 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
14
time, Indiana Gas has accrued costs that it reasonably expects to incur totaling
approximately $20.3 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, which serve to limit Indiana
Gas' share of response costs at these 19 sites to between 20 and 50 percent.
With respect to insurance coverage, as of December 31, 2000, Indiana Gas has
received and recorded settlements from all known insurance carriers in an
aggregate amount approximating its $20.3 million accrual.
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.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133), which requires that every derivative instrument
be recorded on the balance sheet as an asset or liability measured at its fair
value and that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
SFAS 133, as amended, is effective for fiscal years beginning after June 15,
2000 and must be applied to derivative instruments and certain derivative
instruments embedded in hybrid contracts that were issued, acquired or
substantively modified after December 31, 1998. Vectren has completed the
process of identifying all derivative instruments, determining fair market
values of these derivatives, designating and documenting hedge relationships,
and evaluating the effectiveness of those hedge relationships. As a result of
the successful completion of this process, Vectren adopted SFAS 133 as of
January 1, 2001.
SFAS 133 requires that as of the date of initial adoption, the difference
between the fair market value of derivative instruments recorded on the balance
sheet and the previous carrying amount of those derivatives be reported in net
income or other comprehensive income, as appropriate, as the cumulative effect
of a change in accounting principle in accordance with Accounting Principles
Board Opinion No. 20 "Accounting Changes."
A limited number of Vectren's contracts are defined as derivatives under SFAS
133. These derivatives are forward physical contracts for both the purchase and
sale of natural gas and electricity by its wholly owned gas marketing
subsidiary, SIGCORP Energy Services, Inc. (SES) and SIGECO, respectively, and an
interest rate swap.
SES's primary business is the buying and re-selling of physical natural gas to
the industrial market segment. SES manages its pricing risk by entering into
corresponding gas commodity contracts that ensure a reasonable matching of the
associated risk. In addition, SES utilizes gas storage facilities to ensure
operational as well as price risk management of its forward positions. Minimal
open positions in terms of price, volume and specified delivery locations do
occur and are managed by SES using the above instruments and through management
15
reporting. These commodity contracts and gas storage facilities are for the
normal purchase and sale of natural gas and therefore do not require fair value
accounting under SFAS 133. SES also utilizes price swap agreements that are
accounted for under SFAS 133 to mitigate price risk related to certain forward
physical contracts. These derivatives have not been designated as hedges,
accordingly, the changes in market value will be recorded currently in earnings.
The mark to market impact of these derivatives has been reflected as part of the
transition adjustment recorded to earnings on January 1, 2001.
Derivatives used in the power marketing operations are used to effectively
manage the utilization of SIGECO's generation capability. These derivatives
include forward physical wholesale sales and purchases. The forward sales
contracts are generally used to sell the excess generation capacity of SIGECO
when demand conditions warrant this activity. These contracts are for the normal
purchase and sale of electricity and therefore do not require fair value
accounting under SFAS 133. The forward purchase contracts are entered into as
part of "buy-sell" transactions with other utilities and power marketers. These
contracts are derivatives and do not qualify for hedge accounting, accordingly,
they have been marked to market currently in earnings. The mark to market impact
of these derivatives has been reflected as part of the transition adjustment
recorded to earnings on January 1, 2001.
The interest rate swap is used to hedge the exposure to interest rate risk
associated with VUHI's $150 million floating rate notes that bear interest at
the three month US dollar LIBOR rate plus .75 percent that were issued on
December 28, 2000. The swap was entered into concurrently with the issuance of
the floating rate debt. Vectren has formally documented the hedging relationship
between the swap and floating rate debt as well as its risk management
objectives and strategies for undertaking each hedge transaction. The swap has
been designated as a cash flow hedge and the mark to market impact has been
reflected as part of the transition adjustment recorded to other comprehensive
income on January 1, 2001.
The cumulative impact of the adoption of SFAS 133 on January 1, 2001 is a gain
of approximately $6.3 million due to the derivatives used in power marketing
operations. The impact of the derivatives used by SES and the interest rate swap
was immaterial.
Rate and Regulatory Matters
As a result of the ongoing appeal of a generic order issued by the IURC in
August 1999 regarding guidelines for the recovery of purchased power costs,
SIGECO entered into a settlement agreement with the Indiana Office of Utility
Consumer Counselor (OUCC) that provides certain terms with respect to the
recoverability of such costs. The settlement, originally approved by the IURC on
August 9, 2000, has been extended by agreement through March 2002. Under the
settlement, SIGECO can recover the entire cost of purchased power up to an
established benchmark, and during forced outages, SIGECO will bear a limited
share of its purchased power costs regardless of the market costs at that time.
Based on this agreement, SIGECO believes it has significantly limited its
exposure to unrecoverable purchased power costs.
Commodity prices for natural gas purchases during the last six months of 2000
unexpectedly increased significantly, primarily due to the expectation of a
colder winter, which led to increased demand and tighter supplies. Vectren's
utility subsidiaries are allowed full recovery of such charges in purchased gas
costs from their retail customers through commission-approved gas cost
adjustment mechanisms, and margin on gas sales should not be impacted. In
2001,Vectren 's utility subsidiaries may experience higher working capital
16
requirements, increased expenses, including unrecoverable interest costs and
uncollectibles, and possibly some level of price sensitive reduction in volumes
sold.
On October 11, 2000, Indiana Gas filed for approval of its regular quarterly
GCA. In early December, the IURC issued an interim order approving the request
by Indiana Gas for a GCA factor for December 2000. On January 4, 2001, the IURC
approved the January and February 2001 GCA as filed. The order also addressed
the claim by the OUCC that a portion of the requested GCA be disallowed because
Indiana Gas should have entered into additional commitments for this winter's
gas supply in late 1999 and early 2000. In procuring gas supply for this winter,
Indiana Gas followed the gas procurement practices that it had employed over the
last several years. In response to the claim by the OUCC, the IURC found that
there should be a $3.8 million disallowance related to gas procurement for the
winter season. As a result, Indiana Gas recognized a pre-tax charge of $3.8
million in December 2000. Both Indiana Gas and the OUCC have appealed this
ruling. The Citizens Action Coalition of Indiana, Inc., a not for profit
consumer advocate, has also filed with the IURC a petition to intervene and a
notice of appeal of the order. (See Recent Development.)
Competition
The utility industry has been undergoing dramatic structural change for several
years, resulting in increasing competitive pressures faced by electric and gas
utility companies. Increased competition may create greater risks to the
stability of utility earnings generally and may in the future reduce our
earnings from retail electric and gas sales. Currently, several states,
including Ohio, have passed legislation that allows electricity customers to
choose their electricity supplier in a competitive electricity market and
several other states are considering such legislation. At the present time,
Indiana has not adopted such legislation. Ohio regulation provides for choice of
commodity for all gas customers. Vectren plans to implement this choice for all
of its gas customers in Ohio by 2002. Indiana has not adopted any regulation
requiring gas choice except for large volume customers.
Liquidity and Capital Resources
Vectren's capitalization objective is 40-50 percent permanent capitalization.
This objective may have varied, and will vary, from time to time, depending on
particular business opportunities and seasonal factors that affect the company's
operation. Vectren's common equity component was 51 percent and 56 percent of
its total capitalization, including current maturities of long-term debt, at
December 31, 2000 and 1999, respectively. The common equity component of 51
percent at December 31, 2000 is expected to be reduced in 2001 upon the
refinancing of a substantial amount of short-term debt to long-term debt.
New construction, normal system maintenance and improvements, and information
technology investments needed to provide service to a growing customer base will
continue to require substantial expenditures. Additionally, during the four year
period 2001 through 2004, construction costs for NOx emissions control equipment
are estimated to total approximately $160 million. For the years ended December
31, 2000 and 1999, capital expenditures totaled $164.3 million and $132.2
million, respectively. The increase in capital expenditures for 2000 is related
primarily to the additional coal mine development costs at Utility Services.
Vectren's anticipated investments in non-regulated affiliates during the next
five years will also require funding. Capital expenditures and investments in
affiliates for the five year period 2001 - 2005 are as follows:
17
In millions 2001 2002 2003 2004 2005 Total
------- ------- ------- ------- ------- ------
Capital expenditures
Utility (1) (2) (3) $ 160.3 $ 143.3 $ 143.1 $ 122.8 $ 135.5 $705.0
Non-regulated (4) 66.0 23.4 27.1 11.0 7.6 135.1
------- ------- ------- ------- ------- ------
Total capital expenditures 226.3 166.7 170.2 133.8 143.1 840.1
------- ------- ------- ------- ------- ------
Non-regulated investments $ 83.5 $ 39.2 $ 33.3 $ 17.9 $ 11.0 $184.9
(1) Includes expenditures for NOx compliance of approximately $40 million in
2001, $30 million in 2002, $55 million in 2003 and $35 million in 2004.
(2) Includes expenditures for an 80-megawatt gas combustion turbine generator
of $20 million in 2001 and $13 million in 2002.
(3) Includes expenditures for additional generation assets of approximately $40
million in 2005.
(4) Includes expenditures for corporate technology hardware and software of
approximately $48 million in 2001.
During the five year period 2001 - 2005, maturities and sinking fund
requirements on long-term debt subject to mandatory redemption, in millions, are
$0.3 in 2001, $16.0 in 2003, $15.0 in 2004, and $38.0 in 2005.
At December 31, 2000, Vectren had $969 million of short-term borrowing capacity
for use in its utility and non-regulated operations, of which approximately $209
million was available.
Short-term cash working capital is required primarily to finance customer
accounts receivable, unbilled utility revenues resulting from cycle billing, gas
in underground storage, prepaid gas delivery services, capital expenditures and
investments until permanently financed. Short-term borrowings tend to be
greatest during the summer when accounts receivable and unbilled utility
revenues related to electricity are highest and gas storage facilities are being
refilled. During 2000, however, short-term borrowings related to working capital
requirements were greatest during the last six months of the year due to the
higher natural gas costs. On October 31, 2000, Vectren completed the acquisition
of the Ohio operations for a purchase price of approximately $465 million.
Commercial paper was issued to fund the purchase and will be replaced over time
with permanent financing.
Vectren's primary source of liquidity to fund working capital requirements has
been cash generated from operations, which totaled approximately $40.7 million,
$149.2 million and $156.6 million in 2000, 1999 and 1998 respectively. Cash from
operations decreased during 2000 as compared to 1999 by approximately $108.8
million. The decrease is primarily attributable to merger and integration costs
causing lower net income, increased recoverable fuel and natural gas costs and
increased working capital requirements resulting from higher natural gas costs.
The decrease in 1999 cash flow from operations as compared to 1998 of
approximately $7.4 million is primarily attributable to unfavorable changes in
working capital accounts offset by increased net income.
At December 31, 2000, Indiana Gas is not in compliance with the total
indebtedness to capitalization ratio contained in its back up credit facility
for its commercial paper program. The non-compliance resulted from the
indebtedness incurred to purchase its ownership interest in the Ohio operations.
A waiver on the Indiana Gas facility has been obtained to waive the
non-compliance through and including March 31, 2001. Vectren will provide an
equity investment in Indiana Gas to bring Indiana Gas into compliance. No amount
is outstanding under the back up facility.
18
On December 21, 2000, Vectren Capital Corporation, a wholly owned subsidiary
that provides financing for Vectren's non-regulated subsidiaries' operations and
investments, issued $78 million of private placement intermediate term notes to
three institutional investors. The issues and their terms are: $38.0 million,
due December 21, 2005, at 7.67 percent; $17.5 million, due December 21, 2007, at
7.83 percent; and $22.5 million, due December 21, 2010, at 7.98 percent. The
proceeds were used to repay outstanding short-term borrowings.
In December 2000, Indiana Gas filed a prospectus with the SEC with respect to
the issuance of $70 million in debt securities. On December 28, 2000, $20
million of 15-Year Insured Quarterly (IQ) Notes bearing interest at a rate of
7.15 percent per year and $50 million of 30-Year IQ Notes bearing interest at a
rate of 7.45 percent per year were issued. The 15-Year IQ Notes will mature on
December 15, 2015, and 30-Year IQ Notes will mature on December 16, 2030,
unless, in each case, redeemed prior to that date. Indiana Gas will have the
option to redeem the 15-Year IQ Notes, in whole or in part, from time to time on
or after December 15, 2004. Indiana Gas will have the option to redeem the
30-Year IQ Notes in whole or in part, from time to time on or after December 15,
2005. The net proceeds of the debt issuance were used to repay outstanding
commercial paper.
On December 28, 2000, VUHI issued $150 million in floating rate notes to repay
an equal amount of outstanding commercial paper utilized for the Ohio operations
acquisition. The notes bear interest at a rate equal to the three month US
dollar LIBOR rate plus .75 percent. Concurrently with the completion of this
financing, a floating rate to fixed rate swap was executed which in effect
resulted in a fixed rate of 6.64 percent on the notes.
On January 19, 2001, Vectren filed a registration statement with the Securities
and Exchange Commission with respect to a public offering of 5.5 million shares
of new common stock. On February 8, 2001, the registration became effective and
agreement was reached to sell 5.5 million shares to a group of underwriters. On
February 14, the shares were sold, at which time the underwriters exercised
their over-allotment option to sell an additional 825,000 shares for a total of
6.3 million shares. The net proceeds of $129.4 million will be used principally
to repay outstanding commercial paper utilized for recent acquisitions.
On March 1, 2000, the interest rate on $31.5 million of Adjustable Rate
Pollution Control Bonds of SIGECO, due March 1, 2025, was changed from 3.00
percent to 4.30 percent. The new interest rate was fixed through February 28,
2001. Also on March 1, 2000, the interest rate on $22.2 million of Adjustable
Rate Pollution Control Bonds of SIGECO, due March 1, 2020, was changed from 3.05
percent to 4.45 percent. The new interest rate was also fixed through February
28, 2001. For financial statement presentation, the $53.7 million of Adjustable
Rate Pollution Control Bonds are shown as a current liability. The two series of
bonds will be re-set for a five-year period effective March 1, 2001.
Financing Activities
Vectren expects the majority of its utility capital expenditures requirements
and debt security redemptions to be provided by internally generated funds.
Indiana Gas' and SIGECO's credit ratings on outstanding debt at December 31,
2000 were A/A2 and A/A1, respectively. VUHI's commercial paper related to the
19
October 2000 the Ohio operations acquisition has a credit rating of A-1/P-2.
Indiana Gas' commercial paper retains an A-1/P-1 rating.
Cash flow from financing activities of $638.7 million for the year ended
December 31, 2000 includes $697.0 million of additional net borrowings offset by
$60.0 million of dividends on shares of common stock. This is an increase of
$576.5 million over prior year due primarily to funding the acquisition of the
Ohio operations and increased working capital requirements.
Cash required for investing activities of $681.5 million for the year ended
December 31, 2000 includes, among other things, $463.3 million required for the
Ohio operations acquisition, $164.3 million of capital expenditures and $32.0
million additional notes receivable. This is an increase of $480.1 million over
prior year due primarily to the Ohio operations acquisition.
Forward-Looking Information
A "safe harbor" for forward-looking statements is provided by the Private
Securities Litigation Reform Act of 1995 (Reform Act of 1995). The Reform Act of
1995 was adopted to encourage such forward-looking statements without the threat
of litigation, provided those statements are identified as forward-looking and
are accompanied by meaningful cautionary statements identifying important
factors that could cause the actual results to differ materially from those
projected in the statement. Certain matters described in Management's Discussion
and Analysis of Results of Operations and Financial Condition, including, but
not limited to Vectren's realization of net merger savings and ProLiance, 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
Vectren and its subsidiaries' actual results to differ materially from those
contemplated in any forward-looking statements included, among others, the
following:
|X| Factors affecting utility operations such as unusual weather conditions;
catastrophic weather-related damage; unusual maintenance or repairs;
unanticipated changes to fossil fuel costs; 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; unanticipated changes to
electric energy supply costs, or availability due to demand, shortages,
transmission problems or other developments; or electric transmission or
gas pipeline system constraints.
|X| Increased competition in the energy environment including effects of
industry restructuring and unbundling.
|X| 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.
|X| Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission, state public utility
commissions, state entities which regulate natural gas transmission,
gathering and processing, and similar entities with regulatory oversight.
20
|X| Economic conditions including inflation rates and monetary fluctuations.
|X| 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.
|X| Availability or cost of capital, resulting from changes in Vectren
Corporation and its subsidiaries, interest rates, and securities ratings or
market perceptions of the utility industry and energy-related industries.
|X| Employee workforce factors including changes in key executives, collective
bargaining agreements with union employees, or work stoppages.
|X| Legal and regulatory delays and other obstacles associated with mergers,
acquisitions, and investments in joint ventures.
|X| 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.
|X| Changes in federal, state or local legislature requirements, such as
changes in tax laws or rates, environmental laws and regulations.
