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, 1998 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. ( )
As of January 31, 1999, the aggregate market value of the voting stock held
by non-affiliates of the registrant was: $2,078,049,311 based on the average
of the high and low price of the common stock on such date. As of January 31,
1999, there were 88,154,252 shares, adjusted for the two-for-one stock split
on February 23, 1999, 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 21, 1999, are incorporated by
reference into Part III of this Report.
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.
IPALCO has 15 employees and 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. IPALCO and its subsidiaries are collectively referred to as
"Enterprises".
Enterprises has two business segments, electric and "all other." Steam
operations of IPL and all subsidiaries other than IPL were combined in the "all
other" segment. Information regarding revenues, pretax operating income and
total assets of both segments can be found in the Consolidated Financial
Statements and Notes thereto.
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.
Indiana law authorizes electricity suppliers to have exclusive retail service
areas.
IPL's business is not dependent on any single customer or group of a few
customers. IPL's sales for 1994-1998 are depicted on page I-5.
The electric utility business is affected by seasonal weather patterns
throughout the year and, therefore, the operating revenues and associated
operating expenses are not generated evenly by month 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 that provides for coordinated planning of
generation 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).
In addition, IPL is subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC), with respect to 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. Estimated
new annual capital expenditures for air, solid waste and water environmental
compliance measures are $2.4 million, $1.2 million and $.4 million in 1999, 2000
and 2001, 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 customers. In Indiana, basic rates and
charges are determined after giving consideration, on a pro-forma basis, to all
allowable costs for ratemaking purposes including a fair return on the fair
value of the utility property used and useful in 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, but not limited to, weather, inflation, customer growth and usage,
the level of actual maintenance and capital expenditures and IURC restrictions
on the level of operating income can affect the return realized. During 1998, in
an order resulting from an IPL initiated proceeding, the IURC declined to
exercise its jurisdiction in part over IPL customers who voluntarily select
service under IPL's Elect Plan option. Under two of these options, the
customer's prices are not adjusted for changes in fuel costs or other factors.
Substantially all other IPL customers are served pursuant to retail tariffs that
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, most 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 (see "Competition and Industry Changes" in Item 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"). 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 required to adopt SFAS 101 in
the near term.
FUEL
In 1998, approximately 99% of the total KWH sold by IPL were generated
from coal and 1% from middle distillate fuel oil. Gas and purchased steam,
combined, provided less than 1% of the generation of KWH sold by IPL. 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. During 1998,
IPL converted part of its C.C. Perry Section K plant to gas-fired boilers. In
the future, approximately 50% of the fuel used by this plant will be gas and 50%
will be coal.
IPL's long-term coal contracts provide for the major portion of its burn
requirements through the year 1999. The long-term coal agreements are with four
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. In order to prepare for possible supply problems associated
with Year 2000 issues, IPL will increase its stockpile to an approximate 85 to
90 day supply before the end of 1999.
EMPLOYEE RELATIONS
As of December 31, 1998, IPL had 2,020 employees of whom 1,015 were
represented by the International Brotherhood of Electrical Workers, AFL-CIO
(IBEW) and 337 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 that remains in effect until December 13, 1999.
The agreement provided 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 February
of 1998, the membership of the EUWU ratified a new labor agreement that remains
in effect until February of 2001. The agreement provides for general pay
adjustments of 3% in both 1998 and 1999, as well as an adjustment of 2% in 2000.
The agreement also provides for increases in pension amounts.
DISPOSITION OF ASSETS
In 1997, IPL retired and sold its C.C. Perry Section 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
Enterprises, has as subsidiaries 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.
which conducts business as SHAPE Energy Resources (SHAPE).
Energy Resources operates a district cooling system in downtown
Indianapolis, Indiana.
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.
Cleveland Thermal owns and operates a district heating system in
Cleveland, Ohio. Cleveland Cooling owns and operates a district cooling system
also located in Cleveland. Cleveland Thermal and Cleveland Cooling conduct
business jointly under the name Cleveland Energy Resources.
SHAPE's operations became inactive during 1998.
EMPLOYEES
As of December 31, 1998, Mid-America and its subsidiaries had 82
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 1998 (1) 1997 (1) 1996 1995 1994
Thousands):
------------ ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Residential $ 269,351 $ 261,832 $ 261,819 $ 243,055 $ 230,805
Small industrial and commercial 122,082 125,131 131,465 130,009 128,597
Large industrial and commercial 321,103 306,761 298,720 275,803 266,703
Public lighting 9,754 9,324 9,043 8,369 7,698
Miscellaneous 12,469 12,050 9,264 8,289 7,186
------------ ------------ -------------- ------------- --------------
Revenues - ultimate consumer 734,759 715,098 710,311 665,525 640,989
Sales for resale - REMC 936 1,082 1,141 1,105 1,098
Sales for resale - other 50,140 21,954 13,312 6,758 7,680
------------ ------------ -------------- ------------- --------------
Total electric revenues $ 785,835 $ 738,134 $ 724,764 $ 673,388 $ 649,767
============ ============ ============== ============= ==============
Kilowatt-hour Sales (In
Millions):
Residential 4,320 4,255 4,367 4,277 4,077
Small industrial and commercial 1,873 1,960 2,117 2,197 2,195
Large industrial and commercial 7,095 6,834 6,772 6,509 6,306
Public lighting 70 69 71 73 76
------------ ------------ -------------- ------------- --------------
Sales - ultimate consumers 13,358 13,118 13,327 13,056 12,654
Sales for resale - REMC 31 29 29 28 26
Sales for resale - other 2,252 1,111 725 394 456
------------ ------------ -------------- ------------- --------------
Total kilowatt-hours sold 15,641 14,258 14,081 13,478 13,136
============ ============ ============== ============= ==============
Customers at End of Year:
Residential 379,943 374,686 370,029 365,163 360,347
Small industrial and commercial 42,230 41,137 40,393 39,772 38,840
Large industrial and commercial 4,036 3,960 3,657 3,557 3,525
Public lighting 445 357 313 290 275
------------ ------------ -------------- ------------- --------------
Total ultimate consumers 426,654 420,140 414,392 408,782 402,987
Sales for resale - REMC 1 1 1 1 1
------------ ------------ -------------- ------------- --------------
Total electric customers 426,655 420,141 414,393 408,783 402,988
============ ============ ============== ============= ==============
(1) 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 houses certain
administrative operations of IPALCO's subsidiaries.
IPL also owns two distribution service centers in Indianapolis at 1230
West Morris Street and 3600 North Arlington Avenue. IPL's customer service
center is located at 2102 North Illinois Street in Indianapolis.
IPL owns and operates three primarily coal-fired generating plants that
are used for electric generation. During 1998, part of the C.C. Perry Section K
plant, used for a combination of electric and steam generation, was converted to
gas-fired boilers. In the future approximately 50% of the fuel used by this
plant will be gas and 50% will be coal. 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 each 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 1998, at the Petersburg, Stout and
Pritchard stations accounted for about 72.0%, 21.2% and 6.7%, respectively, of
IPL's total net generation. Perry K produced 0.1% 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 in Indianapolis.
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. Also included is 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.
During 1998, IPL announced plans to construct up to 200 megawatts of new
combustion turbines (CTs). The new turbines would be used during times of
highest or "peak" electric demand. One turbine is expected to be placed in
service by 2001, and is included in the construction forecast. IPL filed a
petition with the IURC recommending that the IURC decline its jurisdiction over
IPL's planned construction and operation of the new CTs and adopt an alternative
procedure for dealing with the sale of power produced by the CTs to IPL's retail
customers.
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 4,717 pole miles and 19,892 wire miles of
overhead lines. Underground distribution and service facilities include 596
miles of conduit and 5,990 wire miles of conductor. Underground street lighting
facilities include 108 miles of conduit and 726 wire miles of conductor. Also
included in the system are 73 bulk power substations and 68 distribution
substations.
Steam distribution properties include 22 miles of mains with 260
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 4,067 acres in Morgan
County, Indiana and approximately 884 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
six 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.
In 1997, Enterprises initiated a plan to sell during 1998, Cleveland
District Cooling Corporation and Cleveland Thermal Corporation (collectively
referred to as CER) and ceased recording depreciation. During the third quarter
of 1998, Enterprises determined that it was not probable that CER would be sold
during 1998. Enterprises continues to have the ability to remove the assets from
operations. Enterprises resumed depreciation on the CER assets during September
1998. Enterprises' plan currently anticipates disposal of CER in 1999.
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 property of Mid-America and its subsidiaries is
subject to the lien of existing debt and/or credit agreements of Mid-America,
Energy Resources and ICE.
Item 3. LEGAL PROCEEDINGS
-----------------
In February 1998, Region V of the U.S. Environmental Protection Agency
issued to Cleveland Thermal a Notice of Violation (NOV) under the Clean Air Act.
The NOV alleged that particulate matter emissions from four of Cleveland
Thermal's five boilers exceeded applicable limits on five dates during the
period 1993 through 1996, and that the opacity limit was exceeded on one date in
1997 based on a visible emission reading. The alleged violations during the
period 1993 through 1996 were .01-.02 lb/MMBtu above the applicable limit, and
the visible emission rating was not statistically significant at 1.7-2.7%
opacity above the applicable limit. On October 9, 1998, EPA Region V issued an
Administrative Order to Cleveland Thermal. This Order requires Cleveland Thermal
to conduct additional particulate emission testing and to submit additional
engineering, maintenance and opacity information to Region V. The Order does not
impose any fines or penalties upon Cleveland Thermal. It is Cleveland Thermal's
belief that this Order concludes this matter.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
EXECUTIVE OFFICERS OF THE REGISTRANT AT FEBRUARY 23, 1999.
Name, age (at December 31, 1998), and positions and offices held for the
past five years:
From To
---- --
John R. Hodowal (53)
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 (66)
Vice Chairman of IPALCO May, 1991
President and Chief Operating
Officer of IPL February, 1990
John R. Brehm (45)
Vice President and Treasurer
of IPALCO May, 1989
Senior Vice President - Finance of IPL May, 1998
Senior Vice President - Finance
and Information Services of IPL May, 1991 May, 1998
Stephen M. Powell (48)
Senior Vice President -
Energy Supply of IPL May, 1998
Manager of Engineering and
Production Services June, 1994 May, 1998
N. Stuart Grauel (54)
Vice President - Public Affairs
of IPALCO May, 1991
Bryan G. Tabler (55)
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
Ralph E. Canter (42)
Senior Vice President -
Customer Services of IPL May, 1998
Vice President-
Steam Operations May, 1995 May, 1998
Manager of Steam Operations October, 1990 May, 1995
Paul S. Mannweiler (49)
Senior Vice President -
External Affairs of IPL January, 1997
Partner, Locke Reynolds Boyd and Weisell July, 1980 December,1996
Max Califar (45)
Vice President - Human
Resources of IPL December, 1992
Michael P. Holstein (41)
Vice President - Strategic Business
Initiatives of IPALCO May, 1998
Vice President - Corporate
Strategy and Marketing April, 1996 May, 1998
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 (40)
Assistant Treasurer of IPALCO May, 1993
Treasurer of IPL December, 1992
Stephen J. Plunkett (50)
Controller of IPALCO
and IPL May, 1991
<PAGE>
PART II
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Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
On February 23, 1999, the IPALCO Board of Directors (Board) authorized a
two-for-one stock split of IPALCO's common stock issuable to shareholders of
record on March 5, 1999. All references to share amounts of common stock and per
share information have been restated to reflect the stock split (see Note 14 in
the Notes to Consolidated Financial Statements).
On November 24, 1998, IPALCO's Board authorized the repurchase of up to
6 million shares of IPALCO's common stock on the open market and in privately
negotiated transactions. The repurchase program is intended to be completed as
soon as possible, although the Board authorization for the program does not
expire until December 31, 1999. As of December 31, 1998, IPALCO had
repurchased 2,470,644 shares, which remain in Treasury stock. As of
February 19, 1999, IPALCO had repurchased 4,864,562 shares, which remain in
Treasury stock.
During 1997, the Board approved the repurchase of 25,078,856 shares of
IPALCO's common stock which remain in Treasury stock.
At December 31, 1998, IPALCO had 19,580 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 1998 and 1997 as reported on the Composite Tape in
The Wall Street Journal were as follows:
1998 1997
-------------------------- -------------------------
High Low High Low
Sale Price Sale Price Sale Price Sale Price
First Quarter $22 5/8 $19 15/16 $16 5/16 $13 1/4
Second Quarter 23 1/16 20 1/8 16 14 11/16
Third Quarter 23 7/8 20 3/4 17 1/4 15 7/16
Fourth Quarter 27 13/16 22 3/4 21 3/16 16 5/16
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, 1999,
through February 19, 1999, were: High - $28 7/16, Low - $23 1/4.
Quarterly dividends paid on the common stock, adjusted for the common stock
split, during 1998 and 1997 were as follows:
1998 1997
------ ------
First Quarter $.125 $.185
Second Quarter .1375 .125
Third Quarter .1375 .125
Fourth Quarter .1375 .125
At its meeting on February 23, 1999, the Board declared a regular
quarterly dividend on common stock of $.15 per share , payable April 15, 1999,
to shareholders of record on March 30, 1999.
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, 1998, 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) 1998 1997 1996 1995 1994
- ---------------------------------------
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Total utility operating revenues (1) $ 821,256 $ 776,427 $ 762,503 $ 709,206 $ 686,076
Utility operating income 179,511 167,315 163,219 147,588 143,310
Allowance for funds used during
construction 2,300 4,407 9,321 11,370 9,381
Income before cumulative effect of
accounting change 130,119 95,699 114,275 98,778 92,994
Cumulative effect of accounting change (1) - 18,347 - - -
Net income 130,119 114,046 114,275 98,778 92,994
Utility plant - net 1,748,460 1,766,383 1,787,969 1,792,007 1,711,772
Total assets 2,118,945 2,155,558 2,182,701 2,230,029 2,099,361
Common shareholders' equity 574,191 524,546 857,358 821,635 801,945
Cumulative preferred stock of subsidiary 59,135 9,135 51,898 51,898 51,898
Long-term debt (less current
maturities and sinking
fund requirements) 907,974 1,032,846 662,591 698,600 665,971
Utility construction expenditures 79,458 73,130 78,543 166,874 178,295
Nonutility construction expenditures 975 1,569 4,187 34,745 9,402
BASIC EARNINGS PER SHARE (2) (3)
Income before cumulative effect of
accounting change 1.45 1.00 1.00 .87 .82
Cumulative effect of accounting change (1) - .19 - - -
Net Income 1.45 1.19 1.00 .87 .82
DILUTED EARNINGS PER SHARE (2) (3)
Income before cumulative effect of
accounting change 1.43 .99 1.00 .87 .82
Cumulative effect of accounting change (1) - .19 - - -
Net Income 1.43 1.18 1.00 .87 .82
Dividends declared per share of
common stock (3) .55 .50 .74 .72 .71
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) See Note 6 in the Notes to Consolidated Financial Statements.
(3) Per share amounts have been adjusted to reflect the two-for-one common stock
split to be issued in March 1999 (see Note 14 in the Notes to Consolidated
Financial Statements).
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (INCLUDING ITEM 7A)
---------------------------------------------
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
Enterprises, Inc. (collectively referred to as Enterprises). Mid-America is the
holding company for the unregulated activities of IPALCO. IPL represents the
regulated subsidiary. Enterprises has two business segments (electric and "all
other"). Steam and all subsidiaries other than IPL were combined in the "all
other" category (See the Notes to Consolidated Financial Statements).
