FORM 10-K
SECURlTlES AND EXCHANGE COMMlSSlON
WASHINGTON, D. C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended
December 31, 1997 Commission File Number 1-8644
IPALCO ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
Indiana 35-1575582
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Monument Circle
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317-261-8261
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
IPALCO Enterprises, Inc. New York Stock Exchange
Common Stock (without par value) Chicago Stock Exchange
Common Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least 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 January 31, 1998, the aggregate market value of the voting stock held
by non-affiliates of the registrant was: $1,635,286,835 based on the average
of the high and low price of the common stock on such date. As of
January 31, 1998, there were 44,863,302 shares of the registrant's common
stock (without par value)outstanding.
-------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the IPALCO Enterprises, Inc. definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on April 15, 1998, are incorporated by
reference into Part III of this Report.
<PAGE>
PART I
------
Item 1. BUSINESS
--------
ORGANIZATION
IPALCO Enterprises, Inc. (IPALCO) is a holding company and was
incorporated under the laws of the state of Indiana on September 14, 1983. It
has 14 employees. IPALCO has two (2) subsidiaries: Indianapolis Power & Light
Company (IPL), a regulated electric and steam service utility, and Mid-America
Capital Resources, Inc. (Mid-America), a holding company for unregulated
businesses.
DESCRIPTION OF BUSINESS OF SUBSIDIARIES
INDIANAPOLIS POWER & LIGHT COMPANY
GENERAL
IPL was incorporated under the laws of the state of Indiana in 1926 and
is a wholly-owned subsidiary of IPALCO. IPL is engaged primarily in generating,
transmitting, distributing and selling electric energy in the city of
Indianapolis and neighboring cities, towns, communities, and adjacent rural
areas, all within the state of Indiana, the most distant point being about 40
miles from Indianapolis. It also produces, distributes and sells steam within a
limited area in such city. There have been no significant changes in the
services rendered, or in the markets or methods of distribution, since the
beginning of the fiscal year. IPL intends to do business of the same general
character as that in which it is now engaged. Existing Indiana law provides for
electricity suppliers to have an exclusive retail service area.
IPL's business is not dependent on any single customer or group of a few
customers. IPL's historical retail sales to ultimate consumers for 1993-1997 are
depicted at page I-5.
The electric utility business is affected by the various seasonal weather
patterns throughout the year and, therefore, the operating revenues and
associated operating expenses are not generated evenly by months during the
year.
IPL's generation, transmission and distribution facilities (electric
system) are described in Item 2, "PROPERTIES." IPL's electric system is directly
interconnected with the electric systems of Indiana Michigan Power Company, PSI
Energy, Inc., Southern Indiana Gas and Electric Company, Wabash Valley Power
Association, Hoosier Energy Rural Electric Cooperative, Inc. and the Indiana
Municipal Power Agency.
Also, IPL is a member of the East Central Area Reliability Group (ECAR),
and is cooperating under an agreement which provides for coordinated planning of
generating and transmission facilities and the operation of such facilities to
promote reliability of bulk power supply in the nine-state region served by
ECAR. Smaller electric utility systems, independent power producers and power
marketers participate as associate members.
REGULATION
IPL is subject to regulation by the Indiana Utility Regulatory Commission
(IURC) as to its services and facilities, valuation of property, the
construction, purchase or lease of electric generating facilities,
classification of accounts, rates of depreciation, rates and charges, issuance
of securities (other than evidences of indebtedness payable less than twelve
months after the date of issue), the acquisition and sale of public utility
properties or securities and certain other matters. See Note 10 in the Notes to
Consolidated Financial Statements.
<PAGE>
In addition, IPL is subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC), in respect of short-term borrowings not regulated
by the IURC, the sale and transmission of electric energy in interstate
commerce, the classification of its accounts and the acquisition and sale of
utility property in certain circumstances as provided by the Federal Power Act.
IPL is also subject to federal, state and local environmental laws and
regulations, particularly as to generating station discharges affecting air and
water quality. The impact of compliance with such regulations on the capital and
operating costs of IPL has been and will continue to be substantial. IPL has
developed and implemented a plan to reduce sulfur dioxide and nitrogen oxide
emissions from several generating units. This plan was approved by the
Environmental Protection Agency (EPA) in 1994. Estimated new annual capital
expenditures for all other air, solid waste and water environmental compliance
measures are $10 million, $1 million and $.5 million in 1998, 1999 and 2000,
respectively.
RETAIL RATEMAKING
IPL's tariffs for electric and steam service to retail customers (basic
rates and charges) are set and approved by the IURC after public hearings. Such
proceedings, which have occurred at irregular intervals, involve IPL, the staff
of the IURC, the Office of the Indiana Utility Consumer Counselor, as well as
other interested consumer groups and IPL customers. In Indiana, basic rates and
charges are determined after giving consideration, on a proforma basis, to all
allowable costs for ratemaking purposes including a fair return on the fair
value of the utility property dedicated to providing service to customers. Once
set, the basic rates and charges authorized do not assure the realization of a
fair return on the fair value of property. Other numerous factors including
weather, inflation, customer growth and usage, the level of actual maintenance
and capital expenditures and IURC restrictions on the level of operating income
can impact the return realized. Substantially all of IPL's retail tariffs
provide for the monthly billing or crediting to customers of increases or
decreases, respectively, in the actual costs of fuel consumed from estimated
fuel costs embedded in base tariffs. Additionally, all such retail tariffs
provide for billing of "lost revenue margins" on estimated kilowatt-hour (KWH)
sales reductions along with current and deferred costs resulting from IPL's IURC
approved demand side management programs (DSM). IPL maintains its books and
records consistent with generally accepted accounting principles reflecting the
impact of regulation (see Note 1 in the Notes to Consolidated Financial
Statements and Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" under "Nature of Operations and Regulatory
Matters").
Future events, including the advent of retail competition within IPL's
service territory, could result in the deregulation of all or part of IPL's
existing regulated businesses. Upon deregulation, adjustments to IPL's
accounting records may be required to eliminate the historical impact of
regulatory accounting. Such adjustments, as required by Statement of Financial
Accounting Standards No. 101 (SFAS 101), "Regulated Enterprises - Accounting for
the Discontinuation of Application of FASB Statement No. 71," would eliminate
the "effects of any actions of regulators that have been recognized as assets
and liabilities...." Required adjustments could include expensing of any
unamortized net regulatory assets, elimination of certain tax liabilities and a
write down of any impaired utility plant balances. IPL does not expect to be in
a position to be required to adopt SFAS 101 in the near term and accordingly has
not attempted to estimate the impact of adopting SFAS 101.
<PAGE>
FUEL
In 1997, approximately 99.5% of the total KWH sold by IPL were generated
from coal, .2% from middle distillate fuel oil, .2% from gas and .1% from
purchased steam. In addition to use in oil-fired generating units, fuel oil is
used for start up and flame stabilization in coal-fired generating units as well
as for coal thawing and coal handling. Gas is used in IPL's newer combustion
turbines.
IPL's long-term coal contracts provide for the supply of the major
portion of its burn requirements through the year 1999. The long-term coal
agreements are with three suppliers and the coal is mined entirely in the state
of Indiana. See Exhibits listed under Part IV Item 14(a)2 of IPL's Form 10-K. It
is presently believed that all coal used by IPL will be mined by others. IPL
normally carries fuel oil and a 60-day supply of coal to offset unforeseen
occurrences such as labor disputes, equipment breakdowns and power sales to
other utilities. IPL increases its stockpile to an approximate 80-day supply
when strikes are anticipated in the coal industry.
EMPLOYEE RELATIONS
As of December 31, 1997, IPL had 2,095 employees of whom 1,050 were
represented by the International Brotherhood of Electrical Workers, AFL-CIO
(IBEW) and 350 were represented by the Electric Utility Workers Union (EUWU), an
independent labor organization. In December 1996, the membership of the IBEW
ratified a new labor agreement which remains in effect until December 13, 1999.
The agreement provides for general pay adjustments of 3.5% in 1996 and 3.0% in
both 1997 and 1998, and changes in pension and health care coverage. In March
1995, the membership of the EUWU ratified a new labor agreement which remains in
effect until February 23, 1998. Negotiations are currently underway for a new
contract with the EUWU. The old agreement provided for general pay adjustments
of 2% in 1995, 1996 and 1997; lump sum payments of $500 in both 1995 and 1996;
and changes in pension and health care coverage.
DISPOSITION OF ASSETS
In 1997, IPL retired and sold its CC Perry W Plant site, including land
and improvements, to the State of Indiana White River State Park Commission.
MID-AMERICA CAPITAL RESOURCES, INC. (Mid-America)
GENERAL
Mid-America, the holding company for the unregulated activities of
IPALCO, has as subsidiaries Indianapolis Campus Energy, Inc. (ICE), Store Heat
And Produce Energy, Inc., which conducts business as SHAPE Energy Resources
(SHAPE), Cleveland Thermal Energy Corporation (Cleveland Thermal), Cleveland
District Cooling Corporation (Cleveland Cooling) and Mid-America Energy
Resources, Inc. (Energy Resources). Energy Resources operates a district cooling
system in downtown Indianapolis, Indiana.
Cleveland Thermal owns and operates a district heating system in downtown
Cleveland, Ohio. Cleveland Cooling owns and operates a district cooling system
also located in downtown Cleveland. Operations at Cleveland Cooling commenced in
April 1993, and the system became fully subscribed during 1996. Both Cleveland
Thermal and Cleveland Cooling jointly conduct business under the name Cleveland
Energy Resources.
At December 31, 1997, Mid-America held 80% of the common stock of SHAPE.
SHAPE conducts research and development of energy storage technology.
<PAGE>
ICE owns and operates an energy system under contract to Eli Lilly and
Company (Lilly) to provide cooling capacity to the Lilly Technology Center, in
Indianapolis, Indiana. This chilled water facility, located near Morris Street
and Kentucky Avenue in Indianapolis began providing chilled water to Lilly in
1996.
EMPLOYEES
As of December 31, 1997, Mid-America and its subsidiaries had 93
employees. There are no labor organizations.
<PAGE>
<TABLE>
IPALCO ENTERPRISES, INC.
STATISTICAL INFORMATION - ELECTRIC
The following table of statistical information presents additional data on IPL's
operation.
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------------
Operating Revenues (In Thousands): 1997 (1) 1996 1995 1994 1993
- ---------------------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Residential $ 261,832 $ 261,819 $ 243,055 $ 230,805 $ 225,138
Small industrial and commercial 125,998 132,361 130,780 129,346 127,551
Large industrial and commercial 306,761 298,720 275,803 266,703 255,945
Public lighting 8,457 8,147 7,598 6,949 7,186
Miscellaneous 12,050 9,264 8,289 7,186 7,373
---------------- --------------- --------------- --------------- ---------------
Revenues - ultimate consumers 715,098 710,311 665,525 640,989 623,193
Sales for resale - REMC 1,082 1,141 1,105 1,098 897
Sales for resale - other 21,954 13,312 6,758 7,680 5,237
---------------- --------------- --------------- --------------- ---------------
Total electric revenues $ 738,134 $ 724,764 $ 673,388 $ 649,767 $ 629,327
================ =============== =============== =============== ===============
Kilowatt-hour Sales (In Millions):
Residential 4,255 4,367 4,277 4,077 4,014
Small industrial and commercial 1,972 2,130 2,209 2,207 2,202
Large industrial and commercial 6,834 6,772 6,509 6,306 6,169
Public lighting 57 58 61 64 62
---------------- --------------- --------------- --------------- ---------------
Sales - ultimate consumers 13,118 13,327 13,056 12,654 12,447
Sales for resale - REMC 29 29 28 26 24
Sales for resale - other 1,111 725 394 456 321
---------------- --------------- --------------- --------------- ---------------
Total kilowatt-hours sold 14,258 14,081 13,478 13,136 12,792
================ =============== =============== =============== ===============
Customers at End of Year:
Residential 374,686 370,029 365,163 360,347 356,015
Small industrial and commercial 41,148 40,403 39,781 38,849 38,359
Large industrial and commercial 3,960 3,657 3,557 3,525 3,342
Public lighting 346 303 281 266 252
---------------- --------------- --------------- --------------- ---------------
Total ultimate consumers 420,140 414,392 408,782 402,987 397,968
Sales for resale - REMC 1 1 1 1 1
---------------- --------------- --------------- --------------- ---------------
Total electric customers 420,141 414,393 408,783 402,988 397,969
================ =============== =============== =============== ===============
(1) 1997 includes estimated electric operating revenue and kilowatt-hour sales
for services delivered but not billed during the period (see Note 3 in the Notes
to Consolidated Financial Statements).
</TABLE>
<PAGE>
Item 2. PROPERTIES
----------
IPL
IPL's executive offices are in the IPALCO Corporate Center located at One
Monument Circle, Indianapolis, Indiana. This facility contains approximately
201,300 square feet of space and contains certain administrative operations of
IPALCO's subsidiaries.
IPL also owns two distribution service centers located at 1230 West
Morris Street and 3600 North Arlington Avenue, both in Indianapolis, Indiana.
IPL's customer service center is located at 2102 North Illinois Street in
Indianapolis.
IPL owns and operates four primarily coal-fired generating plants, three
of which are used for only electric generation and one which is used for a
combination of electric and steam generation. For electric generation, the total
gross nameplate rating is 3,024 MW, winter capability is 3,036 MW and summer
capability is 2,956 MW. For steam generation, gross capacity is 1,990 Mlbs.
(thousands of pounds) per hour.
Total Electric Stations:
H. T. Pritchard plant (Pritchard), located 25 miles southwest of
Indianapolis (seven units in service - one in 1949, 1950, 1951, 1956 and 1967
and two in 1953) with 367 MW nameplate rating and net winter and summer
capabilities of 344 MW and 341 MW, respectively.
E. W. Stout plant (Stout) located in the southwest part of Marion County
(eleven units in service - one each in 1941, 1947, 1958, 1961, 1967, 1994 and
1995 and four in 1973) with 921 MW nameplate rating and net winter and summer
capabilities of 1,000 MW and 924 MW, respectively.
Petersburg plant (Petersburg), located in Pike County, Indiana (seven units
in service - four in 1967 and one each in 1969, 1977 and 1986) with 1,716 MW
nameplate rating and net winter and summer capabilities of 1,672 MW.
Combination Electric and Steam Station:
C.C. Perry Section K plant (Perry K), located in Indianapolis with 20 MW
nameplate rating (net winter capability 20 MW, summer 19 MW) for electric and
a gross capacity of 1,990 Mlbs. per hour for steam.
Net electrical generation during 1997, at the Petersburg, Stout and
Pritchard stations accounted for about 72.9%, 20.3% and 6.7%, respectively, of
IPL's total net generation. Perry K and Perry W produced .1% net electrical
generation and all of the steam generated by IPL for the steam system. In
addition, IPL purchases steam from an independent resource recovery system
located within the city of Indianapolis. During 1997, the C.C. Perry Section W
plant (Perry W), located in downtown, Indianapolis, with 11 MW nameplate rating
(net winter capability 10 MW, summer 12 MW) for electric and a gross capacity of
300 Mlbs. per hour for steam was retired in place and subsequently sold to the
State of Indiana White River State Park Commission.
Included in the above totals are three gas turbine units at the Stout
station added in 1973, one gas turbine added in 1994 and one gas turbine added
in 1995 with a combined nameplate rating of 214 MW, one diesel unit each at
Pritchard and Stout stations and three diesel units at Petersburg station, all
added in 1967. Each diesel unit has a nameplate rating of 3 MW.
<PAGE>
IPL's transmission system includes 457 circuit miles of 345,000 volt
lines, 359 circuit miles of 138,000 volt lines and 268 miles of 34,500 volt
lines. Distribution facilities include 4,709 pole miles and 19,877 wire miles of
overhead lines. Underground distribution and service facilities include 505
miles of conduit and 5,520 wire miles of conductor. Underground street lighting
facilities include 109 miles of conduit and 686 wire miles of conductor. Also
included in the system are 73 bulk power substations and 76 distribution
substations.
Steam distribution properties include 22 miles of mains with 257
services. Other properties include coal and other minerals, underlying 798 acres
in Sullivan County, Indiana, and coal underlying about 6,215 acres in Pike and
Gibson Counties, Indiana. Additional land, approximately 4,882 acres in Morgan
County, Indiana and approximately 876 acres in Switzerland County, Indiana has
been purchased for future plant sites.
All of the facilities owned by IPL are well-maintained, in good condition
and meet the present needs of IPL.
The Mortgage and Deed of Trust of IPL, together with the Supplemental
Indentures thereto (the "Mortgage"), secure first mortgage bonds issued by IPL.
Pursuant to the terms of the Mortgage, substantially all property owned by IPL
is subject to a direct first mortgage lien.
OTHER SUBSIDIARIES
Energy Resources owns and operates a district cooling facility located
near downtown Indianapolis, which distributes chilled water to subscribers
located downtown for their air conditioning needs. The plant is equipped with
five 5,000 ton chillers powered by steam purchased from IPL and one 2,250 ton
chiller powered by electricity purchased from IPL.
Cleveland Thermal owns and operates two steam plants in Cleveland, Ohio,
with a total of eight boilers having a gross capacity of 1,131 Mlbs. per hour.
The distribution system includes 15.5 miles of mains with 230 services.
Cleveland Cooling owns and operates a district cooling facility located
near downtown Cleveland, which distributes chilled water to subscribers located
downtown for their air conditioning needs. The plant is equipped with two 5,000
ton chillers powered by electricity.
ICE owns and operates a chilled water facility in Indianapolis, which
serves the chilled water requirements of Eli Lilly and Company's Lilly
Technology Center. The plant is equipped with three 5,000 ton chillers powered
by electricity purchased from IPL.
Substantially all the Mid-America property is subject to the lien of
existing debt and/or credit agreements of Mid-America, Energy Resources and ICE.
<PAGE>
Item 3. LEGAL PROCEEDINGS
-----------------
On August 18, 1997, Region V of the U. S. Environmental Protection Agency
issued to IPL a Notice of Violation (NOV) under the Clean Air Act. The NOV
alleged that particulate matter emissions from IPL's Perry K Units 11 and 12
exceeded applicable limits on three dates in 1995, that particulate matter
emissions from Perry K Units 15 and 16 exceeded applicable limits on a single
date in each of 1994 and 1995, and that sulfur dioxide emissions exceeded the
applicable limit on four days in the first quarter of 1997. IPL disagrees with
the Agency's interpretations of the applicable rules and believes that the Perry
K Plant has been in compliance with applicable limits. Representatives of IPL
met with the Agency on September 24, 1997, in an attempt to resolve the matter
and have subsequently provided the Agency with additional information on the
operation of the Plant. If IPL were adjudged to have violated applicable
emission limits, it could be subject to maximum penalties of $27,500 per day of
violation. While the results of this proceeding cannot be predicted with
certainty, management, based upon the advice of counsel, believes that the final
outcome will not have a material adverse effect on the consolidated financial
statements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT AT FEBRUARY 24, 1998.
Name, age (at December 31, 1997), and positions and offices held for the
past five years:
From To
John R. Hodowal (52)
Chairman of the Board and
President of IPALCO May, 1989
Chairman of the Board of IPL February, 1990
Chief Executive Officer of IPL May, 1989
Ramon L. Humke (65)
Vice Chairman of IPALCO May, 1991
President and Chief Operating
Officer of IPL February, 1990
John R. Brehm (44)
Vice President and Treasurer
of IPALCO May, 1989
Senior Vice President -
Finance and Information
Services of IPL May, 1991
N. Stuart Grauel (53)
Vice President - Public Affairs
of IPALCO May, 1991
Joseph A. Gustin (50)
President of Mid-America December, 1994
President of ICE April, 1993
President of Energy Resources May, 1991
Vice President of SHAPE May, 1993 January, 1995
Vice President of Mid-America May, 1991 December, 1994
Robert W. Rawlings (56)
Senior Vice President -
Electric Production of IPL May, 1991
Bryan G. Tabler (54)
Vice President -
Secretary and General Counsel of IPALCO January, 1995
Senior Vice President -
Secretary and General Counsel of IPL January, 1995
Partner, Barnes & Thornburg January, 1979 October, 1994
Gerald D. Waltz (58)
Senior Vice President -
Electric Delivery of IPL May, 1996
Senior Vice President -
Business Development of IPL May, 1991 May, 1996
Paul S. Mannweiler (48)
Senior Vice President -
External Affairs of IPL January, 1997
Partner, Locke Reynolds Boyd and Weisell July, 1980 December,1996
Max Califar (44)
Vice President - Human
Resources of IPL December, 1992
Michael P. Holstein (40)
Vice President - Corporate
Strategy and Marketing April, 1996
Corporate Strategies of IPL July, 1995 April, 1996
Senior Manager, Deloitte & Touche, LLP March, 1994 July, 1995
Vice President, EDS/
Energy Management Associates April, 1984 March, 1994
Steven L. Meyer (39)
Assistant Treasurer of IPALCO May, 1993
Treasurer of IPL December, 1992
Stephen J. Plunkett (49)
Controller of IPALCO
and IPL May, 1991
<PAGE>
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On February 25, 1997, IPALCO's Board of Directors (Board) authorized the
repurchase of up to 12 million shares of IPALCO's common stock through a "Dutch
Auction" self-tender offer. On March 27, the Dutch Auction ended with 12,539,428
shares of common stock having been tendered to the Company and not withdrawn at
or below $32 dollars per share. The Board subsequently elected to purchase all
shares tendered at or below $32 per share for $32 per share. All 12,539,428
shares remain in Treasury stock.
IPALCO reduced dividends paid during 1997 compared to the previous year
to be more consistent with companies operating today in a competitive
environment. This policy was established at the same time as the
recapitalization described above.
At December 31, 1997, IPALCO had 20,862 holders of common stock of record
(including shareholders whose shares are held in IPALCO PowerInvest, the
Dividend Reinvestment and Direct Stock Purchase Plan of IPALCO Enterprises,
Inc.). IPALCO's common stock is principally traded on the New York Stock
Exchange and the Chicago Stock Exchange. The high and low sale prices for
IPALCO's common stock during 1997 and 1996 as reported on the Composite Tape in
The Wall Street Journal were as follows:
---- ------ -------
1997 1996
---------------------------- ---------------------------
High Low High Low
Sale Price Sale Price Sale Price Sale Price
First Quarter $32 5/8 $26 1/2 $27 3/8 $25
Second Quarter 32 29 3/8 26 3/4 24 5/8
Third Quarter 34 1/2 30 13/16 27 5/8 25 1/8
Fourth Quarter 42 5/16 32 5/8 28 1/4 26 1/8
The high and low sale prices for IPALCO's common stock reported on the
Composite Tape in The Wall Street Journal for the period January 1, 1998,
through February 20, 1998, were: High - $43 9/16, Low - $39 13/16.
Quarterly dividends paid on the common stock during 1997 and 1996 were as
follows:
1997 1996
---- ----
First Quarter $.37 $.36
Second Quarter .25 .37
Third Quarter .25 .37
Fourth Quarter .25 .37
At its meeting on February 24, 1998, the Board declared a regular
quarterly dividend on common stock of $.275 per share, payable April 15, 1998,
to shareholders of record on March 20, 1998.
Dividend Restrictions
- ---------------------
The following restrictions pertain to IPL but, to the extent that the
dividends of IPALCO depend upon IPL earnings, may have an effect on IPALCO. So
long as any of the several series of bonds of IPL issued under the Mortgage and
Deed of Trust, dated as of May 1, 1940, as supplemented and modified, executed
by IPL to American National Bank and Trust Company of Chicago, as Trustee,
remain outstanding, IPL is restricted in the declaration and payment of
dividends, or other distribution on shares of its capital stock of any class, or
in the purchase or redemption of such shares, to the aggregate of its net
income, as defined in Section 47 of such Mortgage, after December 31, 1939. The
amount which these Mortgage provisions would have permitted IPL to declare and
pay as dividends at December 31, 1997, exceeded retained earnings at that date.
Such restrictions do not apply to the declaration or payment of dividends upon
any shares of capital stock of any class to an amount in the aggregate not in
excess of $1,107,155, or to the application to the purchase or redemption of any
shares of capital stock of any class of amounts not to exceed in the aggregate
the net proceeds received by IPL from the sale of any shares of its capital
stock of any class subsequent to December 31, 1939. In addition, pursuant to
IPL's Articles of Incorporation, no dividends may be paid or accrued and no
other distribution may be made on IPL's common stock unless dividends on all
outstanding shares of IPL preferred stock have been paid or declared and set
apart for payment. The management of IPL believes these restrictions will not
materially restrict anticipated dividends.
<PAGE>
<TABLE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
<CAPTION>
(In Thousands Except Per Share Amounts) 1997 1996 1995 1994 1993
- ---------------------------------------
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total utility operating revenues (1) $ 776,427 $ 762,503 $ 709,206 $ 686,076 $ 664,303
Utility operating income 167,315 163,219 147,588 143,310 142,368
Allowance for funds used during
construction 4,407 9,321 11,370 9,381 5,527
Income before cumulative effect of
accounting change 95,699 114,275 98,778 92,994 75,422
Cumulative effect of accounting change (1) 18,347 - - - -
Net income (2) 114,046 114,275 98,778 92,994 75,422
Utility plant - net 1,766,383 1,787,969 1,792,007 1,711,772 1,608,871
Total assets 2,154,349 2,183,069 2,231,197 2,099,361 1,966,023
Common shareholders' equity 526,129 857,726 822,803 801,945 787,211
Cumulative preferred stock of subsidiary 9,135 51,898 51,898 51,898 51,898
Long-term debt (less current
maturities and sinking
fund requirements) 1,032,846 662,591 698,600 665,971 541,760
Utility construction expenditures 73,130 78,543 166,874 178,295 145,765
Nonutility construction expenditures 1,569 4,187 34,745 9,402 8,788
BASIC EARNINGS PER SHARE (3)
Income before cumulative effect of
accounting change 2.00 2.01 1.74 1.64 1.33
Cumulative effect of accounting change (1) .38 - - - -
Net Income (2,4) 2.38 2.01 1.74 1.64 1.33
DILUTED EARNINGS PER SHARE (3)
Income before cumulative effect of
accounting change 1.98 2.00 1.74 1.64 1.33
Cumulative effect of accounting change (1) .38 - - - -
Net Income (2,4) 2.36 2.00 1.74 1.64 1.33
Dividends declared per share of
common stock (4) 1.00 1.48 1.44 1.41 1.36
See consolidated financial statements.
(1) In 1997, IPL adopted the unbilled revenues method of accounting for
electricity and steam delivered during the period. Revenues are accrued for
services provided but unbilled at the end of each month (see Note 3 in the
Notes to Consolidated Financial Statements).