Vectren and its subsidiaries undertake 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.
21
ITEM 8. Financial Statements and Supplementary Data
VECTREN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
As of December 31,
------------------------
2000 1999
---------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 15,170 $ 17,351
Temporary investments - 903
Accounts receivable, less reserves of $5,716
and $3,949, respectively 295,351 123,612
Accrued unbilled revenues 143,365 55,370
Inventories 95,245 58,863
Prepaid gas delivery service 34,849 20,937
Recoverable fuel and natural gas costs 96,084 5,585
Prepayments and other current assets 20,998 23,091
---------- ----------
Total current assets 701,062 305,712
---------- ----------
Utility Plant:
Original cost 2,788,794 2,367,831
Less: accumulated depreciation and amortization 1,233,033 1,031,498
---------- ----------
Net utility plant 1,555,761 1,336,333
---------- ----------
Other Investments:
Investments in leveraged leases 93,145 85,737
Investments in partnerships and other corporations 108,645 74,644
Notes receivable 64,276 32,271
Other 1,057 996
---------- ----------
Total other investments 267,123 193,648
---------- ----------
Nonutility property, net of accumulated depreciation 103,477 64,474
Other Assets:
Deferred charges, net 31,094 31,672
Goodwill, net 197,977 -
Regulatory assets 52,246 47,593
Other 447 1,035
---------- ----------
Total other assets 281,764 80,300
---------- ----------
TOTAL ASSETS $2,909,187 $1,980,467
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
22
VECTREN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
As of December 31,
-------------------------
2000 1999
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of adjustable rate bonds subject to tender $ 53,700 $ 53,700
Current maturities of long-term debt and other obligations 249 776
Short-term borrowings 759,908 207,638
Accounts payable 201,481 66,541
Accounts payable to affiliated companies 102,540 29,286
Refunds to customers and customer deposits 22,922 27,396
Accrued taxes 556 26,602
Accrued interest 10,272 12,097
Other current liabilities 70,750 49,467
----------- -----------
Total current liabilities 1,222,378 473,503
----------- -----------
Deferred Credits and Other Liabilities:
Deferred income taxes 229,911 215,520
Accrued postretirement benefits other than pensions 45,883 40,942
Unamortized investment tax credit 23,165 25,524
Other 5,826 8,297
----------- -----------
Total deferred credits and other liabilities 304,785 290,283
----------- -----------
Commitments and Contingencies (Notes 6, 7, 15, 17, 18 and 19)
Minority Interest in Subsidiary 1,421 916
Long-term debt and other obligations, net of current maturities 631,954 486,726
Preferred stock of subsidiary:
Redeemable 8,076 8,192
Nonredeemable 8,889 11,090
----------- -----------
Total preferred stock 16,965 19,282
----------- -----------
Common stock (no par value) - issued and outstanding 61,419
and 61,305, respectively 217,720 215,917
Retained earnings 506,462 493,918
Accumulated other comprehensive income 7,502 (78)
----------- -----------
Total common shareholders' equity 731,684 709,757
----------- -----------
Total capitalization 1,380,603 1,215,765
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,909,187 $ 1,980,467
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
23
VECTREN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Year Ended December 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
OPERATING REVENUES:
Gas utility $ 818,753 $ 499,573 $ 487,260
Electric utility 336,409 307,569 297,865
Energy services and other 493,528 261,275 212,581
---------- ---------- ----------
Total operating revenues 1,648,690 1,068,417 997,706
---------- ---------- ----------
OPERATING EXPENSES:
Cost of gas sold 552,540 266,429 269,999
Fuel for electric generation 71,170 66,305 65,222
Purchased electric energy 36,394 20,791 20,762
Cost of energy services and other 473,258 247,590 202,441
Other operating 199,591 189,622 181,818
Merger and integration costs 41,145 - -
Depreciation and amortization 105,661 86,998 81,558
Taxes other than income taxes 38,010 29,910 27,369
---------- ---------- ----------
Total operating expenses 1,517,769 907,645 849,169
---------- ---------- ----------
OPERATING INCOME 130,921 160,772 148,537
OTHER INCOME:
Equity in earnings of unconsolidated investments 9,856 7,490 10,671
Other - net 24,649 13,054 11,538
---------- ---------- ----------
Total other income 34,505 20,544 22,209
---------- ---------- ----------
INTEREST EXPENSE 57,133 42,862 40,301
---------- ---------- ----------
INCOME BEFORE PREFERRED DIVIDENDS AND INCOME TAXES 108,293 138,454 130,445
PREFERRED DIVIDEND REQUIREMENT OF SUBSIDIARY 1,017 1,078 1,095
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 107,276 137,376 129,350
INCOME TAXES 34,232 45,708 42,328
---------- ---------- ----------
NET INCOME BEFORE MINORITY INTEREST 73,044 91,668 87,022
MINORITY INTEREST IN SUBSIDIARY 1,004 920 422
---------- ---------- ----------
NET INCOME $ 72,040 $ 90,748 $ 86,600
========== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING 61,297 61,306 61,578
DILUTED COMMON SHARES OUTSTANDING 61,380 61,430 61,756
BASIC EARNINGS PER AVERAGE SHARE OF COMMON STOCK $ 1.18 $ 1.48 $ 1.41
DILUTED EARNINGS PER AVERAGE SHARE OF COMMON STOCK $ 1.17 $ 1.48 $ 1.40
The accompanying notes are an integral part of these consolidated
financial statements.
24
VECTREN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
-----------------------------------
2000 1999 1998
---------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 72,040 $ 90,748 $ 86,600
Adjustments to reconcile net income to cash provided
from operating activities:
Depreciation and amortization 105,661 86,998 81,558
Preferred dividend requirement of subsidiary 1,017 1,078 1,095
Deferred income taxes and investment tax credits 12,032 8,548 (1,644)
(Gain) loss on sale or retirement of assets or
investments (8,961) - (2,102)
Undistributed earnings of unconsolidated investments (10,554) (11,642) (12,104)
Changes in assets and liabilities:
Receivables - net (246,771) (19,978) 18,052
Inventories 17,817 7,823 (30,110)
Prepaid gas delivery service (13,912) (20,937) 17,024
Recoverable fuel and natural gas costs (82,343) 346 3,198
Prepayments and other current assets 7,553 (7,805) (8,242)
Regulatory assets (4,653) 1,718 (3,494)
Accounts payable, refunds to customers, customer
deposits and other current liabilities 217,122 1,514 7,208
Accrued taxes and interest (27,871) 13,585 (9,522)
Accrued post-retirement benefits and other than
pensions 4,941 3,455 2,472
Other - net (2,411) (6,226) 6,598
--------- --------- ---------
Total adjustments (31,333) 58,477 69,987
--------- --------- ---------
Net cash flows from operating activities 40,707 149,225 156,587
--------- --------- ---------
CASH FLOWS (REQUIRED FOR) FROM FINANCING
ACTIVITIES
Issuance of common stock 3,979 982 -
Retirement of common and preferred stock (4,493) (2,447) (6,191)
Proceeds from long-term debt and other obligations 328,000 110,000 60,052
Retirement of long-term debt and other obligations (33,299) (67,067) (50,828)
Net change in short-term borrowings 402,270 81,655 12,253
Dividends on common stock (59,977) (57,365) (55,727)
Other 2,175 (3,614) (675)
--------- --------- ---------
Net cash flows (required for) from financing
activities 638,655 62,144 (41,116)
--------- --------- ---------
CASH FLOWS (REQUIRED FOR) FROM INVESTING
ACTIVITIES
Capital expenditures (164,266) (132,159) (135,069)
Investment in leveraged leases (850) (49,734) 5,194
Investments in partnerships and other corporations (29,446) (10,711) (11,512)
Change in notes receivable (32,005) (11,899) 1,032
Cash distributions from unconsolidated investments 7,033 4,550 7,806
Proceeds from sale of assets - - 13,317
Acquisition of DPL gas distribution assets (463,301) - -
Other 1,292 (1,456) 3,074
--------- --------- ---------
Net cash flows (required for) investing
activities (681,543) (201,409) (116,158)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (2,181) 9,960 (687)
Cash and cash equivalents at beginning of period 17,351 7,391 8,078
--------- --------- ---------
Cash and cash equivalents at end of period $ 15,170 $ 17,351 $ 7,391
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements..
25
VECTREN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
( in thousands)
Common Stock
-------------------------------------
Accumulated
Restricted Other
Stock Retained Comprehensive
Shares Amount Grants Earnings Income (Loss) Total
------- ------ -------- -------- ------------- --------
Balance at December 31, 1997 61,621 $225,049 $(1,708) $430,248 $77 $653,666
Comprehensive income:
Net income 86,600 86,600
Unrealized investment loss, net
of ($54) tax (89) (89)
--------
Total comprehensive income 86,511
Common stock dividends
($0.90 per share) (55,727) (55,727)
Common stock repurchases (215) (4,834) (4,834)
Common stock issuances for
Executives' and Directors'
Stock plans, net of
amortization 14 (1,572) 331 (1,241)
Common stock issuance expense (33) (33)
Other (428) (428)
------- ------- ------- -------- ------------- --------
Balance at December 31, 1998 61,420 $218,643 $(1,377) $460,660 $(12) $677,914
Comprehensive income:
Net income 90,748 90,748
Unrealized investment loss, net
of ($40) tax (66) (66)
--------
Total comprehensive income 90,682
Common stock dividends
($0.94 per share) (57,365) (57,365)
Common stock repurchases (113) (2,331) (2,331)
Common stock issuances for
Executives' and Directors'
stock plans, net of
amortization (2) 1,150 (168) 982
Other (125) (125)
------- -------- ------- -------- ------------- --------
Balance at December 31, 1999 61,305 $217,462 $(1,545) $493,918 $ (78) $709,757
Comprehensive income:
Net income 72,040 72,040
Comprehensive income of
unconsolidated investment, net
of $4,626 tax (Note 5O) 7,580 7,580
--------
Total comprehensive income 79,620
Common stock dividends (59,977) (59,977)
($0.98 per share)
Common stock repurchases (86) (2,176) (2,176)
Common stock issuances for
Executives' and Directors'
stock plans, net of
amortization 200 3,979 3,979
Other 481 481
------- -------- ------- --------- -------------- --------
Balance at December 31, 2000 61,419 $219,265 $(1,545) $506,462 $7,502 $731,684
======= ======== ======== ========== ============= ========
The accompanying notes are an integral part of these consolidated
financial statements.
26
VECTREN CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. Organization and Nature of Operations
Vectren Corporation (Vectren) is an Indiana corporation that 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. The
common shareholders of SIGCORP received one and one-third shares of Vectren
common stock for each SIGCORP common share and the common shareholders of
Indiana Energy received one share of Vectren common stock for each Indiana
Energy common share, resulting in the issuance of 61.3 million shares of Vectren
common stock. The preferred stock and debt securities of Indiana Energy's and
SIGCORP's utility subsidiaries were not affected by the merger.
Vectren is a public utility holding company, whose wholly owned subsidiary,
Vectren Utility Holdings, Inc. (VUHI), is the intermediate holding company for
Vectren's three operating public utilities, Indiana Gas Company, Inc. (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 (defined hereafter). Indiana Gas and its subsidiaries
provide natural gas and transportation services to a diversified base of
customers in 311 communities in 49 of Indiana's 92 counties. SIGECO provides
generation, transmission, distribution and the sale of electric power to
Evansville, Indiana, and 74 other communities, and the distribution and sale of
natural gas to Evansville, Indiana, and 64 communities in ten counties in
southwestern Indiana. The Ohio operations provide natural gas distribution and
transportation services to Dayton, Ohio and 16 counties in west central Ohio.
Vectren is involved in non-regulated activities through three primary business
groups: Energy Services, Utility Services and Communications. Energy Services
trades and markets natural gas and provides energy performance contracting
services. Utility Services provides utility products and services, such as
underground construction and facilities locating, meter reading and materials
management, and the mining and sale of coal. Communications provides integrated
broadband communications services, including local and long distance telephone,
Internet access and cable television. In addition, other businesses invest in
other energy-related opportunities and corporate technology.
2. Acquisition of the Natural 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 (DP&L) for approximately $465 million. The
acquisition has been accounted for as a purchase transaction in accordance with
Accounting Principles Board (APB) Opinion No. 16 and accordingly, the results of
operations of the acquired businesses are included in the accompanying financial
statements since the date of acquisition.
Vectren acquired the natural gas distribution assets as a tenancy in common
through two separate wholly owned subsidiaries. Vectren Energy Delivery of Ohio,
Inc. (VEDO) holds a 53 percent undivided ownership interest in the assets and
Indiana Gas holds a 47 percent undivided ownership interest. VEDO is the
operator of the assets, operations of which are referred to as "the Ohio
operations." VUHI established a $435 million commercial paper program to fund
the majority of the acquisition. This facility was utilized at October 31, 2000
and will be replaced over time with permanent financing. VEDO's portion of the
acquisition was funded with short-term borrowings from VUHI. Indiana Gas'
portion of the acquisition was funded with a combination of short-term
borrowings from VUHI and its commercial paper program.
27
Goodwill has been recognized for the amount of the excess of the purchase price
paid over the book value of the net assets acquired and is being amortized on a
straight line basis over 40 years. Goodwill recognized as a result of the
acquisition is $198 million. The purchase price is subject to adjustment based
on the finalization of the closing balance sheet in accordance with the Asset
Purchase Agreement.
The following table depicts, for the years ended December 31, 2000 and 1999,
unaudited pro forma consolidated information, as if the acquisition of the Ohio
operations occurred on January 1, 1999. The pro forma summary information
presented below is not necessarily indicative of the results that actually would
have occurred if the transaction indicated above had been consummated at the
beginning of the periods presented and is not intended to be a projection of
future results.
Unaudited Year Ended December 31,
In thousands, except per share amounts 2000 1999
---------- ----------
Total operating revenues $1,831,136 $1,287,283
---------- ----------
Net income $ 72,007 $ 87,402
---------- ----------
Average shares outstanding:
Basic 61,297 61,306
Diluted 61,380 61,430
Earnings per average share of common stock:
Basic $ 1.17 $ 1.43
Diluted $ 1.17 $ 1.42
3. Merger and Integration Costs
Merger and integration costs incurred for the year ended December 31, 2000
totaled $41.1 million, including $1.8 million related to the integration of the
Ohio operations. The merger integration activities will be substantially
completed in 2001.
Of the $41.1 million of merger and integration costs incurred in 2000, accruals
were established at March 31, 2000 totaling $20.7 million. Of this amount, $5.5
million related to employee and executive severance costs, $13.1 million related
to transaction costs and regulatory filing fees, and the remaining $2.1 million
related to employee relocations that occurred prior to or coincident with the
merger closing. At December 31, 2000, the accrual remaining for such costs
totaled $1.8 million, all related to severance costs. Of the $41.1 million, the
remaining $20.4 million was expensed throughout the remainder of the year as
expenses were incurred. Such expenses included $6.0 million related to sign
changes at all company facilities to display the Vectren name, changes to all
fleet vehicles to reflect the new corporate name and logo, and changes to
company stationery. An additional $13.9 million was incurred over the course of
the year for accounting fees resulting from merger related filing requirements,
consulting fees related to integration activities such as organization
structure, employee travel between company locations as part of integration
activities, internal labor of employees assigned to integration teams, investor
relations communications activities, and certain benefit costs. In addition,
$0.5 million was recorded related to severance costs associated with the
integration of the Ohio operations.
During the merger planning process, approximately 135 positions were identified
for elimination. As of December 31, 2000, approximately 70 positions had been
vacated, with the remaining 65 positions to be eliminated in 2001
The integration activities experienced by the company included such things as
information system consolidation, process review and definition, organization
design and consolidation, and knowledge sharing.
28
As a result of merger integration activities, management has identified certain
information systems that are expected to be retired in 2001. Accordingly, the
useful lives of these assets have been shortened to reflect this decision,
resulting in additional depreciation expense of approximately $11.4 million
($7.1 million after tax) for the year ended December 31, 2000.
4. Indiana Energy and SIGCORP Results (Prior to the Combination)
The results of the predecessor companies, Indiana Energy and SIGCORP, for the
three months ended March 31, 2000 and for the years ended December 31, 1999 and
1998 are as follows (in millions):
Three months ended Twelve months ended Twelve months ended
March 31, 2000 December 31, 1999 December 31, 1998
------------------- ------------------- -------------------
Indiana Energy:
Operating Revenues $172.0 $433.3 $440.6
Net Income $22.1 $38.7 $36.1
SIGCORP:
Operating Revenues $187.4 $604.5 $557.1
Net Income $19.3 $52.1 $50.5
5. Summary of Significant Accounting Policies
A. Principles of Consolidation
The accompanying consolidated financial statements for the years ended December
31, 1999 and 1998 of Vectren and its subsidiary companies reflect the company on
a historical basis as restated for the effects of the pooling-of-interests
transaction completed on March 31, 2000 between Indiana Energy and SIGCORP. The
consolidated financial statements include the accounts of Vectren and its wholly
owned and majority owned subsidiaries, after elimination of intercompany
transactions. Investments in limited partnerships and less than majority-owned
affiliates are accounted for on the equity method. The financial statements also
reflect the consolidation of a majority-owned affiliate, Energy Systems Group,
LLC, which was an equity method investment of Indiana Energy and SIGCORP prior
to the merger.