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), 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. 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 and purchased power 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
affect 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.
Enterprises' ability to predict results or effects of issues related to
the Year 2000 is inherently uncertain, and is subject to factors that may cause
actual results to differ materially from those projected. Factors that could
affect the actual results include the possibility that contingency plans or
remediation efforts will not operate as intended; Enterprises' failure to timely
or completely identify all software, hardware or embedded chip devices requiring
remediation; unexpected costs; and the uncertainty associated with the impact of
Year 2000 issues on the utility industry and on Enterprises' customers, vendors
and others with whom it does business. See "Year 2000" under the caption IPALCO
ENTERPRISES CONSOLIDATED, "Other," for information about Enterprises' efforts.
LIQUIDITY AND CAPITAL RESOURCES
IPALCO
- ------
On February 25, 1997, the Board of Directors (Board) of IPALCO approved a
new financial strategy designed to maximize shareholder value and position it
for an increasingly competitive business environment. The principal elements of
the strategy include:
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.
A dividend policy guided by, among other factors, paying out 45% to 50%
of the prior year's earnings (adjusted for
one-time events).
A target debt-to-capital ratio of 45%, which IPALCO believes can be
achieved in 2002.
Consistent with the strategy, during 1997, IPALCO purchased approximately
25.1 million shares, or about 21%, of its outstanding common stock. Such
purchase was accomplished in a single transaction through a self-tender offer
(1997 Tender Offer) at a price of $32 per share, resulting in a total
transaction value of approximately $401 million. On November 24, 1998, IPALCO's
Board authorized the purchase of up to 6 million additional shares of IPALCO's
common stock on the open market and in privately negotiated transactions. IPALCO
intends to complete this purchase program as soon as possible, although the
Board authorization for the program does not expire until December 31, 1999. As
of December 31, 1998, IPALCO had purchased approximately 2.5 million of the 6
million shares at a total cost of $65.6 million.
The 1997 Tender Offer was financed with a $401 million revolving credit
facility (revolver) which was issued in April 1997. By July 15, 1998, the
outstanding balance under the revolver had been reduced to $234 million. At that
time, IPALCO replaced the revolver with a commercial paper facility. The
outstanding balance of the commercial paper facility at December 31, 1998, was
$197 million. Enterprises believes such commercial paper balance will increase
during early 1999 until it completes the remainder of its common stock
open-market purchase program.
As a result of the common stock and debt transactions enumerated above,
Enterprises' debt-to-capital ratio increased from 42.6% at December 31, 1996, to
66.0% at December 31, 1997. At December 31, 1998, the debt-to-capital ratio was
59.0%. Enterprises believes its earnings and cash flow will be sufficient to
allow it to retain earnings and reduce debt so that the target debt-to-capital
ratio of 45% can be achieved in 2002. 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.
Also consistent with its financial strategy, simultaneously with the
announcement of the 1997 Tender Offer on February 25, 1997, IPALCO reduced its
quarterly dividend from $.185 per share ($.74 annually) to $.125 per share ($.50
annually). On February 24, 1998, the Board increased the quarterly dividend to
$.1375 per share ($.55 annually); and on February 23, 1999, the Board further
increased the dividend to $.15 per share ($.60 annually).
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 a key element for having
adequate liquidity and financial flexibility. As of December 31, 1998, IPALCO's
corporate credit rating was A+ as rated by Standard & Poor's.
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).
Voluntary Early Retirement and Separation Program
- -------------------------------------------------
During 1998, Enterprises offered a voluntary early retirement and
separation program for certain individuals. Those eligible to participate in the
program were selected by virtue of their positions or job classifications and
because of the impact of efficiency improvements from new technologies.
Enterprises provided 42 employees, who accepted the offer, a lump sum payment in
the aggregate amount of $2.2 million.
Demand Side Management (DSM) 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
jurisdictional operating income of IPL's electric business is subject to review.
IPL's steam business is subject to annual fuel adjustment clause proceedings.
Customer refunds could result if actual annual jurisdictional 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 1999.
Elect Plan
- ----------
During 1998, the IURC approved a plan that allows IPL to offer customers
with less than 2,000 kilowatts of demand an opportunity to choose from optional
payment or service plans. Under the plan, eligible IPL customers may enter into
written contracts 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 each month for 12 months, regardless of how much
electricity is used. Customers not choosing one of these options continue to
receive electric service under existing tariffs. (See Item 1, BUSINESS, under
the subheading "Retail Ratemaking.")
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 affect 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; 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. To date, FERC has not acted on
IPL's request for rehearing.
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 for retail
sales of electric energy. While each state proposal is different, most provide
for some recovery of a utility's stranded costs and require an extended
transition period before full competition is fully effective. Additionally, a
few states have implemented pilot programs that experiment with allowing some
form of customer choice of electricity suppliers.
In Indiana, competition among electric energy providers for sales has
focused primarily on the sale of bulk power to other public and municipal
utilities. Indiana law provides for electricity suppliers to have exclusive
retail service areas.
In 1995, the Indiana General Assembly, anticipating increasing
competitive forces in the regulated public utility industry, enacted I.C.
8-1-2.5, which enables the IURC to consider and approve, on an individual
utility basis, utility-initiated proposals that the IURC decline to exercise
jurisdiction over the whole or any part of the utility, or its retail energy
service or both. The IPL Elect Plan was approved by the IURC 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 failed to pass. Another comprehensive restructuring bill, Senate Bill 648,
has been submitted in 1999.
Enterprises' Position on Industry Deregulation
- ----------------------------------------------
In general, the foregoing FERC wholesale and state-by-state retail
initiatives are inconsistent with Enterprises' beliefs. Enterprises favors
federal legislation to deregulate the industry for all companies and all
customers across the country at the same time. Enterprises 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.
Enterprises 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, Enterprises believes state policy makers must
recognize and make allowances for the distorted markets that will inevitably be
created by state-by-state approaches. IPL does not support Senate Bill 648.
There can be no assurance as to the outcome of the debate on electric
utility industry restructuring. Enterprises 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 (EPA)
promulgated final regulations which amended the National Ambient Air Quality
Standards by introducing standards for fine particulate matter and creating new
ozone standards. On October 27, 1998, the EPA issued a final rule calling for
Indiana, along with 22 other jurisdictions in the eastern third of the United
States, to impose more stringent limits on emission of nitrogen oxides from
fossil-fuel fired steam electric generators, such as those operated by
Enterprises. Because power plants emit nitrogen oxides, as well as certain air
pollutants that could contribute to the formation of 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. Numerous
entities, including eight states, Enterprises and scores of other electric
utilities, have challenged EPA's 1998 rule on nitrogen oxides in the United
States Court of Appeals. Due to these uncertainties, it is not presently
possible to predict the effects of these standards on Enterprises.
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.
Sustaining investment grade debt ratings is also a key element for having
adequate liquidity and financial flexibility. As of December 31, 1998, 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 that matures during 1999. However, other
existing higher-rate debt may be refinanced depending upon market conditions.
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. See the following section for
discussion of the construction program.
Future Performance
------------------
Traditionally, retail KWH sales, after adjustments for weather
variations, have grown in close correlation with growth in service territory
economic activity. During the past 10 years, IPL's retail KWH sales have grown
at a compound annual rate of 2.1%, while the Indianapolis economy grew at an
annual rate of 2.3%. The Indianapolis economy is expected to grow at an annual
rate of 2.4% for 1999 through 2003.
IPL's wholesale KWH sales doubled in 1998 over the level achieved in
1997. As IPL's retail sales grow, the amount of generating capacity available
for wholesale sales is more limited. Moreover, IPL plans to perform overhaul
maintenance on more megawatts of generating capacity in 1999 than in 1998, which
further reduces the amount of generating capacity available for wholesale sales.
The ability to sell power in the highly competitive wholesale market is also
highly dependent on market conditions. IPL is unable to predict, with any degree
of certainty, the level of wholesale sales that may be achieved in 1999.
Operating and maintenance expenses were $423.3 million in 1998. These
expenses in 1999 will be influenced by the level of KWH generation, generating
unit availability and overhaul costs, expected increased purchased power costs
(see Note 13 in the Notes to Consolidated Financial Statements), cost control
programs and inflation.
IPL's construction program for the three-year period 1999-2001 is
estimated to cost $259.5 million including AFUDC. The estimated cost of the
program by year (in millions) is $96.2 in 1999, $95.6 in 2000 and $67.7 in 2001.
It includes $147.8 million for additions, improvements and extensions to
transmission and distribution lines, substations, power factor and voltage
regulating equipment, distribution transformers and street lighting
distribution. The construction program includes $26.5 million for construction
of a 100-megawatt combustion turbine expected to be in service by 2001.
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, was a one-time income increase of $18.3 million ($.19 per common
share) and was 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
the Notes to Consolidated Financial Statements for additional information
concerning this accounting change).
Preferred Stock, Debt Issuance and Dividend Restrictions
- --------------------------------------------------------
Restrictions on IPL's ability to issue certain securities or pay cash
dividends are contained in its Mortgage and Deed of Trust (Mortgage) and its
Amended Articles of Incorporation (Articles). The Articles require that the net
income of IPL, as specified therein, be at least one and one-half times the
total interest on the funded debt and the pro forma dividend requirements on the
outstanding, and any proposed, preferred stock before any additional preferred
stock is issued. The Mortgage 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, 1998, the ratios
under the Articles and the Mortgage are 5.09 and 11.62, respectively (see Note 6
in the Notes to Consolidated Financial Statements). IPL believes these
requirements will not restrict any anticipated future financings or cash
dividend payments. At December 31, 1998, 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
Enterprises, has as subsidiaries Mid-America Energy Resources, Inc. (Energy
Resources), Indianapolis Campus Energy, Inc. (ICE), Cleveland Thermal Energy
Corporation (Cleveland Thermal) and Cleveland District Cooling Corporation
(Cleveland Cooling), which jointly do business as Cleveland Energy Resources,
and Store Heat and Produce Energy, Inc., which conducts business as SHAPE Energy
Resources (SHAPE) and was 80% owned as of December 31, 1998. Energy Resources
owns and operates a fully subscribed district cooling system in downtown
Indianapolis, Indiana. ICE provides chilled water to the Lilly Technology Center
located near downtown Indianapolis. Cleveland Thermal owns and operates a
district heating system in Cleveland, Ohio. Cleveland Cooling owns and operates
a district cooling system in Cleveland. SHAPE's operations became inactive
during 1998.
Capital and Financing Requirements
----------------------------------
Total capital requirements of Mid-America and its subsidiaries, including
funds needed for construction and maturing debt obligations, are estimated to be
$2.7 million, $2.5 million and $3.7 million during the next three years. 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.
During 1997, Energy Resources, a subsidiary of Mid-America, issued $50
million of long-term notes payable.
In 1997, Enterprises initiated a plan to sell, during 1998, two
subsidiaries of Mid-America, Cleveland Thermal and Cleveland Cooling
(collectively referred to as CER) and ceased recording depreciation. During
the third quarter of 1998, Enterprises determined that it was not probable that
CER would be sold during 1998. Enterprises continues to have the ability to
remove the assets from operations. Enterprises resumed depreciation on the CER
assets during September 1998. Enterprises' plan currently anticipates disposal
of CER in 1999.
<PAGE>
IPALCO ENTERPRISES CONSOLIDATED
- -------------------------------
Market Risk Sensitive Instruments and Positions
-----------------------------------------------
The primary market risk to which Enterprises is exposed is related to
interest rate risk. Enterprises uses long-term debt as a primary source of
capital in its business. A portion of this debt has an interest component that
resets on a periodic basis to reflect current market conditions. The following
table presents the principal cash repayments and related weighted average
interest rates by maturity date for Enterprises' long-term fixed-rate debt and
its other types of long-term debt at December 31, 1998:
<TABLE>
<CAPTION>
Expected Maturity Date
Fair
(Dollars in Millions) 1999 2000 2001 2002 2003 Thereafter Total Value
- ---------------------------------------------------------------------------------------------------------------
Long-term debt
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $1.4 $2.4 $3.3 $3.4 $3.8 $539.7 $554.0 $595.8
Average rate 7.9% 7.9% 7.9% 7.9% 7.9% 6.9% 6.9%
Variable - - - - - $159.3 $159.3 $159.3
Average rate - - - - - 4.0% 4.0%
Recapitalization debt - $36.6 $80.2 $80.2 - - $197.0 $197.0
Average rate - 6.7% 6.7% 6.7% - - 6.7%
</TABLE>
To manage Enterprises' exposure to fluctuations in interest rates and to
lower funding costs, Enterprises constantly evaluates the use of, and has
entered into, interest rate swaps. Under these swaps, Enterprises or its
subsidiaries agree with counterparties to exchange, at specified intervals, the
difference between fixed-rate and floating-rate interest amounts calculated on
an agreed notional amount. This interest differential paid or received is
recognized in the consolidated statements of income as a component of interest
expense.
At December 31, 1998, IPALCO had an interest rate swap agreement
outstanding with a notional amount of $250 million, of which the notional amount
decreases $25 million each quarter. Enterprises has agreed to pay a fixed rate
of 6.3575% and receive a floating rate based on applicable LIBOR.
At December 31, 1998, IPL had an interest rate swap agreement with a
notional amount of $40 million, which expires in January 2023. IPL agrees to pay
interest at a fixed rate of 5.21% to a swap counter party and receive a variable
rate based on the tax-exempt weekly rate.
Other
-----
Year 2000
- ---------
Enterprises is potentially subject to operational problems associated
with the inability of various computer hardware, software and devices containing
embedded chips to properly process the year change from 1999 to 2000. Such
problems could conceivably affect Enterprises' ability to deliver electricity,
steam or chilled water to its customers, as well as Enterprises' internal
operations such as billing or payroll functions. Further, Year 2000 problems
experienced by other entities, over which Enterprises has no control, such as
certain suppliers or other electric utilities with which Enterprises is
interconnected, could adversely affect Enterprises' operations.
In 1997, Enterprises established a Year 2000 Committee. Enterprises
currently manages the Year 2000 project through two employee committees, the
Compliance Testing Committee and the Contingency Planning Committee, each headed
by corporate officers. Each of those committees reports to a Year 2000 Steering
Committee composed of officers. The Year 2000 Steering Committee reports to the
Office of the Chairman, who reports to the Board of Directors. Enterprises has a
formal Year 2000 Plan approved by the Board of Directors.
The IURC has ordered all Indiana public utilities, including Enterprises,
to "use their best efforts to identify their mission critical operations and
conduct an inventory of all electronic devices that may be affected by date
processing logic, assess the status of these devices, take steps to correct
problems in the devices and test the devices to determine compliance" in order
to be "Year 2000 ready."
The Compliance Testing Committee is engaged in inventorying, reviewing,
analyzing, correcting and testing computer-related systems and embedded chip
devices. The Contingency Planning Committee is in the process of assessing
various operating scenarios associated with potential Year 2000 problems and
formulating plans by which to operate Enterprises in the event of such problems.
Both the Compliance Testing Committee and the Contingency Planning Committee are
concentrating first on systems critical to the continuity of Enterprises'
business. Non-critical systems have lower priorities in terms of committee
efforts.
Enterprises is participating in an Electric Power Research Institute
program on the Year 2000 issue, as well as the North American Electric
Reliability Council system readiness assessments.