(2) During 1993, IPALCO incurred a one-time charge against earnings of $21.1
million, net of income taxes, for costs pertaining to IPALCO's efforts to
acquire PSI Resources, Inc.
(3) See Note 6 in the Notes to Consolidated Financial Statements
(4) Per share amounts for 1993 through 1995 have been adjusted to reflect the
3-for-2 common stock split issued in March 1996.
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
IPALCO Enterprises, Inc. (IPALCO) is a holding company incorporated under
the laws of the state of Indiana. Indianapolis Power & Light Company (IPL) and
Mid-America Capital Resources, Inc. (Mid-America) are subsidiaries of IPALCO.
Mid-America is the holding company for the unregulated activities of IPALCO. IPL
represents the regulated subsidiary.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the Reform Act), IPALCO Enterprises, Inc. and
subsidiaries (collectively, Enterprises) is hereby filing cautionary statements
identifying important factors that could cause Enterprises' actual results to
differ materially from those projected in forward-looking statements of
Enterprises. This Form 10-K, and particularly Management's Discussion and
Analysis, contains forward-looking statements. Many of these statements are
contained in this Item 7 under the IPALCO section entitled "Recapitalization and
Dividend Change," and the IPL section entitled "Future Performance." The Reform
Act defines forward-looking statements as statements that express an expectation
or belief and contain a projection, plan or assumption with regard to, among
other things, future revenues, income, earnings per share or capital structure.
Such statements of future events or performance are not guarantees of future
performance and involve estimates, assumptions, and uncertainties and are
qualified in their entirety by reference to, and are accompanied by, the
following important factors that could cause Enterprises' actual results to
differ materially from those contained in forward-looking statements made by or
on behalf of Enterprises. The words "anticipate," "believe," "estimate,"
"expect," "forecast," "project," "objective" and similar expressions are
intended to identify forward-looking statements.
Some important factors that could cause Enterprises' actual results or
outcomes to differ materially from those discussed in the forward-looking
statements include, but are not limited to, fluctuations in customer growth and
demand, weather, fuel costs and availability, regulatory action, Federal and
State legislation, interest rates, labor strikes, maintenance and capital
expenditures and local economic conditions. In addition, IPL's ability to have
available an appropriate amount of production capacity in a timely manner can
significantly impact IPL's financial performance. The timing of deregulation and
competition, product development and introductions of technology changes are
also important potential factors. Most of these factors impact Enterprises
through its wholly-owned subsidiary, IPL.
All such factors are difficult to predict, contain uncertainties which
may materially affect actual results and are beyond the control of Enterprises.
LIQUIDITY AND CAPITAL RESOURCES
IPALCO
- ------
Recapitalization and Dividend Change
------------------------------------
On February 25, 1997, the Board of Directors of IPALCO approved a new
financial strategy designed to maximize shareholder value and position it for an
increasingly competitive business environment.
<PAGE>
The plan included:
A recapitalization of IPALCO to employ a higher degree of leverage in the
capital structure while the electric utility industry is in a transition
period between regulation and competition. The leveraged recapitalization
was accomplished through a self-tender offer (Offer) resulting in the
purchase of 12,539,428 shares, representing about 21% of IPALCO's
outstanding common stock. The Offer was effected through a "Dutch Auction"
which resulted in a price of $32.00 per share. The transaction was financed
through the issuance of long-term debt in the amount of $401 million. The
recapitalization was effected by the parent company, IPALCO Enterprises,
Inc. and did not affect the capitalization of its subsidiaries.
A reduced quarterly dividend of $.25 per share ($1.00 annually) compared
to the previous $.37 per share ($1.48 annually). Future dividend action
will be guided by, among other factors, a policy of paying out 45% to 50%
of the prior year's earnings.
A target consolidated maximum debt-to-capital ratio of 45% which IPALCO
believes can be achieved on or before 2002.
Reducing the common stock dividend rate improves IPALCO's financial
flexibility going forward. A dividend payout ratio of 45% to 50% of prior year
earnings is more consistent with companies operating today in a competitive
environment compared to the traditional utility payout ratio of 70% or more.
IPALCO increased the quarterly dividend declared to an amount of $.275 per share
($1.10 annually) on February 24, 1998, compared to $.25 per quarter
($1.00 annually) in 1997. The declaration and payment of future dividends will
be dependent on IPALCO's earnings and financial condition, economic and market
conditions and other factors deemed relevant by the Board.
IPALCO incurred $401 million of debt in connection with the Offer. A
reduction in common shareholders' equity resulted from purchasing the common
stock according to the Offer and when combined with the newly incurred debt,
increased IPALCO's debt-to-capital ratio from 42.6% at December 31, 1996 to
65.9% at December 31, 1997. IPALCO believes that, in a competitive environment a
target debt-to-total capital ratio of 45% is appropriate. During 1997, IPALCO
reduced the original debt amount by a net $78 million, resulting in a
recapitalization debt balance of $323 million at December 31, 1997. Per the
credit agreement, $80.2 million was due to mature in each of the years 1998,
1999, 2000, 2001 and 2002. As a result of payments made during 1997, only $2.2
million remains due on the March 31, 1998, anniversary date. IPALCO believes its
earnings and cash flow will be sufficient to allow it to retain earnings and
reduce debt so that a target ratio of 45% can be achieved on or before the
predicted 2002 date. There can be no assurances, however, that such a target
ratio can be achieved or that economic or industry factors will not make
achieving such a ratio impractical or undesirable.
IPALCO believes its financial strategy will enable it to raise sufficient
funds, when necessary, to replace existing assets and undertake investments in
new growth while maintaining a prudent balance between debt and equity in the
capital structure. IPALCO believes its actions preserve the financial
flexibility necessary to accommodate unexpected future cash needs. The increased
use of debt is a tangible expression of management's confidence in IPALCO.
Sustaining investment grade debt ratings is also a key element for having
adequate liquidity and financial flexibility. As of December 31, 1997, IPALCO's
credit rating was A+ as rated by Standard & Poor's.
<PAGE>
IPL
- ---
Nature of Operations and Regulatory Matters
-------------------------------------------
Regulation
- ----------
IPL is a regulated public utility and is principally engaged in providing
electric and steam service to the Indianapolis metropolitan area. As a regulated
entity, IPL is required to use certain accounting methods prescribed by
regulatory bodies which may differ from those accounting methods required to be
used by nonregulated entities (see Note 1 in the Notes to Consolidated Financial
Statements).
Electric Rate Settlement Agreement
- ----------------------------------
On August 24, 1995, the Indiana Utility Regulatory Commission (IURC)
issued an order approving, without amendment, a Stipulation and Settlement
Agreement (Settlement Agreement) resolving all issues in IPL's then pending
electric general rate proceeding. The Settlement Agreement authorized IPL to
increase its basic rates and charges for electric service in two steps, to begin
the amortization of certain regulatory assets and approved IPL's plan to expense
and to fund its annual postretirement benefits. These issues are discussed
further in Notes 1, 5, 10 and 12 in the Notes to Consolidated Financial
Statements.
Demand Side Management Agreement
- --------------------------------
On July 30, 1997, the IURC issued an order approving, without amendment,
a new settlement agreement for IPL's DSM program. The new agreement resulted in
a reduction in required DSM expenditures, authorization to amortize certain
deferred DSM regulatory assets and the recovery of certain additional DSM costs
through a tracker (see Note 10 in the Notes to Consolidated Financial
Statements).
Authorized Annual Operating Income
- ----------------------------------
During quarterly fuel adjustment clause proceedings, the annual operating
income of IPL's electric and steam businesses is subject to review. Customer
refunds could result if actual annual operating income exceeds levels authorized
by the IURC (see Note 1 in the Notes to Consolidated Financial Statements). IPL
does not anticipate any customer refunds to result from such reviews during
1998.
Optional Pricing and Service Plan
- ---------------------------------
During 1997, IPL filed with the IURC a plan that, if approved, will allow
IPL to offer customers with less than 2,000 kilowatts of demand an opportunity
to choose from three new payment options. This plan would allow eligible IPL
customers to enter into written agreements for:
Fixed Rate - Pay a guaranteed fixed rate per unit of consumption for up to
three years.
Green Power - Purchase environmentally friendly or "green" power.
Additionally, residential customers may choose a "Sure Bill" option, paying the
same bill amount each month for 12 months regardless of how much electricity is
used. All customers may also opt to continue paying for electricity in the same
way as in the past.
In January 1998, a Settlement Agreement between IPL and the parties
intervening in this filing was reached, and subsequently filed with the IURC. If
approved by the IURC, IPL can begin to offer the option programs.
<PAGE>
Competition and Industry Changes
--------------------------------
In recent years, various forms of proposed industry restructuring
legislation and/or rulemakings have been introduced at the federal level and by
some states. Generally, the intent of these initiatives is to encourage an
increase in competition within the regulated electric utility industry. While
federal rulemaking to date has addressed only the electric wholesale market,
various state legislatures are considering or have enacted new laws impacting
the retail energy markets within their respective states. A discussion of the
legislative and regulatory initiatives most likely to impact IPL follows:
Wholesale Energy Market
- -----------------------
In April 1996, the Federal Energy Regulatory Commission (FERC) issued
Orders 888 and 889 concerning open access transmission service for wholesale
sales. These orders require all utilities under FERC jurisdiction to: 1. file
open, nondiscriminatory transmission access tariffs with FERC; 2. offer
transmission to eligible customers comparable to service they provide
themselves; and 3. take service under the tariffs for their own wholesale sales
and purchases of electricity. FERC order 888 also provides for the recovery of
utility stranded costs. Stranded cost is defined by FERC as the difference
between revenues received by utilities under traditional ratemaking and
market-based prices.
IPL requested and was initially denied a waiver from compliance with
orders 888 and 889. On October 11, 1996, IPL was granted a stay by FERC pending
disposition of its request for rehearing. IPL requested a waiver because, among
other reasons, the estimated costs of compliance are expected to exceed revenue
derived from its transmission service for others.
Retail Energy Market
- --------------------
The legislatures of a few states have enacted, and many other states are
considering, new laws that would allow various forms of competition, at the
retail level, for the energy requirements of electricity consumers within their
respective states. While each state proposal is different, most provide for some
recovery of a utility's stranded costs and require an extended transition period
before the intended full competition is fully effective. Additionally, a few
states have implemented pilot "limited direct access" programs that experiment
with allowing some form of customer choice of electricity suppliers.
In Indiana, competition among electric energy providers for sales has
primarily focused on the wholesale power markets or the sale of bulk power to
other public and municipal utilities. Existing Indiana law provides for
electricity suppliers to have an exclusive retail service area.
In 1995, the Indiana General Assembly, anticipating increasing
competitive forces in the regulated public utility industry, enacted into law
legislation codified at I.C. 8-1-2.5 and commonly referred to as "Senate Bill
637." This new law enables the IURC to consider and approve, on an individual
utility basis, utility company initiated proposals providing nontraditional
forms of determining customer tariffs. The IPL "Optional Pricing and Service
Plan" presently under consideration by the IURC was filed under this law.
During 1997, the Indiana General Assembly authorized a legislative study
committee to assess the issue of electric utility competition and restructuring.
A comprehensive restructuring bill was introduced in the Indiana Senate in 1998,
but was subsequently amended to deal only with authorizing Indiana utilities to
participate in a transmission independent system operator organization. This
bill failed to pass the Senate.
<PAGE>
IPALCO's Position on Industry Deregulation
- ------------------------------------------
In general, the foregoing FERC wholesale and state-by-state retail
initiatives are inconsistent with IPALCO beliefs. IPALCO favors federal
legislation to deregulate the industry for all companies and all customers
across the country at the same time. IPALCO believes that customers,
particularly residential and small businesses, are best served by the creation
of large diverse markets. Such markets enable the development of residential
aggregators who can deliver the same benefits of volume purchasing to
residential customers as are enjoyed by large industrial customers. IPALCO
advocates a single, nondistance based transmission access price over wide
geographic areas to maximize competition; turning over transmission system
operation to an independent system operator to avoid gamesmanship by incumbents
who own both transmission and generation assets; rejecting the piecemeal opening
of markets in favor of national access to all markets and rejecting recovery of
"stranded costs" due to competition because such recovery would subsidize
certain high-cost generators to the detriment of competition. Absent a
comprehensive national approach, IPALCO believes state policy makers must
recognize and make allowances for the distorted markets that will inevitably be
created by state-by-state approaches.
There can be no assurance as to the outcome of the debate on electric
utility industry restructuring. IPALCO intends to remain competitive in the face
of increasing competition through maintaining its low cost structure and
continuing to serve existing customers well, while accessing the wholesale
market as it continues to open.
New Environmental Standards
- ---------------------------
On July 16, 1997, the United States Environmental Protection Agency
promulgated final regulations which amended the National Ambient Air Quality
Standards by introducing standards for fine particulate matter and creating new
ozone standards. Existing sources that cause or contribute to nonattainment
regions will likely be subject to additional regulatory requirements, including
possible emission reductions. New facilities in nonattainment areas may also be
subject to additional control requirements and may be required to offset their
emissions. Because power plants emit certain air pollutants that could
contribute to the formation of ambient ozone and fine particulate matter, there
is a possibility that existing IPL sources will be required to be retrofitted
with additional air pollution controls in the future. Congressional intervention
and/or litigation regarding the standards are probable. Due to these
uncertainties, it is not presently possible to predict the potential impacts
associated with implementation of these standards on IPL's facilities.
Year 2000 System Requirements
- -----------------------------
IPALCO is performing an analysis of its systems and is working with
suppliers and service organizations with whom we interact electronically in
order to determine the impact of year 2000 issues. Management is unable to
predict at this time the full impact year 2000 issues will have on IPALCO's
operations or future financial condition. Management presently estimates that
the total cost of required changes to systems owned or controlled by IPALCO to
allow for year 2000 issues should not exceed $3 million.
Liquidity, Financing Requirements and Capital Market Access
-----------------------------------------------------------
Liquidity is the ability of an entity to meet its short-term and
long-term cash needs. IPL's liquidity is a function of its ability to generate
internal funds, its construction program, its mortgage covenants and loan
agreements and its access to external capital markets.
<PAGE>
Sustaining investment grade debt ratings is also a key element for having
adequate liquidity and financial flexibility. As of December 31, 1997, IPL's
senior secured debt was rated AA- by Standard & Poor's, Aa2 by Moody's Investor
Services and AA by Duff & Phelps, and IPL's commercial paper was rated A-1+ by
Standard & Poor's and P-1 by Moody's Investor Services. IPL expects to be able
to maintain investment grade debt ratings into the foreseeable future.
IPL has no long-term debt which matures during 1998. However, other
existing higher-rate debt may be refinanced depending upon market conditions.
See the following section for discussion of the construction program.
IPALCO purchased shares of IPL's preferred stock on October 17, 1997,
pursuant to the terms of a tender offer concluded October 8, 1997. Such shares
were subsequently purchased from IPALCO by IPL at cost and canceled. On October
28, 1997, the Board of Directors of IPL called for redemption of all remaining
shares of IPL's 6.0% and 8.2% Cumulative Preferred Stock issued and outstanding
on December 15, 1997, at a price per share, payable to shareholders of record of
$102 and $101, respectively, together with dividends accrued through the date of
redemption.
On January 13, 1998, IPL issued $50 million of Cumulative Preferred Stock
with a rate of 5.65%. The stock will be redeemable at par value, subject to
certain restrictions, in whole or in part, at any time on or after January 1,
2008, at the option of IPL.
During the next five years, IPL is forecasted to meet its cash
requirements without any additional permanent financing. Cash flows from
operations and temporary short-term borrowings are forecasted to provide the
funds required for IPL's construction program and the retirement of maturing
long-term debt.
Future Performance
------------------
IPL expects operating revenue growth based on a projected five-year 2.3%
forecasted compound annual increase in retail KWH sales and increasing sales
opportunities in the wholesale power market.
The 2.3% annual KWH sales growth estimate compares to growth rates IPL
actually achieved of 2.2% and 2.2% for the periods 1992 through 1997 and 1987
through 1997, respectively, weather adjusted. The Indianapolis economy grew at
annual rates of 2.7% and 2.6% for those same periods and is expected to grow
2.4% from 1997 through 2002.
Operating and maintenance expenses were $399.5 million in 1997.
These expenses in 1998 will be influenced by inflation, as well as ongoing
cost controls.
IPL's construction program for the three-year period 1998-2000 is
estimated to cost $237.2 million including AFUDC. The estimated cost of the
program by year (in millions) is $102.2 in 1998, $69.4 in 1999 and $65.6 in
2000. It includes $149.1 million for additions, improvements and extensions to
transmission and distribution lines, substations, power factor and voltage
regulating equipment, distribution transformers and street lighting
distribution. At December 31, 1997, IPL had completed installation of all of its
Environmental Compliance Plan facilities.
IPL will amortize approximately $35.4 million of its nontax-regulatory
assets at December 31, 1997, over the next three years.
<PAGE>
Other
-----
Cumulative Effect of Accounting Change
- --------------------------------------
On December 31, 1997, effective January 1, 1997, IPL adopted the unbilled
revenues method of accounting for all electric and steam sales to more closely
match revenues with expenses. Under this method, IPL accrues revenues for all
electric and steam energy delivered to customers during the period, whether
billed or not. Previously IPL recognized these revenues only as customers were
billed, with the service rendered after monthly meter reading dates through the
end of a calendar month recognized as operating revenues in the following month.
The cumulative effect of this change in accounting method as of January 1, 1997,
net of taxes, is a one-time income increase of $18.3 million ($.38 per common
share) and is reported as a separate component of net income for 1997. This
accounting change does not impact IPL's cash flow or liquidity (see Note 3 of
Notes to Consolidated Financial Statements for additional information concerning
this accounting change).
Preferred Stock and Debt Issuance Restrictions and Dividend Restrictions
- ------------------------------------------------------------------------
IPL is limited in its ability to issue certain securities by restrictions
under its Mortgage and Deed of Trust (Mortgage) and its Amended Articles of
Incorporation (Articles). The restriction under the Articles requires that the
net income of IPL, as specified therein, shall be at least one and one-half
times the total interest on the funded debt and the pro forma dividend
requirements on the outstanding preferred stock and on any preferred stock
proposed to be issued, before any additional preferred stock can be issued. The
Mortgage restriction requires that net earnings as calculated thereunder be two
and one-half times the annual interest requirements before additional bonds can
be authenticated on the basis of property additions. Based on IPL's net earnings
for the 12 months ended December 31, 1997, the ratios under the Articles and the
Mortgage are 5.03 and 10.68, respectively. IPL believes these requirements will
not restrict any anticipated future financings (see Note 6 in the Notes to
Consolidated Financial Statements). At December 31, 1997, and considering all
existing restrictions, IPL had the capacity to issue approximately $1.1 billion
of additional long-term debt.
MID-AMERICA
- -----------
Nature of Operations
--------------------
Mid-America, the holding company for the unregulated activities of
IPALCO, has as subsidiaries Cleveland Thermal Energy Corporation (Cleveland
Thermal) and Cleveland District Cooling Corporation (Cleveland Cooling), which
jointly do business as Cleveland Energy Resources, Indianapolis Campus Energy,
Inc. (ICE), Store Heat and Produce Energy, Inc., which conducts business as
SHAPE Energy Resources (SHAPE) and was 80%-owned as of December 31, 1997, and
Mid-America Energy Resources, Inc. (Energy Resources). Energy Resources owns and
operates a fully subscribed district cooling system in downtown Indianapolis,
Indiana. Cleveland Thermal owns and operates a district heating system in
downtown Cleveland, Ohio. Cleveland Cooling owns and operates a district cooling
system in downtown Cleveland. ICE provides chilled water to the Lilly Technology
Center located near downtown Indianapolis. SHAPE became a majority-owned
subsidiary of Mid-America during 1993.
Capital and Financing Requirements
----------------------------------
Total capital requirements of Mid-America and its subsidiaries, including
funds needed for construction and the establishment of product inventories, are
estimated to be $ 3.4 million, $1.9 million and $.4 million during the next
three years. Energy Resources' construction expenditures in 1998 are forecasted
to include $2.5 million for a 5,000-ton chiller expansion to meet future load
requirements. Other Mid-America expenditures are highly contingent upon the
development of markets for the products and services offered by the Mid-America
family of companies. The cash requirements of Mid-America subsidiaries are
expected to be funded by Mid-America from its existing liquid assets, future
cash flows from its operations and from temporary short-term borrowings.
<PAGE>
During 1997, Energy Resources, a subsidiary of Mid-America, issued $50
million of long-term notes payable which were used to repay intercompany debt,
make an intercompany loan and return capital to Mid-America.
During 1997, IPALCO initiated a plan to sell Cleveland Thermal and
Cleveland Cooling. Based on fair market value estimates, IPALCO recorded a
charge of $32 million to adjust the carrying amounts of these businesses to
estimated fair value less cost to sell (see Note 2 in the Consolidated Financial
Statements). IPALCO anticipates completing this divestiture in 1998.
IPALCO ENTERPRISES CONSOLIDATED
- -------------------------------
Additional information regarding IPALCO's historical cash flows from
operations, investing and financing for the past three years, including the
capital expenditures of IPL and Mid-America, are disclosed in the Statements of
Consolidated Cash Flows and in the Notes to Consolidated Financial Statements.
<PAGE>
RESULTS OF OPERATIONS
The following discussion pertains to the consolidated financial
statements of IPALCO.
All per share information for 1995 presented herein has been restated to
reflect the 3-for-2 common stock split in March 1996.
Diluted earnings per share during 1997 were $2.36, or $.36 above the
$2.00 attained in 1996. Diluted earnings per share during 1996 were $2.00, or
$0.26 above the $1.74 attained in 1995. The following discussion highlights the
factors contributing to these results.
The 1997 weighted average shares used to calculate basic and diluted
earnings per share were substantially impacted by the April 1997 purchase by
IPALCO of approximately 12.5 million shares of its outstanding common stock
representing approximately 21%. (See "Recapitalization and Dividend Change.")
The 1997 earnings per share includes a one-time cumulative effect adjustment
of $18.3 million, net of taxes ($.38 per share) resulting from IPL's change to
the unbilled revenue method of accounting. The 1997 earnings also include a
charge of $32 million ($20.8 million, net of tax) to write down the carrying
values of Cleveland Thermal and Cleveland Cooling.The effect of this adjustment,
net of tax, was $.43 per share. The 1997 earnings also include a $5.7 million
($3.5 million, net of taxes or $.07 per share) gain from the sale of a retired
IPL plant site(see Notes 2 and 3 in Notes to Consolidated Financial Statements).
Utility Operating Revenues
- --------------------------
Operating revenues in 1997 and 1996 increased from the prior year by $13.9
million and $53.3 million, respectively. The increases in revenues resulted from
the following:
<TABLE>
<CAPTION>
Increase (Decrease)
-------------------
1997 over 1996 1996 over 1995
-------------- --------------
(Millions of Dollars)
<S> <C> <C>
Electric:
Increase in retail basic rates $ 12.7 $ 40.8
Change in retail KWH sales - net of fuel (7.4) 9.3
Fuel revenue (4.7) (8.7)
Wholesale revenue 8.6 6.6
DSM tracker revenue 1.3 2.4
Steam revenue .6 1.9
Other revenue 2.8 1.0
------ ------
Total change in operating revenues $ 13.9 $ 53.3
====== ======
</TABLE>
The increase in retail basic rates is the result of new tariffs,
effective July 1, 1996, and September 1, 1995, designed to produce additional
annual base revenues of $25 million and $35 million, respectively. The decrease
in retail KWH sales in 1997 reflects a decrease in cooling and heating degree
days in 1997, compared to 1996, due to milder weather. During 1996, retail KWH
sales increased as a result of customer growth and the net impact of weather. In
both years, total KWH sales, including wholesale KWH sales, increased. Actual
and percentage changes in electric customers and in heating and cooling degree
days for these periods are as follows:
<PAGE>
Increase (Decrease)
-------------------
1997 over 1996 1996 over 1995
-------------- --------------
Electric Residential Customers 4,657 1.3% 4,866 1.3%
Commercial & Industrial Customers 1,048 2.4% 722 1.7%
Heating Degree Days (203) (3.4)% 315 5.7%
Cooling Degree Days (121) (12.2)% (223) (18.4)%
The changes in fuel revenues in 1997 and 1996 from the prior year reflect
decreases in fuel costs billed to customers. The changes in wholesale revenues
in 1997 and 1996 reflect increased wholesale marketing efforts and energy
requirements of other utilities in those years. The changes in other revenues
represent increased service revenues.
Utility Operating Expenses
- --------------------------
Fuel expense increased slightly in 1997 while decreasing in 1996 by $4.9
million from the prior years. The 1997 increase was due to increased total KWH
sales. The decrease in 1996 was due to decreased unit costs of coal and oil of
$9.7 million and decreased deferred fuel expense of $2.5 million, partially
offset by increased fuel consumption of $7.3 million.
Other operating expenses in 1997 and 1996 increased from the prior year
by $6.1 million and by $20.8 million, respectively. The increase in 1997 was
primarily due to increased administrative and general expense of $6.0 million
resulting from increased outside services and labor costs. Also contributing to
the 1997 increase was increased amortization of Demand Side Management (DSM)
program expenses of $2.3 million partially offset by decreased expense at the
production plants. The increase during 1996 was due to increased administrative
and general expenses of $13.5 million resulting from postretirement benefit
expenses recognized since the 1995 electric rate order. Other factors
contributing to increased other operating expenses in 1996 were increased
electric plant operations of $4.0 million, increased amortization of DSM program
expenses of $1.2 million, increased uncollectible expenses of $1.3 million and
increased electric distribution operating expense of $1.2 million, partially
offset by $2.0 million of gain from the sale of emission allowances.
Power purchased decreased in 1997 compared to 1996 by $10.5 million. This
decrease was primarily due to reduced demand charges as a result of a new power
purchase contract that became effective in May 1997.
Maintenance expenses increased by $8.9 million during 1997 and increased
by $4.8 million during 1996. The increase in 1997 was primarily due to an
overhaul of Unit 3 at Petersburg, as well as repairs to Unit 7 at the Stout
plant. The increase for 1996 maintenance expenses was mostly due to increased
planned outage expenses of $4.6 million for Unit 3 at IPL's Petersburg
generating plant.
Depreciation and amortization expense increased in 1997 and 1996 from the
prior year by $.5 million and by $1.8 million, respectively. These changes
resulted primarily from increases in the depreciable utility plant balances, the
1995 electric rate order and adjustments to spare parts inventory in 1997 and
1996. Depreciable utility plant reflects the addition of new SO2 removal
facilities at IPL's Petersburg generating plant in June 1996. Adjustments of $.6
million and $4.5 million were made in 1997 and 1996, respectively, to spare
parts inventory resulting from the recognition of impairment in value of excess
spare parts.