B. Investments in Partnerships and Other Corporations
Investments in partnerships and other corporations, which are more than 20
percent owned but less than majority owned, are generally accounted for by the
equity method. Vectren's share of net income or loss from these investments is
recorded in equity in earnings of unconsolidated affiliates. Dividends are
recorded as a reduction of the carrying value of the investment when received.
Investments in other corporations less than 20 percent owned are generally
carried at cost less writedowns for declines in value judged to be other than
temporary. Dividends are recorded as other income when received.
C. Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation. These reclassifications
have no impact on net income previously reported.
D. Utility Plant and Depreciation
Utility plant is stated at historical cost, including an allowance for the cost
of funds used during construction. Depreciation of utility property is provided
using the straight-line method over the estimated service lives of the
depreciable assets.
The original cost, together with depreciation rates expressed as a percentage of
original cost, for the components of utility plant were as follows":
29
At December 31,
--------------------------------------------------------------------------------------
In thousands 2000 1999
--------------------------------------------------------------------------------------
Depreciation Depreciation
Rates as a Rates as a
Original Percent of Original Percent of
Cost Original Cost Cost Original Cost
---------- ------------- ---------- -------------
Gas utility plant $1,543,924 3.6% $1,152,628 3.8%
Electric utility plant 1,136,760 3.3% 1,109,847 3.4%
Common utility plant 47,307 3.3% 59,963 6.7%
Construction work in progress 60,803 - 45,393 -
---------- ----------
$2,788,794 $2,367,831
========== ==========
Vectren follows the practice of charging maintenance and repairs, including the
cost of removal of minor items of property, to expense as incurred. When
property that represents a retirement unit is replaced or removed, the cost of
such property is credited to utility plant, and such cost, together with the
cost of removal less salvage, is charged to accumulated depreciation.
E. Nonutility Plant
Nonutility plant consists of property and equipment used by Vectren's
non-regulated operations. The depreciation of nonutility plant is charged
against income over their estimated useful lives, using the straight-line method
of depreciation or units of production method of amortization. Repairs and
maintenance, which are not considered betterments and do not extend the useful
life of the nonutility plant, are charged to expense as incurred. When
nonutility plant is retired, or otherwise disposed of, the asset and accumulated
depreciation are removed and the resulting gain or loss is reflected in income.
Nonutility plant consists of the following:
At December 31,
-----------------------------
In thousands Useful Life 2000 1999
------------------- --------- -------
Land - $ 4,309 $ 1,706
Mining property and development costs Units of production 36,947 13,076
Other non utility plant 5 - 40 years 115,803 70,334
------------------- -------- -------
157,059 85,116
Less: Accumulated depreciation and
amortization 53,582 20,642
-------- --------
$ 103,477 $64,474
========= =======
F. Cash Flow Information
For purposes of the Consolidated Statements of Cash Flows, Vectren considers
cash investments with an original maturity of three months or less to be cash
equivalents. Cash paid during the periods reported for interest, income taxes
and acquired assets and liabilities were as follows:
Year Ended December 31,
------------------------------
In thousands 2000 1999 1998
-------- -------- --------
Cash paid during the year for
Interest (net of amount capitalized) $ 55,734 $ 34,826 $ 35,798
Income taxes 53,450 36,909 53,311
-------- -------- --------
Details of acquisition (Note 2)
Book value of assets acquired $278,080 - -
Liabilities assumed 7,881 - -
-------- -------- --------
Net assets acquired $270,199 - -
======== ======== ========
G. Revenues
Revenues are recorded as products and services are delivered to customers. To
more closely match revenues and expenses, Vectren's utility subsidiaries record
revenues for all gas and electricity delivered to customers but not billed at
the end of the accounting period.
30
Excise taxes are embedded in rates charged to customers. Accordingly, the
company records excise tax received as a component of operating revenues. Excise
taxes paid are recorded as a component of taxes other than income taxes.
H. Inventories
Inventories primarily consist of gas in underground storage, fuel
for electric generation and materials and supplies. Gas in underground storage
at SIGECO and Indiana Gas is valued using last-in, first-out (LIFO) method,
while all other inventories, including the acquired inventories of the Ohio
operations, are valued using the average cost method. Based on the average cost
of gas purchased during December, the cost of replacing the current portion of
gas in underground storage exceeded LIFO cost at December 31, 2000 and 1999 by
approximately $64.3 million and $23.2 million, respectively. Inventories consist
of the following:
At December 31,
-----------------
In thousands 2000 1999
------- -------
Fuel (coal and oil) for electric generation $ 4,368 $12,824
Materials and supplies 16,958 15,224
Emission allowances 3,860 4,437
Gas in storage - at LIFO cost 18,988 23,068
Gas in storage - at average cost 49,424 -
Other 1,647 3,310
------- -------
Total inventories $95,245 $58,863
======= =======
I. Refundable or Recoverable Gas Costs, Fuel for Electric Production and
Purchased Power
All metered gas rates contain a gas cost adjustment clause, which allows for
adjustment in charges for changes in the cost of purchased gas. Metered electric
rates typically contain a fuel adjustment clause that allows for adjustment in
charges for electric energy to reflect changes in the cost of fuel and the net
energy cost of purchased power. SIGECO also collects through a quarterly rate
adjustment mechanism the margin on electric sales lost due to the implementation
of demand side management programs.
Vectren's utility subsidiaries record any adjustment clause
under-or-overrecovery each month in revenues. A corresponding asset or liability
is recorded until such time as the under-or-overrecovery is billed or refunded
to utility customers. The cost of gas sold is charged to operating expense as
delivered to customers and the cost of fuel for electric generation is charged
to operating expense when consumed.
J. Allowance for Funds used During Construction
An allowance for funds used during construction (AFUDC), which represents the
cost of borrowed and equity funds used for construction purposes, is charged to
construction work in progress during the period of construction and included in
other - net on the Consolidated Statements of Income.
The table below reflects the total AFUDC capitalized and the portion of which
was computed on borrowed and equity funds for all periods reported.
Year Ended December 31,
------------------------
In thousands 2000 1999 1998
------ ------ ------
AFUDC - borrowed funds $2,634 $3,090 $2,394
AFUDC - equity funds 2,645 739 230
------ ------ ------
Total AFUDC capitalized $5,279 $3,829 $2,624
====== ====== ======
K. Income Taxes
The liability method of accounting is used for income taxes under which deferred
income taxes are recognized, at currently enacted income tax rates, to reflect
the tax effect of temporary differences between the book and tax bases of assets
and liabilities. Deferred investment tax credits are being amortized over the
life of the related asset.
31
L. Use of Estimates
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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
M. Regulation
The utility operations of Indiana Gas and SIGECO are subject to regulation by
the Indiana Utility Regulatory Commission (IURC) and the Ohio operations are
subject to regulation by the Public Utilities Commission of Ohio (PUCO). The
wholesale energy sales of SIGECO are subject to regulation by the Federal Energy
Regulatory Commission (FERC). The accounting policies of Vectren and its utility
subsidiaries give recognition to the ratemaking and accounting practices of
these agencies and to accounting principles generally accepted in the United
States, including the provisions of Statement of Financial Accounting Standards
No. 71 "Accounting for the Effects of Certain Types of Regulation" (SFAS 71).
Regulatory assets represent probable future revenues associated with certain
incurred costs, which will be recovered from customers through the ratemaking
process. Regulatory liabilities represent probable future reductions in revenues
associated with amounts that are to be credited to customers through the
ratemaking process.
The following regulatory assets and liabilities are reflected in the financial
statements:
At December 31,
-------------------
In thousands 2000 1999
-------- --------
Regulatory Assets:
Demand side management programs $ 26,243 $ 25,298
Unamortized premium on reacquired debt 4,192 4,416
Unamortized debt discount and expenses 16,741 13,233
Regulatory income tax asset 4,723 2,741
Other 347 1,905
-------- --------
Regulatory assets in other assets 52,246 47,593
Recoverable fuel and natural gas costs 96,084 5,585
-------- --------
Total regulatory assets $148,330 $ 53,178
======== ========
Regulatory Liabilities:
Refundable gas costs - $ 10,204
======== ========
As of December 31, 2000, the recovery of $126.9 million of Vectren's $148.3
million of total regulatory assets is reflected in rates charged to customers.
The remaining $21.4 million of regulatory assets, which are not yet included in
rates, represent SIGECO's demand side management (DSM) costs incurred after
1993. When SIGECO files its next electric base rate case, these costs will be
included in rate base and requested to earn a return. Amortization of the costs
over a period anticipated to be 15 years will be recovered through rates as a
cost of operations. SIGECO is currently recovering $4.8 million of DSM costs in
rates. Based upon this prior regulatory authority, management believes that
future recovery of the $21.4 million of regulatory assets for DSM costs is
probable.
Indiana Gas was authorized as part of an August 17, 1994 financing order from
the IURC to amortize over a 15-year period the debt discount and expense related
to new debt issues and future debt issues and future premiums paid for debt
reacquired in connection with refinancing. Debt discount and expense for issues
in place prior to this order are being amortized over the lives of the related
issues. Premiums paid prior to this order for debt reacquired in connection with
refinancing are being amortized over the life of the refunding issue. SIGECO's
debt discounts and expense related to new debt issues and premiums paid for debt
reacquired is being amortized over the lives of the related issues.
32
Of the $126.9 million of regulatory assets currently reflected in rates, a total
of $9.1 million is earning a return: $4.9 million of pre-1994 DSM costs and $4.2
million of unamortized premium on reacquired debt. The remaining recovery
periods for the DSM costs and premium on reacquired debt are 11.5 years and 20
years, respectively. The remaining $117.9 million of regulatory assets included
in rates, but not earning a return, are being recovered over varying periods:
$7.1 million of fuel costs and $89.0 million of gas costs, over 12 months; $4.7
million of regulatory income tax asset, over approximately 30 years; and $16.8
million of unamortized debt discount and expense to be recovered as discussed
above.
Vectren's utility subsidiaries' policy is to continually assess the
recoverability of costs recognized as regulatory assets and the ability to
continue to account for their activities in accordance with SFAS 71, based on
the criteria set forth in SFAS 71. Based on current regulation, the utility
subsidiaries believe such accounting is appropriate. If all or part of Vectren's
utility operations cease to meet the criteria of SFAS 71, a write-off of related
regulatory assets and liabilities would be required. In addition, Vectren would
be required to determine any impairment to the carrying costs of deregulated
plant and inventory assets.
N. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which
requires that every derivative instrument be recorded on the balance sheet as an
asset or liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.
SFAS 133, as amended, is effective for fiscal years beginning after June 15,
2000 and must be applied to derivative instruments and certain derivative
instruments embedded in hybrid contracts that were issued, acquired or
substantively modified after December 31, 1998. Vectren has completed the
process of identifying all derivative instruments, determining fair market
values of these derivatives, designating and documenting hedge relationships,
and evaluating the effectiveness of those hedge relationships. As a result of
the successful completion of this process, Vectren adopted SFAS 133 as of
January 1, 2001.
SFAS 133 requires that as of the date of initial adoption, the difference
between the fair market value of derivative instruments recorded on the balance
sheet and the previous carrying amount of those derivatives be reported in net
income or other comprehensive income, as appropriate, as the cumulative effect
of a change in accounting principle in accordance with APB 20, "Accounting
Changes."
A limited number of Vectren's contracts are defined as derivatives under SFAS
133. These derivatives are forward physical contracts for both the purchase and
sale of natural gas and electricity by its wholly owned gas marketing
subsidiary, SIGCORP Energy Services, Inc (SES) and SIGECO, respectively, and an
interest rate swap.
SES's primary business is the buying and re-selling of physical natural gas to
the industrial market segment. SES manages its pricing risk by entering into
corresponding gas commodity contracts that ensure a reasonable matching of the
associated risk. In addition, SES takes physical delivery of gas in storage
facilities to ensure operational as well as price risk management of its forward
positions. Open positions in terms of price, volume and specified delivery
locations do occur and are managed by SES using the above instruments and
through management reporting. These commodity contracts and gas storage
facilities involve the normal purchase and sale of natural gas and therefore do
not require fair value accounting under SFAS 133. SES also utilizes price swap
agreements that are accounted for under SFAS 133 to mitigate price risk related
to certain forward physical contracts. These derivatives have not been
designated as hedges, accordingly, the changes in market value will be recorded
currently in earnings. The mark to market impact of these derivatives has been
reflected as part of the transition adjustment recorded to earnings on January
1, 2001.
Derivatives used in the power marketing operations are used to effectively
manage the utilization of SIGECO's generation capability. These derivatives
include forward physical wholesale sales and purchases. The forward sales
contracts are generally used to sell the excess generation capacity of SIGECO
when demand conditions warrant this activity. These contracts are for the normal
purchase and sale of electricity and therefore do not require fair value
accounting under SFAS 133. The forward purchase contracts are entered into as
33
part of "buy-sell" transactions with other utilities and power marketers. These
contracts are derivatives and do not qualify for hedge accounting, accordingly,
they have been marked to market currently in earnings. The mark to market impact
of these derivatives has been reflected as part of the transition adjustment
recorded to earnings on January 1, 2001.
The interest rate swap is used to hedge the exposure to interest rate risk
associated with VUHI's $150 million floating rate notes. The swap was entered
into concurrently with the issuance of the floating rate debt. Vectren has
formally documented the hedging relationship between the swap and floating rate
debt as well as its risk management objectives and strategies for undertaking
the hedging transaction. The swap has been designated as a cash flow hedge and
the mark to market impact has been reflected as part of the transition
adjustment recorded to other comprehensive income on January 1, 2001.
The cumulative impact of the adoption of SFAS 133 on January 1, 2001 is an
earnings gain of approximately $6.3 million due to the derivatives used in power
marketing operations. The impact of the derivatives used by SES and the interest
rate swap was immaterial.
O. Comprehensive Income
Comprehensive income is a measure of all changes in equity of an enterprise
which result from the transactions or other economic events during the period
other than transactions with shareholders. This information is reported in the
Consolidated Statements of Common Shareholders' Equity. Vectren's components of
accumulated other comprehensive income (loss) include unrealized gains (losses)
on available for sale securities and its portion of ProLiance Energy, LLC's
(ProLiance) other comprehensive income. Vectren records its portion of
ProLiance's other comprehensive income as increases or decreases to the
investment account with a corresponding adjustment to other comprehensive
income. As of December 31, 2000, Vectren has recorded an adjustment to other
comprehensive income of $7.5 million related to its investment in ProLiance.
ProLiance's other comprehensive income was adjusted due its adoption of SFAS
133.
P. Impairment Review of Long-Lived Assets
Long-lived assets are reviewed for impairment in accordance with SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, as facts and circumstances indicate that the carrying amount may be
impaired. Specifically, the evaluation for impairment involves the comparison of
an asset's carrying value and the estimated undiscounted future cash flows the
asset is expected to generate over its remaining life. If this evaluation were
to conclude that the carrying value of the asset is impaired, an impairment
charge would be recorded as a charge to operations based on the difference
between the asset's carrying amount and its fair value.
6. ProLiance Energy, LLC
ProLiance, a 50 percent owned, non-regulated, energy marketing affiliate of
Vectren, began providing natural gas and related services to Indiana Gas,
Citizens Gas and Coke Utility (Citizens Gas) and others effective April 1, 1996.
The sale of gas and provision of other services to Indiana Gas by ProLiance is
subject to regulatory review through the quarterly gas cost adjustment (GCA)
process administered by the IURC.
On September 12, 1997, the IURC issued a decision finding the gas supply and
portfolio administration agreements between ProLiance and Indiana Gas and
ProLiance and Citizens Gas to be consistent with the public interest and that
ProLiance is not subject to regulation by the IURC as a public utility. The
IURC's decision reflected the significant gas cost savings to customers obtained
through ProLiance's services and suggested that all material provisions of the
agreements between ProLiance and the utilities are reasonable. Nevertheless,
with respect to the pricing of gas commodity purchased from ProLiance, the
pricing of fees paid by ProLiance to the utilities for the prospect of using
pipeline entitlements if and when they are not required to serve the utilities'
firm customers, and the pricing of fees paid by the utilities to ProLiance for
portfolio administration services, the IURC concluded that additional review in
the GCA process would be appropriate and directed that these matters be
considered further in the pending, consolidated GCA proceeding involving Indiana
Gas and Citizens Gas. The IURC has not yet established a schedule for conducting
34
these additional proceedings. Through a series of appeals, the order was finally
considered by the Indiana Supreme Court.