Enterprises' Year 2000 Plan includes attention to its generating
facilities, energy management systems, telecommunications systems, substation
control and protection systems, transmission and distribution systems, business
information systems, financial systems and business partners. It includes
efforts, such as assessing Year 2000 risks to computer hardware, software and
embedded systems; identifying options and solutions; evaluating solutions;
repairing, upgrading and replacing systems; testing systems; and contingency
planning.
State of Readiness
A. Identification and Assessment
The Compliance Testing Committee is coordinating and reviewing the
enterprise-wide use of information technology and assessing potential Year 2000
problems. That effort involves making an inventory of applications and systems
and evaluating exposures associated with, for example, vendor-provided software
and hardware, Enterprises-developed software, and various devices containing
embedded chips. The Committee is also in contact with vendors to determine
product compliance and vendors' timeframes for compliance. Computer systems
being reviewed include hardware, machine microcode and firmware, operating
systems, generic applications software, billing software, communications
software and financial software.
The Compliance Testing Committee continues to assess computer systems and
embedded chip devices related to Enterprises':
Electricity generating stations and plants producing steam and/or chilled
water;
Energy management systems;
Substation controls, system protection, and transmission and
distribution systems;
Telecommunications systems; and
Business information systems.
The identification, inventory and assessment phases for critical systems
are now essentially complete.
B. Remediation and Testing
The Compliance Testing Committee is coordinating, modifying or replacing
legacy systems which may not be Year 2000 compliant. Enterprises is in the
process of replacing most of its key financial software applications. Although
that project was not specifically initiated as a Year 2000 effort, it will
coincidentally result in replacement of non-compliant software.
The Compliance Testing Committee is also engaged in establishing and
operating appropriate testing environments to determine, to the extent possible,
the Year 2000 compliance of existing systems and/or devices and the compliance
of replacement or upgraded systems and devices. Enterprises may employ one or
more of the following techniques: component tests, simulations, outside testing,
vendor verifications or upgrades or change-outs. Some devices or systems, such
as satellite communication links, may not be susceptible to testing, in which
cases Enterprises must rely on the service providers' verifications.
Enterprises has inquired of its suppliers and vendors of software,
computer-related equipment, devices and services about Year 2000 compliance.
Some provided the required information and/or assurances and some did not.
Enterprises' operations could be adversely affected by Year 2000-related
failures of other companies, such as telecommunication providers, that supply
Enterprises with mission-critical services. Similarly, Year 2000 failures of
other utilities with which Enterprises is interconnected could adversely affect
Enterprises' ability to deliver services to its customers.
Enterprises currently expects to complete the remediation and testing
phases for critical systems by the end of the second quarter 1999 and estimates
that it is now approximately 65% complete.
Costs to Address Enterprises' Year 2000 Issues
Not including the cost of replacing Enterprises' business software, a
project not initiated specifically for Year 2000 reasons but which will provide
Year 2000 benefits through replacing non-compliant software, Enterprises
currently estimates that its costs of the phases of identification, assessment,
remediation and testing may be approximately $4.2 million which Enterprises
believes is not material to its results of operations, liquidity and financial
condition. Of that figure, Enterprises has currently expended approximately $1.2
million. A substantial proportion of the costs of remediation are associated
with functional areas of Enterprises other than Information Services.
Enterprises currently estimates that its cost of contingency planning efforts
may be approximately $1.5 million.
Risks of Enterprises' Year 2000 Issues
In light of the numerous computer-related systems and embedded chip
devices present in business and production equipment used by a utility, and the
interdependent nature of control systems, a large number of potential Year 2000
failure scenarios exist, potentially involving Enterprises' internal functions
(such as billing), as well as its chilled water, steam and electricity
generation and distribution functions. Consequences could conceivably range from
essentially no operational problems to a massive disruption of chilled water,
steam and electric service lasting for a significant period of time. Further,
since Enterprises does not stand alone but is electrically interconnected with
other utilities across a substantial portion of the nation, even if Enterprises
experiences no significant Year 2000 problems associated with its own equipment,
its ability to deliver electricity could be adversely affected by Year 2000
failures experienced by other interconnected utilities. Enterprises currently
expects to experience at least some, hopefully minor, problems associated with
Year 2000. Some particularly bleak yet conceivable Year 2000 failure scenarios
could be material to Enterprises' results of operations.
There are both external and internal risks associated with Year 2000 that
could affect Enterprises' chilled water, steam and electricity generation,
transmission and distribution operations. Potential internal risk factors
include, but are not limited to, increased risk of generator trips, inability to
start or restart generators, increased risk of transmission facility trips, loss
of energy management systems, loss of Company-owned voice/data communications,
system protection (relay) failures resulting in cascading outages or facility
damage, failure of load-shedding controls to operate properly, failure of load
management systems to operate properly, loss of or incorrect critical operating
data, failure of environmental control systems, loss of distribution systems or
failure of voltage control devices to operate properly. Occurrences of those
internal problems, alone or in combination, could result in varying effects on
Enterprises' operations.
External risk factors include, but are not limited to, loss of customer
load, uncharacteristic load patterns, loss of leased communication facilities,
failure of delivery systems to maintain supplies of fuel and severe or cold
weather. Occurrences of various of those events, alone or in combination, could
result in varying effects on Enterprises.
Particularly with respect to responding to contingencies that might
occur, unavailability of skilled labor could exacerbate Year 2000 problems. The
current collective bargaining agreement between IPL and the International
Brotherhood of Electrical Workers, the union representing IPL's production,
distribution, construction and maintenance employees, expires on December 13,
1999. That union rejected a proposed one-year extension of the collective
bargaining agreement that was proposed by management so that negotiations would
not occur near the end of calendar year 1999.
Enterprises' insurance policies, including policies for liability and
property damage, currently expire, are up for renewal or have anniversary dates
during 1999. Enterprises currently expects that, in line with a general trend in
the insurance industry, insurance policies purchased or renewed during 1999 may
exclude coverage of Year 2000 events or certain elements of damage potentially
flowing therefrom.
In light of the many adverse conditions that could happen to Enterprises
associated with Year 2000, along with the speculation that some or many of them
may not happen, it is extremely difficult to hypothesize a most reasonably
likely worst case Year 2000 scenario with any degree of certainty. With that in
mind, Enterprises currently believes the most reasonably likely worst case
scenario would be the temporary loss of one or more generation units resulting
in interruptions of power to Enterprises' customers. Enterprises does not
believe that the worst case scenario will occur and, should it occur,
Enterprises believes that the consequences of that scenario, with regard to
either costs of repair or lost revenues, are not likely to have a material
effect on Enterprises' results of operations, liquidity and financial condition.
Enterprises' Contingency Plans
The Contingency Planning Committee is engaged in reviewing hypothetical
scenarios involving various system or device failures and preparing plans by
which to operate Enterprises in the event those failures occur. Enterprises'
contingency planning efforts are not yet complete, but are underway within the
scope of an overall outline. Enterprises' contingency planning involves the
phases of plan development, testing, execution and recovery after Year 2000
events. As with compliance testing, contingency planning touches essentially
every area of Enterprises' operations, as well as interactions with
interconnected utilities, customers, critical vendors and emergency and other
governmental authorities.
The planning phase attempts to identify and evaluate potential impacts on
business operations, life, property, and the environment; develop emergency
plans including establishing procedures for mitigation of failures and evaluate
contingency planning being done on systems that interface with Enterprises'
systems; identify dates of action for various contingencies; establish
responsibility and authority for various response efforts; and establish and
perform a training program with respect to responding to contingencies,
including practicing and testing the contingency plans and coordinating the
efforts with governmental functions.
Contingency planning may include consideration of potential interruptions
in the supply chain or transportation of critical fuel, water, chemicals,
material supplies etc., and acquisition of appropriate extra supplies, as well
as potential failures of or other problems associated with the interconnected
electricity grid. Similarly, consideration may be given to cooperative
arrangements with other utilities in the event that Year 2000 problems impact
the supply of skilled labor to effect remediation actions. Enterprises' existing
disaster recovery plans may form bases for some Year 2000 contingency plans.
In the testing phase, various drills may be conducted to test the plan's
effectiveness. Modifications may be made where testing indicates a need. In the
execution phase, Enterprises will operate its contingency plans in response to
events actually occurring.
After Year 2000 events, if any, Enterprises will execute its post-event
contingency plans as required. It will test its system functions, review the
results, restore and restart systems, and notify appropriate authorities of the
resolution of problems.
Cash Flows
- ----------
Additional information regarding Enterprises' 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.
RESULTS OF OPERATIONS
The following discussion pertains to the consolidated financial
statements of IPALCO Enterprises, Inc.
All per share information presented herein has been restated to reflect
the March 1999 common stock split on a retroactive basis (see Note 14 in the
Notes to Consolidated Financial Statements).
Diluted earnings per share during 1998 were $1.43, or $.25 above the
$1.18 attained in 1997. Diluted earnings per share during 1997 were $1.18, or
$.18 above the $1.00 attained in 1996. The following discussion highlights the
factors contributing to these results.
The 1998 earnings per share were affected by a pretax gain of $12.5
million ($7.8 million, net of tax or $.09 per share) resulting from the
liquidation and termination of an agreement to purchase power (see Note 13 in
the Notes to Consolidated Financial Statements).
The weighted average shares used to calculate diluted earnings per share
for both 1998 and 1997 were substantially affected by the April 1997 purchase by
IPALCO of approximately 25.1 million shares (approximately 21%) of its
outstanding common stock. Other factors influencing 1997 diluted earnings per
share include: (1) a one-time cumulative effect adjustment of $18.3 million, net
of taxes ($.19 per share) resulting from IPL's change to the unbilled revenue
method of accounting; (2) a charge of $32 million ($20.8 million, net of tax or
$.22 per share) to write down the carrying values of Cleveland Thermal and
Cleveland Cooling; and (3) a $5.7 million gain ($3.5 million, net of taxes or
$.04 per share) from the sale of a retired IPL plant site (see Notes 2 and 3 in
the Notes to Consolidated Financial Statements).
Utility Operating Revenues
- --------------------------
Operating revenues in 1998 and 1997 increased from the prior year
by $44.8 million and $13.9 million, respectively. The increases in
revenues resulted from the following:
Increase (Decrease)
-------------------
1998 over 1997 1997 over 1996
-------------- --------------
(Millions of Dollars)
Electric:
Increase in retail basic rates $ - $ 12.7
Change in retail KWH sales - net of fuel 14.5 (7.4)
Fuel revenue 3.5 (4.7)
Wholesale revenue 28.0 8.6
DSM tracker revenue 1.3 1.3
Steam revenue (2.9) .6
Other revenue .4 2.8
------ ------
Total change in operating revenues $ 44.8 $ 13.9
====== ======
The increase in retail KWH sales in 1998 reflects economic growth in
Indianapolis and an increase in cooling degree days during the summer partially
offset by a decrease in heating degree days during the mild winter of 1998. The
increase in retail basic rates in 1997 is the result of new tariffs, effective
July 1, 1996, designed to produce additional annual base revenues of $25
million. 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. 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:
Increase (Decrease)
-------------------
1998 over 1997 1997 over 1996
-------------- --------------
Electric Residential Customers 5,257 1.4% 4,657 1.3%
Commercial & Industrial Customers 1,169 2.6% 1,048 2.4%
Heating Degree Days (1,261) (22.2)% (203) (3.4)%
Cooling Degree Days 381 43.8% (121) (12.2)%
The changes in fuel revenues in 1998 and 1997 from the prior year reflect
differences in fuel costs billed to customers. Wholesale sales were $51.1
million, $23.1 million and $14.5 million for 1998, 1997 and 1996, respectively.
The increases in wholesale revenues in 1998 and 1997 reflect increased wholesale
marketing efforts and energy requirements of other utilities in those years. The
increases in other revenues represent increased service revenues.
Utility Operating Expenses
- --------------------------
Fuel expense increased in 1998 by $16.5 million and only slightly in 1997
from the prior years. The increases were primarily due to increased total KWH
sales.
Other operating expenses in 1998 and 1997 increased from the prior year
by $12.3 million and by $6.1 million, respectively. The increase in 1998 was
partially due to increased administrative and general expenses of $7.7 million.
This increase was due to payments for the voluntary early retirement and
separation program as well as increased outside services and increased labor
costs. Electric distribution expenses increased $1.7 million and production
expenses increased $1.5 million during 1998. 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 DSM program expenses of $2.3 million
partially offset by decreased expense at the production plants.
Power purchased decreased by $.7 million and $10.5 million during 1998
and 1997, respectively, compared to the prior periods. The decrease in 1998 was
due to decreased demand charges partially offset by increased purchases of KWH.
The 1997 decrease was primarily due to reduced demand charges as a result of a
new power purchase contract.
Purchased steam decreased during 1998 and 1997 primarily due to decreased
therms purchased from an independent resource recovery system located within the
city of Indianapolis.
Maintenance expenses decreased by $3.2 million during 1998 and increased
by $8.9 million during 1997. The decrease in 1998 was primarily due to decreased
overhaul expenses. 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.
Taxes other than income taxes increased $2.0 million during 1998 while
decreasing $.3 million in 1997. The increase in 1998 was due to increased
property taxes, gross income taxes and employment taxes. The decrease in 1997
was due to decreased property and gross income taxes.
Income taxes - net increased in both 1998 and 1997 from the prior
years by $6.9 million and $5.1 million, respectively. These changes reflect
increases in pretax operating income.
Other Income And Deductions
- ---------------------------
Allowance for equity funds used during construction decreased $2.1
million and $2.5 million during 1998 and 1997, respectively. In mid 1997, the
amortization of deferred carrying charges on a plant asset ended, contributing
to the decreases in both 1998 and 1997. Also contributing to the 1997 variance
were decreased carrying charges on other regulatory assets of $1.2 million.
Other - net, which includes the pretax income before interest charges of
operations other than IPL, as well as pre-tax non-operating income from IPL,
decreased by $5.1 million during 1998 and increased by $10.2 million during
1997, as compared to the prior years. The decrease in 1998 was due primarily to
the non-recurring gain from the sale of a retired IPL plant site in 1997 and a
charitable contribution by IPALCO of $3.0 million in 1998. The increase during
1997 was due to a $5.7 million pretax gain from the sale of the retired IPL
plant site, and a $4.5 million increase in the pretax income before interest
charges of IPALCO's non-utility operations.
During 1998, a gain from the liquidation and termination of an agreement
to purchase power was recognized by IPL in the amount of $12.5 million before
taxes.
The provision for impairment of nonutility property during 1997 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 $.1 million and $15.3 million in
1998 and 1997, respectively. 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 1997 increase was an
increase in interest expense at Mid-America of $2.6 million related to 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.
Other interest charges decreased by $.7 million and $2.4 million during
1998 and 1997, respectively. The decreases were primarily due to decreased
short-term debt borrowings and decreased interest on tax assessments.
As compared to the prior year, the allowance for borrowed funds used
during construction decreased in 1997 by $2.4 million due to a decreased
construction base for that period.
Amortization of redemption premiums and expenses on debt - net increased
in 1998 and 1997 compared to the previous periods. The increase during 1998 was
due to a full year of amortization of the costs associated with debt issued
during 1997. The increase during 1997 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
1997 stock repurchase.
Preferred stock transaction costs increased $1.7 million during 1998 and
decreased $2.1 million during 1997 as compared to the prior periods. Both of
these variances reflect the gain during 1997 of $1.7 million from the retirement
of preferred stock.