<PAGE>
Taxes other than income taxes decreased $.3 million in 1997 due to
decreased property and gross income taxes. During 1996, these other taxes
increased $1.7 million due primarily to an increase in property and gross income
taxes.
Income taxes - net, increased in both 1997 and 1996 from the prior years by
$5.1 million and $13.7 million, respectively. These changes reflect increases in
pretax operating income.
Other Income And Deductions
- ---------------------------
Allowance for equity funds used during construction decreased by $2.5
million in 1997, while remaining unchanged in 1996. In 1997, the amortization of
deferred carrying charges on a plant asset ended, and carrying charges on other
regulatory assets decreased $1.2 million.
Other - net, which includes the pretax operating and investment income
from operations other than IPL, as well as non-operating income from IPL,
increased by $10.2 million and decreased by $0.6 million from the prior year
during 1997 and 1996, respectively. The change during 1997 was due to a $5.7
million pretax gain from the sale of a retired IPL plant site, and a $4.5
million increase in the pretax operating results of IPALCO's non-utility
operations. Contributing to this increase was decreased operating costs at
Mid-America of $4.5 million, partially offset by decreased revenues and
decreased miscellaneous income. Also contributing to the increase in other - net
in 1997 was an increase in net revenues for contract work by IPL. The decrease
in 1996 was due to decreased non-operating income at IPL.
The provision for impairment of nonutility property reflects a charge of
$32 million to write down the carrying values of Cleveland Thermal and Cleveland
Cooling (see Note 2 in the Notes to Consolidated Financial Statements).
Interest and Other Charges
- --------------------------
Interest on long-term debt increased by $15.3 million in 1997 and
decreased by $1.1 million in 1996 from the prior years. The increase during 1997
was primarily due to interest expense of $17.1 million by the IPALCO holding
company for the recapitalization debt facility. Also contributing to the
increase was an increase in interest expense at Mid-America of $2.6 million for
a $50 million long-term note issued in 1997, partially offset by a decrease in
long-term interest expense of $4.6 million at IPL due to the retirement of debt
in late 1996 and early 1997. The decrease in interest for 1996 was due to the
refinancing of two of the higher rate First Mortgage Bonds, 10 5/8% Series and 9
5/8% Series in 1995, with debt instruments carrying lower interest rates,
partially offset by interest paid on the ICE construction loan.
Other interest charges decreased by $2.4 million during 1997 from the
prior year and decreased by $1.1 million during 1996 from the prior year. The
decreases during 1997 and 1996 were primarily due to decreased short-term debt
borrowings.
As compared to the prior year, the allowance for borrowed funds used
during construction decreased in 1997 and 1996 by $2.4 million and by $2.0
million, respectively. These decreases reflect a comparable change in the
construction base in those years, as well as decreased carrying charges on
regulatory assets in 1996.
Amortization of redemption premiums and expenses on debt - net increased
in 1997 compared to 1996 by $.5 million. This increase was a result of costs
associated with the early retirement of IPL's $50 million, 9 5/8% Series in
December 1996, as well as the amortization of costs associated with IPALCO's
debt used to finance the stock repurchase.
<PAGE>
Cumulative Effect of Accounting Change
- --------------------------------------
A cumulative effect of accounting change in the amount of $18.3 million,
net of taxes, was recorded during 1997. Effective January 1, 1997, IPL adopted
the unbilled revenues method of accounting for electricity and steam delivered
during the period. Revenues are accrued for services provided but unbilled at
the end of each month (see Note 3 in the Notes to Consolidated Financial
Statements).
New Accounting Pronouncements
- -----------------------------
The Financial Accounting Standards Board has issued Statements 130 and
131 that IPALCO will be required to adopt in future periods (see Note 1 in the
Notes to Consolidated Financial Statements for further discussion).
<PAGE>
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Shareholders and Board of Directors of IPALCO Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of IPALCO
Enterprises, Inc. and its subsidiaries as of December 31, 1997 and 1996, and the
related statements of consolidated income, common shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of IPALCO Enterprises, Inc. and its
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 3 to the Consolidated Financial Statements, in 1997 the
Company changed its method of accounting for unbilled revenue.
Deloitte & Touche LLP
Indianapolis, Indiana
January 23, 1998
<PAGE>
<TABLE>
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
Statements of Consolidated Income
For the Years Ended December 31, 1997, 1996 and 1995
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
UTILITY OPERATING REVENUES (Note 3 and 10):
<S> <C> <C> <C>
Electric $ 738,134 $ 724,764 $ 673,388
Steam 38,293 37,739 35,818
------------- ------------- -------------
Total operating revenues 776,427 762,503 709,206
------------- ------------- -------------
UTILITY OPERATING EXPENSES:
Operation:
Fuel 164,578 164,339 169,206
Other 143,311 137,192 116,428
Power purchased 7,833 18,365 19,102
Purchased steam 7,075 7,240 6,680
Maintenance 76,679 67,768 63,013
Depreciation and amortization 103,230 102,769 100,984
Taxes other than income taxes 33,071 33,363 31,706
Income taxes - net (Note 9) 73,335 68,248 54,499
------------- ------------- -------------
Total operating expenses 609,112 599,284 561,618
------------- ------------- -------------
UTILITY OPERATING INCOME 167,315 163,219 147,588
------------- ------------- -------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 3,462 5,967 6,003
Other - net 2,124 (8,056) (7,407)
Provision for impairment of nonutility property (Note 2) (32,000) - -
Income taxes - net (Note 9) 19,004 3,645 3,097
------------- ------------- -------------
Total other income and (deductions) - net (7,410) 1,556 1,693
------------- ------------- -------------
INCOME BEFORE INTEREST AND OTHER CHARGES 159,905 164,775 149,281
------------- ------------- -------------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 60,385 45,110 46,170
Other interest 1,783 4,202 5,293
Allowance for borrowed funds used during construction (945) (3,354) (5,367)
Amortization of redemption premiums and expenses on
debt - net 1,903 1,360 1,225
Preferred dividend requirements of subsidiary 1,080 3,182 3,182
------------- ------------- -------------
Total interest and other charges - net 64,206 50,500 50,503
------------- ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 95,699 114,275 98,778
CUMULATIVE EFFECT OF ACCOUNTING CHANGE-
NET OF TAXES (Note 3) 18,347 - -
------------- ------------- -------------
NET INCOME $ 114,046 $ 114,275 $ 98,778
============= ============= =============
BASIC EARNINGS PER SHARE (Note 6)
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 2.00 $ 2.01 $ 1.74
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3)
.38 - -
------------- ------------- -------------
NET INCOME $ 2.38 $ 2.01 $ 1.74
============= ============= =============
DILUTED EARNINGS PER SHARE (Note 6)
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 1.98 $ 2.00 $ 1.74
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3)
.38 - -
------------- ------------- -------------
NET INCOME $ 2.36 $ 2.00 $ 1.74
============= ============= =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
- -----------------------------------------------------------------------------------------------------
ASSETS 1997 1996
- -----------------------------------------------------------------------------------------------------
(In Thousands)
UTILITY PLANT:
<S> <C> <C>
Utility plant in service (Note 2) $ 2,800,446 $ 2,763,305
Less accumulated depreciation 1,121,317 1,048,492
---------------- ----------------
Utility plant in service - net 1,679,129 1,714,813
Construction work in progress 77,030 63,243
Property held for future use 10,224 9,913
---------------- ----------------
Utility plant - net 1,766,383 1,787,969
---------------- ----------------
OTHER ASSETS:
Nonutility property (Note 2) 90,344 121,443
Less accumulated depreciation 17,479 13,153
---------------- ----------------
Nonutility property - net 72,865 108,290
Other investments 13,023 5,371
---------------- ----------------
Other assets - net 85,888 113,661
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 17,293 19,317
Accounts receivable and unbilled
revenue (less allowance for doubtful
accounts - 1997, $1,202,000 and
1996, $1,159,000) (Note 3) 47,033 11,099
Fuel - at average cost 35,257 30,625
Materials and supplies - at average cost 48,416 52,727
Prepayments and other current assets 9,100 9,931
---------------- ----------------
Total current assets 157,099 123,699
---------------- ----------------
DEFERRED DEBITS:
Regulatory assets (Note 5) 126,784 137,974
Miscellaneous 18,195 19,766
---------------- ----------------
Total deferred debits 144,979 157,740
---------------- ----------------
TOTAL $ 2,154,349 $ 2,183,069
================ ================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1997 1996
- ----------------------------------------------------------------------------------------------------------
(In Thousands)
CAPITALIZATION:
<S> <C> <C>
Common shareholders' equity (Note 6):
Common stock, no par, authorized - 290,000,000 shares,
57,189,272 issued and 44,649,844 outstanding in 1997,
57,034,912 shares issued and outstanding in 1996 $ 395,851 $ 389,966
Premium on 4% cumulative preferred stock 649 1,363
Retained earnings 532,730 466,397
Treasury stock, at cost (403,101) -
---------------- ----------------
Total common shareholders' equity 526,129 857,726
Cumulative preferred stock of subsidiary (Note 6) 9,135 51,898
Long-term debt (Notes 2 and 7) 1,032,846 662,591
---------------- ----------------
Total capitalization 1,568,110 1,572,215
---------------- ----------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper (Note 8) 33,700 46,000
Current maturities and sinking fund requirements (Note 7) 3,094 11,250
Accounts payable and accrued expenses 66,105 62,222
Dividends payable 11,523 22,212
Taxes accrued 22,126 23,159
Interest accrued 15,493 13,354
Other current liabilities 12,555 14,519
---------------- ----------------
Total current liabilities 164,596 192,716
---------------- ----------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Deferred income taxes - net (Note 9) 314,869 303,473
Unamortized investment tax credit 44,783 47,722
Accrued postretirement benefits (Note 12) 17,144 23,635
Accrued pension benefits (Note 11) 39,821 37,283
Miscellaneous 5,026 6,025
---------------- ----------------
Total deferred credits and other long-term liabilities 421,643 418,138
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 14)
TOTAL $ 2,154,349 $ 2,183,069
================ ================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C> <C>
Net income $ 114,046 $ 114,275 $ 98,778
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 103,841 102,677 103,045
Amortization of regulatory assets 15,405 17,680 6,748
Deferred income taxes and investment tax credit adjustments - net 3,533 3,145 (4,517)
Allowance for funds used during construction (4,407) (9,321) (11,370)
Cumulative effect of accounting change - before taxes (Note 3) (29,915) - -
Provision for impairment of nonutility property (Note 2) 32,000 - -
Premiums on redemptions of debt - (3,128) (2,506)
Change in certain assets and liabilities:
Accounts receivable - excluding cumulative effect
of accounting change (6,019) 47,974 (10,414)
Fuel, materials and supplies (321) 4,503 7,130
Accounts payable and accrued expenses 3,883 (19,762) 6,727
Taxes accrued (1,033) 1,934 2,656
Accrued pension benefits 2,538 5,449 4,731
Other - net (5,944) (17,484) 4,684
---------------- ---------------- ----------------
Net cash provided by operating activities 227,607 247,942 205,692
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING:
Proceeds from maturities of marketable securities - 3,810 7,984
Construction expenditures - utility (73,130) (78,543) (166,874)
Construction expenditures - nonutility (1,569) (4,187) (34,745)
Other (6,566) (16,607) (19,416)
---------------- ---------------- ----------------
Net cash used in investing activities (81,265) (95,527) (213,051)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 451,300 37,600 130,100
Retirement of long-term debt (89,250) (79,900) (80,350)
Reacquired common stock (Note 6) (403,101) - -
Preferred stock redemptions (Note 6) (41,814) - -
Short-term debt - net (12,300) (23,122) 39,369
Common dividends paid (57,653) (83,629) (81,289)
Issuance of common stock related to incentive compensation plans 4,089 4,524 1,549
Other 363 (125) 1,386
---------------- ---------------- ----------------
Net cash provided by (used in) financing activities (148,366) (144,652) 10,765
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,024) 7,763 3,406
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,317 11,554 8,148
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,293 $ 19,317 $ 11,554
================ ================ ================
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 59,761 $ 47,857 $ 47,310
================ ================ ================
Income taxes $ 63,915 $ 64,650 $ 50,557
================ ================ ================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Common Shareholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock
Outstanding Premium on 4%
----------------------- Cumulative Retained Treasury
Shares Amount Preferred Stock Earnings Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 56,634 $ 381,228 $ 1,363 $ 419,354 $ 801,945
Net income 98,778 98,778
Cash dividends declared ($1.44 per share) (81,724) (81,724)
Exercise of stock options 81 1,549 1,549
Restricted stock grants 87 2,255 2,255
---------- ------------- ----------- ------------- -------------
Balance at December 31, 1995 56,802 385,032 1,363 436,408 822,803
Net income 114,275 114,275
Cash dividends declared ($1.48 per share) (84,286) (84,286)
Post-split fractional shares (1) (36) (36)
Exercise of stock options 227 4,560 4,560
Restricted stock grants 7 410 410
---------- ------------- ----------- ------------- -------------
Balance at December 31, 1996 57,035 389,966 1,363 466,397 857,726
Net income 114,046 114,046
Cash dividends declared ($1.00 per share) (47,713) (47,713)
Reacquired Common Stock (Note 6) (12,539) $ (403,101) (403,101)
Reacquired and retired Preferred Stock (714) (714)
Exercise of stock options 153 4,089 4,089
Restricted stock grants 1 1,796 1,796
---------- ------------- ----------- ------------- ------------- -------------
Balance at December 31, 1997 44,650 $ 395,851 $ 649 $ 532,730 $ (403,101) $ 526,129
========== ============= =========== ============= ============= =============
See notes to consolidated financial statements.
Per share amounts and the number of shares have been adjusted for 1995 to
reflect the 3-for-2 no par value
common stock split issued in March 1996.
</TABLE>
<PAGE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
-----------------------------------------
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1997, 1996 and 1995
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: IPALCO Enterprises, Inc. (IPALCO) owns all
of the outstanding common stock of its subsidiaries (collectively referred to as
Enterprises). The consolidated financial statements include the accounts of
IPALCO, its regulated utility subsidiary, Indianapolis Power & Light Company
(IPL), and its unregulated subsidiary, Mid-America Capital Resources, Inc.
(Mid-America). Mid-America conducts its businesses through various wholly-owned
subsidiaries, including Mid-America Energy Resources, Inc. (Energy Resources),
Indianapolis Campus Energy, Inc. (ICE), Cleveland Thermal Energy Corporation
(Cleveland Thermal), Cleveland District Cooling Corporation (Cleveland Cooling)
and Store Heat and Produce Energy, Inc. (SHAPE), an 80%-owned subsidiary. All
significant intercompany items have been eliminated in consolidation.
The operating components of all subsidiaries other than IPL which had
revenue of $33.0 million, $33.6 million and $23.0 million for 1997, 1996 and
1995, respectively, are included under the captions OTHER INCOME AND
(DEDUCTIONS), "Other-net" and "Income taxes-net" and INTEREST AND OTHER CHARGES,
"Interest on long-term debt," "Other Interest" and "Amortization of redemption
premiums and expenses on debt-net" in the Statements of Consolidated Income.
Nature of Operations: IPL is engaged principally in providing electric
and steam service to the Indianapolis metropolitan area. Mid-America operates
energy-related businesses in Indianapolis, Indiana and Cleveland, Ohio.
Concentrations of Risk: Substantially all of Enterprises' business
activity is with customers located within the Indianapolis area. In addition,
approximately 64% of Enterprises' employees are covered by collective bargaining
agreements. On February 23, 1998, the contract of approximately 25% of those
employees covered by collective bargaining agreements will expire.
Regulation: The retail utility operations of IPL are subject to the
jurisdiction of the Indiana Utility Regulatory Commission (IURC). IPL's
wholesale power transactions are subject to the jurisdiction of the Federal
Energy Regulatory Commission. These agencies regulate IPL's utility business
operations, tariffs, accounting, depreciation allowances, services, security
issues and the sale and acquisition of utility properties. The financial
statements of IPL are based on generally accepted accounting principles,
including the provisions of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation," which gives
recognition to the ratemaking and accounting practices of these agencies.
Revenues: Effective January 1, 1997, IPL adopted the unbilled revenues
method of accounting for electricity and steam delivered during the period (see
Note 3). Revenues are accrued for services provided but unbilled at the end of
each month.
A fuel adjustment charge provision, which is established after public
hearing, is applicable to most of the rate schedules of IPL, and permits the
billing or crediting of estimated fuel costs above or below the levels included
in such rate schedules. Actual fuel costs in excess of or under estimated fuel
costs billed are deferred or accrued, respectively.
<PAGE>
Authorized Annual Operating Income: Indiana law requires electric
utilities under the jurisdiction of the IURC to meet operating expense and
income requirements as a condition for approval of requested changes in fuel
adjustment charges. Additionally, customer refunds may result if the utilities'
rolling 12-month operating income, determined at quarterly measurement dates,
exceeds the utilities' authorized annual operating income and cannot be offset
by applicable cumulative net operating income deficiencies. In such a
circumstance, the required customer refund for the quarterly measurement period
is calculated to be one-fourth of the excess annual operating income grossed up
for federal and state taxes.
Effective July 1, 1996, IPL's authorized annual electric net operating
income, for purposes of quarterly operating income tests, is $163 million, as
established in an IURC order dated August 24, 1995. This level will be
maintained until changed by an IURC order. During 1997, IPL's rolling annual
electric operating income was less than the authorized annual operating income
at each of the quarterly measurement dates (January, April, July and October).
At October 31, 1997, IPL's most recent quarterly measurement date, IPL had a
cumulative net operating deficiency of $78.9 million, of which $39.9 million
expires at varying amounts during the period ending September 1, 2000. The
operating deficiency is calculated by summing the 20 most recent quarterly
measurement period annual results. As a consequence, IPL could, for a period of
time, earn above $163 million of electric net operating income without being
required to make a customer refund.
Through the date of IPL's next general electric rate order, IPL is
required to file upward and downward adjustments in fuel cost credits and
charges on a quarterly basis, based on changes in the cost of fuel, irrespective
of its level of earnings.
Pursuant to an order of the IURC, IPL's authorized annual steam net
operating income is $6.2 million, plus any cumulative annual underearnings
occurring during the five-year period subsequent to the implementation of the
new rate tariffs.
Allowance For Funds Used During Construction: In accordance with the
prescribed uniform system of accounts, IPL capitalizes an allowance for the net
cost of funds (interest on borrowed funds and a reasonable rate on equity funds)
used for construction purposes during the period of construction with a
corresponding credit to income. IPL capitalized amounts using pretax composite
rates of 9.1%, 7.3% and 8.5% during 1997, 1996 and 1995, respectively.
Utility Plant and Depreciation: Utility plant is stated at original cost
as defined for regulatory purposes. The cost of additions to utility plant and
replacements of retirement units of property, as distinct from renewals of minor
items that are charged to maintenance, are charged to plant accounts. Units of
property replaced or abandoned in the ordinary course of business are retired
from the plant accounts at cost; such amounts plus removal costs, less salvage,
are charged to accumulated depreciation. Depreciation is computed by the
straight-line method based on functional rates approved by the IURC and averaged
3.5% during 1997, 3.4% during 1996 and 3.5% during 1995. Depreciation expense
for 1997 and 1996 include adjustments to spare parts inventory of $0.6 million
and $4.5 million, respectively, resulting from recognition of the impairment in
value of excess spare parts. Depreciation expense for 1995 includes adjustments
to property held for future use of approximately $12.3 million. The adjustments
in 1995 reflect incurred costs of expired regulatory permits and for designing
and engineering a future generating station in Patriot, Indiana.
Nonutility property is recorded at cost, and depreciation is calculated
using the straight-line method over the estimated service lives of the related
property (see Note 2). Nonutility depreciation expense was $4.4 million, $4.5
million and $3.1 million for 1997, 1996 and 1995, respectively.
<PAGE>
Sale of Accounts Receivable: At December 31, 1997, IPL had sold, on a
revolving basis, an undivided percentage interest in $50 million of its accounts
receivable.
Regulatory Assets: Regulatory assets represent deferred costs that have
been, or that are expected to be, included as allowable costs for ratemaking
purposes. IPL has recorded regulatory assets relating to certain costs as
authorized by the IURC. Specific regulatory assets are disclosed in Note 5. As
of December 31, 1997, all nontax-related regulatory assets have been included as
allowable costs in orders of the IURC (see Note 10). IPL is amortizing such
regulatory assets to expense over periods authorized by these orders.
Tax-related regulatory assets represent the net income tax costs to be
considered in future regulatory proceedings generally as the related tax amounts
are paid.
In accordance with regulatory treatment, IPL deferred as a regulatory
asset certain post in-service date carrying charges and certain other costs
related to its investment in Petersburg Unit 4. As authorized in the 1995
Electric Rate Settlement (see Note 10), IPL, effective September 1, 1995, is
amortizing this deferral to expense over a life that generally approximates the
useful life of the related facility.
Also in accordance with regulatory treatment, IPL defers as regulatory
assets non-sinking fund debt and preferred stock redemption premiums and
expenses, and amortizes such costs over the life of the original debt or, in the
case of preferred stock redemption premiums, over 20 years.
Derivatives: IPALCO has only limited involvement with derivative
financial instruments and does not use them for trading purposes. IPALCO entered
into interest rate swap agreements as a means of managing the interest rate
exposure on certain of its debt facilities. These interest rate swaps are
accounted for under the accrual method. Under this method, the differential to
be paid or received on the interest rate swap agreement is recognized over the
life of the agreement in interest expense. Changes in market value of interest
swaps accounted for under the accrual method are not reflected in the
accompanying financial statements.
Income Taxes: Deferred taxes are provided for all significant temporary
differences between book and taxable income. The effects of income taxes are
measured based on enacted laws and rates. Such differences include the use of
accelerated depreciation methods for tax purposes, the use of different book and
tax depreciable lives, rates and in-service dates and the accelerated tax
amortization of pollution control facilities. Deferred tax assets and
liabilities are recognized for the expected future tax consequences of existing
differences between the financial reporting and tax reporting basis of assets
and liabilities.
IPL has recorded as regulatory assets and net deferred tax liabilities,
income taxes payable and includable in allowable costs for ratemaking purposes
in future years.
Investment tax credits that reduced federal income taxes in the years
they arose have been deferred and are being amortized to income over the useful
lives of the properties in accordance with regulatory treatment.
Statements of Cash Flows - Cash Equivalents: Enterprises considers all
highly liquid investments purchased with original maturities of 90 days or less
to be cash equivalents.
Employee Benefit Plans: Substantially all employees of IPALCO and IPL and
certain management employees of Mid-America are covered by a defined benefit
pension plan, a defined contribution plan and a group benefits plan.
<PAGE>
The defined benefit pension plan is noncontributory and is funded through
two trusts. Additionally, a select group of management employees of IPALCO, IPL
and Mid-America are covered under a funded supplemental retirement plan.
Collectively, these two plans are referred to as the Plans. Benefits are based
on each individual employee's years of service and compensation. IPL's funding
policy is to contribute annually not less than the minimum required by
applicable law, nor more than the maximum amount that can be deducted for
federal income tax purposes.
The defined contribution plan is sponsored by IPL as the Employees'
Thrift Plan of Indianapolis Power & Light Company. Employees elect to make
contributions to the Thrift Plan based on a percentage of their annual base
compensation. IPL matches each employee's contributions in amounts up to, but
not exceeding, 4% of the employee's annual base compensation.
The group benefits plan is sponsored by IPL and provides certain
healthcare and life insurance benefits to active employees and employees who
retire from active service on or after attaining age 55 and have rendered at
least 10 years of service. The postretirement benefit obligations of this plan
are funded through a Voluntary Employee Beneficiary Association (VEBA) Trust.
IPL's policy is to fund the annual actuarially determined postretirement benefit
cost.
Substantially all non-management employees of Mid-America and its
subsidiaries are covered by a contributory 401(k) plan.
New Accounting Pronouncements: In 1997, IPALCO adopted Statement of
Financial Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which
established standards for asset and liability recognition when transfers occur.
Adoption of SFAS 125 had no impact on Enterprises' financial position or results
of operations.
In June 1997, SFAS 130, "Comprehensive Income," was issued and becomes
effective in 1998 and requires reclassification of earlier financial statements
for comparative purposes. SFAS 130 requires that changes in the amounts of
certain items, including foreign currency translation adjustments and gains and
losses on certain securities be shown in the financial statements. SFAS 130 does
not require a specific format for the financial statement in which comprehensive
income is reported, but does require that an amount representing total
comprehensive income be reported in that statement. Enterprises anticipates
adopting this statement on January 1, 1998, and does not expect that it will
have a material impact on its consolidated financial statements.
Also in 1997, SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. The statement will change the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. SFAS 131 is effective for fiscal years beginning after December 15,
1997. However, interim reporting of segments is not required until 1999.
Use of Management Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make certain 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. The reported amounts of
revenues and expenses during the reporting period may also be affected by the
estimates and assumptions management is required to make. Actual results may
differ from those estimates.
<PAGE>
Earnings per Share: All references to earnings per share in the notes
to the consolidated financial statements are fully diluted.
Reclassifications:Certain amounts from prior years' financial statements
have been reclassified to conform to the current year presentation.
2. PLANT IN SERVICE AND OTHER PROPERTY
Utility Plant in Service
------------------------
The original cost of utility plant in service at December 31, segregated
by functional classifications, follows:
1997 1996
- --------------------------------------------------------------------------------
(In Thousands)
Production................................ $1,687,190 $1,684,705
Transmission.............................. 237,547 235,218
Distribution.............................. 743,251 712,391
General ................................. 132,458 130,991
---------- ----------
Total utility plant in service......... $2,800,446 $2,763,305
========== ==========
Substantially all of IPL's property is subject to the lien of the
indentures securing IPL's First Mortgage Bonds.
In 1997, IPL retired and sold its CC Perry W Plant site, including land
and improvements, to the state of Indiana White River State Park Commission at
an approximate pretax net gain of $5.7 million included in other income and
deductions, other net.
Nonutility Property
-------------------
The original cost of nonutility property at December 31 follows:
1997 1996
- --------------------------------------------------------------------------
(In Thousands)
District Cooling..................... $ 79,165 $100,294
District Heating..................... 7,977 16,984
General ............................ 3,202 4,165
-------- --------
Total nonutility property........ $ 90,344 $121,443
======== ========
Substantially all the District Cooling and Heating property is subject to
the lien of existing debt and/or credit agreements.