On September 22, 2000, the Indiana Supreme Court issued a decision affirming the
IURC's decision on ProLiance in all respects. However, until the three pricing
issues reserved by the IURC are resolved, Vectren will continue to reserve a
portion of its share of ProLiance earnings.
On or about August 11, 1998, Indiana Gas, Citizens Gas and ProLiance each
received a Civil Investigative Demand (CID) from the United States Department of
Justice requesting information relating to Indiana Gas' and Citizens Gas'
relationship with and the activities of ProLiance. The Department of Justice
issued the CID to gather information regarding ProLiance's formation and
operations, and to determine if trade or commerce has been restrained. Indiana
Gas has provided all information requested and management continues to believe
that there are no significant issues in this matter.
Indiana Gas continues to record gas costs in accordance with the terms of the
ProLiance contract and Vectren continues to record its proportional share of
ProLiance's earnings. Pretax income of $5.4 million, $6.7 million, and $7.0
million was recognized as ProLiance's contribution to earnings for the years
ended December 31, 2000, 1999 and 1998, respectively. Earnings recognized from
ProLiance are included in equity in earnings of unconsolidated investments on
the Consolidated Statements of Income. At December 31, 2000, and 1999, Vectren
has reserved approximately $2.4 million and $1.7 million, respectively, of
ProLiance's earnings pending resolution of the remaining issues. The reserve
represents 10% of ProLiance's pretax earnings and serves as management's best
estimate of potential exposure arising from the three pricing issues.
7. Vectren Advanced Communications
Vectren Advanced Communications (VAC), a wholly owned non-regulated subsidiary,
was formed to hold Vectren's investments in Utilicom Networks, LLC (Utilicom )
and related entities. Utilicom Networks is a provider of bundled communications
services through high capacity broadband networks, including high speed internet
service, cable television and telephone service. VAC has a 14 percent interest
in Class A units of Utilicom, which is accounted for using the equity method of
accounting.
In January 2000, VAC completed the restructuring of its investment in SIGECOM,
LLC (SIGECOM), which is a venture between VAC and Utilicom which provides
communications services to the greater Evansville, Indiana area. On January 28,
2000, affiliates of The Blackstone Group, a private equity fund, invested in
Class B units of Utilicom. In connection with the Blackstone Group investment,
VAC exchanged its 49 percent preferred equity interest in SIGECOM for $16.5
million of convertible subordinated debt of Utilicom and a 14 percent indirect
common equity interest in SIGECOM, which was valued at $6.5 million The debt is
convertible into Class A units of Utilicom at the option of VAC or upon the
event of a public offering of stock by Utilicom. The carrying value of VAC's 49%
preferred equity interest was $15 million prior to the exchange. The
consideration received by VAC in the exchange was valued based upon an
investment bank analysis of the fair value of SIGECOM at the transaction date.
The investment restructuring resulted in a pre-tax gain of $8 million, which is
classified in equity in earnings in unconsolidated investments in the
accompanying Consolidated Statements of Income. For the year ended December 31,
2000, Vectren also recognized losses of $1 million to reflect its share of
Utilicom and SIGECOM's operating results. At December 31, 2000 and 1999, VAC's
equity investment in SIGECOM-related entities was $8.2 million and $16.1
million, respectively.
In December 2000, VAC invested an additional $8.1 million with Utilicom in the
form of convertible subordinated debt as part of Utilicom's plans to raise $600
million in capital to establish operating ventures in Indianapolis, Indiana and
Dayton, Ohio and to recapitalize the SIGECOM venture. Vectren is committed to
invest up to $100 million, inclusive of the $8.1 million already invested, in
the form of convertible subordinated debt, subject to Utilicom obtaining all
required funding. The debt is convertible into common equity interests in the
Indianapolis and Dayton ventures at the option of VAC or upon the event of a
public offering of stock by Utilicom. At December 31, 2000, VAC's investment in
convertible debt totals approximately $25 million and, upon conversion, VAC
35
would have up to a 31 percent interest in the Indianapolis and Dayton ventures
and up to a 10 percent interest in Utilicom, assuming completion of all required
funding.
8. Short-Term Borrowings
At December 31, 2000, Vectren has approximately $969 million of short-term
borrowing capacity, including $803 million for its regulated operations and $166
million for its non-regulated operations, of which approximately $149 million is
available for regulated operations and $60 million is available for
non-regulated operations. See the table below for outstanding balances and
interest rates.
At December 31,
-----------------------
In thousands 2000 1999
-------- -----------
Outstanding:
Bank Loans $146,494 $ 124,638
2001, Note Payable, 6.6425% 150,000 -
Commercial paper 463,414 83,000
-------- -----------
Total short term borrowings $759,908 $ 207,638
======== ===========
Weighted average interest rates:
Bank Loans 6.95% 8.08%
Commercial paper 6.87% 6.30%
Weighted average interest rates during the year:
Bank Loans 6.98% 5.76%
Commercial paper 6.53% 5.40%
Weighted average total outstanding during the year $318,822 $ 163,762
At December 31, 2000, Indiana Gas is not in compliance with the total
indebtedness to capitalization ratio contained in its back up credit facility
for its commercial paper program. The non-compliance resulted from the
indebtedness incurred to purchase its ownership interest in the Ohio operations.
A waiver has been obtained from the banks on the Indiana Gas facility to waive
the non-compliance through and including March 31, 2001. Subject to regulatory
approval, Vectren will provide an equity investment in Indiana Gas to bring
Indiana Gas back into compliance. No amount is outstanding under the back up
credit facility.
9. Long-Term Debt and Other Obligations
First mortgage bonds, notes payable and partnership obligations outstanding and
classified as long-term are as follows:
At December 31,
-----------------
In thousands 2000 1999
--------- ---------
Southern Indiana Gas and Electric Company
First Mortgage Bonds due:
2014, 4.60% Pollution Control Series A $ 22,500 $ 22,500
Adjustable Rate Pollution Control:
2015, Series A, presently 4.55% 9,975 9,975
2016, 8.875% 13,000 13,000
2020, 4.40% Pollution Control Series B 4,640 4,640
Adjustable Rate Environmental Improvement:
2023, Series B, presently 6% 22,800 22,800
2023, 7.60% 45,000 45,000
2025, 7.625% 20,000 20,000
2029, 6.72% 80,000 80,000
2030, 4.40% Pollution Control Series B 22,000 22,000
--------- ---------
Total first mortgage bonds $ 239,915 $ 239,915
--------- ---------
36
Notes Payable:
Tax Exempt, due 2003, 6.25% $ 1,000 $ 1,000
--------- ---------
Indiana Gas Company
Notes Payable due:
2003, Series F, 5.75% $ 15,000 $ 15,000
2004, Series F, 6.36% 15,000 15,000
2007, Series E, 6.54% 6,500 6,500
2013, Series E, 6.69% 5,000 5,000
2015, Series E, 7.15% 5,000 5,000
2015, Insured Quarterly Notes, 7.15% 20,000 -
2015, Series E, 6.69% 5,000 5,000
2015, Series E, 6.69% 10,000 10,000
2021, Private Placement, 9.375% 25,000 25,000
2021, Series A, 9.125% 7,000 7,000
2025, Series E, 6.31% 5,000 5,000
2025, Series E, 6.53% 10,000 10,000
2027, Series E, 6.42% 5,000 5,000
2027, Series E, 6.68% 3,500 3,500
2027, Series F, 6.34% 20,000 20,000
2028, Series F, 6.75% 14,109 14,849
2028, Series F, 6.36% 10,000 10,000
2028, Series F, 6.55% 20,000 20,000
2029, Series G, 7.08% 30,000 30,000
2030, Insured Quarterly Notes, 7.45% 50,000 -
--------- ---------
Total notes payable $ 281,109 $ 211,849
--------- ---------
Non-Regulated
Notes Payable:
2005, Senior note, 7.67% $ 38,000 $ -
2007, Senior note, 7.83% 17,500 -
2010, Senior note, 7.98% 22,500 -
Insurance Company, due 2012, 7.43% 35,000 35,000
Other 249 2,371
--------- ---------
Total notes payable and other $ 113,249 $ 37,371
--------- ---------
Total long-term debt outstanding $ 635,273 $ 490,135
Less: Maturities and sinking fund requirements (249) (776)
Unamortized debt premium and discount, net (3,070) (2,633)
--------- ---------
Total long-term debt and other obligations, net
of current maturities $ 631,954 $ 486,726
========= =========
Consolidated maturities and sinking fund requirements on long-term debt subject
to mandatory redemption during the five years following 2000 (in millions) are
$0.3 in 2001, $16.0 in 2003, $15.0 in 2004, and $38.0 in 2005.
In addition to the obligations presented in the table above, SIGECO has $53.7
million of adjustable rate pollution control series first mortgage bonds which
could, at the election of the bondholder, be tendered to SIGECO annually in
March. If SIGECO's agent is unable to remarket any bonds tendered at that time,
SIGECO would be required to obtain additional funds for payment to bondholders.
37
For financial statement presentation purposes those bonds subject to tender in
2001 are shown as current liabilities. The two series of bonds will be re-set
for a five-year period effective March 1, 2001.
Provisions under which certain of Indiana Gas' Series E Notes were issued
entitle the holders of $25.0 million of these notes to put the debt back to
Indiana Gas at face value at certain specified dates before maturity. Long-term
debt subject to the put provisions during the five years following 2000 (in
millions) is $6.5 in 2002, $3.5 in 2004 and $10.0 in 2005.
The annual sinking fund requirement of SIGECO's first mortgage bonds is 1
percent of the greatest amount of bonds outstanding under the Mortgage
Indenture. This requirement may be satisfied by certification to the Trustee of
unfunded property additions in the prescribed amount as provided in the Mortgage
Indenture. SIGECO intends to meet the 2001 sinking fund requirement by this
means and, accordingly, the sinking fund requirement for 2001 is excluded from
current liabilities on the Consolidated Balance Sheets. At December 31, 2000,
$220.9 million of SIGECO's utility plant remained unfunded under SIGECO's
Mortgage Indenture.
The above debt agreements contain certain financial covenants and other
restrictions with which Vectren must comply. Except as described in Note 8,
Vectren was in compliance with all remaining financial covenants and
restrictions.
On December 21, 2000, Vectren Capital Corporation, a wholly owned subsidiary
that provides financing for Vectren's non-regulated subsidiaries' operations and
investments, issued $78 million of private placement senior notes to three
institutional investors. The issues and their terms are $38.0 million, due
December 21, 2005, at 7.67 percent; $17.5 million, due December 21, 2007, at
7.83 percent; and $22.5 million, due December 21, 2010, at 7.98 percent. The net
proceeds were used to repay outstanding short-term borrowings.
On October 5, 1999, Indiana Gas issued $30 million in principal amount of Series
G Medium-term Notes bearing interest at the per annum rate of 7.08 percent with
a maturity date of October 5, 2029. In December 2000, Indiana Gas filed a
prospectus with the Securities and Exchange Commission with respect to the
issuance of $70 million in debt securities. On December 28, 2000, $20 million of
15-Year Insured Quarterly (IQ) Notes bearing interest at a rate of 7.15 percent
per year and $50 million of 30-Year IQ Notes bearing interest at a rate of 7.45
percent per year were issued. The 15-Year IQ Notes will mature on December 15,
2015, and the 30-Year IQ Notes will mature on December 16, 2030, unless, in each
case, redeemed prior to that date. Indiana Gas will have the option to redeem
the 15-Year IQ Notes, in whole or in part, from time to time on or after
December 15, 2004. Indiana Gas will have the option to redeem the 30-Year IQ
Notes in whole or in part, from time to time on or after December 15, 2005. The
net proceeds of the debt issuance were used to repay outstanding commercial
paper utilized for general corporate purposes.
10. Fair Value of Financial Instruments
The carrying values and estimated fair values of Vectren's financial instruments
were as follows:
At December 31,
-------------------------------
In thousands 2000 1999
--------------- ---------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- -----------
Short-term borrowings $759,908 $ 759, 908 $207,638 $207,638
Partnership obligations (includes
amounts due within one year 249 312 845 905
Redeemable preferred stock of
subsidiary 7,500 7,737 7,500 7,538
Long term debt (includes
amounts due within one year) 685,903 758,478 541,202 544,928
38
Certain methods and assumptions must be used to estimate the fair value of
financial instruments. Because of the short maturity of notes payable, the
carrying amounts approximate fair values for these financial instruments. The
fair value of Vectren's long-term debt was estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to Vectren
for debt of the same remaining maturities. The fair value of partnership
obligations was estimated based on current quoted market rate of comparable
debt. The fair value of redeemable preferred stock of SIGECO was based on the
current quoted market rate of long-term debt with similar characteristics.
Under current regulatory treatment, call premiums on reacquisition of long-term
debt are generally recovered in customer rates over the life of the refunding
issue or over a 15-year period (see Note 5M ). Accordingly, any reacquisition
would not be expected to have a material effect on Vectren's financial position
or results of operations.
The market price used to value these transactions reflects management's best
estimate of market prices considering various factors, including published
prices for certain delivery locations, time value and volatility factors
underlying the commitments.
11. Common Stock
On March 31, 2000, the merger of Indiana Energy and SIGCORP with and into
Vectren was consummated with a tax-free exchange of shares and has been
accounted for as a pooling of interests. The common shareholders of SIGCORP
received 1.333 shares of Vectren common stock for each SIGCORP common share and
the common shareholders of Indiana Energy received one share of Vectren common
stock for each Indiana Energy common share, resulting in the issuance of 61.3
million shares of Vectren common stock.
The Vectren board of directors has adopted a Shareholder Rights Agreement. Under
the Shareholder Rights Agreement, the Vectren board of directors has declared a
dividend distribution of one right for each outstanding Vectren common share. A
right will attach to each Vectren common share Vectren issues. Each right
entitles the holder to purchase from Vectren one share at a price of $65.00 per
share (subject to adjustment to prevent dilution). Initially, the rights will
not be exercisable. The rights only become exercisable 10 days following a
public announcement that a person or group of affiliated or associated persons
(Vectren Acquiring Person) has acquired beneficial ownership of 15 percent or
more of the outstanding Vectren common shares (or a 10 percent acquirer who is
determined by the Vectren board of directors to be an adverse person), or 10
days following the announcement of an intention to make a tender offer or
exchange offer the consummation of which would result in any person or group
becoming a Vectren Acquiring Person. The Vectren Shareholder Rights Agreement
expires October 21, 2009.
Conversion of Options
Certain SIGCORP and SIGECO employees held options to purchase SIGCORP common
shares granted under the 1994 SIGECO Stock Option Plan and other employee
compensation benefits arrangements. When the merger was consummated, each
unexpired and unexercised option to purchase SIGCORP common shares was
automatically converted into an option to purchase the number of Vectren common
shares that could have been purchased under the original option multiplied by
1.333. The exercise price per Vectren common share under the new option is equal
to the original per share price divided by 1.333. The new Vectren options will
otherwise be subject to the same terms and conditions as the original SIGCORP
options. The expiration dates for options outstanding as of December 31, 2000,
ranged from July 13, 2004 to July 19, 2009. This stock option activity for the
past three years, converted to Vectren common shares, was as follows:
39
2000 1999 1998
----------- ----------- -----------
Exercise Wtd. Avg. Exercise Wtd. Avg. Exercise Wtd. Avg.