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 Pronouncement
- ----------------------------
The Financial Accounting Standards Board has issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," that Enterprises will be required to adopt in 2000 (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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 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 22, 1999
(February 23, 1999 as to Note 14)
<PAGE>
<TABLE>
<CAPTION>
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
Statements of Consolidated Income
For the Years Ended December 31, 1998, 1997 and 1996
- ----------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
UTILITY OPERATING REVENUES (Notes 3 and 10):
<S> <C> <C> <C>
Electric $ 785,835 $ 738,134 $ 724,764
Steam 35,421 38,293 37,739
------------- -------------- -------------
Total operating revenues 821,256 776,427 762,503
------------- -------------- -------------
UTILITY OPERATING EXPENSES:
Operation:
Fuel 181,036 164,578 164,339
Other 155,610 143,311 137,192
Power purchased 7,170 7,833 18,365
Purchased steam 5,968 7,075 7,240
Maintenance 73,501 76,679 67,768
Depreciation and amortization 103,223 103,230 102,769
Taxes other than income taxes 35,047 33,071 33,363
Income taxes - net (Note 9) 80,190 73,335 68,248
------------- -------------- -------------
Total operating expenses 641,745 609,112 599,284
------------- -------------- -------------
UTILITY OPERATING INCOME 179,511 167,315 163,219
------------- -------------- -------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 1,389 3,462 5,967
Other - net (2,995) 2,140 (8,056)
Gain on termination of agreement (Note 13) 12,500 - -
Provision for impairment of nonutility property (Note 2) - (32,000) -
Income taxes - net (Note 9) 5,231 19,004 3,645
------------- -------------- -------------
Total other income and (deductions) - net 16,125 (7,394) 1,556
------------- -------------- -------------
INCOME BEFORE INTEREST AND OTHER CHARGES 195,636 159,921 164,775
------------- -------------- -------------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 60,489 60,385 45,110
Other interest 1,071 1,799 4,202
Allowance for borrowed funds used during construction (911) (945) (3,354)
Amortization of redemption premiums and expenses on
debt - net 2,062 1,903 1,360
Preferred stock transactions 2,806 1,080 3,182
------------- -------------- -------------
Total interest and other charges - net 65,517 64,222 50,500
------------- -------------- -------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 130,119 95,699 114,275
CUMULATIVE EFFECT OF ACCOUNTING CHANGE-
NET OF TAXES (Note 3) - 18,347 -
------------- -------------- -------------
NET INCOME $ 130,119 $ 114,046 $ 114,275
============= ============== =============
BASIC EARNINGS PER SHARE (Notes 6 and 14):
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 1.45 $ 1.00 $ 1.00
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3) - .19 -
------------- -------------- -------------
NET INCOME $ 1.45 $ 1.19 $ 1.00
============= ============== =============
DILUTED EARNINGS PER SHARE (Notes 6 and 14):
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 1.43 $ .99 $ 1.00
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3) - .19 -
------------- -------------- -------------
NET INCOME $ 1.43 $ 1.18 $ 1.00
============= ============== =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
- -------------------------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands)
UTILITY PLANT:
<S> <C> <C>
Utility plant in service (Note 2) $ 2,859,899 $ 2,800,446
Less accumulated depreciation 1,202,356 1,121,317
---------------- ----------------
Utility plant in service - net 1,657,543 1,679,129
Construction work in progress 80,198 77,030
Property held for future use 10,719 10,224
---------------- ----------------
Utility plant - net 1,748,460 1,766,383
---------------- ----------------
OTHER ASSETS:
Nonutility property (Note 2) 91,319 90,344
Less accumulated depreciation 19,485 17,479
---------------- ----------------
Nonutility property - net 71,834 72,865
Other investments 12,234 13,023
---------------- ----------------
Other assets - net 84,068 85,888
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 9,075 17,293
Accounts receivable and unbilled revenue (less allowance for doubtful
accounts - 1998, $1,212,000 and 1997, $1,202,000) (Note 3) 39,702 47,033
Fuel - at average cost 39,147 35,257
Materials and supplies - at average cost 48,624 48,416
Tax refund receivable 9,647 4,829
Prepayments and other current assets 4,678 4,271
---------------- ----------------
Total current assets 150,873 157,099
---------------- ----------------
DEFERRED DEBITS:
Regulatory assets (Note 5) 116,801 126,784
Miscellaneous 18,743 19,404
---------------- ----------------
Total deferred debits 135,544 146,188
---------------- ----------------
TOTAL $ 2,118,945 $ 2,155,558
================ ================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
(In Thousands)
CAPITALIZATION:
<S> <C> <C>
Common shareholders' equity (Note 6):
Common stock, no par, authorized - 580,000,000 shares,
116,412,526 issued and 88,863,026 outstanding in 1998,
114,378,544 shares issued and 89,299,688 outstanding in 1997 (Note 14) $ 434,681 $ 395,851
Unearned compensation - restricted stock (5,384) (1,583)
Premium on 4% cumulative preferred stock 649 649
Retained earnings 612,941 532,730
Treasury stock, at cost (468,696) (403,101)
---------------- ----------------
Total common shareholders' equity 574,191 524,546
Cumulative preferred stock of subsidiary (Note 6) 59,135 9,135
Long-term debt (Notes 2 and 7) 907,974 1,032,846
---------------- ----------------
Total capitalization 1,541,300 1,566,527
---------------- ----------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper (Note 8) 25,200 33,700
Current maturities and sinking fund requirements (Note 7) 1,425 3,094
Accounts payable and accrued expenses 71,835 66,105
Dividends payable 13,392 11,523
Taxes accrued 20,723 22,126
Interest accrued 14,376 15,493
Other current liabilities 13,731 12,555
---------------- ----------------
Total current liabilities 160,682 164,596
---------------- ----------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Deferred income taxes - net (Note 9) 318,327 314,869
Unamortized investment tax credit 41,993 44,783
Accrued postretirement benefits (Note 11) 10,768 17,144
Accrued pension benefits (Note 11) 39,953 39,821
Miscellaneous 5,922 7,818
---------------- ----------------
Total deferred credits and other long-term liabilities 416,963 424,435
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 12)
TOTAL $ 2,118,945 $ 2,155,558
================ ================
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, 1998, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C> <C>
Net income $ 130,119 $ 114,046 $ 114,275
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 102,977 103,841 102,677
Amortization of regulatory assets 11,507 15,405 17,680
Deferred income taxes and investment tax credit adjustments - net (2,056) 3,533 3,145
Allowance for funds used during construction (2,300) (4,407) (9,321)
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)
Change in certain assets and liabilities:
Accounts receivable - excluding cumulative effect
of accounting change 7,331 (6,019) 47,974
Fuel, materials and supplies (4,098) (321) 4,503
Accounts payable and accrued expenses 5,730 3,883 (19,762)
Taxes accrued (1,403) (1,033) 1,934
Accrued pension benefits 132 2,538 5,449
Other - net (15,271) (4,729) (18,285)
-------------- -------------- --------------
Net cash provided by operating activities 232,668 228,822 247,141
-------------- -------------- --------------
CASH FLOWS FROM INVESTING:
Proceeds from maturities of marketable securities - - 3,810
Construction expenditures - utility (79,458) (73,130) (78,543)
Construction expenditures - nonutility (975) (1,569) (4,187)
Other 3,932 (6,566) (16,607)
-------------- -------------- --------------
Net cash used in investing activities (76,501) (81,265) (95,527)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 271,500 451,300 37,600
Issuance of preferred stock (Note 6) 50,000 - -
Retirement of long-term debt (398,094) (89,250) (79,900)
Reacquired common stock (Note 6) (65,595) (403,101) -
Preferred stock redemptions (Note 6) - (41,814) -
Short-term debt - net (8,500) (12,300) (23,122)
Common dividends paid (48,235) (57,653) (83,629)
Issuance of common stock related to incentive compensation plans 29,869 4,089 4,560
Other 4,670 (852) 640
-------------- -------------- --------------
Net cash used in financing activities (164,385) (149,581) (143,851)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,218) (2,024) 7,763
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,293 19,317 11,554
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,075 $ 17,293 $ 19,317
============== ============== ==============
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest (net of amount capitalized) $ 62,381 $ 59,761 $ 47,857
============== ============== ==============
Income taxes $ 82,067 $ 63,915 $ 64,650
============== ============== ==============
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, 1998, 1997 and 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock
Outstanding Premium on 4%
------------------------ Unearned Cumulative Retained Treasury
Shares Amount Compensation Preferred Stock Earnings Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 113,604 $ 385,032 $ (1,168) $ 1,363 $ 436,408 $ 821,635
Net income 114,275 114,275
Cash dividends declared
($.74 per share) (84,286) (84,286)
Amortization of restricted stock 1,210 1,210
Post-split fractional shares (2) (36) (36)
Exercise of stock options 454 4,560 4,560
Restricted stock grants 14 410 (410) 0
---------- ---------- ---------- -------- ---------- ------------
Balance at December 31, 1996 114,070 389,966 (368) 1,363 466,397 857,358
Net income 114,046 114,046
Cash dividends declared
($.50 per share) (47,713) (47,713)
Amortization of restricted stock 581 581
Reacquired Common Stock (Note 6) (25,078) $ (403,101) (403,101)
Reacquired and retired
Preferred Stock (714) (714)
Exercise of stock options 306 4,089 4,089
Restricted stock grants 2 1,796 (1,796) 0
---------- ---------- ---------- --------- ---------- ---------- -----------
Balance at December 31, 1997 89,300 395,851 (1,583) 649 532,730 (403,101) 524,546
Net income 130,119 130,119
Cash dividends declared
($.55 per share) (49,418) (49,418)
Subsidiary capital stock expense (490) (490)
Amortization of restricted stock 5,160 5,160
Reacquired Common Stock (Note 6) (2,472) (65,595) (65,595)
Exercise of stock options 1,724 29,869 29,869
Forfeiture of restricted stock (29) (619) 619 0
Restricted stock grants 340 9,580 (9,580) 0
---------- ---------- ---------- --------- ---------- ------------ -----------
Balance at December 31, 1998 88,863 $ 434,681 $ (5,384) $ 649 $612,941 $ (468,696) $ 574,191
========== ========== ========== ========= ========= ============ ===========
See notes to consolidated financial statements.
Per share amounts and the number of shares have been adjusted to reflect the
two-for-one stock split as described in Note 14 in the Notes to Consolidated
Financial Statements.
</TABLE>
<PAGE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
=========================================
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
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) and Cleveland District Cooling Corporation (Cleveland
Cooling). All significant intercompany items have been eliminated in
consolidation.
The operating components of all subsidiaries other than IPL that had
revenue of $33.4 million, $33.0 million and $33.6 million for 1998, 1997 and
1996, 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. In December 1999, the contract of approximately 75% 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.
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 jurisdictional 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 1998, IPL's rolling annual
jurisdictional 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, 1998, IPL's most recent quarterly measurement
date, IPL had a cumulative net operating deficiency of $65.4 million, of which
$14.7 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. During 1998, IPL's annual jurisdictional steam operating
income was less than the authorized annual operating income at the January 31,
1998, measurement date.
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 9.7%, 9.1% and 7.3% during 1998, 1997 and 1996, 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 1998 and 1997 and 3.4% during 1996. Depreciation expense for 1997
and 1996 included 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.
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 $2.7 million, $4.4
million and $4.5 million for 1998, 1997 and 1996, respectively.
Sale of Accounts Receivable: IPL has 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, 1998, 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 tax related 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: Enterprises has only limited involvement with derivative
financial instruments and does not use them for trading purposes. Enterprises
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.
Cash and 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 are
covered by a defined benefit pension plan, a defined contribution plan and a
group benefits plan.
The defined benefit pension plan is noncontributory and is funded through
two trusts. Additionally, a select group of management employees of IPALCO and
IPL 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 (Thrift Plan). Employees elect
to make contributions to the Thrift Plan based on a percentage of their annual
base compensation. Each employee's contribution is matched in amounts up to, but
not exceeding, 4% of the employee's annual base compensation. Employer
contributions to the Thrift Plan were $3.5 million, $3.3 million and $3.4
million in 1998, 1997 and 1996, respectively.
The group benefits plan is sponsored by IPL and provides certain
health-care 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.
New Accounting Pronouncements: In 1998, Enterprises adopted Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Comprehensive Income," which
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. The adoption of SFAS 130 had no impact on
Enterprises' financial position or results of operations.
In 1998, Enterprises adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." In accordance with the terms of SFAS 131,
Enterprises has two business segments (electric and "all other"). Adoption of
this standard had no impact on Enterprises' financial position, results of
operations or cash flows. Steam operations of IPL and all subsidiaries other
than IPL were combined in the "all other" category. Pretax operating income for
the electric segment was $255.4 million, $233.0 million and $224.8 million and
for the "all other" segment was $6.6 million, $7.4 million and $2.9 million in
1998, 1997 and 1996, respectively. Steam operations of IPL are included in the
caption UTILITY OPERATING INCOME. All other operating components of all other
subsidiaries other than IPL are included in the caption "Other-net".
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a fair value hedge, a cash flow hedge, or a hedge of
a foreign currency exposure. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends of the intended use of the
derivative and the resulting designation. Management has not yet quantified the
effect of the new standard on the consolidated financial statements.
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.
Earnings per Share: All references to earnings per share in the Notes to
the Consolidated Financial Statements represent fully diluted earnings per
share.
Reclassifications: Certain amounts from prior years' consolidated
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:
1998 1997
- --------------------------------------------------------------------------------
(In Thousands)
Production................................. $1,716,786 $1,687,190
Transmission............................... 238,453 237,547
Distribution............................... 761,296 743,251
General .................................. 143,364 132,458
----------- ------------
Total utility plant in service.... $2,859,899 $2,800,446
========== ==========
Included above is steam plant in service of $107.4 million and $103.2
million for 1998 and 1997, respectively. 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 C.C. 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 under the caption OTHER
INCOME AND (DEDUCTIONS), "Other - net".
Nonutility Property
-------------------
The original cost of nonutility property at December 31 follows:
1998 1997
- -----------------------------------------------------------------------------
(In Thousands)
District Cooling.......................... $ 80,777 $ 79,165
District Heating.......................... 7,672 7,977
General ................................. 2,870 3,202
--------- ---------
Total nonutility property........ $ 91,319 $ 90,344
========= =========
Substantially all the District Cooling and Heating property is subject to
the lien of existing debt and/or credit agreements.
In 1997, Enterprises initiated a plan to sell during 1998, two
subsidiaries of Mid-America, Cleveland Thermal and Cleveland Cooling
(collectively referred to as CER) and ceased recording depreciation. Based
on fair market value estimates, Enterprises recorded a charge of $32 million
during 1997 to write down the carrying amounts of these businesses to
estimated fair value less cost to sell. The charge was included in
Enterprises' OTHER INCOME AND (DEDUCTIONS), for the year ended December 31,
1997. During 1998, it was determined that it was not probable that CER would be
sold during 1998. Due to the delay in disposal, depreciation was resumed on
the CER assets during September 1998. Enterprises continues to have the
ability to remove the assets from operations and anticipates disposal of CER
in 1999. Excluding the charge described above, these businesses contributed a
net loss of $1.5 million, $2.5 million and $1.7 million in 1998, 1997 and 1996,
respectively.
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 $.19 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 $.02 per share.
If this method had been applied retroactively, net income would have
been $112.1 million ($.98 per share) for the year ended December 31, 1996.
4. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has 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 and Cash Equivalents: 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 Enterprises 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 values of the interest rate
swap agreements of Enterprises have been estimated to be $(9.7) million and
$(5.9) million at December 31, 1998 and 1997, respectively. These amounts
represent what Enterprises would have to pay to enter into equivalent agreements
with a swap counter party. 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, 1998, and 1997,
the consolidated carrying amount of Enterprises' long-term debt, including
current maturities and sinking fund requirements, and the approximate fair value
are as follows:
1998 1997
---------------------------------------------------------------------------
(In Thousands)
Carrying amount $909,399 $1,035,940
Approximate fair value 952,121 1,066,354
5. REGULATORY ASSETS
The amounts of regulatory assets at December 31 are as follows:
1998 1997
- ------------------------------------------------------------------------------
(In Thousands)
Related to deferred taxes (Note 1) $ 46,823 $ 44,099
Postretirement benefit costs in excess of cash
payments and amounts capitalized (Note 11) 10,720 17,152
Unamortized reacquisition premium on debt (Note 1) 22,301 23,751
Unamortized Petersburg Unit 4 carrying charges
and certain other costs (Note 1) 29,174 30,228
Demand side management costs (Note 10) 7,783 10,308
Other - 1,246
--------- ---------
Total regulatory assets $ 116,801 $ 126,784
========= =========
6. CAPITAL STOCK
Stock Repurchases: In 1997, IPALCO conducted a "Dutch Auction"
self-tender offer and purchased 25,078,856 shares of common stock at a total
cost of $403.1 million. During 1998, IPALCO's Board authorized the repurchase of
up to 6 million additional shares on the open market and in privately negotiated
transactions. As of December 31, 1998, 2,470,644 shares have been repurchased as
part of this new repurchase plan at a cost of $65.6 million.
Common Stock: IPALCO has a Rights Agreement, amended and restated as of
April 28, 1998, that is 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 April 28, 2008, 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 120
million shares for issuance.
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,
-------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
Weighted average common shares 89,979 95,884 113,849
Dilutive effect of stock options 1,298 571 233
------ ------ -------
Weighted average common
and incremental shares 91,277 96,455 114,082
====== ====== =======
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 approximately 2.6 million additional shares as of December
31, 1998, pursuant to this plan. All purchases in 1998 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 3.6 million additional shares available for issue under the Thrift
Plan as of December 31, 1998. All purchases in 1998 were made on the open
market.
IPALCO is authorized to issue 62,748 additional shares of common stock
pursuant to the Energy Resources 401(k) plan. All purchases in 1998 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. Four million shares of common stock were authorized for
issuance under the 1997 Plan. As of December 31, 1998, 1,685,500 shares were
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. Three
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
non-employee 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 10-year anniversary of, the grant date. Under
the 1991 Plan, 750,000 shares of common stock were authorized for issuance and
180,000 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>
Outstanding, January 1, 1996.................. $ 11.37 $ 8.416 -$12.686 2,410,500
Granted..................................... 12.63 12.625 90,000
Exercised................................... 8.51 8.416 - 12.665 (453,360)
----------
Outstanding, December 31, 1996................ 12.06 8.416 - 12.686 2,047,140
Granted..................................... 15.69 15.688 2,265,000
Granted..................................... 15.25 15.25 84,000
Exercised................................... 12.03 8.416 - 15.688 (305,464)
----------
Outstanding, December 31, 1997................ 14.14 8.416 - 15.688 4,090,676
Granted..................................... 21.03 21.03 150,000
Granted..................................... 20.35 20.345 30,000
Granted..................................... 21.67 21.67 72,000
Exercised................................... 14.16 8.416 - 15.688 (1,724,378)
----------
Outstanding, December 31, 1998................ 14.80 8.416 - 21.67 2,618,298
==========
</TABLE>
The number of shares exercisable at December 31, 1998, 1997 and 1996
were: 2,558,298, 4,090,676, and 2,047,140, respectively, with a weighted average
exercise price of $14.65, $14.14 and $12.06, respectively. The weighted average
remaining contractual life of the options outstanding at December 31, 1998, 1997
and 1996 was 7.0 years, 7.7 years and 6.3 years, respectively.
IPALCO has a Long-Term Performance and Restricted Stock Incentive Plan
(1995 Plan). Pursuant to the 1995 Plan, 1.2 million shares of common stock of
IPALCO have been authorized and reserved for issuance, and initial awards of
174,608 shares of restricted common stock were made to participating employees
on January 1, 1995. On January 1, 1997 and 1996, an additional 3,256 and 14,638
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 18,864 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 (147,480 shares). Participants may choose from one of four payout
options for vested shares, including partial cash payout. Of the vested shares,
67,438 were paid out in the form of stock. During 1998, an additional 24,218
shares vested. An additional one-third of the awards vested (115,104 shares) on
January 1, 1999, of which 38,158 shares were paid out in the form of stock.
On January 27, 1998, the Board of Directors amended the Long-Term
Performance and Restricted Stock Incentive Plan (1998 Plan). Pursuant to the
1998 Plan, an additional 1.8 million shares of common stock of IPALCO have been
authorized and reserved for issuance, for a total of 3 million shares. Initial
awards of 225,382 shares of restricted common stock were made to participating
employees on January 27, 1998. During 1998, 19,826 shares of restricted stock
were canceled. On January 4, 1999, an additional 15,572 shares were issued to
reflect the addition of new participants. Awards are made on established targets
for the participants 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. At the end of a performance period, awards are
subject to adjustment to reflect Enterprises' performance compared to companies
in the S&P 500 Index with regard to cumulative total return to shareholders
during the three-year performance period. Depending on Enterprises' performance,
final awards may range from 400% of the initial awards to zero.
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," Enterprises' net income for the year ended December
31, 1998, would have decreased from $130.1 million ($1.43 per share) to the pro
forma amount of $129.6 million ($1.42 per share). Enterprises' net income and
earnings per share for the similar period in 1997 would have decreased from
$114.0 million ($1.18 per share) to the pro forma amount of $110.4 million
($1.15 per share). Enterprises' net income and earnings per share for the
similar period in 1996 would have decreased from $114.3 million ($1.00 per
share) to the pro forma amount of $114.2 million ($1.00 per share). Enterprises
estimated the SFAS 123 fair values by utilizing the binomial options pricing
model with the following assumptions: dividend yields of 2.5% 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 $3.1 million, $3.4 million and $1.2 million for
1998, 1997 and 1996, 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. Compensation expense of $2.0 million has been
recognized in accordance with the vesting period for the 1998 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, 1998, 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.
During 1997, IPALCO purchased 252,675 shares of IPL's $100 par value
Cumulative Preferred Stock pursuant to the terms of a tender offer. All tendered
shares subsequently were purchased from IPALCO by IPL at cost and canceled. Also
during 1997, IPL authorized the redemption of an additional 174,957 shares of
its $100 par value Cumulative Preferred Stock.
On January 13, 1998, IPL issued the 5.65% Preferred Series which is
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.
At December 31, preferred stock consisted of the following:
December 31, 1998
-----------------
Shares Call December 31
Outstanding Price 1998 1997
----------- ---------- ------ ------
(In Thousands)
Cumulative $100 Par Value,
authorized 2,000,000 shares
4% Series...................... 47,611 $118.00 $4,761 $4,761
4.2% Series.................... 19,331 103.00 1,933 1,933
4.6% Series.................... 2,481 103.00 248 248
4.8% Series.................... 21,930 101.00 2,193 2,193
5.65% Series................... 500,000 - 50,000 -
------- ------- -------
Total cumulative preferred stock 591,353 $59,135 $ 9,135
======= ======= =======
During 1998, 1997 and 1996, preferred stock dividends were $3.1 million,
$2.8 million and $3.2 million, respectively.
<PAGE>
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
Series Due (In Thousands)
------ ---
IPL First Mortgage Bonds:
<S> <C> <C>
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.................................... (907) (960)
--------- ----------
Total first mortgage bonds................................ 477,893 477,840
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
--------- ----------
Total long-term debt - IPL.................................... 627,893 627,840
--------- ----------
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. credit facilities................ 197,000 323,000
Energy Resources - 8.03% notes payable, due June 2012 .... 49,406 50,000
SHAPE -7.50% notes payable, due January 1999 ............. 300 300
Current maturities............................................ (1,425) (3,094)
--------- -----------
Total long-term debt - other.............................. 280,081 405,006
--------- ----------
Total long-term debt...................................... $ 907,974 $1,032,846
========= ==========
</TABLE>
* 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 $11.25 million, 5 5/8% Series in May 1997.
The IPL Series 1991 note provides for an interest rate that varies with
the tax-exempt commercial paper rate. The IPL 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, 1998. Energy Resources' 1995 variable
long-term note due 2030 was issued to the Indiana Development Finance Authority
and bears interest that varies with the tax-exempt weekly rate.
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 stock. During 1998,
IPALCO replaced the Revolver with commercial paper by repaying the outstanding
balance of $234 million on the Revolver through the issuance of $230 million in
commercial paper and a cash payment of $4 million. The Revolver currently has no
outstanding balance but is available for future borrowings. According to the
credit agreement, IPALCO could borrow up to $240.6 million until March 31, 2000,
at which point the funds available decrease to $160.4 million. The final step
down is for the available borrowings to decrease to $80.2 million on March 31,
2001, and will remain available until March 31, 2002.
The year-end interest rates for the variable rate notes are as follows:
Interest Rate at
December 31,
1998 1997
- ------------------------------------------------------------
Series 1991 3.48% 3.78%
Series 1994A 3.56% 3.75%
Series 1995B 5.21% 5.21%
Series 1995C 3.54% 3.75%
Series 1996 3.54% 3.75%
Energy Resources
variable note 3.65% 4.17%
IPALCO credit facilities 6.65% 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%. The interest rate swap agreement is
accounted for on a settlement basis. IPL 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, IPL does not anticipate
nonperformance by the counterparty.
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. Per the
swap agreement, in July 1998, the amount covered by the swap began decreasing
$25 million each quarter. The notional amount of the swap at December 31, 1998,
was $250 million. This interest rate swap agreement is accounted for on a
settlement basis. This interest rate swap is designated as a hedge of the IPALCO
commercial paper facility and other variable rate debt instruments. 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.
Maturities on long-term debt for the five years subsequent to December
31, 1998, are as follows:
Maturities
----------
Year Amount
(In Thousands)
1999........................... $ 1,425
2000........................... 38,982
2001........................... 83,477
2002........................... 83,650
2003........................... 3,761
8. LINES OF CREDIT
IPL has committed lines of credit with banks of $75 million at December
31, 1998, to provide loans for interim financing that require the payment of
commitment fees. These lines of credit, based on separate agreements, have
expiration dates ranging from February 1, 1999, to December 31, 1999. No lines
of credit were required to support commercial paper at December 31, 1998. IPL
has a Liquidity facility in the amount of $150 million to support certain
floating-rate tax-exempt facilities (see Note 7).
Mid-America has a $30 million line of credit that requires the payment of
a commitment fee. At December 31, 1998, $6 million was outstanding, $9.3 million
was committed as collateral for the Energy Resources variable note and $14.7
million was unused.
The weighted average interest rate on notes payable and commercial
paper outstanding was 6.09% and 6.58% at December 31, 1998 and 1997,
respectively.
<PAGE>
9. INCOME TAXES
Federal and state income taxes charged to income are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
(In Thousands)
Utility Operating Expenses:
Current income taxes:
<S> <C> <C> <C>
Federal..................................................... $ 72,094 $ 64,553 $ 56,676
State....................................................... 10,585 9,474 8,378
-------- -------- --------
Total current taxes....................................... 82,679 74,027 65,054
-------- -------- --------
Deferred federal income taxes............................... (414) 1,444 6,507
Deferred state income taxes................................. 715 803 (398)
-------- -------- --------
Total deferred income taxes.............................. 301 2,247 6,109
-------- -------- --------
Net amortization of investment credit....................... (2,790) (2,939) (2,915)
-------- -------- --------
Total charge to utility operating expenses................ 80,190 73,335 68,248
Net credit to other income and deductions................... (5,231) (19,004) (3,645)
-------- -------- --------
74,959 54,331 64,603
Cumulative effect of change in accounting principle......... - 11,209 -
-------- -------- --------
Total federal and state income tax provisions............. $ 74,959 $ 65,540 $ 64,603
======== ======== ========
</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:
1998 1997 1996
- -------------------------------------------------------------------------------
Federal statutory tax rate................... 35.0% 35.0% 35.0%
Effect of state income taxes................. (1.8) (2.1) (1.5)
Amortization of investment tax credits....... (1.3) (1.6) (1.6)
Preferred dividends of subsidiary............ 0.5 0.2 0.6
Other - net.................................. (1.5) (1.2) (1.4)
---- ----- -----
Effective tax rate......................... 30.9% 30.3% 31.1%
==== ==== ====
The significant items comprising Enterprises' net deferred tax liability
recognized in the consolidated balance sheets as of December 31, 1998, and 1997,
are as follows:
1998 1997
- ----------------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities:
Relating to utility property............. $412,922 $405,164
Other.................................... 16,542 16,520
-------- ---------
Total deferred tax liabilities....... 429,464 421,684
-------- ---------
Deferred tax assets:
Relating to utility property............. 44,444 40,731
Investment tax credit.................... 25,547 27,251
Employee benefit plans................... 24,767 22,455
Other.................................... 16,271 16,197
-------- ---------
Total deferred tax assets............ 111,029 106,634
-------- ---------
Net deferred tax liability.................... 318,435 315,050
Current deferred tax liability......... 108 181
-------- ---------
Deferred income taxes - net................... $318,327 $314,869
======== =========
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 increased annual revenues of $35 million and $25 million
during 1995 and 1996, respectively. 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, and
authorized IPL to increase rates by an estimated cumulative amount of $9.9
million in additional annual operating revenues.
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.
Elect Plan: During 1998, the IURC approved a plan that allows IPL
customers with less than 2,000 kilowatts of demand, an opportunity to choose
optional service or payment plans. This includes a green power option, a fixed
rate per unit of consumption option and a fixed bill option. Customers not
choosing one of these options continue to receive electric service under
existing tariffs.
<PAGE>
11. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------ --------------------------
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands)
Change in Benefit Obligation
<S> <C> <C> <C> <C>
Benefit obligation at beginning year $254,540 $229,936 $136,705 $147,044
Service cost 5,535 5,708 3,557 4,021
Interest cost 18,021 16,873 9,972 11,135
Actuarial (gain) loss 12,740 7,436 5,204 (21,209)
Amendments (1,408) 6,083 - -
Benefits paid (12,790) (11,496) (5,677) (4,286)
-------- -------- -------- --------
Benefit obligation at end of year 276,638 254,540 149,761 136,705
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets
at beginning of year 262,126 235,250 68,688 49,852
Actual return on plan assets 37,179 37,813 11,332 (314)
Employer contribution 4,254 559 19,092 23,436
Benefits paid (12,789) (11,496) (5,677) (4,286)
-------- -------- -------- --------
Fair value of plan assets at end of year 290,770 262,126 93,435 68,688
-------- -------- -------- --------
14,132 7,586 (56,326) (68,017)
Funded status
Unrecognized net gain (55,065) (47,250) (40,121) (40,927)
Unrecognized prior service cost 15,871 13,056 - -
Unrecognized net transition (asset) obligation (9,755) (11,169) 85,679 91,800
Adjustment to recognize minimum liability (5,136) (2,044) - -
-------- -------- -------- --------
Accrued benefit cost $(39,953) $(39,821) $(10,768) $(17,144)
======== ======== ======== ========
Weighted-average assumptions as of
December 31
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected return on plan assets 9.00% 8.00% 8.00% 8.00%
Rate of compensation increase 5.10% 5.10% 5.10% 5.10%
</TABLE>
For measurement purposes, a 7.4% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The year in
which the ultimate health care cost trend rate of 4.5% will be achieved is
assumed to be 2003.