During 1997, IPALCO initiated a plan to sell two subsidiaries of
Mid-America, Cleveland District Cooling Corporation and Cleveland Thermal
Corporation. Based on fair market value estimates, IPALCO recorded a charge of
$32 million to write down the carrying amounts of these businesses to estimated
fair value less cost to sell. The charge is included in IPALCO's other income
and deductions for the year ended December 31, 1997. IPALCO will not depreciate
or amortize any of the long-term assets of these businesses while they are held
for disposal. IPALCO anticipates completing this divestiture effort in 1998.
Excluding the charge described above, these businesses contributed a net loss of
$2.5 million, $1.7 million and $1.8 million in 1997, 1996 and 1995,
respectively. The amounts that IPALCO will ultimately realize could differ
materially from the amounts assumed in arriving at the write-down of these
businesses.
<PAGE>
3. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In December 1997, IPL changed its method of accounting (retroactive to
January 1, 1997) to record revenues of all electricity and steam delivered
during the period. Prior to 1997, IPL recognized revenues on a cycle basis as
meters were read. The new accounting method more accurately reports revenues in
the period in which electricity and steam is used by customers. The cumulative
effect of the change in accounting at January 1, 1997, was $18.3 million (net of
income taxes of $11.2 million and other taxes of $.4 million) or $.38 per share.
The change had the effect of decreasing 1997 income before cumulative effect of
the accounting change by $1.9 million (net of taxes) or $.04 per share.
If this method had been applied retroactively, net income would have been
$112.1 million ($1.97 per share) and $100.2 million ($1.76 per share) for the
years ended December 31, 1996, and 1995, respectively.
4. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments have been
determined by Enterprises using available market information and appropriate
valuation methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that Enterprises could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have an effect
on the estimated fair value amounts.
Cash, Cash Equivalents and Notes Payable: The carrying amount approximates
fair value due to the short maturity of these instruments.
Long-Term Debt, Including Current Maturities and Sinking Fund
Requirements: Interest rates that are currently available to IPALCO, IPL and
Mid-America for issuance of debt with similar terms and remaining maturities are
used to estimate fair value. The variable rate debt has been included at the
face amount for both carrying amount and fair value. The fair value of the IPL
interest rate swap agreement has been estimated to be $3.3 million and $1.2
million, which represents the amount IPL would have to pay to enter into an
equivalent agreement at December 31, 1997, and 1996, respectively, with a swap
counter party. The fair value of the IPALCO interest rate swap agreement has
been estimated to be $2.6 million at December 31, 1997. The fair value of the
debt outstanding has been determined on the basis of the specific securities
issued and outstanding. Accordingly, the purpose of this disclosure is not to
approximate the value on the basis of how the debt might be refinanced. At
December 31, 1997, and 1996, the consolidated carrying amount of Enterprises'
long-term debt, including current maturities and sinking fund requirements, and
the approximate fair value are as follows:
1997 1996
- ------------------------------------------------------------------------
(In Thousands)
Carrying amount $1,035,940 $673,841
Approximate fair value $1,066,354 $680,532
<PAGE>
5. REGULATORY ASSETS
The amounts of regulatory assets at December 31, 1997, and 1996, are as
follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Related to deferred taxes (Note 1) $ 44,099 $ 39,175
Postretirement benefit costs in excess of cash payments
and amounts capitalized (Note 12) 17,152 23,584
Unamortized reacquisition premium on debt (Note 1) 23,751 25,151
Unamortized Petersburg Unit 4 carrying charges
and certain other costs (Note 1) 30,228 34,005
Demand side management costs (Note 10) 10,308 13,841
Other 1,246 2,218
--------- ---------
Total regulatory assets $ 126,784 $ 137,974
========= =========
</TABLE>
6. CAPITAL STOCK
Stock Split: In February 1996, the IPALCO Board of Directors authorized a
3-for-2 stock split of IPALCO's common stock issued to shareholders in March
1996. All references to share amounts of common stock and per share information
have been restated to reflect the stock split.
Stock Repurchase: In 1997, Enterprises conducted a "Dutch Auction"
self-tender offer and purchased 12,539,428 shares of common stock at a total
cost of approximately $403.1 million. All 12,539,428 shares remain in Treasury
stock.
Common Stock: IPALCO has a Rights Agreement designed to protect IPALCO's
shareholders against unsolicited attempts to acquire control of IPALCO that do
not offer what the Board believes is a fair and adequate price to all
shareholders. The Board declared a dividend of one Right for each share of
common stock to shareholders of record on July 11, 1990. The Rights will expire
at the time of redemption or exchange, or on July 11, 2000, whichever occurs
earliest. At this time, the Rights are attached to and trade with the common
stock. The Rights are not taxable to shareholders or to IPALCO, and they do not
affect reported earnings per share. Under the Rights Agreement, IPALCO has
authorized and reserved 60 million shares for issuance.
During 1997, IPALCO adopted SFAS 128, "Earnings per Share." Accordingly,
the accompanying consolidated statements of income have been restated to reflect
"diluted" as well as "basic" earnings per share amounts. The following is a
reconciliation of the weighted average common shares for the basic and diluted
earnings per share computations:
For the Year Ended December 31,
-------------------------------
1997 1996 1995
----------------------------------------
(In thousands)
Weighted average common shares 47,942 56,924 56,745
Dilutive effect of stock options 285 117 87
------- ------- --------
Weighted average common
and incremental shares 48,227 57,041 56,832
====== ====== ======
<PAGE>
IPALCO PowerInvest, IPALCO's Dividend Reinvestment and Direct Stock
Purchase Plan, allows participants to purchase shares of common stock and to
reinvest dividends. The plan provides that such shares may be purchased on the
open market or directly from IPALCO at the option of IPALCO. IPALCO is
authorized to issue 1,473,455 additional shares as of December 31, 1997,
pursuant to this plan. All purchases in 1997 were made on the open market.
Under the Thrift Plan, shares may be purchased either on the open market
or, if available, as original issue shares directly from IPALCO. There were
approximately 2.2 million additional shares available for issue under the Thrift
Plan as of December 31, 1997. All purchases in 1997 were made on the open
market.
IPALCO is authorized to issue 34,787 additional shares of common stock
pursuant to the Energy Resources 401(k) plan. All purchases in 1997 were made on
the open market.
On May 21, 1997, the IPALCO Enterprises, Inc. 1997 Stock Option Plan
(1997 Plan) for officers and other key employees was approved by the
shareholders of IPALCO. Two million shares of common stock were authorized for
issuance under the 1997 Plan. As of December 31, 1997, 932,750 shares are
available for future grants. The maximum period for exercising an option may not
exceed 10 years and one day after the grant, provided however, that the
incentive stock options shall have terms not in excess of 10 years.
IPALCO has an existing stock option plan (1990 Plan) for key employees
under which options to acquire shares of common stock may be granted. One and
one-half million shares of common stock were authorized for issuance under the
1990 Plan although no shares are available for future grants. The maximum period
for exercising an option may not exceed 10 years and one day after grant or 10
years for incentive stock options.
The 1991 Directors' Stock Option Plan (1991 Plan) provides to the
nonemployee Directors of IPALCO options to acquire shares of common stock. These
options are exercisable for the period beginning on the six-month anniversary
of, and ending on the ten-year anniversary of, the grant date. Under the 1991
Plan, 375,000 shares of common stock were authorized for issuance and 126,000
are available for future grants.
A summary of options issued under all plans is as follows:
<TABLE>
<CAPTION>
Weighted Average Range of Option Number of
Price per Share Price per Share Shares
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, January 1, 1995.................. $ 22.51 $ 16.8317 - $ 25.3725 1,226,250
Granted..................................... 20.91 20.9146 45,000
Reinstated.................................. 16.83 16.8317 15,000
Exercised................................... 17.19 16.8317 - 18.7481 (81,000)
---------
Outstanding, December 31, 1995................ 22.74 16.8317 - 25.3725 1,205,250
Granted..................................... 25.25 25.25 45,000
Exercised................................... 17.02 16.8317 - 25.3308 (226,680)
---------
Outstanding, December 31, 1996................ 24.12 16.8317 - 25.3725 1,023,570
Granted..................................... 31.38 31.375 1,132,500
Granted..................................... 30.50 30.50 42,000
Exercised................................... 24.05 16.8317 - 31.375 (152,732)
---------
Outstanding, December 31, 1997................ 28.27 16.8317 - 31.375 2,045,338
=========
</TABLE>
The number of shares exercisable at December 31, 1997, 1996 and 1995
were: 2,045,338, 1,023,570 and 983,012, respectively, with a weighted average
exercise price of $28.27, $24.12 and $22.15, respectively. The weighted average
remaining contractual life of the options outstanding at December 31, 1997, 1996
and 1995 was 7.7 years, 6.3 years and 6.7 years, respectively.
<PAGE>
IPALCO has a Long-Term Performance and Restricted Stock Incentive Plan
(1995 Plan). Pursuant to the 1995 Plan, 600,000 shares of common stock of IPALCO
have been authorized and reserved for issuance, and initial awards of 87,304
shares of restricted common stock were made to participating employees on
January 1, 1995. On January 1, 1997 and 1996, an additional 1,628 and 7,319
shares, respectively, were issued to reflect the addition of new participants.
Under the 1995 Plan, shares of restricted common stock with value equal to a
stated percentage of participants' base salary are initially awarded at the
beginning of a three-year performance period, subject to adjustment to reflect
the participants' actual base salary. The shares remain restricted and
nontransferable throughout each three-year performance period, vesting in
one-third increments in each of the three years following the end of the
performance period. The first performance period was from January 1, 1995, to
December 31, 1997. At the end of a performance period, awards are subject to
adjustment to reflect Enterprises' performance compared to peer companies under
two performance criteria, cost-effective service and total return to
shareholders. Depending on Enterprises' performance under these criteria, final
awards may range from 200% of the initial awards to zero. On January 5, 1998, an
additional 9,432 shares were issued to reflect participants' actual base
salaries. On January 15, 1998, the final performance evaluation was performed
resulting in final awards of 200% of the initial awards with one-third of the
total vesting (73,740 shares). Participants may choose from one of four payout
options for vested shares, including partial cash payout. Of the vested shares,
33,719 were paid out in the form of stock.
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for the stock based plans have been
applied by Enterprises. No compensation cost has been recognized for the 1990,
1991 and 1997 option plans because the stock option exercise price is equal to
the fair value of the underlying common stock at the date of grant. Had
compensation cost been determined based on the fair value at the grant dates for
awards under the plans consistent with the method of SFAS 123, "Accounting for
Stock-Based Compensation," IPALCO's net income for the year ended December 31,
1997, would have decreased from $114.0 million ($2.36 per share) to the pro
forma amount of $110.4 million ($2.29 per share). IPALCO's net income and
earnings per share for the similar period in 1996 would have decreased from
$114.3 million ($2.00 per share) to the pro forma amount of $114.2 million
($2.00 per share). IPALCO's net income and earnings per share for the similar
period in 1995 would not have changed. IPALCO estimated the SFAS 123 fair values
by utilizing the binomial options pricing model with the following assumptions:
dividend yields of 3.2% to 6.9%, risk-free rates of 6.4% to 6.9%, volatility of
12% to 13% and expected lives of five years.
Compensation expense of $3.4 million, $1.2 million and $1.1 million for
1997, 1996 and 1995, respectively, as measured by the market value of the common
stock at the balance sheet date, has been recognized in accordance with the
vesting period for the 1995 Plan.
Restrictions on the payment of cash dividends or other distributions of
IPL common stock held by IPALCO and on the purchase or redemption of such shares
by IPL are contained in the indentures securing IPL's First Mortgage Bonds. In
addition, pursuant to IPL's Articles of Incorporation, no dividends may be paid
or accrued and no other distribution may be made on IPL's common stock unless
dividends on all outstanding shares of IPL's preferred stock have been paid or
declared and set apart for payment. All of IPL's retained earnings at December
31, 1997, were free of such restrictions. There are no other restrictions on the
retained earnings of IPALCO.
Cumulative Preferred Stock of Subsidiary: Preferred stock shareholders
are entitled to two votes per share for IPL matters, and if four full quarterly
dividends are in default on all shares of the preferred stock then outstanding,
they are entitled to elect the smallest number of IPL Directors to constitute a
majority. Preferred stock is redeemable solely at the option of IPL and can be
redeemed in whole or in part at any time at specific call prices.
<PAGE>
IPALCO purchased shares of IPL's preferred stock on October 17, 1997,
pursuant to the terms of a tender offer concluded on October 8, 1997. The
following table shows the number of shares purchased on October 17, 1997, for
each class of preferred stock:
Amount
Class Shares Rate (In Thousands)
- ------------------------------------------------------------------------------
4% Series............. 52,389 $71.38 $ 3,740
4.2% Series............. 19,669 77.72 1,529
4.6% Series............. 27,519 85.12 2,342
4.8% Series............. 28,070 88.82 2,493
6% Series............. 59,200 103.00 6,098
8.2% Series............. 65,828 102.00 6,714
------- -------
Shares purchased 252,675 $22,916
======= =======
All tendered shares subsequently were purchased from IPALCO by IPL at
cost and canceled.
On October 28, 1997, the Board of Directors of IPL authorized the
redemption of the remaining 40,800 shares of its 6.0% and remaining 134,157
shares of its 8.2% Cumulative Preferred Stock issued and outstanding on December
15, 1997, at a price per share, payable to shareholders of record of $102 and
$101, respectively, together with dividends accrued through the date of
redemption. IPL recorded a net gain of $1.7 million, as an increase to equity,
with the redemption of the preferred stock.
At December 31, preferred stock consisted of the following:
December 31, 1997
-----------------
Shares Call December 31
Outstanding Price 1997 1996
----------- --------- -------- ------
(In Thousands)
Cumulative $100 Par Value,
authorized 2,000,000 shares
4% Series........................ 47,611 $118.00 $4,761 $10,000
4.2% Series...................... 19,331 103.00 1,933 3,900
4.6% Series...................... 2,481 103.00 248 3,000
4.8% Series...................... 21,930 101.00 2,193 5,000
6% Series........................ - 102.00 - 10,000
8.2% Series...................... - 101.00 - 19,998
------ ------ -------
Total cumulative preferred stock 91,353 $9,135 $51,898
====== ====== =======
During 1997, 1996 and 1995, preferred stock dividends were $2.8 million,
$3.2 million and $3.2 million, respectively.
On January 13, 1998, Indianapolis Power & Light Company issued
$50,000,000 of Cumulative Preferred Stock with a rate of 5.65%. 500,000 shares
were issued at $100 par value each. The stock will be redeemable at par value,
subject to certain restrictions, in whole or in part, at any time on or after
January 1, 2008, at the option of IPL.
<PAGE>
7. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
------------
1997 1996
---- ----
Series Due (In Thousands)
IPL First Mortgage Bonds:
5 5/8% May 1997............................ $ - $ 11,250
6.05% February 2004....................... 80,000 80,000
8% October 2006........................ 58,800 58,800
7 3/8% August 2007......................... 80,000 80,000
6.10% * January 2016........................ 41,850 41,850
5.40% * August 2017......................... 24,650 24,650
7.45% August 2019......................... 23,500 23,500
5.50% * October 2023........................ 30,000 30,000
7.05% February 2024....................... 100,000 100,000
6 5/8% * December 2024....................... 40,000 40,000
Unamortized discount - net............................ (960) (1,009)
---------- ---------
Total first mortgage bonds............................ 477,840 489,041
IPL Variable Series Notes *
1991 August 2021......................... 40,000 40,000
1994A December 2024....................... 20,000 20,000
1995B January 2023 ....................... 40,000 40,000
1995C December 2029 ...................... 30,000 30,000
1996 November 2029 ...................... 20,000 20,000
Current maturities and sinking fund requirements...... - (11,250)
---------- ---------
Total long-term debt - IPL............................ 627,840 627,791
---------- ---------
Long-Term Debt - Other:
Energy Resources - 7.25% note, due December 2011...... 9,500 9,500
Energy Resources - variable note, due September 2030.. 9,300 9,300
ICE - 7.59 % note, due February 2016 ................. 16,000 16,000
IPALCO Enterprises, Inc. Revolving
Credit Facility, due March 2002.................... 323,000 -
Energy Resources-8.03% notes payable, due June 2012 .. 50,000 -
SHAPE -7.50% notes payable, due December 1998 ........ 300 -
Current maturities.................................... (3,094) -
---------- ---------
Total long-term debt - other.......................... 405,006 34,800
---------- ---------
Total long-term debt.................................. $1,032,846 $ 662,591
========== =========
* Notes are issued to the city of Petersburg, Indiana, by IPL to secure the loan
of proceeds from various tax-exempt instruments issued by the city.
IPL redeemed the $15 million, 5 1/8% Series in May 1996, and the $50
million, 9 5/8% Series in December 1996. ICE redeemed the $13.2 million project
loan in December 1996, with the proceeds from a 7.59% long-term note in the
amount of $16 million.
The Series 1991 note provides for an interest rate that varies with the
tax-exempt commercial paper rate. The 1994A, 1995B, 1995C and 1996 notes provide
for an interest rate which varies with the tax-exempt weekly rate. IPL, at its
option, can change the interest rate mode for these notes to be based on other
short-term rates. Additionally, the IPL variable rate notes can be converted
into long-term fixed interest rate instruments by the issuance of an IPL First
Mortgage Bond. The notes are classified as long-term liabilities because IPL
maintains long-term credit facilities supporting these agreements, which were
unused at December 31, 1997. Energy Resources' 1995 variable long-term note due
2030 was issued to the Indiana Development Finance Authority and bears interest
which varies with the tax-exempt weekly rate.
<PAGE>
IPALCO's Revolving Credit Facility (Revolver) was issued in April 1997 in
the amount of $401 million. The proceeds were used to purchase, through a
self-tender offer, shares of IPALCO's outstanding common capital stock. Interest
is payable monthly and is based on a spread over LIBOR. During 1997, IPALCO
reduced the original debt amount by a net $78 million.
The interest rate swap agreement is accounted for on a settlement basis.
IPALCO is exposed to credit loss in the event of nonperformance by the
counterparty for the net interest differential when floating rates exceed the
fixed maximum rate.
However, IPALCO does not anticipate nonperformance by the counterparty.
The year-end interest rates for the variable rate notes are as follows:
Interest Rate at
December 31,
1997 1996
- -------------------------------------------------------------
Series 1991 3.78% 3.47%
Series 1994A 3.75% 4.10%
Series 1995B 5.21% 5.21%
Series 1995C 3.75% 4.10%
Series 1996 3.75% 4.05%
Energy Resources
variable note 4.17% 4.35%
IPALCO Revolver 6.65% _
In conjunction with the issuance of the 1995B note, IPL entered into an
interest rate swap agreement. Pursuant to the swap agreement, IPL will pay
interest at a fixed rate of 5.21% to a swap counter party and will receive a
variable rate of interest in return, which is identical to the variable rate
payment made on the 1995B note. The result is to effectively establish a fixed
rate of interest on the 1995B note of 5.21%.
In conjunction with the issuance of the Revolver, IPALCO entered into an
interest rate swap agreement which fixed the interest rate on $300 million of
the Revolver. Pursuant to the swap agreement which matures April 1, 2001, IPALCO
will pay interest at a fixed rate of 6.3575% to a swap counter party and will
receive a variable rate of interest in return based on one month LIBOR. The
result is to effectively establish a 6.6825% fixed rate of interest on $300
million of the Revolver.
<PAGE>
Maturities on long-term debt for the five years subsequent to December
31, 1997, are as follows:
Maturities
----------
Year Amount
---- ------
(In Thousands)
1998........................... $ 3,094
1999........................... 81,325
2000........................... 81,582
2001........................... 82,477
2002........................... 82,650
8. LINES OF CREDIT
IPL has committed lines of credit with banks of $75 million at December
31, 1997, to provide loans for interim financing which require the payment of
commitment fees. These lines of credit, based on separate agreements, have
expiration dates ranging from February 1, 1998, to December 31, 1998. Lines of
credit used to support commercial paper were $10 million at December 31, 1997.
IPL has a Liquidity facility in the amount of $150 million to support certain
floating-rate tax-exempt facilities (see Note 7).
IPL has an uncommitted line of credit with a bank in the amount of $25
million that does not require the payment of a commitment fee. At December 31,
1997, $11.3 million was unused.
Mid-America has a line of credit which requires the payment of a
commitment fee. At December 31, 1997, $10 million was outstanding, $9.3 million
was committed as collateral for the Energy Resources variable note and $10.7
million was unused.
The weighted average interest rate on notes payable and commercial paper
outstanding was 6.58% and 6.08% at December 31, 1997 and 1996, respectively.
<PAGE>
9. INCOME TAXES
Federal and state income taxes charged to income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
(In Thousands)
Utility Operating Expenses:
Current income taxes:
<S> <C> <C> <C>
Federal..................................................... $64,553 $56,676 $51,331
State....................................................... 9,474 8,378 7,732
------- ------- -------
Total current taxes....................................... 74,027 65,054 59,063
------- ------- -------
Deferred federal income taxes............................... 1,444 6,507 (1,748)
Deferred state income taxes................................. 803 (398) 309
------- ------- -------
Total deferred income taxes.............................. 2,247 6,109 (1,439)
------- ------- -------
Net amortization of investment credit....................... (2,939) (2,915) (3,125)
------- ------- -------
Total charge to utility operating expenses................ 73,335 68,248 54,499
Net credit to other income and deductions................... (19,004) (3,645) (3,097)
------- ------- -------
54,331 64,603 51,402
Cumulative effect of change in accounting principle......... 11,209 - -
------- ------- -------
Total federal and state income tax provisions............. $65,540 $64,603 $51,402
======= ======= =======
</TABLE>
The provision for federal income taxes (including net investment tax
credit adjustments) is less than the amount computed by applying the statutory
tax rate to pretax income. The reasons for the difference, stated as a
percentage of pretax income, are as follows:
1997 1996 1995
- ------------------------------------------------------------------------------
Federal statutory tax rate................. 35.0% 35.0% 35.0%
Effect of state income taxes............... (2.1) (1.5) (1.8)
Amortization of investment tax credits..... (1.6) (1.6) (2.0)
Removal cost adjustments................... - - (1.8)
Preferred dividends of subsidiary.......... 0.2 0.6 0.7
Other - net................................ (1.2) (1.4) (1.8)
----- ----- -----
Effective tax rate....................... 30.3% 31.1% 28.3%
===== ===== =====
The significant items comprising Enterprises' net deferred tax liability
recognized in the consolidated balance sheets as of December 31, 1997, and 1996,
are as follows:
1997 1996
- -----------------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities:
Relating to utility property........... $405,164 $376,121
Other.................................. 16,520 21,070
-------- --------
Total deferred tax liabilities..... 421,684 397,191
-------- --------
Deferred tax assets:
Relating to utility property........... 40,731 28,298
Investment tax credit.................. 27,251 29,156
Employee benefit plans................. 22,455 15,388
Unbilled revenue....................... - 10,517
Other.................................. 16,197 10,359
-------- --------
Total deferred tax assets.......... 106,634 93,718
-------- --------
Net deferred tax liability.................. 315,050 303,473
Current deferred tax liability....... 181 -
-------- --------
Deferred income taxes - net................. $314,869 $303,473
======== ========
<PAGE>
10. RATE MATTERS
Electric Rate Settlement Agreement: On August 24, 1995, the IURC issued
an order approving without amendment a Stipulation and Settlement Agreement
(Settlement Agreement) resolving all issues in IPL's then pending electric
general rate proceeding.
As provided for by the Settlement Agreement, IPL increased its basic
rates and charges for retail electric service in two steps designed to provide
the following additional annual revenues:
Step 1 - $35 million on September 1, 1995
Step 2 - $25 million on July 1, 1996
Effective with the implementation of new tariffs in Step 1, IPL was
authorized to begin amortization of certain regulatory assets. Additionally,
IPL's existing depreciation rates were reapproved.
Under terms of the Settlement Agreement, IPL agreed not to file a request
to build any large, base-load generating capacity before January 1, 2000. This
provision can be waived in extreme circumstances. In addition, the parties
agreed to, and subsequently resolved, pending litigation involving IPL's Clean
Air Act compliance plan.
Steam Rate Order: By an order dated January 13, 1993, the IURC authorized
IPL to increase its steam system rates and charges over a six-year period. The
final increase associated with this order took effect on January 13, 1998. The
amount of additional annual revenues from the January 13, 1998, increase is
estimated to be $370,000.
Demand Side Management Program: In compliance with certain orders, IPL is
deferring certain approved DSM costs and carrying charges. In the Settlement
Agreement approved by the IURC on August 24, 1995, IPL was authorized to
amortize $5.3 million of such costs deferred prior to February 1995, over a
four-year period beginning September 1, 1995. On December 19, 1996, IPL filed a
petition with the IURC requesting review, modification and/or termination of,
and related regulatory treatment for, DSM programs approved in the order dated
September 8, 1993. On July 30, 1997, IPL received an IURC order approving a
settlement agreement authorizing IPL to recognize in rates the existing
regulatory asset (consisting of DSM costs deferred after January 31, 1995),
along with carrying charges, and also to approve changes to IPL's DSM programs.
11. EMPLOYEE PENSION BENEFIT PLANS
Pension expense includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost--benefits earned during the period......... $ 6,584 $ 6,482 $ 6,375
Interest cost on projected benefit obligation........... 16,873 16,335 15,348
Actual return on plan assets............................ (37,813) (23,307) (29,529)
Net amortization and deferral........................... 18,304 5,758 13,499
------- ------ -------
Net periodic pension cost............................. 3,948 5,268 5,693
Less amount capitalized............................... 621 1,061 1,199
------- ------- -------
Amount charged to expense............................... $ 3,327 $ 4,207 $ 4,494
======= ======= =======
</TABLE>
<PAGE>
A summary of the Plans' funding status at their October 31, 1997, plan
year-end, evaluation date and the amount recognized in the consolidated balance
sheets at December 31, 1997, and 1996, follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------
(In Thousands)
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested benefit obligation.............................................. $(194,352) $(173,654)
Nonvested benefit obligation........................................... (35,293) (32,705)
--------- ---------
Accumulated benefit obligation............................................. $(229,645) $(206,359)
========= =========
Projected benefit obligation........................................... $(254,540) $(229,937)
Plan assets at fair value.............................................. 262,126 235,250
--------- ---------
Funded status.............................................................. 7,586 5,313
Unrecognized net gain from past experience different
from that assumed................................................. (46,671) (36,126)
Unrecognized past service costs........................................ 12,477 8,132
Unrecognized net asset at January 1, 1987, being
amortized over an original life of 18.9 years..................... (11,169) (12,583)
Adjustment required to recognize minimum liability..................... (2,044) (2,019)
--------- ---------
Net accrued pension benefits included in other long-term
liabilities at December 31............................................. $ (39,821) $ (37,283)
========= =========
</TABLE>
Approximately 45.2% of the Plans' assets were in equity securities at
October 31, 1997, with the remainder in fixed income securities.