Shares Price Shares Price Shares Price
-------- --------- ------- --------- ------- ---------
Outstanding at January 1 931,004 $ 18.33 671,389 $ 17.46 610,742 $ 16.19
Granted - - 272,783 $ 20.26 99,973 $ 24.05
Cancelled (30,955) $ 19.04 - -
Exercised (40,608) $ 15.92 (13,168) $ 14.22 (39,326) $ 14.49
-------- --------- -------- --------- -------- ---------
Outstanding at December 31 859,441 $ 18.41 931,004 $ 18.33 671,389 $ 17.46
======== ========= ======== ========= ======== =========
Exercisable at December 31 781,415 658,221 508,892
Reserved for future grants
at end of year - - 272,783
Weighted average price of
options exercisable $18.41 $17.53 $15.88
At December 31, 2000
----------------------------
Options Outstanding Options Exercisable
--------------------------------------------------------------- ----------------------------
Weighted
Number of Average Weighted Number of Weighted
Range of Options Remaining Average Options Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------------------------------------------------------------------------------------
$12.03-$14.43 229,230 3.4 $13.82 229,230 $13.82
14.44-16.84 50,779 4.0 15.32 50,779 15.32
16.85-19.24 52,124 5.2 17.44 52,124 17.44
19.25-21.65 431,908 7.8 20.09 353,882 20.05
24.05 95,400 7.3 24.05 95,400 24.05
--------------------------------------------------------------------------------------------
$12.03-$24.05 859,441 6.2 $18.41 781,415 $18.23
============================================================================================
Vectren accounts for stock compensation in accordance with APB 25, "Accounting
for Stock Issued to Employees." Under APB 25, no compensation cost has been
recognized for stock options. Had compensation cost for stock options been
determined consistent with SFAS No. 123 "Accounting for Stock-based
Compensation," net income would have been reduced to the following pro forma
amounts:
At December 31,
------------------------------------
In thousands, except per share amounts 2000 1999 1998
---------- ---------- ----------
Net Income:
As reported $ 72,040 $ 90,748 $ 86,600
Pro forma 71,583 90,077 86,085
Basic Earnings Per Share:
As reported $ 1.18 $ 1.48 $ 1.41
Pro forma 1.17 1.47 1.40
Diluted Earnings Per Share:
As reported $ 1.17 $ 1.48 $ 1.40
Pro forma 1.17 1.47 1.39
The fair value of each option granted used to determine pro forma net income is
estimated as of the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in the years
ended December 31, 1999 and 1998: risk-free interest rate of 6.46 percent and
4.44 percent, respectively; expected option term of five years; expected
volatilities of 34.00 percent and 33.16 percent, respectively; and dividend
rates of 4.46 percent and 3.77 percent, respectively. The weighted average fair
value of options granted in 1999 and 1998 were $5.05 and $5.99, respectively. No
options were granted in 2000.
40
Conversion of Restricted Stock
Indiana Energy had an Executive Restricted Stock Plan for the principal officers
of the company and participating subsidiary companies. Indiana Energy also had a
Directors' Restricted Stock Plan through which non-employee directors receive
one-third of their combined compensation (exclusive of attendance fees) as
directors of Indiana Energy, Indiana Gas or IEI Investments, Inc. in shares of
Indiana Energy's common stock subject to certain restrictions on
transferability.
Upon consummation of the merger, the restrictions on each outstanding share of
restricted stock of Indiana Energy lapsed and all shares of Indiana Energy that
were issued as restricted stock were treated as unrestricted shares of Indiana
Energy in the merger exchange. During 2000, Vectren adopted these plans and
194,884 restricted shares were issued to executives and non-employee directors.
Shares of restricted stock issued in 1999 and 1998 by Indiana Energy were 15,238
and 14,303, respectively.
The cost of these performance based awards, determined to be the fair market
value at the date of grant, is charged to compensation expense as earned over
the performance periods. The weighted average fair value of these stock based
instruments, together with recognized compensation expense, was $2.3 million and
$19.90 in 2000; $0.8 million and $23.20 in 1999; and $0.7 million and $20.26 in
1998. Substantially all of the year 2000 expense is for the lifting of
restrictions triggered by the merger transaction.
Common stock dividends of Vectren may be reinvested under a Dividend
Reinvestment and Stock Purchase Plan. Common shares purchased in connection with
the plan are currently being acquired through the open market.
At December 31, 2000 and 1999, respectively, shares of common stock reserved for
issuance were as follows:
At December 31,
---------------------
2000 1999
--------- ---------
Dividend Reinvestment and Stock Purchase Plan 1,018,435 417,836
Executive Restricted Stock Plan 222,726 346,319
Directors' Restricted Stock Plan 50,116 54,994
Retirement Savings Plan 853,423 964,208
--------- ---------
Total 2,144,700 1,783,357
========= =========
12. Earnings Per Share
Basic earnings per share is computed by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share assumes the conversion of stock options into
common shares using the treasury stock method to the extent the effect would be
dilutive.
41
The following table illustrates the basic and dilutive earnings per share
calculations.
Year Ended December 31,
-------------------------------------------------------------------------------------------
In thousands, except
per share amounts 2000 1999 1998
-------------------------------------------------------------------------------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
Amount Amount Amount
-------------------------------------------------------------------------------------------
Basic EPS $72,040 61,297 $1.18 $90,748 61,306 $1.48 $86,600 61,578 $1.41
Effect of dilutive
stock options 83 124 178
-------------------------------------------------------------------------------------------
Diluted EPS $72,040 61,380 $1.17 $90,748 61,430 $1.48 $86,600 61,756 $1.40
===========================================================================================
Options to purchase 526,469 common shares for the year ended December 31, 2000
and 99,973 common shares for the years ended December 31, 1999 and 1998 were not
included in the computation of dilutive earnings per share because the options'
exercise prices were greater than the average market price of the common shares
during the period. Exercise prices for options excluded from the computation
ranged from $19.83 to $24.05 in 2000 and equaled $24.05 in 1999 and 1998.
Subsequent to December 31, 2000, Vectren issued about 6.3 million common shares
in a public offering (see Note 22).
13. Retirement Plans and Other Postretirement Benefits
Prior to July 1, 2000, SIGCORP and Indiana Energy had separate retirement and
other postretirement benefit plans. The activities in these plans are described
below by company. Effective July 1, 2000, the SIGECO and Indiana Energy pension
plans for employees not covered by a collective bargaining unit were merged.
Also effective July 1, 2000, the SIGECO and Indiana Energy retirement savings
plans for employees not covered by a collective bargaining unit were merged, as
were their postretirement health care and life insurance plans.
Vectren has multiple defined benefit pension and other postretirement benefit
plans which cover eligible full-time regular employees. All of the plans are
non-contributory with the exception of the health care plan which contains
cost-sharing provisions whereby employees retiring after January 1, 1996, are
required to make contributions to the plan when increases in Indiana Energy's
health care costs exceed the general rate of inflation, as measured by the
Consumer Price Index (CPI). The nonpension plans include plans for health care
and life insurance through a combination of self-insured and fully insured
plans.
The IURC has authorized SIGECO and Indiana Gas to recover the costs related to
postretirement benefits other than pensions under the accrual method of
accounting consistent with Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions. Amounts
accrued prior to that authorization were deferred as allowed by the IURC and
amortized over a 60-month period.
The detailed disclosures of benefit components that follow are based on an
actuarial valuation performed for the December 31, 2000 financial statements
using a measurement date as of September 30, 2000. The disclosures required as
of and for the years ended December 31, 1999 and 1998 have been restated based
on actuarial valuations previously performed for SIGECO as of December 31 and
Indiana Gas as of September 30, respectively. In management's opinion,
disclosures from revised actuarial valuations would not differ materially from
those presented below.
42
Net periodic benefit cost consisted of the following components:
Year Ended December 31,
--------------------------------------------------------------------------------------------------------------
Pension Benefits Other Benefits
--------------------------------------------------------------------------------------------------------------
In thousands 2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
Service cost $ 4,282 $ 5,053 $ 4,056 $ 1,328 $ 1,502 $ 1,299
Interest cost 11,708 10,550 9,986 5,904 4,844 4,863
Expected return on plan assets (15,815) (13,826) (12,742) (921) (751) (577)
Amortization of prior service cost 157 361 256 - - -
Amortization of transitional obligation
(asset) (744) (734) (734) 3,738 3,266 3,267
Recognized actuarial gain (1,040) (10) (47) (1,475) (889) (1,204)
Settlement charge 2,123 - - - - -
Special termination benefit charge 553 - - - - -
-------- -------- -------- -------- -------- --------
Net periodic benefit cost $ 1,224 $ 1,394 $ 775 $ 8,574 $ 7,972 $ 7,648
======== ======== ======== ======== ======== ========
A reconciliation of the plan's benefit obligations, fair value of plan assets,
funded status and amounts recognized in the Consolidated Balance Sheets follows:
At December 31,
------------------------------------------------------------------------------------------------
Benefit obligation Pension Benefits Other Benefits
-------------------------------------------------------------------------------------------------
In thousands 2000 1999 2000 1999
--------- --------- --------- ---------
Benefit obligation at beginning of year $ 151,505 $ 156,840 $ 68,278 $ 73,598
Service cost - benefits earned during the year 4,282 5,053 1,328 1,502
Interest cost on projected benefit obligation 11,708 10,550 5,904 4,844
Plan amendments 2,418 (3,278) (711) -
Acquisitions 700 - - -
Settlements 2,123 - - -
Benefits paid (10,382) (8,001) (5,396) (3,605)
Actuarial (gain) loss 4,614 (9,659) 7,975 (8,061)
--------- --------- --------- ---------
Benefit obligation at end of year $ 166,968 $ 151,505 $ 77,378 $ 68,278
========= ========= ========= =========
Fair value of Plan Assets Pension Benefits Other Benefits
-------------------------------------------------------------------------------------------------
In thousands 2000 1999 2000 1999
--------- --------- --------- ---------
Plan assets at fair value at beginning of year $ 187,261 $ 180,965 $ 11,710 $ 9,511
Actual return on plan assets 16,959 14,179 595 1,434
Employer contributions - 118 4,314 4,369
Benefits paid (10,382) (8,001) (5,396) (3,604)
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 193,838 $ 187,261 $ 11,223 $ 11,710
========= ========= ========= =========
Funded Status Pension Benefits Other Benefits
----------------------------------------------------------------------------------------
In thousands 2000 1999 2000 1999
-------- -------- ----------- ----------
Funded status $ 26,870 $ 35,756 $ (66,155) $ (56,568)
Unrecognized transitional obligation
(asset) (1,491) (2,279) 39,969 44,418
Unrecognized service cost 5,357 3,639 - -
Unrecognized net (gain) loss and other (36,968) (44,733) (19,697) (28,792)
-------- -------- ---------- -----------
Net amount recognized $ (6,232) $ (7,617) $ (45,883) $ (40,942)
======== ======== ========== ===========
43
The aggregate benefit obligation and aggregate fair value of the plan assets for
pension plans with benefit obligations in excess of plan assets were $10.5
million and $7.9 million, respectively, as of December 31, 2000, and $5.5
million and $4.5 million, respectively, as of December 31, 1999.
Weighted-average assumptions used in the accounting for these plans were as
follows:
Year Ended December 31,
----------------------
Pension Benefits Other Benefits
----------------- ------------------
2000 1999 2000 1999
------- ------- ------- -------
Discount rate 7.75% 7.50% 7.75% 7.50%
Expected return on plan assets 8.50% 8.50% N/A N/A
Rate of compensation increase 5.00% 5.00% N/A N/A
CPI rate N/A N/A 7.00% 6.50%
As of December 31, 2000, the health care cost trend is 7 percent declining to 5
percent in 2004 and remaining level thereafter. The accrued health care cost
trend rate for 2001 is 7 percent. The estimated cost of these future benefits
could be significantly affected by future changes in health care costs, work
force demographics, interest rates or plan changes.
A 1 percent change in the assumed health care cost trend for Vectren's
postretirement health care plan would have the following effects:
In thousands 1% Increase 1% Decrease
--------------------------------------- ------------- ------------
Effect on the aggregate of the service
and interest cost components $ 483 $ (394)
Effect on the postretirement benefit
obligation 5,107 (4,263)
Vectren has adopted Voluntary Employee Beneficiary Association (VEBA) Trust
Agreements for the funding of postretirement health benefits for retirees and
their eligible dependents and beneficiaries. Annual funding is discretionary and
is based on the projected cost over time of benefits to be provided to cover
persons consistent with acceptable actuarial methods. To the extent these
postretirement benefits are funded, the benefits will not be shown as a
liability on Vectren's financial statements.
Vectren also has defined contribution retirement savings plans that are
qualified under sections 401(a) and 401(k) of the Internal Revenue Code. During
2000, 1999, and 1998, Vectren made contributions to these plans of $1.6 million,
$1.9 million and $2.3 million, respectively.
14. Leveraged Leases
Southern Indiana Properties, Inc. (SIPI), a wholly owned subsidiary, is a lessor
in several leveraged lease agreements under which real estate or equipment is
leased to third parties. The economic lives and lease terms vary with the
leases. The total equipment and facilities cost was approximately $409.7 million
at December 31, 2000 and 1999. The cost of the equipment and facilities was
partially financed by nonrecourse debt provided by lenders, who have been
granted an assignment of rentals due under the leases and a security interest in
the leased property, which they accepted as their sole remedy in the event of
default by the lessee. Such debt amounted to approximately $380.0 million and
$373.5 million at December 31, 2000 and 1999, respectively. SIPI's net
investment in leveraged leases at December 31, 2000 and 1999, respectively, was
as follows:
44
At December 31,
---------------------
In thousands 2000 1999
-------- --------
Minimum lease payments receivable $165,210 $161,551
Estimated residual value 29,073 29,073
Less: unearned income 101,138 104,887
-------- --------
Investment in lease financing receivables and loan 93,145 85,737
Less: deferred taxes arising from leveraged leases 38,302 30,700
-------- --------
Net investment in leveraged leases $ 54,843 $ 55,037
======== ========
15. Commitments and Contingencies
Future minimum lease payments required under operating leases that have initial
or remaining noncancellable lease terms in excess of one year as of December 31,
2000 are as follows:
In millions
------------
2001 $4.1
2002 3.9
2003 3.4
2004 3.1
2005 2.4
Thereafter 6.7
------------
Total $23.6
============
Total lease expense, in millions, was $3.4 in 2000, $2.7 in 1999, and $2.2 in
1998.
As part of a restructuring plan initiated by Indiana Energy in 1997, a charge
was recorded to reflect the corporate office facility at fair value. The company
then entered into a sale leaseback transaction with a third party which was
completed in 1998, resulting in proceeds of $9.2 million and an operating lease
with a 10 year term with rental payments of $1.5 million per year. The annual
payments are included in the future minimum lease payments above.
Vectren is party to various legal proceedings arising in the normal course of
business. In the opinion of management, with the exception of litigation matters
related to the Clean Air Act and ProLiance, there are no legal proceedings
pending against Vectren that are likely to have a material adverse effect on the
financial position or results of operations. Refer to Note 6 for litigation
matters related to ProLiance and Note 17 for litigation matters concerning the
Clean Air Act.
A wholly owned subsidiary of Vectren has an 8.3 percent ownership interest in
Pace Carbon Synfuels Investors, LP (Pace Carbon), a Delaware limited partnership
formed to develop, own and operate four projects to produce and sell coal-based
synthetic fuel. In addition to its initial investment of $7.5 million, Vectren
has a continuing obligation to invest approximately $40 million in Pace Carbon,
with any such additional investments to be funded to the extent it generates
federal tax credits that are earned from the production and sale of briquettes
by the projects. As of December 31, 2000 and 1999, Vectren's net investment in
Pace Carbon, which is accounted for using the equity method of accounting,
totaled approximately $6.7 million and $6.3 million, respectively, and is
included in investments in partnerships and other corporations in the
Consolidated Balance Sheets.
A wholly owned subsidiary of Vectren has an approximate 40 percent ownership
interest in Haddington Energy Partners, LP (Haddington) and has committed to
invest $10 million of which $9.8 million has been funded as of December 31,
2000. Haddington, a Delaware limited partnership, raised $77 million to invest
in energy projects. On July 28, 2000, Vectren made a commitment to fund an
additional $20 million in Haddington Energy Partners II, LP, which is expected
to raise an additional $150 million. This second fund will provide additional
45
capital for the initial fund portfolio companies as well as make investments in
new areas, such as distributed generation, power backup and quality devices, and
emerging technologies such as fuel cells, microturbines and photovoltaics.
Through December 31, 2000, Vectren had invested approximately $2.1 million of
this $20 million commitment to Haddington II. Upon complete funding, Vectren
will have an approximate 40 percent ownership interest in Haddington II. The
remainder of this investment is expected to be made through 2002. As of December
31, 2000 and 1999, Vectren's net investment in the Haddington Ventures, both of
which are accounted for using the equity method of accounting, totaled
approximately $13.0 million and $2.6 million, respectively, and is included in
investments in partnerships and other corporations in the Consolidated Balance
Sheets.
Vectren has entered into a contract to purchase and construct an 80-megawatt
combustion gas turbine generator which will be owned by SIGECO. The total
capital cost of the project is estimated to be $33 million during the 2001-2002
construction period.
Vectren has invested to date approximately $33 million with Utilicom Networks.
On December 22, 2000, Vectren announced its commitment to invest up to $100
million with Utilicom Networks, pending completion of all funding (see Note 7).