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------------------- -------------------------------------
(In Thousands) 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Components of net periodic
benefit cost
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 10,617 $ 6,584 $ 6,482 $ 3,557 $ 4,021 $ 3,969
Interest cost 18,021 16,873 16,335 9,972 11,135 10,494
Expected return on plan assets (20,426) (18,344) (17,206) (5,278) (3,780) (2,214)
Amortization of transition (asset) obligation (1,414) (1,414) (1,414) 6,120 6,120 6,120
Amortization of prior service cost 1,124 1,159 1,641 - - -
Recognized actuarial gain (1,545) (910) (570) (1,656) (551) (406)
-------- -------- -------- -------- -------- --------
Net periodic benefit cost 6,377 3,948 5,268 12,715 16,945 17,963
Less: amounts capitalized 339 621 1,061 1,924 2,930 3,511
-------- -------- -------- -------- -------- --------
Amount charged to expense $ 6,038 $ 3,327 $ 4,207 $ 10,791 $ 14,015 $ 14,452
======== ======== ======== ======== ======== ========
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one percentage-point change in
assumed health care cost trend rates would have the following effects:
One-Percentage- One Percentage-
(In Thousands) Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest cost
components $ 1,779 $ (1,779)
Effect on postretirement benefit obligation 16,560 (16,560)
12. COMMITMENTS AND CONTINGENCIES
In 1999, Enterprises anticipates the cost of its construction programs to
be approximately $98 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, Enterprises has ongoing discussions
with various regulatory authorities and continues to believe that Enterprises is
in compliance with its various permits.
13. GAIN ON TERMINATION OF AGREEMENT
During September 1998, a pretax gain of $12.5 million ($7.8 million
after-tax) resulted from the liquidation and termination of an agreement to
purchase up to 150 megawatts of power during the summer months through the year
2000. IPL plans to replace this supply resource and is considering several
alternatives.
14. SUBSEQUENT EVENT
On February 23, 1999, the IPALCO Board of Directors authorized a
two-for-one stock split of IPALCO's common stock issuable to shareholders of
record on March 5, 1999. All references to share amounts of common stock and per
share information have been restated to reflect the stock split.
<PAGE>
15. QUARTERLY RESULTS (UNAUDITED)
Operating results for the years ended December 31, 1998, and 1997, by
quarter, are as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Utility operating revenues................. $190,321 $206,706 $222,028 $202,201
Utility operating income................... $ 40,142 $ 49,198 $ 51,665 $ 38,506
Net income................................. $ 25,337 $ 35,809 $ 47,299 $ 21,674
Weighted average shares.................... 89,678 89,848 89,908 90,482
Basic earnings per share................... $ .28 $ .40 $ .53 $ .24
Weighted average diluted shares............ 91,022 91,198 91,210 91,678
Diluted earnings per share................. $ .28 $ .39 $ .52 $ .24
1997
----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
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
Weighted average shares.................... 114,074 91,014 89,164 89,282
Basic earnings per share................... $ .45 $ .27 $ .37 $ .06
Weighted average diluted shares............ 114,408 91,446 89,732 90,232
Diluted earnings per share................. $ .45 $ .26 $ .37 $ .06
</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.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
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 15, 1999, (the registrant's Proxy Statement), under
"Proposal 1-Election of Six Directors" at pages 4-6 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 23, 1999."
Information relating to Section 16(a) Beneficial Ownership
Reporting Compliance, set forth in the registrant's Proxy
Statement at page 3 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 12-14, "Compensation of
Directors" at page 8, "Compensation Committee Interlocks and
Insider Participation" at page 8, "Pensions Plans" at page 16,
and "Employment Contracts and Termination of Employment and
Change in Control Arrangements" at page 17, 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 2-3 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 page 8, is
incorporated herein by reference.
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, 1998, 1997 and 1996
Consolidated Balance Sheets, December 31,
1998 and 1997
Statements of Consolidated Cash Flows
for the Years Ended December 31, 1998, 1997
and 1996
Statements of Consolidated Common
Shareholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996
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, 1998, 1997 and 1996
(Dollars in Thousands)
YEAR ENDED DECEMBER 31, 1998:
Basic Diluted
--------------- ---------------
Weighted average number of shares
<S> <C> <C>
Average common shares outstanding at December 31, 1998 89,979,192 89,979,192
Dilutive effect for stock options at December 31, 1998 - 1,297,978
--------------- ---------------
Adjusted weighted average shares at December 31, 1998 89,979,192 91,277,170
=============== ===============
Net income to be used to compute
diluted earnings per share
Net income $130,119 $130,119
=============== ===============
Earnings per share $1.45 $1.43
=============== ===============
YEAR ENDED DECEMBER 31, 1997:
Basic Diluted
--------------- ---------------
Weighted average number of shares
Average common shares outstanding at December 31, 1997 95,883,514 95,883,514
Dilutive effect for stock options at December 31, 1997 - 571,166
--------------- ---------------
Adjusted weighted average shares at December 31, 1997 95,883,514 96,454,680
=============== ===============
Net income to be used to compute
diluted earnings per share
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 $1.00 $0.99
Cumulative effect of accounting change .19 .19
--------------- ---------------
Earnings per share $1.19 $1.18
=============== ===============
YEAR ENDED DECEMBER 31, 1996:
Basic Diluted
--------------- ---------------
Weighted average number of shares
Average common shares outstanding at December 31, 1996 113,848,822 113,848,822
Dilutive effect for stock options at December 31, 1996 - 232,740
--------------- ---------------
Adjusted weighted average shares at December 31, 1996 113,848,822 114,081,562
=============== ===============
Net income to be used to compute
diluted earnings per share
Net Income $114,275 $114,275
=============== ===============
Earnings per share $1.00 $1.00
=============== ===============
Per share amounts and the number of shares have been adjusted to reflect the
two-for-one stock split as described in Note 14 in the Notes to Consolidated
Financial Statements.
</TABLE>
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 23, 1999
-----------------
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 and February 23, 1999
- ------------------------------ President
(John R. Hodowal)
(ii) Principal Financial Officer:
/s/ John R. Brehm Vice President and February 23, 1999
- ------------------------------- Treasurer
(John R. Brehm)
(iii) Principal Accounting Officer:
/s/ Stephen J. Plunkett Controller February 23, 1999
- -------------------------------
(Stephen J. Plunkett)
(iv) A majority of the Board of Directors of IPALCO Enterprises, Inc.:
/s/ Joseph D. Barnett, Jr. Director February 23, 1999
- ------------------------------
(Joseph D. Barnett, Jr.)
/s/ Robert A. Borns Director February 23, 1999
- ------------------------------
(Robert A. Borns)
/s/ Mitchell E. Daniels, Jr. Director February 23, 1999
- ------------------------------
(Mitchell E. Daniels, Jr.)
/s/ Rexford C. Early Director February 23, 1999
- ------------------------------
(Rexford C. Early)
/s/ Otto N. Frenzel III Director February 23, 1999
- ------------------------------
(Otto N. Frenzel III)
/s/ Max L. Gibson Director February 23, 1999
- ------------------------------
(Max L. Gibson)
/s/ John R. Hodowal Director February 23, 1999
- ------------------------------
(John R. Hodowal)
/s/ Andre B. Lacy Director February 23, 1999
- ------------------------------
(Andre B. Lacy)
/s/ Michael S. Maurer Director February 23, 1999
- ------------------------------
(Michael S. Maurer)
/s/ Andrew J. Paine, Jr. Director February 23, 1999
- ------------------------------
(Andrew J. Paine, Jr.)
/s/ Sallie W. Rowland Director February 23, 1999
- ------------------------------
(Sallie W. Rowland)
/s/ Thomas H. Sams Director February 23, 1999
- ------------------------------
(Thomas H. Sams)
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.
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, as amended and restated.
(Exhibit B to the Form 8-K dated 4-29-98.)
10.1 IPALCO Enterprises, Inc. and Indianapolis Power & Light Company
Unfunded Deferred Compensation Plan for Officers and Directors as
amended and restated January 1, 1999. **
10.2 Directors' and Officers' Liability Insurance Policy No. DO392B1A97
effective June 1, 1998 to June 1, 1999. **
10.3* IPALCO Enterprises, Inc. Benefit Protection Fund and Trust Agreement
effective November 1, 1988. (Form 10-K for year ended 12-31-88.) **
10.4* Exhibit A to IPALCO Enterprises, Inc. Benefit Protection Fund and
Trust Agreement dated January 1, 1998. (Exhibit 10.5 to the Form 10-K
dated 12-31-97.) **
10.5* IPALCO Enterprises, Inc. Annual Incentive Plan and Administrative
Guidelines effective January 1, 1990. (Form 10-K for year ended
12-31-89.) **
10.6* IPALCO Enterprises, Inc. Long-Term Performance and Restricted Stock
Incentive Plan (as amended and restated effective January 1, 1998).
(Exhibit 10.1 to the Form 10-Q dated 3-31-98.) **
10.7* IPALCO Enterprises, Inc. 1990 Stock Option Plan. (Exhibit 10.8 to the
Form 10-K dated 12-31-94.) **
10.8* IPALCO Enterprises, Inc. 1991 Directors' Stock Option Plan.(Exhibit
10.9 to the Form 10-K dated 12-31-94.) **
10.9* IPALCO Enterprises, Inc. 1997 Stock Option Plan. (Exhibit 10.1 to the
Form 10-Q dated 6-30-97.)**
10.10* Form of Termination Benefits Agreement together with schedule of
parties to, and dates of, the Termination Benefits Agreements.
(Exhibit 10.1 to the Form 10-Q dated 6-30-98.) **
10.11* 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.) **
10.12* Voluntary Employee Beneficiary Association (VEBA) Trust Agreement.
(Exhibit 10.12 to the Form 10-K dated 12-31-94.) **
11.1 Computation of Per Share Earnings.
20.1* Form 10-K of Indianapolis Power & Light Company for the year ended
December 31, 1998, and all exhibits thereto. (SEC File No. 1-3132-2.)
21.1* Subsidiaries of the Registrant. (Exhibit 21.1 to the Form 10-K dated
12-31-97.)
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
EXHIBIT 3.2
BY-LAWS
OF
IPALCO ENTERPRISES, INC.
-----------------------
As Amended and Restated
April 29, 1986,
And Further Amended
November 13, 1989,
June 26, 1990,
June 29, 1993,
April 26, 1994,
February 27, 1996,
February 25, 1997,
April 28, 1998, and
January 26, 1999
-------------------
BY-LAWS
OF
IPALCO ENTERPRISES, INC.
-----------------------
As Amended and Restated
April 29, 1986,
And Further Amended
November 13, 1989,
June 26, 1990,
June 29, 1993,
April 26, 1994,
February 27, 1996,
February 25, 1997,
April 28, 1998, and
January 26, 1999
-------------------
ARTICLE I.
Offices
SECTION 1. Principal Office. The principal office of
the Corporation shall be in the City of Indianapolis,
County of Marion, State of Indiana.
SECTION 2. Other Offices. The Corporation may also
have an office in the City of Chicago, Illinois, and in the
City of New York, New York, and also offices at such other
places as the Board of Directors may from time to time
appoint or the business of the Corporation may require.
ARTICLE II.
Shareholders Meetings
SECTION 1. Place of Meeting. Meetings of the
shareholders of the Corporation shall be held at such place
within or without the State of Indiana as may be specified
from time to time in the respective notices, waivers of
notice thereof, or by resolution of the Board of Directors
or the shareholders.
SECTION 2. Annual Meeting. The annual meeting of
shareholders shall be held on the third Wednesday of April
of each year at the hour of 11:00 o'clock A.M., unless such
day shall be a legal holiday, in which event the meeting
shall be held on the next succeeding business day at the
same hour, or unless the Board of Directors shall by
resolution set another date for such meeting within ninety
days of the third Wednesday of April, in which event the
meeting shall be held on the date and at the time specified
in such resolution.
(As Amended February 25, 1997)
SECTION 3. Special Meetings. Special meetings of the
shareholders for any purpose or purposes may be called by
the Chairman of the Board, the President or by a majority
of the Board of Directors. Business transacted at any such
meeting shall be confined to the objects stated in the call
and matters germane thereto.
(As Amended June 29, 1993)
SECTION 4. Notice of Meetings; Waiver. Written or
printed notice, stating the place, day and hour of the
annual and/or special meetings of the shareholders, and in
case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered or mailed
by the Secretary, or by the officer or persons entitled to
call the meeting, to each shareholder of record entitled by
the Amended Articles of Incorporation (hereinafter referred
to as the "Amended Articles") and by law to vote at such
meeting, at such address as appears upon the records of the
Corporation, at least ten (10) days before the date of the
meeting.
Notice of any shareholders meeting may be waived in
writing by any shareholder, if the waiver sets forth in
reasonable detail the purposes for which the meeting is
called and the time and place thereof. Attendance at any
meeting, in person or by proxy, shall constitute a waiver
of notice of such meeting.
(As Amended June 29, 1993)
SECTION 5. Quorum. The holders of a majority of the
shares issued and outstanding and then entitled to vote,
present in person or represented by proxy, shall be
requisite and sufficient to constitute a quorum at all
meetings of the shareholders for the transaction of
business, except as otherwise provided by law, by the
Amended Articles, or by these By-Laws. If, however, such
majority shall not be present or represented at any meeting
of the shareholders, the shareholders present in person or
by proxy shall have power to adjourn the meeting from time
to time without notice, other than announcement at the
meeting, until a quorum shall attend, when any business may
be transacted which might have been transacted at the
meeting as originally called.
SECTION 6. Voting. At each meeting of the
shareholders, every shareholder entitled to vote may vote
in person or by proxy appointed by an instrument in writing
subscribed by such shareholder or by his duly authorized
attorney and delivered to the Secretary of the meeting.
Each shareholder shall have one vote for each share of
common stock registered in his name at the time of the
closing of the transfer books or taking the record for said
meeting. The vote for directors, and, upon the demand of
any shareholder, the vote upon any question before the
meeting, shall be by ballot. All elections shall be had by
plurality vote and all other questions shall be decided by
a majority vote, except as otherwise provided by law, by
the Amended Articles or by these By-Laws.
SECTION 7. New Business. At an annual meeting of
shareholders only such new business shall be conducted, and
only such proposals shall be acted upon, as shall have been
properly brought before the annual meeting. For any new
business proposed by the Board of Directors to be properly
brought before the annual meeting, such new business shall
be approved by the Board of Directors and shall be stated
in writing and filed with the Secretary of the Corporation
at least five (5) business days before the date of the
annual meeting, and all business so approved, stated and
filed shall be considered at the annual meeting. Any
shareholder may make any other proposal at the annual
meeting, but unless properly brought before the annual
meeting, such proposal shall not be acted upon at the
annual meeting. For a proposal to be properly brought
before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less
than 75 days nor more than 100 days prior to the annual
meeting; provided, however, that if less than 40 days'
notice or prior public disclosure of the date of the annual
meeting is given or made, notice by the shareholder to be
timely must be so delivered or received not later than the
close of business on the 10th calendar day following the
earlier of (1) the day on which such notice of the date of
the annual meeting was mailed or (2) the day on which such
public disclosure was made. A shareholder's notice to the
Secretary of the Corporation shall set forth as to each
matter the shareholder proposes to bring before the annual
meeting and the reasons for conducting such business at the
annual meeting (a) a brief description of the proposal
desired to be brought before the annual meeting and the
reasons for conducting such business at the annual meeting,
(b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such
business and any other shareholders known by such
shareholder to be supporting such proposal, (c) the class
and/or series and number of shares that are beneficially
owned by the shareholder on the date of such shareholder
notice and by any other shareholders known by such
shareholder to be supporting such proposal on the date of
such shareholder notice, and (d) any financial interest of
the shareholder and any supporting shareholders in such
proposal.