Assumptions used in determining the information presented were:
1997 1996 1995
- -------------------------------------------------------------------------------
Discount rate...................................... 7.25% 7.50% 7.50%
Rate of increase in future compensation levels..... 5.10% 5.10% 5.10%
Expected long-term rate of return on assets........ 8.00% 8.00% 8.00%
12. EMPLOYEE POSTRETIREMENT BENEFITS
Postretirement benefit expense includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost -- benefits earned during the period...................... $ 4,021 $ 3,969 $ 3,941
Interest cost on accumulated postretirement benefit obligation......... 11,135 10,494 10,838
Actual (return) loss on plan assets.................................... 314 1,280 (319)
Net amortization and deferral.......................................... 1,475 2,220 4,665
---------- --------- ---------
Net periodic postretirement benefit cost............................. 16,945 17,963 19,125
Less:
Amount capitalized................................................ 2,930 3,511 3,891
Regulatory asset deferral......................................... - - 6,978
---------- --------- ---------
Amount charged to expense.............................................. $ 14,015 $ 14,452 $ 8,256
========== ========= =========
</TABLE>
Also, during 1997, 1996 and 1995, IPL expensed postretirement regulatory
asset amortization of $6.4 million, $6.4 million and $2.1 million, respectively.
<PAGE>
A summary of the retiree health-care and life insurance plan's funding
status, and the amount recognized in the consolidated balance sheets at December
31, 1997, and 1996, follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------
Actuarial present value of accumulated postretirement (In Thousands)
benefit obligation:
<S> <C> <C>
Retirees............................................................... $ (59,125) $ (62,856)
Fully eligible active plan participants................................ (19,144) (21,486)
Other active plan participants......................................... (58,436) (62,702)
--------- ---------
Total...................................................................... (136,705) (147,044)
Plan assets at fair value ............................................. 68,688 49,852
--------- ---------
Funded status ............................................................. (68,017) (97,192)
Unrecognized net gain from past experience different from that assumed. (40,927) (24,363)
Unrecognized net obligation at January 1, 1993, being amortized over
an original life of 20 years....................................... 91,800 97,920
--------- ---------
Net accrued postretirement benefit cost included in deferred liabilities at
December 31............................................................ $ (17,144) $ (23,635)
========= =========
</TABLE>
Enterprises has expensed its non-construction related postretirement
benefits costs associated with its unregulated and regulated steam businesses
and, subsequent to August 1995, with its regulated electric business. IPL's
electric business postretirement benefit costs incurred prior to September 1,
1995, net of amounts capitalized for construction and benefits paid to
participants, were deferred as a regulatory asset on the consolidated balance
sheets. The Settlement Agreement approved the amortization to operating expense
of this regulatory asset over five years beginning September 1, 1995. The annual
amortization is $6.4 million. IPL funds its annual postretirement benefit costs
in excess of actual benefits paid to participants to an irrevocable VEBA Trust.
Annual funding is discretionary and is based on the projected cost over time of
benefits to be provided to covered persons consistent with acceptable actuarial
methods. The VEBA Trust provides for full funding of Enterprises' accumulated
postretirement benefit obligation in the event of certain change of control
transactions. During 1997, 1996 and 1995, Enterprises contributed $19.2 million,
$20.9 million and $19.0 million, respectively, of these costs to the VEBA.
Plan assets consist of life insurance policies on certain active and
retired IPL employees.
The assumed health-care cost trend rate used in measuring the accumulated
postretirement benefit obligation is 8.1% for 1998, gradually declining to 4.5%
in 2003. A 1% increase in the assumed health- care cost trend rate for each year
would increase the accumulated postretirement benefit obligation, as of December
31, 1997, by approximately $19.5 million and the combined service cost and
interest cost for 1997 by approximately $2.5 million.
Assumptions used in determining the information above were:
1997 1996 1995
- -------------------------------------------------------------------------------
Discount rate.................................... 7.25% 7.50% 7.25%
Rate of increase in future compensation levels... 5.10% 5.10% 5.10%
Expected long-term rate of return on assets...... 8.00% 8.00% 8.00%
13. OTHER EMPLOYEE BENEFIT PLANS
Enterprises' contributions to the Thrift Plan were $3.3 million, $3.4
million and $3.2 million in 1997, 1996 and 1995, respectively.
<PAGE>
14. COMMITMENTS AND CONTINGENCIES
In 1998, Enterprises anticipates the cost of its subsidiaries'
construction programs to be approximately $107 million.
Enterprises is involved in litigation arising in the normal course of
business. While the results of such litigation cannot be predicted with
certainty, management, based upon advice of counsel, believes that the final
outcome will not have a material adverse effect on the consolidated financial
statements.
With respect to environmental issues, IPL has ongoing discussions with
various regulatory authorities and continues to believe that IPL is in
compliance with its various permits.
<PAGE>
15. QUARTERLY RESULTS (UNAUDITED)
Operating results for the years ended December 31, 1997, and 1996, by
quarter, are as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
1997
----
March 31 June 30 September 30 December 31
-------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Utility operating revenues................. $ 195,299 $ 183,777 $ 203,872 $ 193,479
Utility operating income................... $ 44,534 $ 39,092 $ 48,820 $ 34,869
Income before cumulative effect
of accounting change..................... $ 33,048 $ 24,189 $ 33,415 $ 5,047
Cumulative effect of
accounting change........................ $ 18,347 - - -
Net income................................. $ 51,395 $ 24,189 $ 33,415 $ 5,047
Net income (as originally reported)........ $ 36,107 $ 21,085 $ 37,513 -
Weighted average shares.................... 57,037 45,507 44,582 44,641
Basic earnings per share................... $ .90 $ .53 $ .75 $ .11
Weighted average diluted shares............ 57,204 45,723 44,866 45,116
Diluted earnings per share................. $ .90 $ .53 $ .74 $ .11
1996
----
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Utility operating revenues................. $ 196,446 $ 177,621 $ 205,672 $ 182,764
Utility operating income................... $ 44,844 $ 36,122 $ 51,163 $ 31,090
Net income................................. $ 35,548 $ 24,459 $ 37,168 $ 17,100
Weighted average shares.................... 56,863 56,906 56,930 56,999
Basic earnings per share................... $ .63 $ .43 $ .65 $ .30
Weighted average diluted shares............ 56,992 57,007 57,054 57,110
Diluted earnings per share................. $ .62 $ .43 $ .65 $ .30
</TABLE>
The 1997 results have been restated for the change in accounting method
to the unbilled revenues method. The change in method was made December 31,
1997, but each quarter's results have been restated to reflect the results as if
the change had occurred on January 1, 1997, in accordance with generally
accepted accounting principles (see Note 3 regarding the change in accounting
method).
The quarterly figures reflect seasonal and weather-related fluctuations
that are normal to IPL's operations (see Note 10 regarding rate increases).
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the total for the year.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
<PAGE>
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Information relating to the directors of the registrant, set
forth in the Proxy Statement of IPALCO Enterprises, Inc. dated
March 9, 1998, (the registrant's Proxy Statement), under
"Proposal 1-Election of Four Directors" at pages 5-8 is
incorporated herein by reference. Information relating to the
registrant's executive officers is set forth at pages I-9 -
I-10 of this Form 10-K under "Executive Officers of the
Registrant at February 24, 1998."
Information relating to Section 16(a) Beneficial Ownership
Reporting Compliance, set forth in the registrant's Proxy
Statement at page 9 is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
----------------------
Information relating to executive compensation, set forth in
the registrant's Proxy Statement under "Compensation of
Executive Officers" at pages 19-22, "Compensation of
Directors" at page 10, "Compensation Committee Interlocks and
Insider Participation" at page 10, "Pensions Plans" at pages
24-25, and "Employment Contracts and Termination of Employment
and Change in Control Arrangements" at pages 25-26, is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information relating to ownership of the registrant's common
stock by persons known by the registrant to be the beneficial
owners of more than 5% of the outstanding shares of common
stock and by management, set forth in the registrant's Proxy
Statement under "Voting Securities and Beneficial Owners" at
pages 3-4 is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information relating to certain relationships and related
transactions, set forth in the registrant's Proxy Statement
under "Certain Business Relationships" at pages 10-11, is
incorporated herein by reference.
<PAGE>
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) The Consolidated Financial Statements under this
Item 14 (a) 1 filed in this Form 10-K are those of
IPALCO Enterprises, Inc. and subsidiaries.
1. Consolidated Financial Statements
---------------------------------
Included in Part II of this report:
Independent Auditors' Report
Statements of Consolidated Income for the
Years Ended December 31, 1997, 1996 and 1995
Consolidated Balance Sheets,
December 31, 1997 and 1996
Statements of Consolidated Cash Flows
for the Years Ended December 31, 1997,
1996 and 1995
Statements of Consolidated Common
Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. Exhibits
--------
The Exhibit Index beginning on page IV-5 of
this Annual Report on Form 10-K lists the exhibits
that are filed as part of this report.
3. Financial Statement Schedules
-----------------------------
None
(b) Reports on Form 8-K
-------------------
None
<PAGE>
<TABLE>
<CAPTION>
IPALCO ENTERPRISES, INC. EXHIBIT 11.1
Computation of Per Share Earnings
For the Years Ended December 31, 1997, 1996 and 1995
YEAR ENDED DECEMBER 31, 1997:
Basic Diluted
------------- --------------
Weighted average number of shares
<S> <C> <C>
Average common shares outstanding at December 31, 1997 47,941,757 47,941,757
Dilutive effect for stock options at December 31, 1997 - 285,583
------------- --------------
Adjusted weighted average shares at December 31, 1997 47,941,757 48,227,340
============= ==============
Net income to be used to compute
diluted earnings per share (Dollars in thousands)
Income before cumulative effect of accounting change $95,699 $95,699
Cumulative effect of accounting change 18,347 18,347
------------- --------------
Net income $114,046 $114,046
============= ==============
Income before cumulative effect of accounting change $2.00 $1.98
Cumulative effect of accounting change .38 .38
------------- --------------
Net income $2.38 $2.36
============= ==============
YEAR ENDED DECEMBER 31, 1996:
Basic Diluted
------------- --------------
Weighted average number of shares
Average common shares outstanding at December 31, 1996 56,924,411 56,924,411
Dilutive effect for stock options at December 31, 1996 - 116,370
------------- --------------
Adjusted weighted average shares at December 31, 1996 56,924,411 57,040,781
============= ==============
Net income to be used to compute
diluted earnings per share (Dollars in thousands)
Net Income $114,275 $114,275
============= ==============
Net income $2.01 $2.00
============= ==============
YEAR ENDED DECEMBER 31, 1995:
Basic Diluted
------------- --------------
Weighted average number of shares
Average common shares outstanding at December 31, 1995 56,744,700 56,744,700
Dilutive effect for stock options at December 31, 1995 - 86,853
------------- --------------
Adjusted weighted average shares at December 31, 1995 56,744,700 56,831,553
============= ==============
Net income to be used to compute
diluted earnings per share (Dollars in thousands)
Net income $98,778 $98,778
============= ==============
Net income $1.74 $1.74
============= ==============
</TABLE>
<PAGE>
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.
IPALCO ENTERPRISES, INC.
By /s/ John R. Hodowal
---------------------------------------
(John R. Hodowal, Chairman of the Board
and President)
Date: February 24, 1998
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
(i) Principal Executive Officer:
/s/ John R. Hodowal Chairman of the Board February 24, 1998
---------------------------- and President
(John R. Hodowal)
(ii) Principal Financial Officer:
/s/ John R. Brehm Vice President February 24, 1998
---------------------------- and Treasurer
(John R. Brehm)
(iii) Principal Accounting Officer:
/s/ Stephen J. Plunkett Controller February 24, 1998
----------------------------
(Stephen J. Plunkett)
<PAGE>
(iv) A majority of the Board of Directors of IPALCO Enterprises, Inc.:
/s/ Joseph D. Barnett, Jr. Director February 24, 1998
- ----------------------------
(Joseph D. Barnett, Jr.)
/s/ Robert A. Borns Director February 24, 1998
- -----------------------------
(Robert A. Borns)
/s/ Rexford C. Early Director February 24, 1998
- ------------------------------
(Rexford C. Early)
/s/ Otto N. Frenzel III Director February 24, 1998
- -------------------------------
(Otto N. Frenzel III)
/s/ Max L. Gibson Director February 24, 1998
- -------------------------------
(Max L. Gibson)
/s/ Dr. Earl B. Herr, Jr. Director February 24, 1998
- --------------------------------
(Dr. Earl B. Herr, Jr.)
/s/ John R. Hodowal Director February 24, 1998
- --------------------------------
(John R. Hodowal)
/s/ Ramon L. Humke Director February 24, 1998
- --------------------------------
(Ramon L. Humke)
/s/ Sam H. Jones Director February 24, 1998
- --------------------------------
(Sam H. Jones)
/s/ L. Ben Lytle Director February 24, 1998
- ---------------------------------
(L. Ben Lytle)
/s/ Sallie W. Rowland Director February 24, 1998
- ---------------------------------
(Sallie W. Rowland)
/s/ Thomas H. Sams Director February 24, 1998
- ---------------------------------
(Thomas H. Sams)
<PAGE>
EXHIBIT INDEX
Copies of documents listed below which are identified with an asterisk
(*) are incorporated herein by reference and made a part hereof. The management
contracts or compensatory plans are marked with a double asterisk (**) after the
description of the contract or plan.
Exhibit
No. Description
3.1* Articles of Incorporation of IPALCO Enterprises, Inc., as
amended. (Exhibit 3.1 to the Form 10-Q dated 6-30-97.)
3.2* Bylaws of IPALCO Enterprises, Inc. (Exhibit 3.2 to the Form 10-Q
dated 3-31-97.)
4.1* IPALCO PowerInvest Dividend Reinvestment and Direct Stock Purchase
Plan. (Exhibit 4.1 to the Form 10-Q dated 9-30-96.)
4.2* IPALCO Enterprises, Inc. and First Chicago Trust Company of
New York (Rights Agent) - Rights Agreement. (Exhibit 4.2 to the
Form 10-K dated 12-31-94.)
10.1* IPALCO Enterprises, Inc. Unfunded Deferred Compensation Plan for
Directors dated December 27, 1983, as amended. (Exhibit 10.1 to the
Form 10-K dated 12-31-94.) **
10.2* IPALCO Enterprises, Inc. Unfunded Deferred Compensation Plan for
Officers effective January 1, 1994, as amended December 1, 1996.
Exhibit 10.2 to the Form 10-K dated 12-31-96.) **
10.3 Directors' and Officers' Liability Insurance Policy No. DO392B1A97
effective June 1, 1997 to June 1, 1998. **
10.4* IPALCO Enterprises, Inc. Benefit Protection Fund and Trust Agreement
effective November 1, 1988.(Form 10-K for year ended 12-31-88.) **
10.5 Exhibit A to IPALCO Enterprises, Inc. Benefit Protection Fund and
Trust Agreement dated January 1, 1998. **
10.6* IPALCO Enterprises, Inc. Annual Incentive Plan and Administrative
Guidelines effective January 1, 1990. (Form 10-K for year ended
12-31-89.) **
10.7* IPALCO Enterprises, Inc. Long-Term Performance and Restricted
Stock Incentive Plan (as amended and restated effective
January 1, 1995). (Exhibit 10.7 to the Form 10-K dated 12-31-94.) **
10.8* IPALCO Enterprises, Inc. 1990 Stock Option Plan. (Exhibit 10.8 to the
Form 10-K dated 12-31-94.) **
10.9* IPALCO Enterprises, Inc. 1991 Directors' Stock Option Plan.
(Exhibit 10.9 to the Form 10-K dated 12-31-94.) **
10.10* IPALCO Enterprises, Inc. 1997 Stock Option Plan. (Exhibit 10.1 to the
Form 10-Q dated 6-30-97.)**
10.11 Form of Termination Benefits Agreement together with schedule
of parties to, and dates of, the Termination Benefits Agreements. **
10.12* Employment Agreement between IPALCO Enterprises, Inc., Indianapolis
Power & Light Company and John R. Hodowal dated July 29, 1986.
(Exhibit 10.11 to the Form 10-K dated 12-31-94.) **
10.13* Voluntary Employee Beneficiary Association (VEBA) Trust Agreement.
(Exhibit 10.12 to the Form 10-K dated 12-31-94.) **
10.14* Mid-America Capital Resources Long-Term Incentive Plan. (Exhibit
10.13 to the Form 10-K dated 12-31-95.) **
11.1 Computation of Per Share Earnings.
18.1 Letter regarding change in accounting principle
20.1* Form 10-K of Indianapolis Power & Light Company for the year ended
December 31, 1997, and all exhibits thereto. (SEC File No. 1-3132-2.)
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
99.1* Agreement dated as of October 27, 1993, by and among IPALCO
Enterprises, Inc., Indianapolis Power & Light Company, PSI
Resources, Inc., PSI Energy, Inc., The Cincinnati Gas & Electric
Company, CINergy Corp., James E. Rogers, John R. Hodowal and Ramon L.
Humke. (Form 10-Q for quarter ended 9-30-93.)
99.2* Amendment to Agreement, dated October 27, 1994, by and among IPALCO
Enterprises, Inc., Indianapolis Power & Light Company, PSI
Resources, Inc., PSI Energy, Inc., The Cincinnati Gas & Electric
Company, CINergy Corp., James E. Rogers, John R. Hodowal and Ramon
L. Humke. (Exhibit 99.2 to the Form 10-K dated 12-31-94.)
99.3* Credit Agreement by and among IPALCO Enterprises, Inc., Bank
One, Indiana, National Association, National City Bank of
Indiana, The First National Bank of Chicago, and First
Amendment thereto. (Exhibit 99.1 to the Form 10-Q dated
3-31-97 and Exhibit 99.1 to the Form 10-Q dated 6-30-97,
respectively.)
EXHIBIT 10.3
DIRECTORS AND OFFICERS LIABILITY
INSURANCE POLICY
THIS IS A "CLAIMS-FIRST-MADE"
INSURANCE POLICY. PLEASE READ IT CAREFULLY.
Words and phrases which appear in all capital letters have
the special
meanings set forth in
Section II - Definitions
AEGIS
ASSOCIATED ELECTRIC & GAS
INSURANCE SERVICES LIMITED
HAMILTON, BERMUDA
DECLARATIONS
POLICY NO. D0392B1A97
DECLARATIONS NO. 1
Item 1: This POLICY provides indemnification with respect to the
DIRECTORS and OFFICERS of:
IPALCO Enterprises, Inc.
25 Monument Circle
Indianapolis, IN 46204
Item 2: POLICY PERIOD: from the 1st day of June, 1997, to
the 1st day of June, 1998 both days at 12:01 A.M.
Standard Time at the address of the COMPANY.
Item 3: RETROACTIVE DATE: the 4th day of December, 1970 at
12:01 A.M. Standard Time at the address of the
COMPANY.
Item 4: A. POLICY PREMIUM: $219,948.
B. MINIMUM PREMIUM: $ 87,979.
Item 5: Limits of Liability:
A. $ 35,000,000 Each WRONGFUL ACT
B. $ 35,000,000 Aggregate Limit of Liability for the
POLICY PERIOD
Item 6: UNDERLYING LIMITS:
This POLICY is written as primary insurance
A. If this POLICY is written as Primary Insurance
with respect to Insuring Agreement I(A)(2)
only:
(1) $ 200,000 Each WRONGFUL ACT not
arising from NUCLEAR OPERATIONS
(2) $ 200,000 Each WRONGFUL ACT arising from
NUCLEAR OPERATIONS
DECLARATIONS
continued
POLICY NO. D0392B1A97
DECLARATIONS NO. 1
B. If this POLICY is written as EXCESS Insurance:
(1) (a) $ ________ Each WRONGFUL ACT
(b) $ ________ In the Aggregate for all
WRONGFUL ACTS
(2) $ ________ Each WRONGFUL ACT not covered
under Underlying Insurance
(3) In the Event of Exhaustion of the
UNDERLYING LIMIT stated in Item
6(B)(1)(b) above with respect to Insuring
Agreement I(A)(2) only:
(a) $ ________ Each WRONGFUL ACT not
arising from NUCLEAR OPERATIONS
(b) $ ________ Each WRONGFUL
ACT arising from NUCLEAR OPERATIONS
Item 7: Any notice to be provided or any payment to be made
hereunder to the COMPANY shall be made to:
NAME Mr. Bruce H. Smith
TITLE Administrator, Risk Management
ENTITY Indianapolis Power & Light Company
ADDRESS 25 Monument Circle
P.O. Box 1595 (Zip 46206-1595)
Indianapolis, IN 46204
Item 8: Any notice to be provided or any payment to be made
hereunder to the INSURER shall be made to:
NAME AEGIS Insurance Services, Inc.
ADDRESS 10 Exchange Place
Jersey City, New Jersey 07302
ENDORSEMENTS ATTACHED AT POLICY ISSUANCE: 1-4
Countersigned at Jersey City, New Jersey
On June 6, 1997
AEGIS Insurance Services, Inc.
By /s/ Melford H. Butts
Authorized Representative
POLICY OF DIRECTORS AND OFFICERS LIABILITY INSURANCE EFFECTED
WITH ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
HAMILTON, BERMUDA
(hereinafter referred to as the "POLICY")
THIS IS A "CLAIMS-FIRST-MADE" INSURANCE POLICY.
PLEASE READ IT CAREFULLY.
Words and phrases which appear in all capital letters
have the special meanings set forth in
Section II - Definitions.
In consideration of the payment of premium, and in reliance
upon all statements made and information furnished to
Associated Electric & Gas Insurance Services Limited
(hereinafter referred to as the "INSURER") by the Application
attached hereto which is hereby made a part hereof, and
subject to all the terms hereinafter provided, the INSURER
agrees as follows:
I. INSURING AGREEMENT
(A) Indemnity
(1) The INSURER shall pay on behalf of the
DIRECTORS and OFFICERS any and all sums which
they shall become legally obligated to pay as
ULTIMATE NET LOSS for which the COMPANY has
not provided reimbursement, by reason of any
WRONGFUL ACT which takes place during the
COVERAGE PERIOD and is actually or allegedly
caused, committed or attempted by the
DIRECTORS or OFFICERS while acting in their
respective capacities as DIRECTORS or
OFFICERS, provided such ULTIMATE NET LOSS
arises from a CLAIM first made against the
DIRECTORS or OFFICERS during the POLICY PERIOD
or during the DISCOVERY PERIOD, if purchased.
(2) The INSURER shall pay on behalf of the COMPANY any and
all sums it has incurred, as required or permitted by
applicable common or statutory law or under provisions of the
COMPANY's Charter or Bylaws effected pursuant to such law, as
ULTIMATE NET LOSS, to indemnify DIRECTORS or OFFICERS for
ULTIMATE NET LOSS which they are legally obligated to pay by
reason of any WRONGFUL ACT which takes place during the
COVERAGE PERIOD and is actually or allegedly caused,
committed or attempted by such DIRECTORS or OFFICERS while
acting in their respective capacities as DIRECTORS or
OFFICERS, provided the ULTIMATE NET LOSS arises from a CLAIM
first made against the DIRECTORS or OFFICERS during the
POLICY PERIOD or during the DISCOVERY PERIOD, if purchased.
(B) Limits of Liability
(1) The INSURER shall only be liable hereunder for
the amount of ULTIMATE NET LOSS in excess of
the UNDERLYING LIMITS as stated in Item 6 of
the Declarations as a result of each WRONGFUL
ACT covered under Insuring Agreement I(A)(1)
or I(A)(2) or both, and then only up to the
Limit of Liability stated in Item 5A of the
Declarations and further subject to the
aggregate Limit of Liability stated in Item 5B
of the Declarations as the maximum amount
payable hereunder in the aggregate for all
CLAIMS first made against the DIRECTORS or
OFFICERS during both:
(a) the POLICY PERIOD and
(b) the DISCOVERY PERIOD, if purchased.
Notwithstanding the foregoing, in the event
that the INSURER cancels or refuses to renew
this POLICY, and a DISCOVERY PERIOD extension
is purchased by the COMPANY, then the
aggregate Limit of Liability stated in Item 5B
of the Declarations shall be reinstated but
only with respect to CLAIMS first made against
the DIRECTORS or OFFICERS during such
DISCOVERY PERIOD.
(2) Multiple CLAIMS arising out of the same
WRONGFUL ACT, even if made against different
DIRECTORS or OFFICERS, shall be deemed to be a
single CLAIM arising from a single WRONGFUL
ACT and to have been reported during the
POLICY PERIOD or, if purchased, during the
DISCOVERY PERIOD in which the first of such
multiple CLAIMS is made against any of the
DIRECTORS or OFFICERS. The Limits of
Liability and UNDERLYING LIMITS, stated in
Items 5 and 6 of the Declarations
respectively, shall apply only once regardless
of the number of CLAIMS arising out of the
same WRONGFUL ACT. All interrelated acts shall
be deemed to be a single WRONGFUL ACT.
(3) The inclusion herein of more than one DIRECTOR
or OFFICER, or the application of both
Insuring Agreements I(A)(1) and I(A)(2), shall
not operate to increase the INSURER'S Limits
of Liability as stated in Item 5 of the
Declarations.
(4) With respect to ULTIMATE NET LOSS arising out
of any WRONGFUL ACT in connection with service
for a NOT-FOR-PROFIT ORGANIZATION as provided
in Section II(E)(2), if:
(a) such WRONGFUL ACT results in liability
being imposed upon one or more DIRECTORS
and OFFICERS under this POLICY and also
upon directors and officers and general
partners under any other directors and
officers or general partner liability
insurance policies issued by the INSURER
to any organization; and
(b) the total of the ULTIMATE NET LOSS under
this POLICY and the ultimate net loss
under such other policies issued by the
INSURER equals or exceeds $35,000,000;
the maximum amount payable by the INSURER
under this POLICY in the aggregate for all
ULTIMATE NET LOSS resulting from such WRONGFUL
ACT shall be the lesser of the applicable
Limit of Liability provided by this POLICY or
the product of:
(i) the applicable Limit of Liability
provided by this POLICY divided by
the total limits of liability per
wrongful act applicable to such
wrongful act under all policies
issued by the INSURER; and
(ii) $35,000,000.
If the amount paid under this POLICY with
respect to such WRONGFUL ACT exceeds the
COMPANY'S proportionate share of the
$35,000,000 as determined above, the COMPANY
shall refund such excess to the INSURER
promptly.