16. Income Taxes
The components of consolidated income tax expense were as follows:
Year Ended December 31,
------------------------------
In thousands 2000 1999 1998
-------- -------- --------
Current:
Federal $ 19,976 $ 33,028 $ 34,449
State 2,908 5,379 5,450
-------- -------- --------
Total current taxes 22,884 38,407 39,899
-------- -------- --------
Deferred:
Federal 11,591 8,238 4,625
State 2,117 1,423 181
-------- -------- --------
Total deferred taxes 13,708 9,661 4,806
-------- -------- --------
Amortization of investment tax credits (2,360) (2,360) (2,377)
Consolidated income tax expense $ 34,232 $ 45,708 $ 42,328
======== ======== ========
A reconciliation of the statutory rate to the effective income tax rate is as
follows:
Year Ended December 31,
-----------------------
2000 1999 1998
------ ------ ------
Statutory federal and state rate 37.9% 37.9% 37.9%
Nondeductible merger costs 4.0 - -
Amortization of investment tax credit (2.2) (1.7) (1.8)
Other tax credits (7.1) (3.2) (2.9)
All other, net (0.2) 0.3 (0.5)
------ ------ ------
Effective tax rate 32.4% 33.3% 32.7%
====== ====== ======
Indiana Gas, SIGECO and the Ohio operations use a normalized method of
accounting for deferred income taxes as required by the IURC and PUCO. Deferred
income taxes reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Deferred income taxes are provided for
taxes not currently payable due to, among other things, the use of various
accelerated depreciation methods, shorter depreciable lives and the deduction of
certain construction costs for tax purposes. Taxes deferred in prior years are
being charged and income credited as these tax effects reverse over the lives of
the related assets.
Significant components of Vectren's net deferred tax liability as of December
31, 2000 and 1999 are as follows:
At December 31,
----------------------
In thousands 2000 1999
--------- ---------
Deferred tax liabilities:
Depreciation and cost recovery timing differences $ 185,113 $ 185,799
Deferred fuel costs, net 33,446 2,427
Leveraged leases 38,302 30,700
Regulatory assets recoverable through future rates 28,726 30,519
Deferred tax assets:
LIFO inventory (7,900) -
Regulatory liabilities to be settled through future rates (32,293) (29,211)
Tax credit carryforwards (17,079) -
Other - net (15,483) (4,714)
--------- ---------
Net deferred tax liability $ 212,832 $ 215,520
========= =========
At December 31, 2000, the components of the net deferred tax liability are
reflected in the Consolidated Balance Sheets as a long-term liability of
approximately $229.9 million and as a reduction to accrued taxes in current
liabilities of approximately $17.1 million.
Investment tax credits have been deferred and are being credited to income over
the life of the property, giving rise to the credit. The Tax Reform Act of 1986
eliminated investment tax credits for property acquired after January 1, 1986.
At December 31, 2000, Vectren has Alternative Minimum Tax credit carryforward of
approximately $13 million, which has no expiration date. Through certain of its
non-regulated subsidiaries and investments, Vectren also realizes Federal income
tax credits associated with affordable housing projects, historical
rehabilitation projects and projects for the production and sale of synthetic
fuels. At December 31, 2000, Vectren has tax credit carryforwards of
approximately $4.1 million which expire in 20 years.
17. Environmental Matters
Clean Air Act
NOx SIP Call Matter. In October 1997, the United States Environmental Protection
Agency (USEPA) proposed a rulemaking that could require uniform nitrogen oxide
(NOx) emissions reductions of 85 percent by utilities and other large sources in
a 22-state region spanning areas in the Northeast, Midwest, Great Lakes,
Mid-Atlantic and South. This rule is referred to as the "NOx SIP call". The
USEPA provided each state a proposed budget of allowed NOx emissions, a key
ingredient of ozone, which requires a significant reduction of such emissions.
Under that budget, utilities may be required to reduce NOx emissions to a rate
of 0.15 lb/mmBtu below levels already imposed by Phase I and Phase II of the
Clean Air Act Amendments of 1990 (the Act). Midwestern states (the alliance)
have been working together to determine the most appropriate compliance strategy
as an alternative to the USEPA proposal. The alliance submitted its proposal,
which calls for a smaller, phased in reduction of NOx levels, to the USEPA and
the Indiana Department of Environmental Management (IDEM) in June 1998.
In July 1998, Indiana submitted its proposed plan to the USEPA in response to
the USEPA's proposed new NOx rule and the emissions budget proposed for Indiana.
The Indiana plan, which calls for a reduction of NOx emissions to a rate of 0.25
lb/mmBtu by 2003, is less stringent than the USEPA proposal but more stringent
than the alliance proposal.
On October 27, 1998, USEPA issued a final rule "Finding of Significant
Contribution and Rulemaking for Certain States in the Ozone Transport Assessment
Group Region for Purposes of Reducing Regional Transport of Ozone," (63 Fed.
Reg. 57355). The final rule requires that 23 states and jurisdictions must file
47
revised state implementation plans (SIPs) with the USEPA by no later than
September 30, 1999, which was essentially unchanged from its October 1997,
proposed rule. The USEPA has encouraged states to target utility coal-fired
boilers for the majority of the reductions required, especially NOx emissions.
Northeastern states have claimed that ozone transport from midwestern states
(including Indiana) is the primary reason for their ozone concentration
problems. Although this premise is challenged by others based on various air
quality modeling studies, including studies commissioned by the USEPA, the USEPA
intends to incorporate a regional control strategy to reduce ozone transport.
The USEPA's final ruling is being litigated in the federal courts by
approximately ten midwestern states, including Indiana.
During the second quarter of 1999, the USEPA lost two federal court challenges
to key air-pollution control requirements. In the first ruling by the U.S.
Circuit Court of Appeals for the District of Columbia on May 14, 1999, the Court
struck down the USEPA's attempt to tighten the one-hour ozone standard to an
eight-hour standard and the attempt to tighten the standard for particulate
emissions, finding the actions unconstitutional. In the second ruling by the
same Court on May 25, 1999, the Court placed an indefinite stay on the USEPA's
attempts to reduce the allowed NOx emissions rate from levels required by the
Clean Air Act Amendments of 1990. The USEPA appealed both court rulings. On
October 29, 1999, the Court refused to reconsider its May 14, 1999 ruling.
On March 3, 2000, the D.C. Circuit of Appeals upheld the USEPA's October 27,
1998 final rule requiring 23 states and the District of Columbia to file revised
SIPs with the USEPA by no later than September 30, 1999. Numerous petitioners,
including several states, have filed petitions for rehearing with the U.S. Court
of Appeals for the District of Columbia in Michigan v. the USEPA. On June 22,
2000, the D.C. Circuit Court of Appeals denied petition for rehearing en banc
and lifted its May 25, 1999 stay. Following this decision, on August 30, 2000,
the D.C. Circuit Court of Appeals issued an extension of the SIP Call
implementation deadline, previously May 1, 2003, to May 31, 2004. On September
20, 2000, petitioners filed a Petition of Writ of Certiori with the United
States Supreme Court requesting review of the D.C. Circuit Court's March 3, 2000
Order. The Court has not yet ruled on the Petition for Certiorari. The EPA
granted Section 126 Petitions filed by northeastern states that require named
sources in the eastern half of Indiana to achieve NOx reduction by May 1, 2003.
No SIGECO facilities are named in the Section 126 Petitions filed by
northeastern states, therefore the compliance date remains May 31, 2004.
The proposed NOx emissions budget for Indiana stipulated in the USEPA's final
ruling requires a 36 percent reduction in total NOx emissions from Indiana. The
ruling, pending finalization of state rule making, could require SIGECO to lower
its system-wide emissions by approximately 70 percent. Depending on the level of
system-wide emissions reductions ultimately required, and the control technology
utilized to achieve the reductions, the estimated construction costs of the
control equipment could reach $160 million, which are expected to be expended
during the 2001-2004 period, and related additional operation and maintenance
expenses could be an estimated $8 million to $10 million, annually. No accrual
has been recorded by the company related to the NOx SIP Call matter. The rules
governing NOx emissions, once finalized, are to be applied prospectively.
Mercury Emissions. On December 14, 2000, the USEPA released a statement
announcing that reductions of mercury emissions from coal-fired plants will be
required in the near future. The USEPA will propose regulations by December 2003
and issue final rules by December 2004.
Under the Act, the USEPA is required to study emissions from power plants in
order to determine if additional regulations are necessary to protect public
health. The USEPA reported its study to Congress in February 1998. That study
concluded that of all toxic pollution examined, mercury posed the greatest
concern to public health. An earlier USEPA study concluded that the largest
source of human-made mercury pollution in the United States was coal-fired power
plants.
After completion of the study, the Act required the USEPA to determine whether
to proceed with the development of regulations. The USEPA announced that it had
affirmatively decided that mercury air emissions from power plants should be
regulated. Because rules governing mercury emissions are under development, the
48
determination of exposure, if any, is impossible as there are no standards or
rules by which compliance (or lack thereof) can be measured. Accordingly, no
accrual has been recorded by the company related to the mercury emissions
matter.
Culley Generating Station Investigation Matter. The USEPA initiated an
investigation under Section 114 of the Act of SIGECO's coal-fired electric
generating units in commercial operation by 1977 to determine compliance with
environmental permitting requirements related to repairs, maintenance,
modifications and operations changes. The focus of the investigation was to
determine whether new source performance standards should be applied to the
modifications and whether the best available control technology was, or should
have been, used. Numerous other electric utilities were, and are currently,
being investigated by the USEPA under an industry-wide review for similar
compliance. SIGECO responded to all of the USEPA's data requests during the
investigation. In July 1999, SIGECO received a letter from the Office of
Enforcement and Compliance Assurance of the USEPA discussing the industry-wide
investigation, vaguely referring to the investigation of SIGECO and inviting
SIGECO to participate in a discussion of the issues. No specifics were noted;
furthermore, the letter stated that the communication was not intended to serve
as a notice of violation. Subsequent meetings were conducted in September and
October with the USEPA and targeted utilities, including SIGECO, regarding
potential remedies to the USEPA's general allegations.
On November 3, 1999, the USEPA filed a lawsuit against seven utilities,
including SIGECO. The USEPA alleges that, beginning in 1992, SIGECO violated the
Act by: (i) making modifications to its Culley Generating Station in Yankeetown,
Indiana without obtaining required permits; (ii) making major modifications to
the Culley Generating Station without installing the best available emission
control technology; and (iii) failing to notify the USEPA of the modifications.
In addition, the lawsuit alleges that the modifications to the Culley Generating
Station required SIGECO to begin to comply with federal new source performance
standards.
SIGECO believes it performed only maintenance, repair and replacement activities
at the Culley Generating Station, as allowed under the Act. Because proper
maintenance does not require permits, application of the best available emission
control technology, notice to the USEPA, or compliance with new source
performance standards, SIGECO believes that the lawsuit is without merit, and
intends to vigorously defend the lawsuit.
The lawsuit seeks fines against SIGECO in the amount of $27,500 per day per
violation. The lawsuit does not specify the number of days or violations the
USEPA believes occurred. The lawsuit also seeks a court order requiring SIGECO
to install the best available emissions technology at the Culley Generating
Station. If the USEPA is successful in obtaining an order, SIGECO estimates that
it would incur capital costs of approximately $40 million to $50 million
complying with the order. In the event that SIGECO is required to install
system-wide NOx emission control equipment, as a result of the NOx SIP call
issue, the majority of the $40 million to $50 million for best available
emissions technology at Culley Generating Station would be included in the $160
million expenditure previously discussed.
The USEPA has also issued an administrative notice of violation to SIGECO making
the same allegations, but alleging that violations began in 1977.
While it is possible that SIGECO could be subjected to criminal penalties if the
Culley Generating Station continues to operate without complying with the new
source performance standards and the allegations are determined by a court to be
valid, SIGECO believes such penalties are unlikely as the USEPA and the electric
utility industry have a bonafide dispute over the proper interpretation of the
Act. Accordingly, no accrual has been recorded by the company, and SIGECO
anticipates at this time that the plant will continue to operate while the
matter is being decided.
Information Request. On January 23, 2001, SIGECO received an information request
from the USEPA under Section 114(a) of the Act for historical operational
information on the Warrick and A.B. Brown generating stations. SIGECO plans to
provide all information requested, and management believes that no significant
issues will arise from this request.
49
Manufactured Gas Plants
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 the 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 IDEM, and a Record of Decision was issued by 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 IDEM's Voluntary
Remediation Program (VRP) and is currently conducting some level of remedial
activities including groundwater monitoring at certain sites where deemed
appropriate and will continue remedial activities at the sites as appropriate
and necessary.
In conjunction with data compiled by expert 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 accrued costs that it reasonably expects to incur totaling
approximately $20.3 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, which serve to limit Indiana
Gas' share of response costs at these 19 sites to between 20 and 50 percent.
With respect to insurance coverage, as of December 31, 2000, Indiana Gas has
received and recorded settlements from all known insurance carriers in an
aggregate amount approximating its $20.3 million accrual.
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.
18. Rate and Regulatory Matters
As a result of the ongoing appeal of a generic order issued by the IURC in
August 1999 regarding guidelines for the recovery of purchased power costs,
SIGECO entered into a settlement agreement with the Indiana Office of Utility
consumer Counselor (OUCC) that provides certain terms with respect to the
recoverability of such costs. The settlement, originally approved by the IURC on
August 9, 2000, has been extended by agreement through March 2002. Under the
settlement, SIGECO can recover the entire cost of purchased power up to an
established benchmark, and during forced outages, SIGECO will bear a limited
share of its purchased power costs regardless of the market costs at that time.
Based on this agreement, SIGECO believes it has significantly limited its
exposure to unrecoverable purchased power costs.
Commodity prices for natural gas purchases during the last six months of 2000
increased significantly, primarily due to the expectation of a colder winter,
which led to increased demand and tighter supplies. Vectren's utility
subsidiaries are typically allowed full recovery of such charges in purchased
gas costs from their retail customers through commission-approved gas cost
adjustment (GCA). On October 11, 2000, Indiana Gas filed for approval of its
quarterly GCA. In early December, the IURC issued an interim order approving the
request by Indiana Gas for a GCA factor for December 2000. On January 4, 2001,
the IURC approved the January and February 2001 GCA as filed. The order also
addressed the claim by the OUCC that a portion of the requested GCA be
disallowed because Indiana Gas should have entered into additional commitments
for this winter's gas supply in late 1999 and early 2000. In procuring gas
50
supply for this winter, Indiana Gas followed the gas procurement practices that
it had employed over the last several years. In response to the claim by the
OUCC, the IURC found that there should be a $3.8 million disallowance related to
gas procurement for the winter season. As a result, Indiana Gas recognized a
pre-tax charge of $3.8 million in December 2000. Both Indiana Gas and the OUCC
have appealed this ruling. The Citizens Action Coalition of Indiana, Inc., a not
for profit consumer advocate, has also filed with the IURC a petition to
intervene and a notice of appeal of the order.
19. Affiliate Transactions
ProLiance provides natural gas supply and related services to Indiana Gas.
Indiana Gas' purchases from ProLiance for resale and for injections into storage
for the years ended December 31, 2000 and 1999, totaled $401.4 million and
$240.7 million, respectively. As of December 31, 2000 and 1999, Vectren's net
investment in ProLiance, which is accounted for using the equity method of
accounting, totaled approximately $27.8 million and $16.2 million, respectively,
and is included in investments in partnerships and other corporations in the
Consolidated Balance Sheets.
ProLiance has a standby letter of credit facility with a bank for letters up to
$45.0 million. This facility is secured in part by a support agreement from
Vectren. Letters of credit outstanding at December 31, 2000 totaled $22.0
million.
CIGMA, LLC (CIGMA), owned jointly and equally by a wholly owned subsidiary of
Vectren and a third party, provides materials acquisition and related services
that are used by Indiana Gas and others. Indiana Gas' purchases of these
services during the years ended December 31, 2000 and 1999, totaled $17.2
million and $17.3 million, respectively. As of December 31, 2000 and 1999,
Vectren's net investment in CIGMA, which is accounted for using the equity
method of accounting, totaled approximately $4.2 million and is included in
investments in partnerships and other corporations in the Consolidated Balance
Sheets.
Reliant Services, LLC (Reliant), owned jointly and equally by a wholly owned
subsidiary of Vectren and Cinergy Corp., provides utility locating, meter
reading and construction services to Indiana Gas and others. Amounts paid by
Indiana Gas to Reliant for such services totaled $3.7 million and $2.9 million
for years ended December 31, 2000 and 1999, respectively. On December 13, 2000,
Reliant purchased the common stock of Miller Pipeline Corporation from NiSource,
Inc. for approximately $68.3 million. Vectren and Cinergy Corp. each contributed
$16 million of equity, and the remaining $36.3 million was funded with 7-year
intermediate bank loans. As of December 31, 2000 and 1999, Vectren's net
investment in Reliant, which is accounted for using the equity method of
accounting, totaled approximately $19.2 million and $3.6 million, respectively,
and is included in investments in partnerships and other corporations in the
Consolidated Balance Sheets.