The Board of Directors may reject any shareholder
proposal not made in accordance with the terms of this
Section 7. Alternatively, if the Board of Directors fails
to consider the validity of any shareholder proposal, the
presiding officer of the annual meeting shall, if the facts
warrant, determine and declare at the annual meeting that
the shareholder proposal was not made in accordance with
the terms of this Section and, if he should so determine,
he shall so declare at the annual meeting and any such
business or proposal not properly brought before the annual
meeting shall not be acted upon at the annual meeting. This
provision shall not prevent the consideration and approval
or disapproval at the annual meeting of reports of
officers, directors and committees of the Board of
Directors, but, in connection with such reports, no new
business shall be acted upon at such annual meeting unless
stated, filed and received as herein provided.
(As Amended January 26, 1999)
ARTICLE III.
Directors
SECTION 1. Number and Term. The number of directors of
this Corporation shall be fourteen (14). Such directors
shall be elected for such terms as may be specified in the
Amended Articles.
(As Amended April 28, 1998)
SECTION 2. Powers and Duties. In addition to the
powers and duties expressly conferred upon it either by
law, by the Amended Articles, or by these By-Laws, the
Board of Directors may exercise all such powers of the
Corporation as are conferred upon the Corporation by law
and by the Amended Articles, and do all such lawful acts
and things as are not inconsistent with the law or the
Amended Articles.
Subject to the provisions of law and the Amended
Articles, the Board of Directors shall have absolute
discretion in the declaration of dividends and in fixing
the date for the declaration and payment of dividends.
SECTION 3. Annual and Regular Meetings; Notice. The
annual meeting of the Board of Directors shall be held on
the last Tuesday of the month in which the annual meeting
of shareholders is held, and other regular meetings of the
Board of Directors shall be held on the last Tuesday of
each month. If the day fixed pursuant to this Section for
the annual or any regular meeting shall be a legal holiday,
then such annual or regular meeting shall be held on the
next succeeding business day.
The annual meeting and all regular meetings of the
Board of Directors shall be held immediately following the
Board of Directors meeting of Indianapolis Power & Light
Company, or if there is no such meeting, at 1:30 P.M., at
the principal office of the Corporation, unless notice of a
different time and/or place is given with respect to any
such meeting at least seven days prior thereto by mail or
three days prior thereto by telegraph. No notice of the
annual or any regular meeting of the Board of Directors
shall be required unless such meeting is to be held at a
time and/or place other than the principal office of the
Corporation.
SECTION 4. Special Meetings. Special meetings of the
Board of Directors may be called by the Chairman of the
Board, the President, or by two-thirds (2/3) of the
directors on two days' notice by mail or by one day's
notice by telephone or telegraph to each director, which
notice shall state the time, place and purpose of the
holding of such meetings. Any special meeting of the Board
of Directors may be held either within or without the State
of Indiana.
SECTION 5. Quorum. At all meetings of the Board of
Directors a majority of the directors shall be necessary
and sufficient to constitute a quorum for the transaction
of business, and the affirmative vote of a majority of the
directors present shall be the act of the Board of
Directors, except as otherwise may be provided specifically
by statute, by the Amended Articles or by these By-Laws.
If at any meeting of the Board of Directors there shall be
less than a quorum present, a majority of those directors
present may adjourn the meeting to another day and
thereupon the Secretary shall mail, telephone, or telegraph
to each director, notice of the time and place of the
holding of such adjourned meeting. At any such adjourned
meeting at which there is a quorum present, any business
may be transacted which might have been transacted at the
meeting as originally scheduled or called.
SECTION 6. Resignations. Any director of the
Corporation may resign at any time by giving written notice
to the Board of Directors or to the Chairman of the Board,
the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified
therein, or if the time is not specified, upon receipt
thereof. Unless otherwise specified in the notice, the
acceptance of such resignation shall not be necessary to
make it effective.
SECTION 7. Vacancies. Except as otherwise provided in
the Amended Articles, any vacancy occurring in the Board of
Directors caused by resignation, death or other incapacity,
or increase in the number of directors may be filled by a
majority vote of the remaining members of the Board, until
the next annual or special meeting of the shareholders or,
at the discretion of the Board of Directors, such vacancy
may be filled by vote of the shareholders at a special
meeting called for that purpose. Shareholders shall be
notified of any increase in the number of directors in the
next mailing sent to shareholders following any such
increase.
SECTION 8. Nominations of Directors. The Executive
Committee of the Board of Directors of the Corporation
shall serve as the nominating committee for the nomination
of directors of the Corporation. In case a person is to be
elected to the Board by the Board of Directors because of a
vacancy existing on the Board, nomination shall be made
only by the Executive Committee pursuant to the affirmative
vote of the majority of its entire membership. The
Executive Committee shall also make nominations for
directors to be elected by the shareholders of the
Corporation at an annual meeting of shareholders as
provided in the remainder of this Section 8.
Only persons nominated in accordance with the
procedures set forth in this Section 8 shall be eligible
for election as directors at an annual meeting. The
Executive Committee shall select the management nominees
for election as directors. Except in the case of a nominee
substituted as a result of the death, incapacity,
disqualification or other inability to serve of a
management nominee, the Executive Committee shall deliver
written nominations to the Secretary of the Corporation at
least fifty (50) days prior to the date of the annual
meeting. Management nominees substituted as a result of the
death, incapacity, disqualification or other inability to
serve of a management nominee shall be delivered to the
Secretary of the Corporation as promptly as practicable. At
the request of the Executive Committee, any person
nominated by that Committee for election as a director at
an annual meeting shall furnish to the Secretary of the
Corporation that information, described below, required to
be set forth in a shareholder's notice of nomination which
pertains to the nominee. Provided the Executive Committee
selects the management nominees, no nominations for
directors except those made by the Executive Committee
shall be voted upon at the annual meeting unless other
nominations by shareholders are made in accordance with the
provisions of this Section 8. Ballots bearing the names of
all the persons nominated for election as directors at an
annual meeting in accordance with the procedures set forth
in this Section 8 by the Executive Committee and by
shareholders shall be provided for use at the annual
meeting. However, except in the case of a management
nominee substituted as a result of the death, incapacity,
disqualification or other inability to serve of a
management nominee, if the Executive Committee shall fail
or refuse to nominate a slate of directors at least fifty
(50) days prior to the date of the annual meeting,
nominations for directors may be made at the annual meeting
by any shareholder entitled to vote and shall be voted
upon. No person shall be elected as a director of the
Corporation unless nominated in accordance with the terms
set forth in this Section 8.
Nominations of individuals for election to the Board
of Directors of the Corporation at an annual meeting of
shareholders may be made by any shareholder of the
Corporation entitled to vote for the election of directors
at that meeting who complies with the procedures set forth
in this Section 8. Such nominations, other than those made
by the Executive Committee, shall be made pursuant to
timely notice in writing to the Secretary of the
Corporation as set forth in this Section 8. To be timely, a
shareholder's notice shall be delivered to or mailed and
received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days
prior to the date of each annual meeting; provided,
however, that if less than 60 days' notice or prior public
disclosure of the date of the annual meeting is given or
made, notice by the shareholder to be timely must be so
delivered or received not later than the close of business
on the 10th calendar day following the earlier of (1) the
day on which such notice of the date of the annual meeting
was mailed or (2) the day on which such public disclosure
was made. Such shareholder's notice shall set forth (a) as
to each person whom the shareholder proposes to nominate
for election or re-election as a director (i) the name,
age, business address and residence address of such person,
(ii) the principal occupation or employment of such person,
(iii) the class and/or series and number of shares that are
beneficially owned by such person on the date of such
shareholder notice and (iv) any other information relating
to such person that is required to be disclosed in
solicitations of proxies with respect to nominees for
election as directors, pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, and (b) as to
the shareholder giving the notice (i) the name and address,
as they appear on the Corporation's books, of such
shareholder and any other shareholders known by such
shareholder to be supporting such nominee(s) and (ii) the
class and/or series and number of shares that are
beneficially owned by such shareholder on the date of such
shareholder notice and by any other shareholders known by
such shareholder to be supporting such nominee(s) on the
date of such shareholder notice.
The Board of Directors may reject any nomination by a
shareholder not made in accordance with the terms of this
Section 8. Alternatively, if the Board of Directors fails
to consider the validity of any nominations by a
shareholder, the presiding officer of the annual meeting
shall, if the facts warrant, determine and declare at the
annual meeting that a nomination was not made in accordance
with the terms of this Section 8, and, if he should so
determine, he shall so declare at the annual meeting and
the defective nomination shall be disregarded.
(As added June 26, 1990)
ARTICLE IV.
Committees Of The Board Of Directors
SECTION 1. Executive Committee.
Number and Powers. The Board of Directors shall create
an Executive Committee consisting of the Chairman of the
Board and the President, as ex officio members, and two or
more directors who shall be elected by a majority of the
whole Board of Directors, from time to time, to hold office
until the next annual meeting of the Board of Directors and
until their respective successors are duly elected and
qualified. The Board of Directors shall designate the
Chairman of such Committee.
The Executive Committee shall have and exercise
(except as otherwise provided by law or by the Board of
Directors and except when the Board of Directors shall be
in session) such powers and rights of the full Board of
Directors in the management of the business and affairs of
the Corporation as may be lawful, and it shall have power
to authorize the seal of the Corporation to be affixed to
all papers which may require it.
Meetings and Notice. Meetings of the Executive
Committee may be held either at the office of the
Corporation in the City of Indianapolis, Indiana, or at
such other places as the Executive Committee or Chairman
thereof shall from time to time designate. Such meetings
may be called by or at the request of the Chairman or any
member of the Executive Committee by giving at least twenty-
four (24) hours' advance notice to each member of the
Executive Committee. Such notice may be given personally or
by telephone or telegraph.
Quorum. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and
the affirmative vote of such majority shall be necessary to
the determination of any question.
Compensation. The members of the Executive Committee,
other than ex officio members, shall be entitled to receive
such compensation as may be determined from time to time by
the Board of Directors.
Minutes. Minutes of the meeting of the Executive
Committee shall be kept and read at the next meeting of the
Board of Directors.
Vacancies. Vacancies occurring in the Executive
Committee shall be filled by the Board of Directors at any
meeting of said Board.
SECTION 2. Audit Committee. The Board of Directors, by
a majority vote of the whole Board of Directors, may
designate three (3) or more members of such Board who shall
not be officers of the Corporation or its subsidiaries, to
constitute an Audit Committee. Members of such Committee
shall serve for terms of one (1) year and until their
successors are duly elected and qualified. Such Committee
shall have and exercise such authority as shall be
specified in the resolution of the Board of Directors
appointing such Committee. The Chairman of such Audit
Committee shall be designated by the Board of Directors.
SECTION 3. Compensation Committee. The Board of
Directors, by a vote of a majority of the whole Board of
Directors, may designate three (3) or more members of such
Board, who are not officers of the Corporation or its
subsidiaries, to constitute a Compensation Committee.
Members of such Committee shall serve for terms of one (1)
year and until their successors are duly elected and
qualified. Such Committee shall have and exercise such
authority as shall be specified in the resolution of this
Board of Directors appointing such Committee. A Chairman
and a Vice-Chairman of the Compensation Committee may be
designated by the Board of Directors.
SECTION 4. Committee on Strategies. The Board of
Directors, by majority vote of the whole Board of
Directors, may designate three (3) or more members of such
Board, who are not officers of the Corporation or its
subsidiaries, to constitute a Committee on Strategies.
Members of such Committee shall serve for terms of one (1)
year and until their successors are duly elected and
qualified. Such Committee shall have and exercise such
authority as shall be specified in the resolution of this
Board of Directors appointing such Committee. A Chairman
and a Vice-Chairman of the Committee on Strategies may be
designated by the Board of Directors.
(As Added April 26, 1994)
ARTICLE V.
Officers Of The Corporation
SECTION 1. Officers. The officers of the Corporation
shall be a Chairman of the Board, a Vice-Chairman of the
Board, a President, one or more Vice Presidents, a
Secretary, a Treasurer, a Controller, and, if the Board of
Directors desires, one or more Assistant Vice Presidents,
Assistant Secretaries, Assistant Treasurers and Assistant
Controllers, who shall be elected by the Board of Directors
at its annual meeting. Any two or more of such offices may
be held by the same person, except that the duties of the
President and the Secretary, shall not be performed by the
same person. In the election of Vice Presidents, the Board
of Directors may give each vice presidency such special
designation as it may deem appropriate. The Chairman of the
Board and the President shall be chosen from among the
directors.
(As Amended November 13, 1989 to be
Effective February 1, 1990)
The Board of Directors may appoint such other officers
and agents as it shall deem necessary, who shall have such
authority and perform such duties as from time to time
shall be prescribed by the Board of Directors.
SECTION 2. Salaries. The salaries of all officers of
the Corporation shall be fixed by the Board of Directors.
No officer shall be prevented from receiving such salary by
reason of the fact he is also a director of the
Corporation.
SECTION 3. Terms; Removal. The officers of the
Corporation shall hold office for one year and until their
successors are duly elected and qualified; provided,
however, that any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative
vote of a majority of the whole Board of Directors.
SECTION 4. Resignations. Any officer of the
Corporation may resign at any time by giving written notice
to the Board of Directors, to the Chairman of the Board, to
the President, or to the Secretary of the Corporation. Any
such resignation shall take effect at the time specified
therein, or if the time be not specified, upon receipt
thereof. Unless otherwise specified in the notice, the
acceptance of such resignation shall not be necessary to
make it effective.
SECTION 5. Vacancies. If the office of the Chairman of
the Board, the President, any Vice President, the
Secretary, the Treasurer, the Controller, any Assistant
Vice President, Assistant Secretary, Assistant Treasurer,
or Assistant Controller, or other officer or agent, is
vacant or becomes vacant by reason of death, resignation,
retirement, disqualification, removal from office or the
creation of a new office, the Board of Directors shall
elect a person to such office who shall hold office for the
unexpired term in respect of which such vacancy occurred;
provided that, in its discretion, the Board of Directors,
by vote of a majority of the whole Board, may leave
unfilled for such period as it deems appropriate any
office, except the offices of President, Secretary,
Treasurer and Controller.
SECTION 6. Duties of Officers May Be Delegated. In
case of the absence of any officer of the Corporation, or
for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may delegate the power
or duties of such officer to any other officer, or to any
director for the time being.
SECTION 7. Chairman and Vice-Chairman of the Board.
The Chairman of the Board shall be the chief executive
officer of the Corporation. Subject to the control of the
Board of Directors, he shall have general charge of, and
supervision and authority over, the business and affairs of
the Corporation. He shall preside at all meetings of the
shareholders and directors. He shall have such other duties
as may be assigned to him by the Board of Directors.