(C) UNDERLYING LIMITS
(1) If this POLICY is written as Primary Insurance
with respect to Insuring Agreement I(A)(2),
the UNDERLYING LIMIT for the COMPANY for each
WRONGFUL ACT shall be as stated in Item 6A(1)
of the Declarations, unless it is based upon,
arises out of or is attributable to NUCLEAR
OPERATIONS, in which event it shall be as
stated in Item 6A(2) of the Declarations;
(2) If this POLICY is written as Excess Insurance:
(a) with respect to Insuring Agreements
I(A)(1) and I(A)(2), the UNDERLYING LIMIT
for each WRONGFUL ACT shall be as stated
in Item 6B(1)(a) of the Declarations and
the maximum UNDERLYING LIMIT for all
WRONGFUL ACTS shall be as stated in Item
6B(1)(b) of the Declarations;
(b) with respect to ULTIMATE NET LOSS covered
hereunder:
(i) in the event of reduction of the
underlying aggregate limit as stated
in Item 6B(1)(b), the UNDERLYING
LIMIT shall be such reduced
underlying aggregate limit; or
(ii) in the event of exhaustion of the
underlying aggregate limit as stated
in Item 6B(1)(b), the UNDERLYING
LIMIT shall be as stated in Item
6B(3) of the Declarations;
(c) with respect to any WRONGFUL ACT covered
hereunder but not covered under such
Underlying Insurance, the UNDERLYING
LIMIT shall be as stated in Item 6B(2) of
the Declarations; and
(d) nothing herein shall make this POLICY
subject to the terms and conditions of
any Underlying Insurance.
(3) Only payment of indemnity or defense expenses
which, except for the amount thereof, would
have been indemnifiable under this POLICY, may
reduce or exhaust an UNDERLYING LIMIT.
(4) In the event that both Insuring Agreement
I(A)(1) and I(A)(2) are applicable to
INDEMNITY and DEFENSE COST resulting from a
WRONGFUL ACT then:
(a) if this POLICY is written as Primary
Insurance, the UNDERLYING LIMIT
applicable to such WRONGFUL ACT shall be
the UNDERLYING LIMIT stated in Item 6A of
the Declarations; and
(b) if this POLICY is written as Excess
Insurance and the UNDERLYING LIMIT has
been exhausted, the UNDERLYING LIMIT
applicable to such WRONGFUL ACT shall be
the UNDERLYING LIMIT stated in Item
6B(3);
and there shall be no UNDERLYING LIMIT
applicable with respect to coverage provided
under Insuring Agreement I(A)(1).
(5) The UNDERLYING LIMITS stated in Item 6 of the
Declarations applicable to Insuring Agreement
I(A)(2) shall apply to all INDEMNITY and/or
DEFENSE COST for which indemnification of the
DIRECTORS and/or OFFICERS by the COMPANY is
legally permissible, whether or not such
indemnification is granted by the COMPANY.
II. DEFINITIONS
A. CLAIM: The term "CLAIM" shall mean:
(1) any demand, suit or proceeding against any
DIRECTORS and/or OFFICERS during the POLICY
PERIOD or during the DISCOVERY PERIOD, if
purchased, which seeks actual monetary damages
or other relief and which may result in any
DIRECTORS and/or OFFICERS becoming legally
obligated to pay ULTIMATE NET LOSS by reason
of any WRONGFUL ACT actually or allegedly
caused, committed or attempted during the
COVERAGE PERIOD by the DIRECTORS and/or
OFFICERS while acting in their capacity as
such; or
(2) written notice to the INSURER during the
POLICY PERIOD or during the DISCOVERY PERIOD,
if purchased, by the DIRECTORS, OFFICERS
and/or the COMPANY, describing with the
specificity set forth in Condition (C) hereof,
circumstances of which they are aware
involving an identifiable WRONGFUL ACT
actually or allegedly caused, committed or
attempted during the COVERAGE PERIOD by the
DIRECTORS and/or OFFICERS while acting in
their capacity as such, which circumstances
are likely to give rise to a demand, suit or
proceeding being made against such DIRECTORS
and/or OFFICERS.
A CLAIM shall be deemed to be first made
against a DIRECTOR or OFFICER at the earlier
of the time at which a demand, suit or
proceeding is first made against the DIRECTOR
or OFFICER, as set forth in section (1) of
this Definition or the time at which written
notice is given to the INSURER, as set forth
in section (2) of this Definition.
Multiple demands or suits arising out of the
same WRONGFUL ACT or interrelated acts shall
be deemed to be a single "CLAIM".
(B) COMPANY: The term "COMPANY" shall mean the
organization(s) named in Item 1 of the Declarations
and, subject to Condition (A) hereof, any
SUBSIDIARIES of such organization(s).
(C) COVERAGE PERIOD: The term "COVERAGE PERIOD" shall
mean the period of time from the RETROACTIVE DATE
to the termination of the POLICY PERIOD.
(D) DEFENSE COST: The term "DEFENSE COST" shall mean
all expense incurred by or on behalf of the
DIRECTORS, OFFICERS or, where reimbursable under
Insuring Agreement I(A)(2), the COMPANY in the
investigation, negotiation, settlement and defense
of any CLAIM except all salaries, wages and benefit
expenses of DIRECTORS, OFFICERS, or the COMPANY.
(E) DIRECTOR and OFFICER: The terms "DIRECTOR" and
"OFFICER" as used herein, either in the singular or
plural, shall mean:
(1) any person who was, is now, or shall be a
director, officer or trustee of the COMPANY
and any other employee of the COMPANY who may
be acting in the capacity of a director,
officer or trustee of the COMPANY with the
express authorization of a director, officer
or trustee of the COMPANY;
(2) any director, officer or trustee of the
COMPANY who is serving or has served at the
specific request of the COMPANY as a director,
officer or trustee of any outside NOT-FOR-
PROFIT ORGANIZATION; or
(3) the estates, heirs, legal representatives or
assigns of deceased persons who were
directors, officers or trustees of the COMPANY
at the time the WRONGFUL ACTS upon which such
CLAIMS were based were committed, and the
legal representatives or assigns of directors,
officers or trustees of the COMPANY in the
event of their incompetency, insolvency or
bankruptcy;
provided, however, that the terms "DIRECTOR" and
"OFFICER" shall not include a trustee appointed
pursuant to Title 11, United States Code, or
pursuant to the Securities Investor Protection Act,
a receiver appointed for the benefit of creditors
by Federal or State courts, an assignee for the
benefit of creditors or similar fiduciary appointed
under Federal or State laws for the protection of
creditors or the relief of debtors.
In the event that a CLAIM which is within the
coverage afforded under this POLICY is made against
any DIRECTOR or OFFICER and such CLAIM includes a
claim against the lawful spouse of such DIRECTOR or
OFFICER solely by reason of (a) such spousal status
or (b) such spouse's ownership interest in property
or assets which are sought as recovery for WRONGFUL
ACTS of a DIRECTOR or OFFICER, such spouse shall be
deemed to be a DIRECTOR or OFFICER hereunder, but
solely with respect to such claim. In no event,
however, shall the lawful spouse of a DIRECTOR or
OFFICER be deemed to be a DIRECTOR or OFFICER as
regards any CLAIM in respect of which there is a
breach of duty, neglect, error, misstatement,
misleading statement or omission actually or
allegedly caused, committed or attempted by or
claimed against such spouse, acting individually or
in his or her capacity as the spouse of a DIRECTOR
or OFFICER.
(F) DISCOVERY PERIOD: The term "DISCOVERY PERIOD"
shall mean the period of time set forth in
Condition (L).
(G) INDEMNITY: The term "INDEMNITY" shall mean all
sums which the DIRECTORS, OFFICERS or, where
reimbursable under Insuring Agreement I(A)(2), the
COMPANY shall become legally obligated to pay as
damages either by adjudication or compromise with
the consent of the INSURER, after making proper
deduction for the UNDERLYING LIMITS and all
recoveries, salvages and other valid and
collectible insurance.
(H) INSURER: The term "INSURER" shall mean Associated
Electric & Gas Insurance Services Limited,
Hamilton, Bermuda, a non-assessable mutual
insurance company.
(I) NOT-FOR-PROFIT ORGANIZATION: The term "NOT-FOR-
PROFIT ORGANIZATION" shall mean:
(1) an organization, no part of the income or
assets of which is distributable to its
owners, stockholders or members and which is
formed and operated for a purpose other than
the pecuniary profit or financial gain of its
owners, stockholders or members; or
(2) a political action committee which is defined
for these purposes as a separate segregated
fund to be utilized for political purposes as
described in the United States Federal
Election Campaign Act (2 U.S.C. 441b(2)(C)).
(J) NUCLEAR OPERATIONS: The term "NUCLEAR OPERATIONS"
shall mean the design, engineering, financing,
construction, operation, maintenance, use,
ownership, conversion or decommissioning of any
nuclear facility.
(K) POLICY: The term "POLICY" shall mean this
insurance policy, including the Application, the
Declarations and any endorsements issued by the
INSURER to the organization first named in Item 1
of the Declarations for the POLICY PERIOD listed in
Item 2 of the Declarations.
(L) POLICY PERIOD: The term "POLICY PERIOD" shall mean
the period of time stated in Item 2 of the
Declarations.
(M) RETROACTIVE DATE: The term "RETROACTIVE DATE"
shall mean the date stated in Item 3 of the
Declarations; provided, however, with respect to
any WRONGFUL ACT actually or allegedly caused,
committed or attempted by the DIRECTORS or OFFICERS
of any SUBSIDIARY formed or acquired by the COMPANY
or any of its SUBSIDIARIES after inception of the
POLICY PERIOD of this POLICY, or after inception of
any other policy issued by the INSURER to the
COMPANY for a prior policy period, the term
"RETROACTIVE DATE" shall mean the date of such
formation or acquisition.
(N) SUBSIDIARIES: The term "SUBSIDIARY" shall mean any
entity more than fifty percent (50%) of whose
outstanding securities or financial interest
representing the present right to vote for election
of directors (or the appointment of a general
partner in respect of a limited partnership or
manager in respect of a limited liability company)
are owned by the COMPANY and/or one or more of its
"SUBSIDIARIES".
(O) ULTIMATE NET LOSS: The term "ULTIMATE NET LOSS"
shall mean the total INDEMNITY and DEFENSE COST
with respect to each WRONGFUL ACT to which this
POLICY applies, provided that ULTIMATE NET LOSS
does not include any amount allocated, pursuant to
Condition (T), to CLAIMS against persons or
entities other than DIRECTORS and OFFICERS or to
non-covered matters.
(P) UNDERLYING LIMITS: The term "UNDERLYING LIMITS"
shall mean the amounts stated in Item 6 of the
Declarations.
(Q) WRONGFUL ACT: The term "WRONGFUL ACT" shall mean
any actual or alleged breach of duty, neglect,
error, misstatement, misleading statement or
omission actually or allegedly caused, committed or
attempted by any DIRECTOR or OFFICER while acting
individually or collectively in their capacity as
such, or claimed against them solely by reason of
their being DIRECTORS or OFFICERS.
All such interrelated breaches of duty, neglects,
errors, misstatements, misleading statements or
omissions actually or allegedly caused, committed
or attempted by or claimed against one or more of
the DIRECTORS or OFFICERS shall be deemed to be a
single "WRONGFUL ACT".
III. EXCLUSIONS
The INSURER shall not be liable to make any payment for
ULTIMATE NET LOSS arising from any CLAIM(S) made against
any DIRECTOR or OFFICER:
(A) (1) for any fines or penalties imposed in a
criminal suit, action or proceeding;
(2) for any fines or penalties imposed in
conjunction with political contributions,
payments, commissions or gratuities; or
(3) for any other fines or penalties imposed by
final adjudication of a court of competent
jurisdiction or any agency or commission
possessing quasi-judicial authority; or
(4) where, at inception of the POLICY PERIOD, such
DIRECTOR or OFFICER had knowledge of a fact or
circumstance which was likely to give rise to
such CLAIM(S) and which such DIRECTOR or
OFFICER failed to disclose or misrepresented
in the Application or in the process of
preparation of the Application, other than in
a Renewal Application; provided, however, that
this exclusion shall not apply to such
CLAIM(S) made against any DIRECTOR or OFFICER
other than such DIRECTOR or OFFICER who failed
to disclose or misrepresented such fact or
circumstance; provided further that this
exclusion shall not limit the INSURER'S right
to exercise any remedy available to it with
respect to such failure to disclose or
misrepresentation other than the remedy
provided for in this Exclusion.
(B) with respect to Insuring Agreement I(A)(1) only:
(1) based upon, arising out of or attributable to
such DIRECTOR or OFFICER having gained any
personal profit, advantage or remuneration to
which such DIRECTOR or OFFICER was not legally
entitled if:
(a) a judgment or other final adjudication
adverse to such DIRECTOR or OFFICER
establishes that he in fact gained such
personal profit, advantage or
remuneration; or
(b) such DIRECTOR or OFFICER has entered into
a settlement agreement to repay such
personal profit, advantage or
remuneration to the COMPANY;
(2) for an accounting of profits made from the
purchase or sale by such DIRECTOR or OFFICER
of securities of the COMPANY within the
meaning of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or
similar provisions of any other federal or
state statutory or common law;
(3) brought about or contributed to by the
dishonest, fraudulent, criminal or malicious
act or omission of such DIRECTOR or OFFICER if
a final adjudication establishes that acts of
active and deliberate dishonesty were
committed or attempted with actual dishonest
purpose and intent and were material to the
cause of action so adjudicated; or
(4) where such payment would be contrary to
applicable law.
(C) for bodily injury, mental anguish, mental illness,
emotional upset, sickness or disease sustained by
any person, death of any person or for physical
injury to or destruction of tangible property or
the loss of use thereof.
(D) for injury based upon, arising out of or
attributable to:
(1) false arrest, wrongful detention or wrongful
imprisonment or malicious prosecution;
(2) wrongful entry, wrongful eviction or other
invasion of the right of private occupancy;
(3) discrimination or sexual harassment;
(4) publication or utterance:
(a) of a libel or slander or other defamatory
or disparaging material; and
(b) in violation of an individual's right of
privacy; or
(5) with respect to the COMPANY'S advertising
activities: piracy, plagiarism, unfair
competition, idea misappropriation under
implied contract, or infringement of
copyright, title, slogan, registered
trademark, service mark, or trade name.
(E) for violation(s) of any responsibility, obligation
or duty imposed upon fiduciaries by the Employee
Retirement Income Security Act of 1974 or
amendments thereto or by similar common or
statutory law of the United States of America or
any state or other jurisdiction therein.
(F) based upon, arising out of or attributable to:
(1) the rendering of advice with respect to;
(2) the interpreting of; or
(3) the handling of records in connection with the
enrollment, termination or cancellation of
employees under the COMPANY'S group life
insurance, group accident or health insurance,
pension plans, employee stock subscription
plans, workers' compensation, unemployment
insurance, social security, disability
benefits and any other employee benefit
programs.
(G) based upon, arising out of or attributable to any
failure or omission on the part of the DIRECTORS,
OFFICERS and/or the COMPANY to effect and maintain
insurance(s) of the type and amount which is
customary with companies in the same or similar
business.
(H) (1) arising from any circumstances, written
notice of which has been given under "any
policy" or any discovery period thereof, which
policy expired prior to or upon the inception
of this POLICY; or
(2) which is one of a number of CLAIMS arising out
of the same WRONGFUL ACT, if any CLAIM of such
multiple CLAIMS was made against the DIRECTORS
or OFFICERS during "any policy" or any
discovery period thereof, which policy expired
prior to or upon the inception of this POLICY.
The term "any policy" refers to any Directors and
Officers Liability Insurance Policy, any General
Partners Liability Insurance Policy or any other
policy affording substantially similar coverage
(whether issued by the INSURER or any other
carrier).
(I) if any other policy or policies also afford(s)
coverage in whole or in part for such CLAIM(S);
except, this exclusion shall not apply:
(1) to the amount of ULTIMATE NET LOSS with
respect to such CLAIM(S) which is in excess of
the limit of liability of such other policy or
policies and any applicable deductible or
retention thereunder; or
(2) with respect to coverage afforded such
CLAIM(S) by any other policy or policies
purchased or issued specifically as insurance
underlying or in excess of the coverage
afforded under this POLICY;
provided always that nothing herein shall be
construed to cause this POLICY to contribute with
any other policy or policies or to make this POLICY
subject to any of the terms of any other policy or
policies.
(J) for any WRONGFUL ACT which took place in whole or
in part prior to the RETROACTIVE DATE.
(K) by, on behalf of, in the right of, at the request
of, or for the benefit of, any security holder of
the COMPANY, any DIRECTOR or OFFICER, or the
COMPANY, unless such CLAIM is:
(1) made derivatively by any shareholder of the
COMPANY for the benefit of the COMPANY and
such shareholder is:
(a) acting totally independent of, and
totally without the suggestion,
solicitation, direction, assistance,
participation or intervention of, any
DIRECTOR or OFFICER, or the COMPANY; and
(b) not any entity within the definition of
the term "COMPANY"; or
(2) made non-derivatively by a security holder who
is not:
(a) a DIRECTOR or OFFICER; or
(b) any entity within the definition of the
term "COMPANY"; or
(3) made non-derivatively by an OFFICER acting
totally independent of, and totally without
the suggestion, solicitation, direction,
assistance, participation or intervention of,
any other DIRECTOR or OFFICER, or the COMPANY,
and (subject to all the other exclusions and
POLICY provisions) arising from the wrongful
termination of that OFFICER.
(L) where such CLAIM(S) arise out of such DIRECTOR'S
or OFFICER'S activities as a director, officer or
trustee of any entity other than:
(1) the COMPANY; or
(2) any outside NOT-FOR-PROFIT ORGANIZATION as
provided in Section II(E)(2).
IV. CONDITIONS
(A) Acquisition, Merger and Dissolution
(1) (a) If, after inception of the POLICY PERIOD,
(i) the COMPANY or any of its
SUBSIDIARIES forms or acquires any
SUBSIDIARY or acquires any entity by
merger into or consolidation with
the COMPANY or any SUBSIDIARY, and
(ii) the operations of such formed or
acquired entity are related to,
arising from or associated with the
production, transmission, delivery
or furnishing of electricity, gas,
water or sewer service to the public
or the conveyance of telephone
messages for the public; and
(iii) the total assets of such formed
or acquired entity are not greater
than the lesser of $100,000,000 or
ten percent (10%) of the COMPANY'S
total assets,
coverage shall be provided for the
DIRECTORS and OFFICERS of such entity
from the date of formation, acquisition,
merger or consolidation, respectively,
but only with respect to WRONGFUL ACTS
actually or allegedly caused, committed
or attempted during that part of the
POLICY PERIOD which is subsequent to the
formation, acquisition, merger or
consolidation.
(b) In respect of any SUBSIDIARY formed or
acquired after the inception of the
POLICY PERIOD and not subject to
paragraph (a) above, or of any entity
acquired by merger into or consolidation
with the COMPANY or any SUBSIDIARY after
the inception of the POLICY PERIOD and
not subject to paragraph (a) above, the
COMPANY shall report such formation or
acquisition within ninety (90) days
thereafter and, if so reported, upon
payment of an additional premium and upon
terms as may be required by the INSURER,
such coverage shall be provided for the
DIRECTORS and OFFICERS of such newly
formed or acquired SUBSIDIARY or merged
or consolidated entity, but only with
respect to WRONGFUL ACTS actually or
allegedly caused, committed, or attempted
during that part of the COVERAGE PERIOD
which is subsequent to such acquisition,
merger or consolidation.
(2) If, prior to or after inception of the POLICY
PERIOD, the COMPANY or any of its SUBSIDIARIES
is or has been acquired by or merged into any
other entity, or is or has been dissolved,
coverage under this POLICY shall continue for
the POLICY PERIOD but only for DIRECTORS and
OFFICERS of the COMPANY or its SUBSIDIARIES
who were serving as such prior to such
acquisition, merger or dissolution and only
with respect to WRONGFUL ACTS actually or
allegedly caused, committed or attempted
during that part of the COVERAGE PERIOD which
is prior to such acquisition, merger or
dissolution.
(B) Non-Duplication of Limits
To avoid the duplication of the INSURER'S Limits of
Liability stated in Item 5 of the Declarations, the
DIRECTORS, OFFICERS and COMPANY agree that:
(1) in the event the INSURER provides INDEMNITY or
DEFENSE COSTS for any WRONGFUL ACT under this
POLICY, neither the DIRECTORS, OFFICERS nor
the COMPANY shall have any right to additional
INDEMNITY or DEFENSE COSTS for such WRONGFUL
ACT under any other policy issued by the
INSURER to the DIRECTORS, OFFICERS or COMPANY
that otherwise would apply to such WRONGFUL
ACT; and
(2) in the event the INSURER provides INDEMNITY or
DEFENSE COSTS for any WRONGFUL ACT under any
other policy issued by the INSURER to the
DIRECTORS, OFFICERS, or COMPANY, neither the
DIRECTORS, OFFICERS nor the COMPANY shall have
any right to additional INDEMNITY or DEFENSE
COSTS for such WRONGFUL ACT under this POLICY.
(C) Notice of Claim
As a condition precedent to any rights under this
POLICY, the DIRECTORS, OFFICERS and/or the COMPANY,
shall give written notice to the INSURER as soon as
practicable of any CLAIM, which notice shall
include the nature of the WRONGFUL ACT, the alleged
injury, the names of the claimants, and the manner
in which the DIRECTOR, OFFICER or COMPANY first
became aware of the CLAIM, and shall cooperate with
the INSURER and give such additional information as
the INSURER may reasonably require.
The Application or any information contained
therein for this POLICY shall not constitute a
notice of CLAIM.
(D) Cooperation and Settlements
In the event of any WRONGFUL ACT which may involve
this POLICY, the DIRECTORS, OFFICERS or COMPANY
without prejudice as to liability, may proceed
immediately with settlements which in their
aggregate do not exceed the UNDERLYING LIMITS. The
COMPANY shall notify the INSURER of any such
settlements made.
The INSURER shall not be called upon to assume
charge of the investigation, settlement or defense
of any demand, suit or proceeding, but the INSURER
shall have the right and shall be given the
opportunity to associate with the DIRECTORS,
OFFICERS and COMPANY or any underlying insurer, or
both, in the investigation, settlement, defense and
control of any demand, suit or proceeding relative
to any WRONGFUL ACT where the demand, suit or
proceeding involves or may involve the INSURER. At
all times, the DIRECTORS, OFFICERS and COMPANY and
the INSURER shall cooperate in the investigation,
settlement and defense of such demand, suit or
proceeding.
The DIRECTORS, OFFICERS and COMPANY and their
underlying insurer(s) shall, at all times, use
diligence and prudence in the investigation,
settlement and defense of demands, suits or other
proceedings.
(E) Appeals
In the event that the DIRECTORS, OFFICERS, COMPANY
or any underlying insurer elects not to appeal a
judgment in excess of the UNDERLYING LIMITS, the
INSURER may elect to conduct such appeal at its own
cost and expense and shall be liable for any
taxable court costs and interest incidental
thereto, but in no event shall the total liability
of the INSURER, exclusive of the cost and expense
of appeal, exceed its Limits of Liability stated in
Item 5 of the Declarations.
(F) Subrogation
In the event of any payment under this POLICY, the
INSURER shall be subrogated to the extent of such
payment to all rights of recovery thereof, and the
DIRECTORS, OFFICERS and COMPANY shall execute all
papers required and shall do everything that may be
necessary to enable the INSURER to bring suit in
the name of the DIRECTORS, OFFICERS or COMPANY.
(G) Bankruptcy or Insolvency
Bankruptcy or insolvency of the COMPANY shall not
relieve the INSURER of any of its obligations
hereunder.
In the event of bankruptcy or insolvency of the
COMPANY, subject to all the terms of this POLICY,
the INSURER shall pay on behalf of the DIRECTORS
and OFFICERS under Insuring Agreement I(A)(1) (in
excess of the UNDERLYING LIMITS, if any, applicable
to Insuring Agreement I(A)(1)) for ULTIMATE NET
LOSS they shall become legally obligated to pay
which would have been indemnified by the COMPANY
and reimbursable by the INSURER under Insuring
Agreement I(A)(2) but for such bankruptcy or
insolvency; provided, however, that the INSURER
shall be subrogated, to the extent of any payment,
to the rights of the DIRECTORS and OFFICERS to
receive indemnification from the COMPANY but only
up to the amount of the UNDERLYING LIMITS
applicable to Insuring Agreement I(A)(2) less the
amount of the UNDERLYING LIMITS, if any, applicable
to Insuring Agreement I(A)(1).
(H) Uncollectibility of Underlying Insurance
Notwithstanding any of the terms of this POLICY
which might be construed otherwise, if this POLICY
is written as excess over any Underlying Insurance,
it shall drop down only in the event of reduction
or exhaustion of any aggregate limits contained in
such Underlying Insurance and shall not drop down
for any other reason including, but not limited to,
uncollectibility (in whole or in part) because of
the financial impairment or insolvency of an
underlying insurer. The risk of uncollectibility of
such Underlying Insurance (in whole or in part)
whether because of financial impairment or
insolvency of an underlying insurer or for any
other reason, is expressly retained by the
DIRECTORS, OFFICERS and the COMPANY and is not in
any way or under any circumstances insured or
assumed by the INSURER.
(I) Maintenance of UNDERLYING LIMITS
If this POLICY is written as Excess Insurance, it
is a condition of this POLICY that any UNDERLYING
LIMITS stated in Item 6 of the Declarations shall
be maintained in full force and effect, except for
reduction or exhaustion of any underlying aggregate
limits of liability, during the currency of this
POLICY. Failure of the COMPANY to comply with the
foregoing shall not invalidate this POLICY but in
the event of such failure, without the agreement of
the INSURER, the INSURER shall only be liable to
the same extent as it would have been had the
COMPANY complied with this Condition.
(J) Changes and Assignment
The terms of this POLICY shall not be waived or
changed, nor shall an assignment of interest be
binding, except by an endorsement to this POLICY
issued by the INSURER.
(K) Outside NOT-FOR-PROFIT ORGANIZATION
If any DIRECTOR or OFFICER is serving or has served
at the specific request of the COMPANY as a
DIRECTOR or OFFICER of an outside NOT-FOR-PROFIT
ORGANIZATION, the coverage afforded by this POLICY:
(1) shall be specifically excess of any other
indemnity or insurance available to such
DIRECTOR or OFFICER by reason of such service;
and
(2) shall not be construed to extend to the
outside NOT-FOR-PROFIT ORGANIZATION in which
the DIRECTOR or OFFICER is serving or has
served, nor to any other director, officer or
employee of such outside NOT-FOR-PROFIT
ORGANIZATION.