Vectren is a two-thirds guarantor of certain surety bond and other obligations
of Energy Systems Group, LLC, a two-thirds owned consolidated subsidiary.
Vectren's share of the guarantee of such obligations totaled $50.6 million at
December 31, 2000.
Amounts owed to unconsolidated affiliates totaled $102.5 million and $29.3
million at December 31, 2000 and 1999, respectively, and are included in
accounts payable to affiliated companies on the Consolidated Balance Sheets. The
$73.2 million increase at December 31, 2000 is due primarily to amounts owed to
ProLiance resulting from the much higher gas prices and increased customer
consumption. Amounts due from unconsolidated affiliates totaled $17.6 million
and $7.6 million at December 31, 2000 and 1999, respectively, and are included
in accounts receivable on the Consolidated Balance Sheets.
51
20. Segment Reporting
SFAS 131 "Disclosure about Segments of an Enterprise and Related Information"
establishes standards for the reporting of information about operating segments
in financial statements and disclosures about products, services and
geographical areas. Operating segments are defined as components of an
enterprise for which separate financial information is available and evaluated
regularly by the chief operating decision makers in deciding how to allocate
resources and in the assessment of performance.
There were three operating segments of Vectren during 2000: (1) Gas Utility
Services, (2) Electric Utility Services, and (3) Non-regulated Operations. The
Gas Utility Services segment includes regulated gas utilities which provide
natural gas distribution and transportation services. The Electric Utility
Services segment generates, transmits and distributes and sells electricity
within primarily southwestern Indiana communities. The Non-regulated Operations
segment is made up of various businesses providing energy-related products and
services; telecommunication products and services; materials management, debt
collection and meter reading services; underground utility asset location and
construction services; structured finance and investment transactions including
leveraged leases of real estate and equipment; venture capital projects; coal
mining and sales; and other energy-related services. Revenues for each segment
are principally attributable to customers in the United States.
The following tables provide information about business segments. Vectren makes
decisions on finance and dividends at the corporate level; these topics are
addressed on a consolidated basis. In addition, adjustments have been made to
the segment information to arrive at information included in the consolidated
results of operations and financial position. These adjustments include
unallocated corporate assets, revenues and expenses and the elimination of
intercompany transactions.
At and Year Ended December 31,
-----------------------------------------
In thousands 2000 1999 1998
----------- ----------- -----------
Operating Revenues:
Gas Utility Services $ 818,753 $ 499,573 $ 487,260
Electric Utility Services 336,409 307,569 297,865
Non-regulated Operations 552,838 315,367 256,220
Intersegment Eliminations (59,310) (54,092) (43,639)
----------- ----------- -----------
Total operating revenues $ 1,648,690 $ 1,068,417 $ 997,706
=========== =========== ===========
Interest Expense:
Gas Utility Services $ 27,969 $ 18,704 $ 17,601
Electric Utility Services 18,103 17,544 18,191
Non-regulated Operations 23,107 12,535 8,046
Intersegment Eliminations (12,046) (5,921) (3,537)
----------- ----------- -----------
Total interest expense $ 57,133 $ 42,862 $ 40,301
=========== =========== ===========
Income Taxes:
Gas Utility Services $ 11,538 $ 18,830 $ 16,211
Electric Utility Services 23,386 24,331 22,881
Non-regulated Operations (595) 2,575 3,148
Intersegment Eliminations (97) (28) 88
----------- ----------- -----------
Total income taxes $ 34,232 $ 45,708 $ 42,328
=========== =========== ===========
Net Income:
Gas Utility Services $ 15,589 $ 33,612 $ 30,931
Electric Utility Services 36,811 41,820 38,342
Non-regulated Operations 19,799 15,316 17,327
Intersegment Eliminations (159) - -
----------- ----------- -----------
Net income $ 72,040 $ 90,748 $ 86,600
=========== =========== ===========
Depreciation and amortization:
Gas Utility Services $ 43,791 $ 38,623 $ 37,082
Electric Utility Services 38,639 40,829 38,077
Non-regulated Operations 23,231 7,546 6,399
Intersegment Eliminations - - -
----------- ----------- -----------
Total depreciation and amortization $ 105,661 $ 86,998 $ 81,558
=========== =========== ===========
Capital expenditures:
Gas Utility Services $ 73,114 $ 72,773 $ 64,701
Electric Utility Services 37,549 51,080 47,114
Non-regulated Operations 53,603 8,306 23,254
Intersegment Eliminations - - -
----------- ----------- -----------
Total capital expenditures $ 164,266 $ 132,159 $ 135,069
=========== =========== ===========
Identifiable assets:
Gas Utility Services $ 1,658,778 $ 882,948 $ 827,931
Electric Utility Services 799,104 751,159 740,746
Non-regulated Operations 749,237 505,564 326,048
Intersegment Eliminations (297,932) (159,204) (95,885)
----------- ----------- -----------
Total identifiable assets $ 2,909,187 $ 1,980,467 $ 1,798,840
=========== =========== ===========
21. Other Income
For the years ended December 31, 2000, 1999 and 1998, other - net consists of
the following:
(in thousands) 2000 1999 1998
-------- -------- --------
Leveraged lease investment income $ 7,698 $ 4,152 $ 1,433
AFUDC 5,279 3,829 2,624
Interest income 9,397 5,849 5,668
Other income 7,205 1,499 3,660
Other expense (4,930) (2,275) (1,847)
-------- -------- --------
Total other - net $ 24,649 $ 13,054 $ 11,538
======== ======== ========
22. Preferred Stock of Subsidiary
Cumulative Preferred Stock of SIGECO
The amount payable in the event of involuntary liquidation of each series of the
$100 par value preferred stock is $100 per share, plus accrued dividends. This
nonredeemable preferred stock is callable at the option of SIGECO as follows:
the 4.8% Series at $110 per share, plus accrued dividends; and the 4.75% Series
at $101 per share, plus accrued dividends. As of December 31, 2000 and 1999,
there were 85,895 shares of the 4.8% Series outstanding and 3,000 shares and
25,000 shares of the 4.75% Series outstanding, respectively.
Cumulative Redeemable Preferred Stock of SIGECO
The Series has a dividend rate of 6.50% and is redeemable at $100 per share on
December 1, 2002. In the event of involuntary liquidation of this series of $100
par value preferred stock, the amount payable is $100 per share, plus accrued
dividends. As of December 31, 2000 and 1999, there were 75,000 shares
outstanding.
Cumulative Special Preferred Stock of SIGECO
The Cumulative Special Preferred Stock has a dividend rate of 8.5% and in the
event of involuntary liquidation the amount payable is $100 per share, plus
accrued dividends. This Series is callable at the option of SIGECO at a rate of
1,160 shares per year. As of December 31, 2000 and 1999, there were 5,757 shares
and 6,917 shares outstanding, respectively.
53
23. Quarterly Financial Data (Unaudited) (1)
Summarized quarterly financial data (in thousands of dollars except per share
amounts) for 2000 and 1999 are as follows:
2000
-----
In thousands, except per share amounts Q1(2) Q2 Q3 Q4 Total
-------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Operating revenues $ 359,444 $ 263,477 $ 317,854 $ 707,915 $1,648,690
Operating income 34,276 15,716 27,643 53,286 130,921
Net income 22,125 8,273 15,458 26,184 72,040
Basic earnings per average share of common stock 0.36 0.14 0.25 0.43 1.18
Diluted earnings per average share of common stock 0.36 0.13 0.25 0.43 1.17
1999
-------
In thousands, except per share amounts Q1 Q2 Q3 Q4 Total
-------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Operating revenues $ 321,033 $ 207,042 $ 231,160 $ 309,182 $1,068,417
Operating income 68,133 22,940 29,397 40,302 160,772
Net income 40,723 11,554 16,236 22,235 90,748
Basic earnings per average share of common stock 0.66 0.19 0.26 0.37 1.48
Diluted earnings per average share of common stock 0.66 0.19 0.26 0.37 1.48
(1) Information in any one quarterly period is not indicative of annual results
due to the seasonal variations common to the company's utility operations
(2) Includes merger and integration charges as described in Note 3.
24. Subsequent Event
On January 19, 2001, Vectren filed a registration statement with the Securities
and Exchange Commission with respect to a public offering of 5.5 million shares
of new common stock. On February 8, 2001, the registration became effective and
agreement was reached to sell 5.5 million shares to a group of underwriters. On
February 14, the shares were sold, at which time, the underwriters exercised
their over-allotment option to sell an additional 825,000 shares for a total of
about 6.3 million shares. The net proceeds of $129.4 million will be used
principally to repay outstanding commercial paper utilized for recent
acquisitions.
54
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Vectren Corporation is responsible for the preparation of the
consolidated financial statements and the related financial data contained in
this report. The financial statements are prepared in conformity with accounting
principles generally accepted in the United States and follow accounting
policies and principles applicable to regulated public utilities.
The integrity and objectivity of the data in this report, including required
estimates and judgments, are the responsibility of management. Management
maintains a system of internal control and utilizes an internal auditing program
to provide reasonable assurance of compliance with company policies and
procedures and the safeguard of assets.
The board of directors pursues its responsibility for these financial statements
through its audit committee, which meets periodically with management, the
internal auditors and the independent auditors, to assure that each is carrying
out its responsibilities. Both the internal auditors and the independent
auditors meet with the audit committee of Vectren Corporation's board of
directors, with and without management representatives present, to discuss the
scope and results of their audits, their comments on the adequacy of internal
accounting control and the quality of financial reporting.
/s/ Niel C. Ellerbrook
Niel C. Ellerbrook
Chairman and Chief Executive Officer
January 24, 2001.
55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Vectren Corporation:
We have audited the accompanying consolidated balance sheets of Vectren
Corporation (an Indiana corporation) and subsidiary companies as of December 31,
2000 and 1999, and the related consolidated statements of income, common
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vectren Corporation
and subsidiary companies as of December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Indianapolis, Indiana,
January 24, 2001 (except with respect
to the matter discussed in Note 24, as to
which the date is February 14, 2001).
56
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Financial statements filed as part of this Form 10-K are included under Item 8.
(a)(2) Financial Statement Schedules:
PAGES IN FORM 10-K/A
----------------------
Report of Independent Accountants 56
For the years ended December 31, 2000, 1999, and 1998:
Schedule II -- Valuation and Qualifying Accounts 58
All other schedules are omitted as the required information is inapplicable or
the information is presented in the Consolidated Financial Statements or related
notes.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Vectren Corporation.
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in Vectren
Corporation's annual report to shareholders included in this Form 10-K, and have
issued our report thereon dated January 24, 2001 (except with respect to the
matter discussed in Note 24, as to which the date is February 14, 2001). Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in item 14(a)(2) is the responsibility of the
company's management and are present for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements, and in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Indianapolis, Indiana,
January 24, 2001.
57
SCHEDULE II
Vectren Corporation and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
-------- -------- ------------------- -------- --------
Additions
Balance Charged Charged Deductions Balance
Beginning To to Other from End of
Description Of Year Expenses Accounts Reserves, Net Year
----------- ---------- -------- -------- ------------- ----
(in thousands)
VALUATION AND QUALIFYING ACCOUNTS:
Year 2000 - Accumulated provision for
uncollectible accounts $ 3,949 $ 7,671 $ 500 $6,404 $ 5,716
Year 1999 - Accumulated provision for
uncollectible accounts $ 3,953 $ 3,657 $ - $3,661 $3,949
Year 1998 - Accumulated provision for
uncollectible accounts $ 2,480 $ 5,232 $ - $3,759 $3,953
OTHER RESERVES:
Year 2000 - Reserve for merger and
integration charges $ - $ 20,700 $ - $ 18,881 $1,819
Year 2000 - Reserve for injuries and
damages $ 1,547 $ 851 $ - $ 574 $1,824
Year 1999 - Reserve for injuries and
damages $ 1,282 $ 661 $ - $ 396 $1,547
Year 1998 - Reserve for injuries and
damages $ 1,047 $ 568 $ 261 $ 594 $1,282
(a)(3). EXHIBITS
Exhibits for the company are listed in the Index to Exhibits beginning on page
62.
(b) REPORTS ON FORM 8-K
58
On October 31, 2000, Vectren Corporation (the Company) filed a Current Report
on Form 8-K with respect to the completion of the approximate $465 million
acquisition of the natural gas distribution assets from The Dayton Power and
Light Company, a wholly owned subsidiary of DPL, Inc., and with respect to
Reliant Services, LLC, jointly and equally owned by subsidiaries of the company
and Cinergy Corp., the announcement it signed a definitive agreement to purchase
the common stock of Indianapolis, Indiana-based Miller Pipeline Corporation from
NiSource Inc. Items reported include:
Item 5. Other Events
Item 7. Exhibits
99-1 Press Release - Vectren Corporation Completes Acquisition of
DPL's Natural Gas Distribution Business
99-2 Press Release - Vectren, Cinergy Affiliate To Acquire Miller
Pipeline Corporation From NiSource
99-3 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform
Act of 1995
On December 15, 2000, Vectren Corporation filed a Current Report on Form 8-K
with respect to providing an update on potential impact of Increased Gas Costs
and Gas Cost Adjustment Proceedings. Items reported include:
Item 5. Other Events
On December 22, 2000 Vectren Corporation filed a Current Report on Form
8-K with respect to attaching the press release issued December 13, 2000,
concerning the completion of the common stock purchase of Indianapolis-based
Miller Pipeline Corporation from NiSource Inc. Items reported include:
Item 5. Other Events
Item 7. Exhibits
99 Press Release dated December 13, 2000
On December 27, 2000, Vectren Corporation filed a Current Report on Form 8-K
with respect to making available certain selected financial information of its
subsidiary, Vectren Utility Holdings, Inc. (VUHI), which was disclosed as part
of a Rule 144A offering of $150,000,000 aggregate principal amount of VUHI's
floating rate notes. Items reported include:
Item 5. Other Events.
Item 7. Exhibits
99 Selected Financial Information
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VECTREN CORPORATION
Dated August 27, 2001
/s/ Niel C. Ellerbrook
Niel C. Ellerbrook, Chairman
and Chief Executive Officer
INDEX TO EXHIBITS
EX - 1.1 Form of Purchase Agreement among Vectren and underwriters for the
sale of Vectren's common stock. (Filed and designated in Form S-3
(No. 333-5390), filed January 19, 2001, File No. 1-15467, as
Exhibit 1.1.)
EX - 2.1 Agreement and Plan of Merger dated as of June 11,1999 among
Indiana Energy, Inc., SIGCORP, Inc. and Vectren Corporation (the
"Merger Agreement "). (Filed and designated in Form S-4 to (No.
333-90763) filed on November 12, 1999, File 1-15467, as Exhibit
2.)
EX - 2.2 Amendment No.1 to the Merger Agreement dated December 14, 1999
(Filed and designated in Current Report on Form 8-K filed
December 16, 1999, File 1-09091, as Exhibit 2.)
EX - 2.3 Asset Purchase Agreement dated December 14,1999 between Indiana
Energy, Inc. and The Dayton Power and Light Company and
Number-3CHK with a commitment letter for a 364-Day Credit
Facility dated December 16,1999. (Filed and designated in Current
Report on Form 8-K dated December 28, 1999, File No. 1-9091, as
Exhibit 2 and 99.1.)
EX - 3.1 Amended and Restated Articles of Incorporation of Vectren
Corporation effective March 31, 2000. (Filed and designated in
Current Report on Form 8-K filed April 14, 2000, File No.
1-15467, as Exhibit 4.1.)
EX - 3.2 Code of By-Laws of Vectren Corporation. (Filed and designated in
Form S-3 (No. 333-5390), filed January 19, 2001, File No.
1-15467, as Exhibit 4.2.)
EX - 3.3 Shareholders Rights Agreement dated as of October 21, 1999
between Vectren Corporation and Equiserve Trust Company, N.A., as
Rights Agent. (Filed and designated in Form S-4 (No. 333-90763),
filed November 12. 1999, File No 1-15467, as Exhibit 4.)
EX - 4.1 Mortgage and Deed of Trust dated as of April 1, 1932 between
Southern Indiana Gas and Electric Company and Bankers Trust
Company, as Trustee, and Supplemental Indentures thereto dated
August 31, 1936, October 1, 1937, March 22, 1939, July 1, 1948,
60
June 1, 1949, October 1, 1949, January 1, 1951, April 1, 1954,
March 1, 1957, October 1, 1965, September 1, 1966, August 1,
1968, May 1, 1970, August 1, 1971, April 1, 1972, October 1,
1973, April 1, 1975, January 15, 1977, April 1, 1978, June 4,
1981, January 20, 1983, November 1, 1983, March 1, 1984, June 1,
1984, November 1, 1984, July 1, 1985, November 1, 1985, June 1,
1986. (Filed and designated in Registration No. 2-2536 as
Exhibits B-1 and B-2; in Post-effective Amendment No. 1 to
Registration No. 2-62032 as Exhibit (b)(4)(ii), in Registration
No. 2-88923 as Exhibit 4(b)(2), in Form 8-K, File No. 1-3553,
dated June 1, 1984 as Exhibit (4), File No. 1-3553, dated March
24, 1986 as Exhibit 4-A, in Form 8-K, File No. 1-3553, dated June
3, 1986 as Exhibit (4).) July 1, 1985 and November 1, 1985 (Filed
and designated in Form 10-K, for the fiscal year 1985, File No.
1-3553, as Exhibit 4-A.) November 15, 1986 and January 15, 1987.
(Filed and designated in Form 10-K, for the fiscal year 1986,
File No. 1-3553, as Exhibit 4-A.) December 15, 1987. (Filed and
designated in Form 10-K, for the fiscal year 1987, File No.
1-3553, as Exhibit 4-A.) December 13, 1990. (Filed and designated
in Form 10-K, for the fiscal year 1990, File No. 1-3553, as
Exhibit 4-A.) April 1, 1993. (Filed and designated in Form 8-K,
dated April 13, 1993, File 1-3553, as Exhibit 4.) June 1, 1993
(Filed and designated in Form 8-K, dated June 14, 1993, File
1-3553, as Exhibit 4.) May 1, 1993. (Filed and designated in Form
10-K, for the fiscal year 1993, File No. 1-3553, as Exhibit
4(a).) July 1, 1999. (Filed and designated in Form 10-Q, dated
August 16, 1999, File 1-3553, as Exhibit 4(a).)
EX - 4.2 Indenture dated February 1, 1991, between Indiana Gas and
Continental Bank, National Association. Inc.'s. (Filed and
designated in Current Report on Form 8-K filed February 15, 1991,
File No. 1-6494.); First Supplemental Indenture thereto dated as
of February 15, 1991. (Filed and designated in Current Report on
Form 8-K filed February 15, 1991, File No 1-6494, as Exhibit
4(b).); Second Supplemental Indenture thereto dated as of
September 15, 1991, (Filed and designated in Current Report on
Form 8-K filed September 25, 1991, File No 1-6494, as Exhibit
4(b).); Third supplemental Indenture thereto dated as of
September 15, 1991 (Filed and designated in Current Report on
Form 8-K filed September 25, 1991, File No 1-6494, as Exhibit
4(c).); Fourth Supplemental Indenture thereto dated as of
December 2, 1992, (Filed and designated in Current Report on Form
8-K filed December 8, 1992, File No 1-6494, as Exhibit 4(b).);
Fifth Supplemental Indenture thereto dated as of December 28,
2000, (Filed and designated in Current Report on Form 8-K filed
December 27, 2000, File No 1-6494, as Exhibit 4.)
EX - 4.3 $435,000,000 Credit Agreement arranged by Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated dated as of
June 29, 2000 among Vectren Corporation, Vectren Utility
Holdings, Inc., certain Lenders, Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger
and Syndication Agent, ABN AMRO, as Documentation Agent, and
Credit Suisse First Boston, as Administrative Agent. (Filed and
designated in Current Report on Form 8-K dated January 26, 2001,
File No 1-15467, as Exhibit 4.1.)
EX - 4.4 Credit Agreement dated as of March 8, 1999 among Indiana Gas
Company, Inc., the Lenders, ABN AMRO Bank N.V., as Syndication
Agent, National City Bank of Indiana, as Documentation Agent, and
Bank One, Indiana, N.A., as Administrative Agent. (Filed and
designated in Current Report on Form 8-K dated January 26, 2001,
File No 1-15467, as Exhibit 4.2.)
EX - 4.5 First Amendment dated as of March 7, 2000 to the Credit Agreement
dated as of March 8, 1999 among Indiana Gas Company, Inc.,
certain lenders, ABN AMRO BANK N.V., as Syndication Agent,
61
National City Bank of Indiana, as Documentation Agent, and Bank
One, Indiana, N.A., as Administrative Agent. (Filed and
designated in Current Report on Form 8-K dated January 26, 2001,
File No 1-15467, as Exhibit 4.3.)
EX - 4.6 Second Amendment dated as of October 31, 2000 to the Credit
Agreement dated as of March 8, 1999 among Indiana Gas Company,
Inc., certain lenders, ABN AMRO BANK N.V., as Syndication Agent,
National City Bank of Indiana, as Documentation Agent, and Bank
One, Indiana, N.A., as Administrative Agent. (Filed and
designated in Current Report on Form 8-K dated January 26, 2001,
File No 1-15467, as Exhibit 4.4.)
EX - 4.7 Bank One letter dated as of January 29, 2001 waiving the covenant
compliance under Section 6.13 of the Indiana Gas Company, Inc.
Credit Agreement dated as of March 8, 1999. (Filed and designated
in Current Report on Form 8-K dated January 26, 2001, File No
1-15467, as Exhibit 4.5.)
EX - 10.1 Agreement, dated, January 30, 1968, for Unit No. 4 at the Warrick
Power Plant of Alcoa Generating Corporation ("Alcoa"), between
Alcoa and Southern Indiana Gas and Electric Company. (Filed and
designated in Registration No. 2-29653 as Exhibit 4(d)-A.)
EX - 10.2 Letter of Agreement, dated June 1, 1971, and Letter Agreement,
dated June 26, 1969, between Alcoa and Southern Indiana Gas and
Electric Company. (Filed and designated in Registration No.
2-41209 as Exhibit 4(e)-2.)
EX - 10.3 Letter Agreement, dated April 9, 1973, and Agreement dated April
30, 1973, between Alcoa and Southern Indiana Gas and Electric
Company. (Filed and designated in Registration No. 2-53005 as
Exhibit 4(e)-4.)
EX - 10.4 Electric Power Agreement (the "Power Agreement"), dated May 28,
1971, between Alcoa and Southern Indiana Gas and Electric
Company. (Filed and designated in Registration No. 2-41209 as
Exhibit 4(e)-1.)
EX - 10.5 Second Supplement, dated as of July 10, 1975, to the Power
Agreement and Letter Agreement dated April 30, 1973 - First
Supplement. (Filed and designated in Form 10-K for the fiscal
year 1975, File No. 1-3553, as Exhibit 1(e).)
EX - 10.6 Third Supplement, dated as of May 26, 1978, to the Power
Agreement. (Filed and designated in Form 10-K for the fiscal year
1978 as Exhibit A-1.)
EX - 10.7 Letter Agreement dated August 22, 1978 between Southern Indiana
Gas and Electric Company and Alcoa, which amends Agreement for
Sale in an Emergency of Electrical Power and Energy Generation by
Alcoa and Southern Indiana Gas and Electric Company dated June
26, 1979. (Filed and designated in Form 10-K for the fiscal year
1978, File No. 1-3553, as Exhibit A-2.)
EX - 10.8 Fifth Supplement, dated as of December 13, 1978, to the Power
Agreement. (Filed and designated in Form 10-K for the fiscal year
1979, File No. 1-3553, as Exhibit A-3.)
EX - 10.9 Sixth Supplement, dated as of July 1, 1979, to the Power
Agreement. (Filed and designated in Form 10-K for the fiscal year
1979, File No. 1-3553, as Exhibit A-5.)
62
EX - 10.10 Seventh Supplement, dated as of October 1, 1979, to the Power
Agreement. (Filed and designated in Form 10-K for the fiscal year
1979, File No. 1-3553, as Exhibit A-6.)
EX - 10.11 Eighth Supplement, dated as of June 1, 1980 to the Electric Power
Agreement, dated May 28, 1971, between Alcoa and Southern Indiana
Gas and Electric Company. (Filed and designated in Form 10-K for
the fiscal year 1980, File No. 1-3553, as Exhibit (20)-1.)
EX - 10.12 Summary description of Southern Indiana Gas and Electric
Company's nonqualified Supplemental Retirement Plan (Filed and
designated in Form 10-K for the fiscal year 1992, File No.
1-3553, as Exhibit 10-A-17.)
EX - 10.13 Supplemental Post Retirement Death Benefits Plan, dated October
10, 1984. (Filed and designated in Form 10-K for the fiscal year
1992, File No. 1-3553, as Exhibit 10-A-18.)
EX - 10.14 Summary description of Southern Indiana Gas and Electric
Company's Corporate Performance Incentive Plan. (Filed and
designated in Form 10-K for the fiscal year 1992, File No.
1-3553, as Exhibit 10-A-19.)
EX - 10.15 Southern Indiana Gas and Electric Company's Corporate Performance
Incentive Plan as amended for the plan year beginning January 1,
1994. (Filed and designated in Form 10-K for the fiscal year
1993, File No. 1-3553, as Exhibit 10-A-20.)
EX - 10.16 Southern Indiana Gas and Electric Company 1994 Stock Option Plan
(Filed and designated in Southern Indiana Gas and Electric
Company's Proxy Statement dated February 22, 1994, File No.
1-3553, as Exhibit A.)
EX - 10.17 Southern Indiana Gas and Electric Company's nonqualified
Supplemental Retirement Plan as amended, effective April 16,
1997. (Filed and designated in Form 10-K for the fiscal year
1997, File No. 1-3553, as Exhibit 10.29.)
EX - 10.18 Agreement dated April 16, 1997 between Southern Indiana Gas and
Electric Company and Ronald G. Reherman regarding supplemental
pension and disability benefits, which supercedes such agreement
dated February 1, 1995. (Filed and designated in Form 10-K for
the fiscal year 1997, File No. 1-3553, as Exhibit 10.27.)
EX - 10.19 Southern Indiana Gas and Electric Company's nonqualified
Supplemental Retirement Plan as amended, effective April 16,
1997. (Filed and designated in Form 10-K for the fiscal year
1997, File No. 1-3553, as Exhibit 10.29.)
EX - 10.20 Vectren Corporation Retirement Savings Plan. (Filed and
designated in Form 10-Q for the quarterly period ended September
30, 2000, File 1-15467, as Exhibit 99.1.)
EX - 10.21 Vectren Corporation Combined Non-Bargaining Retirement Plan.
(Filed and designated in Form 10-Q for the quarterly period ended
September 30, 2000, File 1-15467, as Exhibit 99.2.)
EX - 10.22 Indiana Energy, Inc. Unfunded Supplemental Retirement Plan for a
Select Group of Management Employees as amended and restated
effective December 1, 1998. (Filed and designated in Form 10-Q
for the quarterly period ended December 31, 1998, File 1-9091, as
Exhibit 10-G.)
63
EX - 10.23 Indiana Energy, Inc. Nonqualified Deferred Compensation Plan
effective January 1, 1999. (Filed and designated in Form 10-Q for
the quarterly period ended December 31, 1998, File 1-9091, as
Exhibit 10-H.)
EX - 10.24 Indiana Energy, Inc. Annual Management Incentive Plan effective
October 1, 1987. (Filed and designated in Form 10-K for the
fiscal year ended September 30, 1987, File 1-9091, as Exhibit
10-D.)
EX - 10.25 First Amendment to the Indiana Energy, Inc. Annual Management
Incentive Plan effective October 1, 1997. (Filed and designated
in Form 10-K for the fiscal year ended September 30, 1998, File
1-9091, as Exhibit 10-Q.)
EX - 10.26 Formation Agreement among Indiana Energy, Inc., Indiana Gas
Company, Inc., IGC Energy, Inc., Indiana Energy Services, Inc.,
Citizens Gas & Coke Utility, Citizens Energy Services Corporation
and ProLiance Energy, LLC, effective March 15, 1996. (Filed and
designated in Form 10-Q for the quarterly period ended March 31,
1996, File 1-9091, as Exhibit 10-C.)
EX - 10.27 Gas Sales and Portfolio Administration Agreement between Indiana
Gas Company, Inc. and ProLiance Energy, LLC, effective March 15,
1996, for services to begin April 1, 1996. (Filed and designated
in Form 10-Q for the quarterly period ended March 31, 1996, File
1-6494, as Exhibit 10-C.)
EX - 10.28 Amended appendices to the Gas Sales and Portfolio Administration
Agreement between Indiana Gas Company, Inc. and ProLiance Energy,
LLC effective November 1, 1998. (Filed and designated in Form
10-Q for the quarterly period ended March 31, 1999, File 1-6494,
as Exhibit 10-A.)
EX - 10.29 Amended appendices to the Gas Sales and Portfolio Administration
Agreement between Indiana Gas Company, Inc. and ProLiance Energy,
LLC effective November 1, 1999. (Filed and designated in Form
10-K for the fiscal year ended September 30, 1999, File 1-6494,
as Exhibit 10-V.)
EX - 10.30 Indiana Energy, Inc. Executive Restricted Stock Plan as amended
and restated effective October 1, 1998. (Filed and designated in
Form 10-K for the fiscal year ended September 30, 1998, File
1-9091, as Exhibit 10-O.)
EX - 10.31 Amendment to Indiana Energy, Inc. Executive Restricted Stock Plan
effective December 1, 1998. (Filed and designated in Form 10-Q
for the quarterly period ended December 31, 1998, File 1-9091, as
Exhibit 10-I.)
EX - 10.32 Indiana Energy, Inc. Director's Restricted Stock Plan as amended
and restated effective May 1, 1997. (Filed and designated in Form
10-Q for the quarterly period ended June 30, 1997, File 1-9091,
as Exhibit 10-B.)
EX - 10.33 First Amendment to Indiana Energy, Inc. Directors' Restricted
Stock Plan, effective December 1, 1998. (Filed and designated in
Form 10-Q for the quarterly period ended December 31, 1998, File
1-9091, as Exhibit 10-J.)
64
EX - 10.34 Second Amendment to Indiana Energy, Inc. Directors Restricted
Stock Plan, renamed the Vectren Corporation Directors Restricted
Stock Plan effective October 1, 2000. (Filed and designated in
Form 10-K for the year ended December 31, 2000, File 1-15467, as
Exhibit 10-34.)
EX - 10.35 Third Amendment to Indiana Energy, Inc. Directors Restricted
Stock Plan, renamed the Vectren Corporation Directors Restricted
Stock Plan effective March 28, 2001. (Filed and designated in
Form 10-K for the year ended December 31, 2000, File 1-15467, as
Exhibit 10-35.)
EX - 10.36 Vectren Corporation Employment Agreement between Vectren
Corporation and Niel C. Ellerbrook dated as of March 31, 2000.
(Filed and designated in Form 10-Q for the quarterly period ended
June 30, 2000, File 1-15467, as Exhibit 99.1.)
EX - 10.37 Vectren Corporation Employment Agreement between Vectren
Corporation and Andrew E. Goebel dated as of March 31, 2000(Filed
and designated in Form 10-Q for the quarterly period ended June
30, 2000, File 1-15467, as Exhibit 99.2.)
EX - 10.38 Vectren Corporation Employment Agreement between Vectren
Corporation and Jerome A. Benkert, Jr. dated as of March 31,
2000. (Filed and designated in Form 10-Q for the quarterly period
ended June 30, 2000, File 1-15467, as Exhibit 99.3.)
EX - 10.39 Vectren Corporation Employment Agreement between Vectren
Corporation and Carl L. Chapman dated as of March 31, 2000.
(Filed and designated in Form 10-Q for the quarterly period ended
June 30, 2000, File 1-15467, as Exhibit 99.4.)
EX - 10.40 Vectren Corporation Employment Agreement between Vectren
Corporation and Ronald E. Christian dated as of March 31, 2000.
(Filed and designated in Form 10-Q for the quarterly period ended
June 30, 2000, File 1-15467, as Exhibit 99.5.)
EX - 10.41 Vectren Corporation Employment Agreement between Vectren
Corporation and Timothy M. Hewitt dated as of March 31, 2000.
(Filed and designated in Form 10-Q for the quarterly period ended
June 30, 2000, File 1-15467, as Exhibit 99.6.)
EX - 10.42 Vectren Corporation Employment Agreement between Vectren
Corporation and J. Gordon Hurst dated as of March 31, 2000.
(Filed and designated in Form 10-Q for the quarterly period ended
June 30, 2000, File 1-15467, as Exhibit 99.7.)
EX - 10.43 Vectren Corporation Employment Agreement between Vectren
Corporation and Richard G. Lynch dated as of March 31, 2000.
(Filed and designated in Form 10-Q for the quarterly period ended
June 30, 2000, File 1-15467, as Exhibit 99.8.)
EX - 21 Listing of Subsidiaries (Filed and designated in Form 10-K for
the year ended December 31, 2000, File 1-15467, as Exhibit 21.)
EX - 23 Consent of Independent Public Accountants (Filed herewith)
EX - 99.1 Vectren Corporation Press Release regarding gas cost adjustment
proceedings filed in Current Report on 8-K on March 29, 2001.
(Filed herewith.)