(L) DISCOVERY PERIOD
(1) In the event of cancellation or nonrenewal of
this POLICY by the INSURER, the COMPANY shall
have the right, upon execution of a warranty
that all known CLAIMS and facts or
circumstances likely to give rise to a CLAIM
have been reported to the INSURER and payment
of an additional premium to be determined by
the INSURER which shall not exceed two hundred
percent (200%) of the Policy Premium stated in
Item 4 of the Declarations, to an extension of
the coverage afforded by this POLICY with
respect to any CLAIM first made against any
DIRECTOR or OFFICER during the period of
twelve (12) months after the effective date of
such cancellation or nonrenewal, but only with
respect to any WRONGFUL ACT committed during
the COVERAGE PERIOD. This right of extension
shall terminate unless written notice of such
election is received by the INSURER within
thirty (30) days after the effective date of
cancellation or nonrenewal.
The offer by the INSURER of renewal on terms,
conditions or premiums different from those in
effect during the POLICY PERIOD shall not
constitute cancellation or refusal to renew
this POLICY.
(2) In the event of cancellation or nonrenewal of
this POLICY by the COMPANY, the COMPANY shall
have the right upon payment of an additional
premium, which shall not exceed one hundred
percent (100%) of the Policy Premium stated in
Item 4 of the Declarations, to an extension of
coverage afforded by this POLICY with respect
to any CLAIM first made against any DIRECTOR
or OFFICER during the period of twelve (12)
months after the effective date of such
cancellation or nonrenewal, but only with
respect to any WRONGFUL ACT during the
COVERAGE PERIOD. This right of extension shall
terminate unless written notice of such
election is received by the INSURER within
thirty (30) days after the effective date of
cancellation or nonrenewal.
(3) In the event of renewal on terms and
conditions different from those in effect
during the POLICY PERIOD, the COMPANY shall
have the right, upon execution of a warranty
that all known CLAIMS and facts or
circumstances likely to give rise to a CLAIM
have been reported to the INSURER and payment
of an additional premium to be determined by
the INSURER which shall not exceed two hundred
percent (200%) of the Policy Premium stated in
Item 4 of the Declarations, to an extension of
the original terms and conditions with respect
to any CLAIM first made against any DIRECTOR
or OFFICER during the period of twelve (12)
months after the effective date of renewal,
but only with respect to any WRONGFUL ACT
committed during the COVERAGE PERIOD and not
covered by the renewal terms and conditions.
This right of extension shall terminate unless
written notice of such election is received by
the INSURER within thirty (30) days after the
effective date of renewal.
(M) Cancellation
This POLICY may be cancelled:
(1) at any time by the COMPANY by mailing written
notice to the INSURER stating when thereafter
cancellation shall be effective; or
(2) at any time by the INSURER by mailing written
notice to the COMPANY stating when, not less
than ninety (90) days from the date such
notice was mailed, cancellation shall be
effective, except in the event of cancellation
for nonpayment of premiums, such cancellation
shall be effective ten (10) days after the
date notice thereof is mailed.
The proof of mailing of notice to the address of
the COMPANY stated in Item 7 of the Declarations or
the address of the INSURER stated in Item 8 of the
Declarations shall be sufficient proof of notice
and the insurance under this POLICY shall end on
the effective date and hour of cancellation stated
in the notice. Delivery of such notice either by
the COMPANY or by the INSURER shall be equivalent
to mailing.
With respect to all cancellations, the premium
earned and retained by the INSURER shall be the sum
of (a) the Minimum Premium stated in Item 4B of the
Declarations plus (b) the pro-rata proportion, for
the period this POLICY has been in force, of the
difference between (i) the Policy Premium stated in
Item 4A of the Declarations and (ii) the Minimum
Premium stated in Item 4B of the Declarations.
The offer by the INSURER of renewal on terms,
conditions or premiums different from those in
effect during the POLICY PERIOD shall not
constitute cancellation or refusal to renew this
POLICY.
(N) Currency
All amounts stated herein are expressed in United
States Dollars and all amounts payable hereunder
are payable in United States Dollars.
(O) Sole Agent
The COMPANY first named in Item 1 of the
Declarations shall be deemed the sole agent of each
DIRECTOR and OFFICER for the purpose of requesting
any endorsement to this POLICY, making premium
payments and adjustments, receipting for payments
of INDEMNITY and receiving notifications, including
notice of cancellation from the INSURER.
(P) Acts, Omissions or Warranties
The acts, omissions or warranties of any DIRECTOR
or OFFICER shall not be imputed to any other
DIRECTOR or OFFICER with respect to the coverages
applicable under this POLICY.
(Q) Dispute Resolution and Service of Suit
Any controversy or dispute arising out of or
relating to this POLICY, or the breach, termination
or validity thereof, shall be resolved in
accordance with the procedures specified in this
Section IV (Q), which shall be the sole and
exclusive procedures for the resolution of any such
controversy or dispute.
(1) Negotiation. The COMPANY and the INSURER
shall attempt in good faith to resolve any
controversy or dispute arising out of or
relating to this POLICY promptly by
negotiations between executives who have
authority to settle the controversy. Any
party may give the other party written notice
of any dispute not resolved in the normal
course of business. Within fifteen (15) days
the receiving party shall submit to the other
a written response. The notice and the
response shall include (a) a statement of each
party's position and a summary of arguments
supporting that position, and (b) the name and
title of the executive who will represent that
party and of any other person who will
accompany the executive. Within thirty (30)
days after delivery of the disputing party's
notice, the executives of both parties shall
meet at a mutually acceptable time and place,
and thereafter as often as they reasonably
deem necessary, to attempt to resolve the
dispute. All reasonable requests for
information made by one party to the other
will be honored. If the matter has not been
resolved within sixty (60) days of the
disputing party's notice, or if the parties
fail to meet within thirty (30) days, either
party may initiate mediation of the
controversy or claim as provided hereinafter.
All negotiations pursuant to this clause will
be kept confidential and shall be treated as
compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and
state rules of evidence.
(2) Mediation. If the dispute has not been
resolved by negotiation as provided herein,
the parties shall endeavor to settle the
dispute by mediation under the then current
CPR Institute Model Procedure for Mediation of
Business Disputes. The neutral third party
will be selected from the CPR Institute Panels
of Neutrals, with the assistance of the CPR
Institute.
(3) Arbitration. Any controversy or dispute
arising out of or relating to this POLICY, or
the breach, termination or validity thereof,
which has not been resolved by non-binding
means as provided herein within ninety (90)
days of the initiation of such procedure,
shall be settled by binding arbitration in
accordance with the CPR Institute Rules for
Non-Administered Arbitration of Business
Disputes (the "CPR Rules") by three (3)
independent and impartial arbitrators. The
COMPANY and the INSURER each shall appoint one
arbitrator; the third arbitrator, who shall
serve as the chair of the arbitration panel,
shall be appointed in accordance with the CPR
Rules. If either the COMPANY or the INSURER
has requested the other to participate in a
non-binding procedure and the other has failed
to participate, the requesting party may
initiate arbitration before expiration of the
above period. The arbitration shall be
governed by the United States Arbitration Act,
9 U.S.C. Subsection 1 et seq., and judgment
upon the award rendered by the arbitrators may
be entered by any court having jurisdiction
thereof. The terms of this POLICY are to be
construed in an evenhanded fashion as between
the COMPANY and the INSURER in accordance with
the laws of the jurisdiction in which the
situation forming the basis for the
controversy arose. Where the language of this
POLICY is deemed to be ambiguous or otherwise
unclear, the issue shall be resolved in a
manner most consistent with the relevant terms
of this POLICY without regard to authorship of
the language and without any presumption or
arbitrary interpretation or construction in
favor of either the COMPANY or the INSURER.
In reaching any decision the arbitrators shall
give due consideration for the customs and
usages of the insurance industry. The
arbitrators are not empowered to award damages
in excess of compensatory damages and each
party hereby irrevocably waives any such
damages.
In the event of a judgment being entered
against the INSURER on an arbitration award,
the INSURER at the request of the COMPANY,
shall submit to the jurisdiction of any court
of competent jurisdiction within the United
States of America, and shall comply with all
requirements necessary to give such court
jurisdiction and all matters relating to such
judgment and its enforcement shall be
determined in accordance with the law and
practice of such court.
(4) Service of Suit. Service of process in such
suit or any other suit instituted against the
INSURER under this POLICY may be made upon
Messrs. LeBoeuf, Lamb, Greene, & MacRae,
L.L.P., 125 West 55th Street, New York, New
York 10019. The INSURER will abide by the
final decision of the court in such suit or of
any appellate court in the event of any
appeal. Messrs. LeBoeuf, Lamb, Greene &
MacRae, L.L.P. are authorized and directed to
accept service of process on behalf of the
INSURER in any such suit and, upon the
COMPANY's request, to give a written
undertaking to the COMPANY's that they will
enter a general appearance upon the INSURER's
behalf in the event such suit is instituted.
Nothing in this clause constitutes or should
be understood to constitute a waiver of the
INSURER's right to commence an action in any
court of competent jurisdiction in the United
States, to remove an action to a United States
District Court, or to seek to transfer a case
to another court as permitted by the laws of
the United States or of any state in the
United States.
(R) Severability
In the event that any provision of this POLICY
shall be declared or deemed to be invalid or
unenforceable under any applicable law, such
invalidity or unenforceability shall not affect the
validity or enforceability of the remaining portion
of this POLICY.
(S) Non-assessability
The COMPANY (and, accordingly, any DIRECTOR or
OFFICER for whom the COMPANY acts as agent) shall
only be liable under this POLICY for the premium
stated in Item 4 of the Declarations. Neither the
COMPANY nor any DIRECTOR or OFFICER for whom the
COMPANY acts as agent shall be subject to any
contingent liability or be required to pay any dues
or assessments in addition to the premium described
above.
(T) Allocation
If a CLAIM is made against both the DIRECTORS and
OFFICERS and others, including the COMPANY, or if a
CLAIM against the DIRECTORS and OFFICERS includes
both covered and non-covered matters, the DIRECTORS
and OFFICERS, the COMPANY and the INSURER shall
allocate any defense costs, settlement, judgment or
other loss on account of such CLAIM between covered
ULTIMATE NET LOSS attributable to the CLAIM against
the DIRECTORS and OFFICERS and non-covered loss.
Such allocation shall be based upon the relative
exposure of each party to such CLAIM for covered
and non-covered matters and the relative benefit to
each party from the defense or settlement of such
CLAIM.
If the DIRECTORS and OFFICERS, COMPANY and the INSURER
agree on an allocation of DEFENSE COSTS, the INSURER
shall advance on a current basis DEFENSE COSTS allocated
to the covered ULTIMATE NET LOSS. If the DIRECTORS and
OFFICERS, COMPANY and the INSURER cannot agree on an
allocation:
(1) no presumption as to allocation shall exist in any
arbitration, suit or other proceeding;
(2) the INSURER shall advance on a current basis
DEFENSE COSTS which the INSURER believes to be
covered under this Policy until a different
allocation is negotiated, mediated or arbitrated;
and
(3) any disagreement on the allocation of DEFENSE COSTS
is to be settled in accordance with Condition (Q).
Any negotiated, mediated or arbitrated allocation of
DEFENSE COSTS on account of a CLAIM shall be applied
retroactively to all DEFENSE COSTS on account of such CLAIM,
notwithstanding any prior advancement to the contrary. Any
allocation or advancement of DEFENSE COSTS on account of a
CLAIM shall not apply to or create any presumption with
respect to the allocation of INDEMNITY on account of such
CLAIM. Advancement by the INSURER of DEFENSE COSTS shall be
conditioned upon the DIRECTORS, OFFICERS or COMPANY, as
applicable, providing a satisfactory written undertaking to
repay the INSURER any DEFENSE COSTS finally established not
be insured.
IN WITNESS WHEREOF, Associated Electric & Gas Insurance
Services Limited has caused this POLICY to be signed by its
Chairman at Hamilton, Bermuda. However, this POLICY shall not
be binding upon the INSURER unless countersigned on the
Declaration Page by a duly authorized representative of the
INSURER.
/s/ Bernard J. Kennedy /s/ Alan J. Maguire
Bernard J. Kennedy, Chairman Alan J. Maguire, President
and Chief Executive Officer and Chief Operating Officer
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 1 Effective Date of Endorsement June 1, 1997
Attached to and forming part of POLICY No. D0392B1A97
COMPANY IPALCO Enterprises, Inc.
It is understood and agreed that this POLICY is hereby
amended as indicated. All other terms and conditions of this
POLICY remain unchanged.
DELETION OF FAILURE TO MAINTAIN INSURANCE EXCLUSION
Section III, EXCLUSIONS (G) Failure to Maintain Insurance
Exclusion, is deleted in its entirety.
/s/ Melford H. Butts
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 2 Effective Date of Endorsement June 1, 1997
Attached to and forming part of POLICY No. D0392B1A97
COMPANY IPALCO Enterprises, Inc.
It is understood and agreed that this POLICY is hereby
amended as indicated. All other terms and conditions of this
POLICY remain unchanged.
OUTSIDE POSITION COVERAGE - FOR-PROFIT ORGANIZATIONS
INCLUDING MANAGEMENT OR OPERATING COMMITTEE
I. Definition (E) DIRECTOR and OFFICER is amended to
include the following:
(4) (a) any director, officer, trustee or
employee of the COMPANY who is serving at the
specific written request of the COMPANY in the
position of a director, officer, trustee or
member of the Management or Operating
Committees of the outside FOR-PROFIT
ORGANIZATION, which position and FOR-PROFIT
ORGANIZATION are named in attachment OPC-FPM1,
while such director, officer, trustee or
employee is acting in such capacity; and
(b) any present or former director,
officer, trustee or employee of the COMPANY
who has served at the specific written request
of the COMPANY in the position of a director,
officer, trustee or member of the Management
or Operating Committees of an outside FOR-
PROFIT ORGANIZATION while such director,
officer, trustee or employee, such outside FOR-
PROFIT ORGANIZATION and such position were
named in an endorsement (similar to this
Endorsement) to the Directors' and Officers'
Policy of the INSURER in force at the time at
which such director, officer, trustee or
employee was acting in such capacity.
II. The following Definition is added to the POLICY:
(R) FOR-PROFIT ORGANIZATION: The term "FOR-PROFIT
ORGANIZATION" shall mean an organization other than
a NOT-FOR-PROFIT ORGANIZATION.
III. Exclusion (L) is hereby deleted in its entirety and
replaced with the following:
(L) where such CLAIM(S) arises out of such DIRECTOR'S
or OFFICER'S activities as a director, officer or
trustee of any entity other than:
(1) the COMPANY; or
(2) any outside NOT-FOR-PROFIT ORGANIZATION as
provided in Section II(E)(2); or
(3) any outside FOR-PROFIT ORGANIZATION as
provided in an OUTSIDE POSITION COVERAGE - FOR-
PROFIT ORGANIZATIONS Endorsement.
OUTSIDE POSITION COVERAGE - FOR-PROFIT ORGANIZATIONS
INCLUDING MANAGEMENT OR OPERATING COMMITTEE
IV. Notwithstanding any other provision of the POLICY to the
contrary, the insurance provided by this Endorsement is
specifically in excess of and shall not contribute with
any indemnification or insurance provided by an outside
FOR-PROFIT ORGANIZATION, to any director, officer,
trustee or employee of the COMPANY.
Under no circumstances shall the insurance provided by
this Endorsement apply to:
(1) any director, officer or trustee of the outside FOR-
PROFIT ORGANIZATION who is or was not a director,
officer, trustee or employee of the COMPANY and who
is not named in attachment OPC-FPM1; or
(2) the outside FOR-PROFIT ORGANIZATION
V. The Limits of Liability stated in Item 5 of the
Declarations and the UNDERLYING LIMITS stated in Item 6
of the Declarations shall apply unless a specific Limit
of Liability or UNDERLYING LIMIT is stated below:
Item 5: Limits of Liablity:
A. $ Each WRONGFUL ACT
B. $ Aggregate Limit of
Liability for the POLICY PERIOD
Item 6: UNDERLYING LIMITS:
This POLICY is written as Insurance
A. If this POLICY is written as Primary Insurance
with respect to Insuring Agreement I(A)(2)
only:
(1) $ Each WRONGFUL ACT not arising
from NUCLEAR OPERATIONS
(2) $ Each WRONGFUL ACT arising from
NUCLEAR OPERATIONS
B. If this POLICY is written as Excess Insurance:
(1) (a) $ Each WRONGFUL ACT
(b) $ In the Aggregate
for all WRONGFUL ACTS
(2) $ Each WRONGFUL ACT not covered
under Underlying Insurance
(3) In the Event of Exhaustion of the
UNDERLYING LIMIT stated in Item
6(B)(1)(b) above with respect to Insuring
Agreement I(A)(2) only:
(a) $ Each WRONGFUL ACT not arising from
NUCLEAR OPERATIONS
(b) $ Each WRONGFUL ACT arising from NUCLEAR
OPERATIONS
The Limit of Liability stated in this section is
part of and not in addition to the Limits of
Liability stated in Item 5 of the Declarations.
/s/ Melford H. Butts
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Attachment OPC-FPM1 to Endorsement No. 2 Effective Date
of Endorsement June 1, 1997
Attached to and forming part of POLICY No. D0392B1A97
COMPANY IPALCO Enterprises, Inc.
Name, FOR-PROFIT ORGANIZATION and position of each director,
officer, trustee or employee of the COMPANY covered under
Endorsement No. 2
NAME FOR-PROFIT ORGANIZATION POSITION
John R. Hodowal Tecumseh Coal Corp Director
Ramon L. Humke Tecumseh Coal Corp Director
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 3 Effective Date of Endorsement June 1, 1997
Attached to and forming part of POLICY No. D0392B1A97
COMPANY IPALCO Enterprises, Inc.
It is understood and agreed to that this POLICY is hereby
amended as indicated. All other terms and conditions of this
POLICY remain unchanged.
WRONGFUL TERMINATION EXCLUSION ENDORSEMENT
The POLICY is amended as follows:
1. Exclusion (D)(3) is deleted in its entirety and replaced
with the following:
(3) discrimination, sexual harassment or wrongful termination
2. Exclusion (K)(3) is deleted in its entirety. The word
"or" at the end of Exclusion (K)(2) is deleted and the semi-
colon is changed to a period.
/s/ Melford H. Butts
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 4 Effective Date of Endorsement June 1, 1997
Attached to and forming part of POLICY No. D0392B1A97
COMPANY IPALCO Enterprises, Inc.
It is understood and agreed to that this POLICY is hereby
amended as indicated. All other terms and conditions of this
POLICY remain unchanged.
CORPORATE ENTITY COVERAGE ENDORSEMENT
(SEPARATE LIMIT)
A) Except as provided in paragraph (B) below, if the
COMPANY is made a defendant in any suit or proceeding in
which a DIRECTOR or OFFICER is also a defendant, in his
respective capacity as a DIRECTOR or OFFICER, the INSURER
shall indemnify the COMPANY for any and all sums required to
reimburse it for ULTIMATE NET LOSS it has incurred in
connection with CLAIMS made against the COMPANY in such suit
or proceeding, provided (i) a DIRECTOR or OFFICER is a
defendant in such suit or proceeding as of the date the
COMPANY is first named as a defendant, (ii) such ULTIMATE NET
LOSS of the COMPANY directly relates to a CLAIM which, if
made against a DIRECTOR or OFFICER, would be covered by the
POLICY and (iii) such ULTIMATE NET LOSS arises from a CLAIM
first made against the DIRECTORS or OFFICERS during the
POLICY PERIOD or during the DISCOVERY PERIOD, if purchased.
B) The coverage under paragraph (A) above shall not apply
to, and there shall be no coverage under this Endorsement for
ULTIMATE NET LOSS incurred by the COMPANY in connection with
any CLAIM brought by or on behalf of the COMPANY.
C) The maximum amount payable by the INSURER under this
Endorsement for all ULTIMATE NET LOSS arising out of any one
WRONGFUL ACT shall be the amount slated as the limit of
liability each WRONGFUL ACT in Section (H) of this
Endorsement. The maximum amount payable by the INSURER under
this Endorsement during the POLICY PERIOD for all ULTIMATE
NET LOSS arising out of all WRONGFUL ACTS shall be the amount
stated as the Aggregate Limit of Liability for the POLICY
PERIOD in Section (H) of this Endorsement.
D) For purposes of determining and applying the UNDERLYING
LIMITS applicable to the POLICY and this Endorsement, any
ULTIMATE NET LOSS of the COMPANY for which the INSURER shall
be liable under this Endorsement shall be included within and
considered a portion of the ULTIMATE NET LOSS covered under
Insuring Agreement I(A)(2) with respect to the WRONGFUL ACT
for which a CLAIM is made against a co-defendant DIRECTOR or
OFFICER. Subject to the foregoing, the INSURER shall only be
liable under this Endorsement for the amount of ULTIMATE NET
LOSS which, together with ULTIMATE NET LOSS covered under
this POLICY without regard to this Endorsement, is in excess
of the amount stated as the UNDERLYING LIMITS applicable to
ULTIMATE NET LOSS covered under Insuring Agreement I(A)(2).
E) For purposes of determining the INSURER'S Limits of
Liability under the POLICY and this Endorsement, all defense
costs, settlement, judgment or other loss on account of any
CLAIM shall be fairly allocated between the COMPANY and the
DIRECTORS and OFFICERS consistent with the terms of the
POLICY.
F) All capitalized terms under in this Endorsement shall
have the same meaning as ascribed to them in the POLICY,
except that for purposes of the coverage supplied by this
Endorsement:
(1) references to "DIRECTORS and OFFICERS" in the
definitions of the terms "CLAIM", "DEFENSE COSTS" and
"INDEMNITY" shall be deemed also to be references to the
COMPANY; and
(2) "WRONGFUL ACT" shall also mean any alleged breach of
duty, neglect, error, misstatement, misleading statement or
omission actually or allegedly caused, committed or attempted
by the COMPANY, but only if such breach, neglect, error,
misstatement, misleading statement or omission is
interrelated with WRONGFUL ACTS of DIRECTORS or OFFICERS that
are alleged in the same suit or proceeding. All interrelated
breaches of duty, neglects, errors, misstatements, misleading
statements or omissions actually or allegedly caused,
committed or attempted by the COMPANY shall be deemed to be a
single "WRONGFUL ACT".
G) (1) Except as otherwise specifically provided in
Paragraph (G)(2) below, all Conditions set forth in the
POLICY shall apply to the coverage supplied under this
Endorsement.
(2) (i) The second sentence of Condition (G) shall have no
applicability to the coverage supplied under this
Endorsement, and the bankruptcy or insolvency of the
COMPANY shall not relieve the INSURER of any of its
obligations under this Endorsement.
(ii) For purposes of this Endorsement, reference in
any Condition to "Limits of Liability" shall be
deemed to refer to the Limits of Liability set
forth in paragraph (H) below.
(iii) For purposes of this Endorsement,
reference in Condition (L) to a CLAIM first made
against any DIRECTOR or OFFICER shall be deemed to
refer to CLAIMS first made against the COMPANY.
(iv) For purposes of this Endorsement, reference in
Condition (T) to "covered ULTIMATE NET LOSS
attributable to the CLAIM against the DIRECTORS and
OFFICERS" shall be deemed to include CLAIM(S)
against the COMPANY for which coverage is supplied
under this Endorsement.
H) Endorsement Limits of Liability:
A. $10,000,000 Each WRONGFUL ACT
B. $10,000,000 Aggregate Limit of Liability for the POLICY PERIOD
I) The INSURER shall not be liable, under this Endorsement,
to make any payment for ULTIMATE NET LOSS arising from any
CLAIMS arising from any prior or pending litigation as of
6/1/97, as well as all future CLAIMS or litigation based upon
the prior or pending litigation or derived from the same or
essentially the same facts (actual or alleged) that gave rise
to the prior or pending litigation.
/s/ Melford H. Butts
Signature of Authorized Representative
EXHIBIT 10.5
Dated: January 1, 1998
IPALCO ENTERPRISES, INC.
BENEFIT PROTECTION FUND AND TRUST AGREEMENT
EXHIBIT A
LIST OF COVERED PLANS
Effective Date of Plan
Employee Covered Under Coverage by Benefit
Plan Name the Plan Protection Fund
1. Amended and Restated John R. Hodowal November 1, 1988
Employment Agreement,
dated July 29, 1986
2. Amended and Restated Ramon L. Humke February 1, 1990
Employment Agreement,
dated January 1, 1997
3. Termination Benefits John R. Brehm November 1, 1988
Agreement, effective
July 29, 1986. Amended
and Restated January 1,
1993
4. Termination Benefits Max Califar November 1, 1988
Agreement, effective
July 29, 1986. Amended
and Restated January 1,
1993
5. Termination Benefits John R. Hodowal November 1, 1988
Agreement, effective July
29, 1986. Amended and
Restated January 1, 1993
6. Termination Benefits Donald W. Knight November 1, 1988
Agreement, effective July
29, 1986. Amended and
Restated January 1, 1993
7. Termination Benefits Robert W. Rawlings November 1, 1988
Agreement, effective July
29, 1986. Amended and
Restated January 1, 1993
8. Termination Benefits Thomas A. Steiner November 1, 1988
Agreement, effective July
29, 1986. Amended and
Restated January 1, 1993
9. Termination Benefits Gerald D. Waltz November 1, 1988
Agreement, effective July
29, 1986. Amended and
Restated January 1, 1993
10. Termination Benefits John D. Wilson November 1, 1988
Agreement, effective July
29, 1986. Amended and
Restated January 1, 1993
11. Termination Benefits John C. Berlier May 1, 1990
Agreement, effective
May 1, 1990. Amended
and Restated January 1,
1993
12. Termination Benefits N. Stuart Grauel May 1, 1990
Agreement, effective
May 1, 1990. Amended
and Restated January 1,
1993
13. Termination Benefits Joseph A. Gustin May 1, 1990
Agreement, effective
May 1, 1990. Amended
and Restated January 1,
1993
14. Termination Benefits Ramon L. Humke February 1, 1990
Agreement, effective
February 1, 1990.
Amended and Restated
January 1, 1993
15. Termination Benefits Joseph A. Slash May 1, 1990
Agreement, effective
May 1, 1990. Amended
and Restated January 1,
1993
16. Termination Benefits Stephen J. Plunkett May 1, 1990
Agreement, effective
May 1, 1990. Amended
and Restated January 1,
1993
17. Termination Benefits Clark L. Snyder November 1, 1988
Agreement, effective July
29, 1986. Amended and
Restated January 1, 1993
18. Termination Benefits Steven L. Meyer January 1, 1993
Agreement, effective
January 1, 1993
19. Termination Benefits Daniel L. Short January 1, 1993
Agreement, effective
January 1, 1993
20. Termination Benefits William A. Tracy January 1, 1993
Agreement, effective
January 1, 1993
21. Termination Benefits Bryan G. Tabler January 1, 1995
Agreement, effective
January 1, 1995
22. Termination Benefits Michael J. Farmer February 6, 1995
Agreement, effective
February 6, 1995
23. Termination Benefits Ralph E. Canter May 1, 1995
Agreement, effective
May 1, 1995
24. Termination Benefits Susan Hanafee May 1, 1995
Agreement, effective
May 1, 1995
25. Termination Benefits Michael G. Banta July 1, 1995
Agreement, effective
July 1, 1995
26. Termination Benefits Michael P. Holstein May 1, 1996
Agreement, effective
May 1, 1996
27. Termination Benefits Kevin P. Greisl January 1, 1996
Agreement, effective
January 1, 1996
28. Termination Benefits David J. McCarthy January 1, 1996
Agreement, effective
January 1, 1996
29. Termination Benefits Paul S. Mannweiler January 1, 1997
Agreement, effective
January 1, 1997
30. The IPL Supplemental All participants in February 23, 1993
Retirement Plan and the Supplemental Plan
Trust Agreement for a for which a trust
Select Group of account is maintained
Management Employees
(the "Supplemental
Plan") but only Section
4.3 thereof relating to
tax protect payments
required of IPL.
EXHIBIT 10.11
FORM OF
TERMINATION BENEFITS AGREEMENT
AS AMENDED AND RESTATED, EFFECTIVE JANUARY 1, 1993
[See Schedule A attached hereto for a list of parties to,
and dates of, the Termination Benefits Agreements]
This Agreement, dated as of January 1, 1993, by and
among IPALCO ENTERPRISES, INC., an Indiana corporation
having its principal executive offices at 25 Monument
Circle, Indianapolis, Indiana 46204 ("IPALCO"),
INDIANAPOLIS POWER & LIGHT COMPANY, an Indiana
corporation having its principal executive offices at 25
Monument Circle, Indianapolis, Indiana 46204 ("IPL")
(both IPALCO and IPL being collectively referred to
herein as the "Company"), and , an Indiana resident
whose mailing address is (the "Executive").
R E C I T A L S
The following facts are true:
A. The Executive is serving the Company as a key
executive officer, and is expected to continue to make a
major contribution to the profitability, growth, and
financial strength of the Company.
B. The Company considers the continued services of
the Executive to be in the best interests of the Company
and its shareholders, and desires to assure itself of the
availability of such continued services in the future on
an objective and impartial basis and without distraction
or conflict of interest in the event of an attempt to
obtain control of the Company.
C. The Executive is willing to remain in the employ
of the Company upon the understanding that the Company
will provide him with income security upon the terms and
subject to the conditions contained herein if his
employment is terminated by the Company without cause or
if he voluntarily terminates his employment for good
reason.
D. If the Company and Executive entered into one or
more Termination Benefits Agreements prior to this
Agreement (the "Prior Termination Benefits Agreements"),
this Agreement is intended to supersede and replace the
Prior Termination Benefits Agreements.
A G R E E M E N T
In consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the
Company and the Executive agree as follows:
1. Undertaking. The Company agrees to pay to the
Executive the termination benefits specified in paragraph
2 hereof if (a) control of IPALCO is acquired (as defined
in paragraph 3(a) hereof) during the term of this
Agreement (as described in paragraph 5 hereof) and (b)
within three (3) years after the acquisition of control
occurs (i) the Company terminates the employment of the
Executive for any reason other than Cause (as defined in
paragraph 3(b) hereof), death, the Executive's attainment
of age sixty-five (65) or total and permanent disability,
or (ii) the Executive voluntarily terminates his
employment for Good Reason (as defined in paragraph 3(c)
hereof).
2. Termination Benefits. If the Executive is
entitled to termination benefits pursuant to paragraph 1
hereof, the Company agrees to pay to the Executive as
termination benefits in a lump-sum payment within five
(5) calendar days of the termination of the Executive's
employment an amount to be computed by multiplying (i)
the Executive's average annual compensation (as defined
in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code")) payable by the Company which was
includable in the gross income of the Executive for the
most recent five (5) calendar years ending coincident
with or immediately before the date on which control of
the Company is acquired (or such portion of such period
during which the Executive was an employee of the
Company), by (ii) two hundred ninety-nine and ninety-nine
one hundredths percent (299.99%). For purposes of this
Agreement, employment and compensation paid by any direct
or indirect subsidiary of the Company will be deemed to
be employment and compensation paid by the Company.
3. Definitions.
(a) As used in this Agreement, the
"acquisition of control" means:
(i) The acquisition by any individual,
entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange
Act) of twenty percent (20%) or more of
either (A) the then outstanding shares of
common stock of IPALCO (the "Outstanding
IPALCO Common Stock") or (B) the combined
voting power of the then outstanding voting
securities of IPALCO entitled to vote
generally in the election of directors (the
"Outstanding IPALCO Voting Securities");
provided, however, that the following
acquisitions shall not constitute an
acquisition of control: (A) any acquisition
directly from IPALCO (excluding an
acquisition by virtue of the exercise of a
conversion privilege), (B) any acquisition
by IPALCO, (C) any acquisition by any
employee benefit plan (or related trust)
sponsored or maintained by IPALCO, IPL or
any corporation controlled by IPALCO or (D)
any acquisition by any corporation pursuant
to a reorganization, merger or
consolidation, if, following such
reorganization, merger or consolidation, the
conditions described in clauses (A), (B) and
(C) of subsection (iii) of this paragraph
3(a) are satisfied;
(ii) Individuals who, as of the date
hereof, constitute the Board of Directors of
IPALCO (the "Incumbent Board") cease for any
reason to constitute at least a majority of
the Board of Directors of IPALCO (the
"Board"); provided, however, that any
individual becoming a director subsequent to
the date hereof whose election, or
nomination for election by IPALCO's
shareholders, was approved by a vote of at
least a majority of the directors then
comprising the Incumbent Board shall be
considered as though such individual were a
member of the Incumbent Board, but
excluding, for this purpose, any such
individual whose initial assumption of
office occurs as a result of either an
actual or threatened election contest (as
such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the
Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) Approval by the shareholders of
IPALCO of a reorganization, merger or
consolidation, in each case, unless,
following such reorganization, merger or
consolidation, (A) more than sixty percent
(60%) of, respectively, the then outstanding
shares of common stock of the corporation
resulting from such reorganization, merger
or consolidation and the combined voting
power of the then outstanding voting
securities of such corporation entitled to
vote generally in the election of directors
is then beneficially owned, directly or
indirectly, by all or substantially all of
the individuals and entities who were the
beneficial owners, respectively, of the
Outstanding IPALCO Common Stock and
Outstanding IPALCO Voting Securities
immediately prior to such reorganization,
merger or consolidation in substantially the
same proportions as their ownership,
immediately prior to such reorganization,
merger or consolidation, of the Outstanding
IPALCO Stock and Outstanding IPALCO Voting
Securities, as the case may be, (B) no
Person (excluding IPALCO, any employee
benefit plan or related trust of IPALCO, IPL
or such corporation resulting from such
reorganization, merger or consolidation and
any Person beneficially owning, immediately
prior to such reorganization, merger or
consolidation and any Person beneficially
owning, immediately prior to such
reorganization, merger or consolidation,
directly or indirectly, twenty percent (20%)
or more of the Outstanding IPALCO Common
Stock or Outstanding Voting Securities, as
the case may be) beneficially owns, directly
or indirectly, twenty percent (20%) or more
of, respectively, the then outstanding
shares of common stock of the corporation
resulting from such reorganization, merger
or consolidation or the combined voting
power of the then outstanding voting
securities of such corporation entitled to
vote generally in the election of directors
and (C) at least a majority of the members
of the board of directors of the corporation
resulting from such reorganization, merger
or consolidation were members of the
Incumbent Board at the time of the execution
of the initial agreement providing for such
reorganization, merger or consolidation;
(iv) Approval by the shareholders of
IPALCO of (A) a complete liquidation or
dissolution of IPALCO or (B) the sale or
other disposition of all or substantially
all of the assets of IPALCO, other than to a
corporation, with respect to which following
such sale or other disposition (1) more than
sixty percent (60%) of, respectively, the
then outstanding shares of common stock of
such corporation and the combined voting
power of the then outstanding voting
securities of such corporation entitled to
vote generally in the election of directors
is then beneficially owned, directly or
indirectly, by all or substantially all of
the individuals and entities who were the
beneficial owners, respectively, of the
Outstanding IPALCO Common Stock and
Outstanding IPALCO Voting Securities
immediately prior to such sale or other
disposition in substantially the same
proportion as their ownership, immediately
prior to such sale or other disposition, of
the Outstanding IPALCO Common Stock and
Outstanding IPALCO Voting Securities, as the
case may be, (2) no Person (excluding IPALCO
and any employee benefit plan or related
trust of IPALCO, IPL or such corporation and
any Person beneficially owning, immediately
prior to such sale or other disposition,
directly or indirectly, twenty percent (20%)
or more of the Outstanding IPALCO Common
Stock or Outstanding IPALCO Voting
Securities, as the case may be) beneficially
owns, directly or indirectly, twenty percent
(20%) or more of, respectively, the then
outstanding shares of common stock of such
corporation and the combined voting power of
the then outstanding voting securities of
such corporation entitled to vote generally
in the election of directors and (3) at
least a majority of the members of the board
of directors of such corporation were
members of the Incumbent Board at the time
of the execution of the initial agreement or
action of the Board providing for such sale
or other disposition of assets of IPALCO; or
(v) The closing, as defined in the
documents relating to, or as evidenced by a
certificate of any state or federal
governmental authority in connection with, a
transaction approval of which by the
shareholders of IPALCO would constitute an
"acquisition of control" under subsection
(iii) or (iv) of this section 3(a) of this
Agreement.
Notwithstanding anything contained in this
Agreement to the contrary, if the Executive's
employment is terminated before an "acquisition
of control" as defined in this section 3(a) and
the Executive reasonably demonstrates that such
termination (i) was at the request of a third
party who has indicated an intention or taken
steps reasonably calculated to effect an
"acquisition of control" and who effectuates an
"acquisition of control" (a "Third Party") or
(ii) otherwise occurred in connection with, or in
anticipation of, an "acquisition of control"
which actually occurs, then for all purposes of
this Agreement, the date of an "acquisition of
control" with respect to the Executive shall mean
the date immediately prior to the date of such
termination of the Executive's employment.
(b) As used in this Agreement, the term
"Cause" means fraud, dishonesty, theft of
corporate assets, or other gross misconduct by
the Executive. Notwithstanding the foregoing,
the Executive shall not be deemed to have been
terminated for cause unless and until there shall
have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less
than a majority of the entire membership of the
Board at a meeting of the Board called and held
for the purpose (after reasonable notice to him
and an opportunity for him, together with his
counsel, to be heard before the Board), finding
that in the good faith opinion of the Board the
Executive was guilty of conduct set forth above
in the first sentence of the subsection and
specifying the particulars thereof in detail.
(c) As used in this Agreement, the term
"Good Reason" means, without the Executive's
written consent, (i) a demotion in the
Executive's status, position or responsibilities
which, in his reasonable judgment, does not
represent a promotion from his status, position
or responsibilities as in effect immediately
prior to the change in control; (ii) the
assignment to the Executive of any duties or
responsibilities which, in his reasonable
judgment, are inconsistent with such status,
position or responsibilities; or any removal of
the Executive from or failure to reappoint or
reelect him to any of such positions, except in
connection with the termination of his employment
for total and permanent disability, death or
Cause or by him other than for Good Reason; (iii)
a reduction by the Company in the Executive's
base salary as in effect on the date hereof or as
the same may be increased from time to time
during the term of this Agreement or the
Company's failure to increase (within twelve (12)
months of the Executive's last increase in base
salary) the Executive's base salary after a
change in control in an amount which at least
equals, on a percentage basis, the average
percentage increase in base salary for all
executive and senior officers of the Company
effected in the preceding twelve (12) months;
(iv) the relocation of the principal executive
offices of IPALCO or IPL, whichever entity on
behalf of which the Executive performs a
principal function of that entity as part of his
employment services, to a location outside the
Indianapolis, Indiana metropolitan area or the
Company's requiring him to be based at any place
other than the location at which he performed his
duties prior to a change in control, except for
required travel on the Company's business to an
extent substantially consistent with his business
travel obligations at the time of a change in
control; (v) the failure by the Company to
continue in effect any incentive, bonus or other
compensation plan in which the Executive
participates, including but not limited to the
Company's stock option and restricted stock
plans, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan),
with which he has consented, has been made with
respect to such plan in connection with the
change in control, or the failure by the Company
to continue his participation therein, or any
action by the Company which would directly or
indirectly materially reduce his participation
therein; (vi) the failure by the Company to
continue to provide the Executive with benefits
substantially similar to those enjoyed by him or
to which he was entitled under any of the
Company's pension, profit sharing, life
insurance, medical, dental, health and accident,
or disability plans in which he was participating
at the time of a change in control, the taking of
any action by the Company which would directly or
indirectly materially reduce any of such benefits
or deprive him of any material fringe benefit
enjoyed by him or to which he was entitled at the
time of the change in control, or the failure by
the Company to provide him with the number of
paid vacation and sick leave days to which he is
entitled on the basis of years of service with
the Company in accordance with the Company's
normal vacation policy in effect on the date
hereof; (vii) the failure of the Company to
obtain a satisfactory agreement from any
successor or assign of the Company to assume and
agree to perform this Agreement; (viii) any
purported termination of the Executive's
employment which is not effected pursuant to a
Notice of Termination satisfying the requirements
of paragraph 4(c) hereof (and, if applicable,
paragraph 3(b) hereof); and for purposes of this
Agreement, no such purported termination shall be
effective; or (ix) any request by the Company
that the Executive participate in an unlawful act
or take any action constituting a breach of the
Executive's professional standard of conduct.
Notwithstanding anything in this paragraph
3(c) to the contrary, the Executive's right to
terminate his employment pursuant to this
paragraph 3(c) shall not be affected by his
incapacity due to physical or mental illness.
4. Additional Provisions.
(a) Enforcement of Agreement. The Company
is aware that upon the occurrence of a change in
control the Board of Directors or a shareholder
of the Company may then cause or attempt to cause
the Company to refuse to comply with its
obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may
institute, litigation seeking to have this
Agreement declared unenforceable, or may take or
attempt to take other action to deny the
Executive the benefits intended under this
Agreement. In these circumstances, the purpose
of this Agreement could be frustrated. It is the
intent of the Company that the Executive not be
required to incur the expenses associated with
the enforcement of his rights under this
Agreement by litigation or other legal action,
nor be bound to negotiate any settlement of his
rights hereunder, because the cost and expense of
such legal action or settlement would
substantially detract from the benefits intended
to be extended to the Executive hereunder.
Accordingly, if following a change in control it
should appear to the Executive that the Company
has failed to comply with any of its obligations
under this Agreement or in the event that the
Company or any other person takes any action to
declare this Agreement void or unenforceable, or
institutes any litigation or other legal action
designed to deny, diminish or to recover from the
Executive the benefits entitled to be provided to
the Executive hereunder and that the Executive
has complied with all of his obligations under
this Agreement, the Company irrevocably
authorizes the Executive from time to time to
retain counsel of his choice, at the expense of
the Company as provided in this paragraph 4(a),
to represent the Executive in connection with the
initiation or defense of any litigation or other
legal action, whether such action is by or
against the Company or any director, officer,
shareholder, or other person affiliated with the
Company, in any jurisdiction. Notwithstanding
any existing or prior attorney-client
relationship between the Company and such
counsel, the Company irrevocably consents to the
Executive entering into an attorney-client
relationship with such counsel, and in that
connection the Company and the Executive agree
that a confidential relationship shall exist
between the Executive and such counsel. The
reasonable fees and expenses of counsel selected
from time to time by the Executive as hereinabove
provided shall be paid or reimbursed to the
Executive by the Company on a regular, periodic
basis upon presentation by the Executive of a
statement or statements prepared by such counsel
in accordance with its customary practices, up to
a maximum aggregate amount of $500,000. Any
legal expenses incurred by the Company by reason
of any dispute between the parties as to
enforceability of or the terms contained in this
Agreement, notwithstanding the outcome of any
such dispute, shall be the sole responsibility of
the Company, and the Company shall not take any
action to seek reimbursement from the Executive
for such expenses.
(b) Severance Pay; No Duty to Mitigate.
The amounts payable to the Executive under this
Agreement shall not be treated as damages but as
severance compensation to which the Executive is
entitled by reason of termination of his
employment in the circumstances contemplated by
this Agreement. The Company shall not be
entitled to set off against the amounts payable
to the Executive any amounts earned by the
Executive in other employment after termination
of his employment with the Company, or any
amounts which might have been earned by the
Executive in other employment had he sought such
other employment.
(c) Notice of Termination. Any purported
termination by the Company or by the Executive
shall be communicated by written Notice of
Termination to the other party hereto in
accordance with paragraph 4(k) hereof. For
purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall
indicate the specific termination provision in
this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances
claimed to provide a basis for termination of his
employment under the provision so indicated. For
purposes of this Agreement, no such purported
termination shall be effective without such
Notice of Termination.
(d) Internal Revenue Code. Anything in
this Agreement to the contrary notwithstanding,
in the event that Deloitte & Touche determines
that any payment by the Company to or for the
benefit of the Executive pursuant to the terms of
this Agreement would be nondeductible by the
Company for federal income tax purposes because
of Section 280G of the Code, then the amount
payable to or for the benefit of the Executive
pursuant to this Agreement shall be reduced (but
not below zero) to the maximum amount payable
without causing the payment to be nondeductible
by the Company because of Section 280G of the
Code. Such determination by Deloitte & Touche
shall be conclusive and binding upon the parties.
(e) Assignment. This Agreement shall inure
to the benefit of and be binding upon the parties
hereto and their respective executors,
administrators, heirs, personal representatives,
successors, and assigns, but neither this
Agreement nor any right hereunder may be assigned
or transferred by either party hereto, any
beneficiary, or any other person, nor be subject
to alienation, anticipation, sale, pledge,
encumbrance, execution, levy, or other legal
process of any kind against the Executive, his
beneficiary or any other person. Notwithstanding
the foregoing, the Company will assign this
Agreement to any corporation or other business
entity succeeding to substantially all of the
business and assets of the Company by merger,
consolidation, sale of assets, or otherwise and
shall obtain the assumption of this Agreement by
such successor.
(f) Entire Agreement. This Agreement
contains the entire agreement between the parties
with respect to the subject matter hereof. All
representations, promises, and prior or
contemporaneous understandings among the parties
with respect to the subject matter hereof,
including any Prior Termination Benefits
Agreements, are merged into and expressed in this
Agreement, and any and all prior agreements
between the parties with respect to the subject
matter hereof are hereby cancelled.
(g) Amendment. This Agreement shall not be
amended, modified, or supplemented without the
written agreement of the parties at the time of
such amendment, modification, or supplement.
(h) Governing Law. This Agreement shall be
governed by and subject to the laws of the State
of Indiana.
(i) Severability. The invalidity or
unenforceability of any particular provision of
this Agreement shall not affect the other
provisions, and this Agreement shall be construed
in all respects as if such invalid or
unenforceable provision had not been contained
herein.
(j) Captions. The captions in this
Agreement are for convenience and identification
purposes only, are not an integral part of this
Agreement, and are not to be considered in the
interpretation of any part hereof.
(k) Notices. Except as otherwise
specifically provided in this Agreement, all
notices and other communications hereunder shall
be in writing and shall be deemed to have been
duly given if delivered in person or sent by
registered or certified mail, postage prepaid,
addressed as set forth above, or to such other
address as shall be furnished in writing by any
party to the others.
(l) Waivers. Except as otherwise
specifically provided in this Agreement, no
waiver by either party hereto of any breach by
the other party hereto of any condition or
provision of this Agreement to be performed by
such other party shall be deemed to be a valid
waiver unless such waiver is in writing or, even
if in writing, shall be deemed to be a waiver of
a subsequent breach of such condition or
provision or a waiver of a similar or dissimilar
provision or condition at the same or at any
prior or subsequent time.
(m) Gender. The use of the masculine
gender throughout this Agreement is solely for
convenience; thus, in cases where the Executive
is female, the feminine gender shall be deemed to
be used in place of the masculine gender.
5. Term of this Agreement. This Agreement shall
remain in effect until January 1, 1998 or until the
expiration of any extension thereof. The term of this
Agreement shall be automatically extended for one (1)
year periods without further action of the parties as of
January 1, 1994 and each succeeding January 1 thereafter,
unless IPALCO shall have served written notice to the
Executive prior to January 1, 1994 or prior to January 1
of each succeeding year, as the case may be, of its
intention that the Agreement shall terminate at the end
of the five (5) year period that begins with the
January 1 following the date of such written notice.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
IPALCO ENTERPRISES, INC.
By:
Attest:
INDIANAPOLIS POWER & LIGHT COMPANY
By:
Attest:
SCHEDULE A
TO
TERMINATION BENEFITS AGREEMENT
As Amended and Restated, Effective January 1, 1993
By and among IPALCO Enterprises, Inc., Mid-America
Capital Resources, Inc. and the following individuals:
Joseph A. Gustin
Daniel L. Short
Clark L. Snyder (effective January 1, 1995)
William A. Tracy
Kevin P. Greisl (effective December 25, 1995)
By and among IPALCO Enterprises, Inc., Indianapolis Power
& Light Company and the following individuals:
Michael G. Banta (effective July 1, 1995)
John C. Berlier, Jr.
John R. Brehm
Max Califar
Ralph E. Canter (effective May 1, 1995)
John R. Hodowal
Ramon L. Humke
Donald W. Knight
David J. McCarthy (effective January 1, 1996)
Paul S. Mannweiler (effective January 1, 1997)
Steven L. Meyer
Stephen J. Plunkett
Robert W. Rawlings
Joseph A. Slash
Bryan G. Tabler (effective as of October 1, 1994)
Gerald D. Waltz
John D. Wilson
By and between IPALCO Enterprises, Inc. and the following
individuals:
N. Stuart Grauel
Susan Hanafee (effective May 1, 1995)
Michael P. Holstein (effective May 1, 1996)
Thomas A. Steiner (effective May 1, 1996)
By and among IPALCO Enterprises, Inc. and Store Heat and
Produce Energy, Inc. and the following individual:
Michael J. Farmer (effective as of February 6, 1995)
<TABLE>
IPALCO ENTERPRISES, INC. EXHIBIT 11.1
Computation of Per Share Earnings
For the Years Ended December 31, 1997, 1996 and 1995
<CAPTION>
YEAR ENDED DECEMBER 31, 1997: Basic Diluted
---------- ----------
<S> <C> <C>
Weighted average number of shares
Average common shares outstanding at December 31, 1997 47,941,757 47,941,757
Dilutive effect for stock options at December 31, 1997 - 285,583
---------- ----------
Adjusted weighted average shares at December 31, 1997 47,941,757 48,227,340
========== ==========
Net income to be used to compute
diluted earnings per share (Dollars in thousands)
Income before cumulative effect of accounting change $ 95,699 $ 95,699
Cumulative effect of accounting change 18,347 18,347
---------- ----------
Net income $ 114,046 $ 114,046
========== ==========
Income before cumulative effect of accounting change $ 2.00 $ 1.98
Cumulative effect of accounting change .38 .38
---------- ----------
Net income $ 2.38 $ 2.36
========== ==========
YEAR ENDED DECEMBER 31, 1996:
Basic Diluted
---------- ----------
Weighted average number of shares
Average common shares outstanding at December 31, 1996 56,924,411 56,924,411
Dilutive effect for stock options at December 31, 1996 - 116,370
---------- ----------
Adjusted weighted average shares at December 31, 1996 56,924,411 57,040,781
========== ==========
Net income to be used to compute
diluted earnings per share (Dollars in thousands)
Net Income $ 114,275 $ 114,275
========== ==========
Net income $ 2.01 $ 2.00
========== ==========
YEAR ENDED DECEMBER 31, 1995:
Basic Diluted
---------- ----------
Weighted average number of shares
Average common shares outstanding at December 31, 1995 56,744,700 56,744,700
Dilutive effect for stock options at December 31, 1995 - 86,853
---------- ----------
Adjusted weighted average shares at December 31, 1995 56,744,700 56,831,553
========== ==========
Net income to be used to compute
diluted earnings per share (Dollars in thousands)
Net income $ 98,778 $ 98,778
========== ==========
Net income $ 1.74 $ 1.74
========== ==========
</TABLE>
Exhibit 18.1
IPALCO Enterprises, Inc.
One Monument Circle, P.O. Box 1595
Indianapolis, IN 46206
We have audited the consolidated financial statements of IPALCO Enterprises,
Inc. as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997, included in your Annual Report on Form 10-K to
the Securities and Exchange Commission and have issued our report thereon dated
January 23, 1998. Note 3 to such consolidated financial statements contains
a description of your adoption during the year ended December 31, 1997, of
the method of accounting for accrued revenues for services provided but
unbilled at the end of each month. In our judgment, such change is to an
alternative accounting principle that is preferable under the circumstances.
Deloitte & Touche, LLP
January 23, 1998
Exhibit 21.1 List of Subsidiaries
--------------------
State in
Which
Subsidiaries of IPALCO Enterprises, Inc. Organized
Indianapolis Power & Light Company (IPL) Indiana
Subsidiaries of IPL
Property and Land Company, Inc. Indiana
Fort Ben Energy Management Corp. Indiana
IPL Funding Corporation Indiana
Mid-America Capital Resources, Inc. Indiana
(Mid-America)
Subsidiaries of Mid-America
Indianaplis Campus Energy, Inc. (ICE) Indiana
Store Heat and Produce Energy, Inc. (SHAPE) Indiana
Mid-America Energy Resources, Inc.
(Energy Resources) Indiana
Cleveland Thermal Energy Corporation Ohio
Cleveland District Cooling Corporation Ohio
Both IPL and Mid-America are wholly owned by IPALCO Enterprises, Inc.
Each of the subsidiaries listed for IPL and Mid-America is wholly
owned except for SHAPE, which is 80% owned by Mid-America. Both
Cleveland Thermal Energy Corporation and Cleveland District Cooling
Corporation conduct business under the name Cleveland Energy Resources.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-08527 on Form S-3, and in Registration Statement Nos. 33-40316, 33-45615,
33-53260, 33-50815, 33-52039, 33-60915, 33-60921 and 333-28543 on Form S-8 of
IPALCO Enterprises, Inc. of our report dated January 23, 1998, appearing in
this Annual Report on Form 10-K of IPALCO Enterprises, Inc. for the year ended
December 31, 1997.
Deloitte & Touche LLP
Indianapolis, Indiana
February 27, 1998
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