The Vice-Chairman of the Board shall assist the
Chairman of the Board in the discharge of the latter's
duties in the manner and to the extent designated by the
Board of Directors or the Chairman of the Board. In the
absence of the Chairman of the Board, the Vice-Chairman of
the Board shall preside at all meetings of shareholders and
directors. He shall perform such other duties as are
incident to his office or as are assigned to him by the
Board of Directors or the Chairman of the Board.
(As Amended November 13, 1989 to be
Effective February 1, 1990)
SECTION 8. President. The President shall be the chief
operating officer of the Corporation. Subject to the
supervision of the Chairman of the Board and the Board of
Directors, itself, he shall have general charge of, and
supervision and authority over, the operations of the
Corporation. He shall perform such other duties as are
incident to his office or as may be assigned to him by the
Board of Directors or the Chairman of the Board.
(As Amended November 13, 1989 to be
Effective February 1, 1990)
SECTION 9. Vice-Presidents. Subject to the control of
the Board of Directors, the Chairman of the Board and the
President, the Vice Presidents and the Assistant Vice
Presidents shall have such power, and perform such duties,
as the Board of Directors, the Chairman of the Board, or
the President, from time to time shall assign to them, and,
in the case of Assistant Vice Presidents, such powers and
duties as may be assigned to them by the respective Vice
Presidents whom they assist.
SECTION 10. Secretary and Assistant Secretaries. The
Secretary shall attend all meetings of the shareholders and
Board of Directors, and shall record all votes and other
proceedings in a book to be kept for that purpose. He shall
give, or cause to be given, all required notices of
meetings of the shareholders and Board of Directors. He
shall have custody of the seal of the Corporation and of
its records (other than accounting records) and shall
perform such other duties as usually appertain to the
office of Secretary and as may be prescribed by the Board
of Directors, the Chairman of the Board or the President.
The Assistant Secretaries shall perform such other
duties as shall be delegated to them by the Board of
Directors, the Chairman of the Board, the President or the
Secretary.
SECTION 11. Treasurer and Assistant Treasurers. The
Treasurer shall have custody of the corporate funds and
securities, and shall keep full and accurate accounts of
receipts and disbursements in books of the Corporation to
be kept for that purpose. He shall deposit all moneys and
other valuable effects in the name and to the credit of the
Corporation in such depositaries as may be designated by
authority of the Board of Directors, and shall disburse the
funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements.
He shall render to the Board of Directors, whenever it may
so require, an account of all his transactions as Treasurer
and of the financial condition of the Corporation. He shall
have such other powers and duties as may be assigned to him
by the Board of Directors, the Chairman of the Board or the
President.
The Assistant Treasurers shall perform such duties as
shall be delegated to them by the Board of Directors, the
Chairman of the Board, the President or the Treasurer.
SECTION 12. Controller and Assistant Controllers. The
Controller shall be the chief accounting officer of the
Corporation. He shall keep or cause to be kept all books of
account and accounting records of the Corporation, and
shall render appropriate financial statements to the Board
of Directors and to the shareholders. He shall perform such
other duties as usually appertain to the office of the
Controller and as may be prescribed by the Board of
Directors, the Chairman of the Board or the President.
The Assistant Controllers shall perform such other
duties as shall be delegated to them by the Board of
Directors, the Chairman of the Board, the President or the
Controller.
ARTICLE VI.
Shares
SECTION 1. Certificates. The certificates for shares
in the Corporation shall be consecutively numbered in the
order of their issue, and each certificate shall state the
name of the registered holder, the number of shares
represented thereby, the par value of each share or a
statement that such shares have no par value, whether such
shares have been fully paid and are non-assessable, the
kind and class of shares represented thereby, and a
statement or summary of the relative rights, interests,
preferences and restrictions of all classes of such shares;
provided, that if the Board of Directors so authorizes,
such statement or summary may be omitted from the
certificate if it shall be set forth upon the face or back
of the certificate that such statement, in full, will be
furnished by the Corporation to any shareholder upon
written request and without charge.
Certificates for shares shall be in such form,
consistent with the Amended Articles, as the Board of
Directors shall approve. Such certificates shall be signed
by the President, or a Vice President, and the Secretary,
or an Assistant Secretary, and shall be sealed with the
corporate seal, which seal may be an original impression or
a facsimile thereof. The signature of the above named
officers, the registrar, and transfer agent on the
certificates for shares in the Corporation may be an
original signature or a facsimile thereof.
(As Amended February 27, 1996)
SECTION 2. Record of Shareholders. The Corporation
shall keep at its principal office a complete and accurate
list of the shareholders of each class of shares issued and
outstanding setting forth the names and addresses of the
shareholders of each class and the number of shares held by
each such shareholder.
The Corporation shall be entitled to treat the holder
of record of any share or shares as the owner in fact
thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such shares on
the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise
expressly provided by the laws of the State of Indiana.
SECTION 3. Transfers of Shares. The transfer of shares
may be made on the books of the Corporation only by the
holder thereof or his duly authorized attorney and upon
surrender of the certificate representing the same,
properly endorsed and/or assigned; title to certificates
and to the shares represented thereby can be transferred
only as provided by the laws of the State of Indiana.
SECTION 4. Transfer Books; Record Date. The books for
the transfer of the shares of the Corporation may be closed
for such period, in anticipation of shareholders' meetings,
the payment of dividends or the allotment of rights, as the
Board of Directors from time to time may determine. In lieu
of providing for the closing of the transfer books, the
Board of Directors may, in its discretion, fix a date as
prescribed by the laws of the State of Indiana, for any
such meeting, payment, or allotment as a record date for
such purpose.
SECTION 5. Transfer Agents and Registrars. The Board
of Directors may appoint one or more transfer agents and
registrars for its shares or appoint qualified agents to
perform both the functions of transfer agent and registrar.
The Board of Directors may require all certificates for
shares to bear the manual signature of either a transfer
agent or of a registrar, or both.
SECTION 6. Lost or Destroyed Certificates. Any person
claiming a certificate for shares to be lost or destroyed
shall make an affidavit or affirmation of that fact and
shall give the Corporation and/or the transfer agents
and/or the registrars, if they shall so require, a bond of
indemnity, in form and with one or more sureties
satisfactory to the officers of the Corporation, and/or the
transfer agents, and/or the registrars, whereupon a new
certificate may be issued of the same tenor and for the
same number of shares as the one alleged to be lost or
destroyed; or in lieu of the foregoing procedure, such
person may proceed in accordance with the laws of the State
of Indiana.
ARTICLE VII.
Checks, Notes, Contracts, Etc.
SECTION 1. Checks; Notes. All checks, notes, drafts,
acceptances, or other demands or orders for the payment of
money of the Corporation shall be signed by such officer or
officers, or person or persons, as the Board of Directors
may from time to time designate. When so authorized by the
Board of Directors, the signatures of such officers on any
bonds, notes, debentures, or other evidences of
indebtedness may be facsimiles and such facsimiles on such
instruments shall be deemed the equivalent of and
constitute the written signatures of such officers for all
purposes including, but not limited to, the full
satisfaction of any signature requirements of the laws of
the State of Indiana on the negotiable bonds, notes,
debentures, and other evidence of indebtedness of the
Corporation.
SECTION 2. Contracts Requiring Seal. All contracts,
deeds, mortgages, leases or instruments that require the
seal of the Corporation shall be signed by the President,
or a Vice President, and by the Secretary, or an Assistant
Secretary, or by such officer or officers, or person or
persons, as the Board of Directors may by resolution
prescribe, except as provided in Section 1 of this Article
VII. Such seal may be an original impression or an engraved
or imprinted facsimile thereof.
ARTICLE VIII.
Seal
The corporate seal shall have inscribed thereon the
name of the Corporation and the word "SEAL".
ARTICLE IX.
Fiscal Year
The fiscal year shall be the calendar year.
ARTICLE X.
Miscellaneous Provisions
SECTION 1. Inspection of Books. The Board of Directors
shall determine from time to time whether, and, if allowed,
when and under what conditions and regulations, the
accounts and books of the Corporation (except such as by
statute may be specifically open to inspection), or any of
them, shall be open to the inspection of the shareholders,
and the shareholders' rights in this respect are and shall
be restricted and limited accordingly.
SECTION 2. Notices. Whenever under the provisions of
these By-Laws notice is required to be given to any
director, officer, or shareholder, it may be given by
depositing the same with the United States Postal Service,
in a postpaid sealed wrapper, addressed to such director,
officer, or shareholder at such address as appears on the
books of the Corporation, or in default of other address,
to such director, officer or shareholder at the General
Post Office in the City of Indianapolis, Indiana, and such
notice shall be deemed to be given at the time of such
mailing.
SECTION 3. Waiver. Any director, officer or
shareholder may waive any notice required to be given under
these By-Laws either before, at, or after any meeting, and
such waiver shall be equally as effective as the due
service of notice.
ARTICLE XI.
Amendments and Repeal
SECTION 1. Amendments. These By-Laws may be altered,
amended or repealed, and new By-Laws may be made at any
annual, regular, or special meeting of the Board of
Directors by the affirmative vote of a majority of the
whole Board of Directors at the time of such action.
SECTION 2. Repeal. All By-Laws of the Corporation, and
amendments thereto, heretofore made and adopted by the
shareholders and/or the Board of Directors of the
Corporation are hereby expressly repealed.
EXHIBIT 10.1
IPALCO Enterprises, Inc.
and
Indianapolis Power & Light Company
UNFUNDED DEFERRED
COMPENSATION PLAN
FOR
OFFICERS
AND
DIRECTORS
As Amended and Restated January 1, 1999
UNFUNDED DEFERRED COMPENSATION PLAN
FOR OFFICERS AND DIRECTORS
RESOLVED, that effective January 1, 1999, there be and there
hereby is adopted an amended and restated unfunded deferred
compensation plan ("Plan") for Officers and Directors of IPALCO
Enterprises, Inc. and Indianapolis Power & Light Company
(hereinafter collectively referred to as the "Company"), with
respect to all or part of an Officer's base salary or bonus
earned under the Annual Incentive Plan, or a Director's retainer,
attendance and committee fees, the terms and conditions of which
are as follows:
(1) The Plan shall be unfunded so that the Company is under
merely a contractual duty to make payments when due under
the Plan. The promise to pay shall not be represented by
notes and shall not be secured in any way. The Plan shall
not be construed as an agreement, consideration or
inducement of employment or as affecting in any manner the
rights or obligations of the Company or of an Officer to
continue or to terminate the employment relationship at any
time.
(2) On or before December 31 of any year an Officer or a
Director may elect, by written notice to the Secretary of
the Company, to defer receipt of all or a specified part of
his or her base salary, bonus or fees. Provided, however,
that any election regarding bonus shall be made on or before
December 31 before the calendar year on which the bonus is
based. For example, an election must be made on or before
December 31, 1998 in order to defer the bonus awarded as a
result of performance for calendar year 1999. The deferral
shall be for not less than one calendar year and must not
extend beyond the year the Officer or Director reaches his
or her 70th birthday. The form for election is attached
hereto, made a part hereof and marked Exhibit A. A person
elected as an Officer or elected to fill a vacancy on the
Board and who was not an Officer or a Director on the
preceding December 31, or whose term of office did not begin
until after such date, may elect, before his or her term
begins, to defer all or a specified part of his or her base
salary, bonus or fees for the balance of the calendar year
in which they are elected.
(3) With regard to Officers, the amount deferred shall be
withheld in substantially equal bi-weekly installments.
(4) The Company shall maintain a deferred compensation account
for each Officer and Director participating in the Plan with
respect to deferred base salary, bonus or fees and credit
the account with interest at the end of each month at the
Current Interest Rate, as later defined. Interest credited
to the account will bear interest at the same rate.
(5) Amounts deferred under paragraph (2) above, together with
accumulated interest, shall, at the Officer's or Director's
election, be distributed either in a one lump sum payment or
in substantially equal annual installments over any period
of from two to fifteen years. The lump sum or first
installment shall be payable on the date and in the year
elected, or as soon as practicable after such date and with
any additional installments being payable on the same day of
each year thereafter. Amounts held pending distribution
pursuant to this item shall continue to accrue interest at
the Current Interest Rate as defined herein.
(6) An election under paragraphs (2) and (5) above as to the
amount deferred and the timing of the payment of such deferred
amount shall be made by the Officer or Director at the time the
Officer or Director first elects to defer receipt of all or a
portion of his or her base salary, bonus or fees. A new election
must be made for each calendar year. A prior election regarding
the timing of payment may be amended; provided that any amendment
must be made before the December 31 which is at least two (2)
years before the year in which the deferred amounts are to be
paid. For example, if a prior election requested deferred
amounts be payable in the year 2003, any amendment to this
election must be made by December 31, 2000. Any election made by
an Officer or a Director after any such December 31 will not be
given effect by the Company.
Notwithstanding the above provision allowing an amendment to
the timing of payment, any amended election shall not be
given effect and shall be null and void if: (a) the amended
payment election would actually result (if given effect) in
payments being made in a calendar year which is not at least
2 calendar years before the calendar year in which, but for
the election change, the payment of the deferred amount
would have been paid, or (b) payments would have commenced,
but for the change in election, within 2 full calendar years
from the date that the amended payment election was made.
For example, in connection with (a) above, an election was
made to receive deferred payments in 2005. On December 31,
1998 that election is amended to receive payments on
retirement. That individual then retires in 1999 or 2000.
The election is not valid since payments would then begin
within 2 full calendar years of the change in election. An
example of (b) would be an election was made to receive
payments on retirement. On December 31, 1998 that election
is amended to receive payments in 2003. That individual
then retires in 1999 or 2000. The election is not valid
since the payments would have commenced (but for the change
in election) within 2 full calendar years of the change in
election.
(7) If a person becomes a director, proprietor, officer,
partner, employee of, or otherwise becomes affiliated with,
a business that is in competition with the Company, or if
such person shall refuse a reasonable request of the Company
to perform consulting services after retirement while
receiving payments under the Plan, all deferred fees and
interest remaining payable to such person shall be
forfeited.
(8) (a) Upon the death of an Officer or a Director, or a person
who has ceased to be an Officer or a Director, all such deferred
amounts and interest in his or her account shall be payable:
(i) to a beneficiary designated in writing by such
Officer or Director; or
(ii) to the estate of the Officer or Director in one
lump sum within ninety (90) days following his or her
death.
(b) When designating a beneficiary pursuant to paragraph
8(a)(i) above, an Officer or a Director may elect payment to such
beneficiary either:
(i) in one lump sum within ninety (90) days following the date
of death; or
(ii) in substantially equal annual installments over a two to
fifteen year period.
Payments may begin as soon as practicable after the date of
death, or on such date in each year, beginning in the year
after death, as elected by the Officer or Director.
(c) If a designated beneficiary has begun receiving installments
under this paragraph (8), but dies before receiving the last
installment, the balance in the deferred compensation account
shall be paid:
(i) in one lump sum to such beneficiary's estate within ninety
(90) days following his or her death;
(ii) in one lump sum to a beneficiary named by the initial
beneficiary within ninety (90) days following his or her death;
or
(iii) to a secondary beneficiary designated by the
Officer or Director prior to his or her death,
in accordance with the payment schedule elected
for the primary beneficiary.
(d) Amounts held by the Company pending distribution
pursuant to this paragraph (8) shall continue to accrue
interest at the Current Interest Rate.
(9) The Officer or Director and his or her beneficiary, as
determined pursuant to paragraph (8) above, shall not have any
right to anticipate, alienate or assign any rights under this
Plan, and any effort to do so shall be null and void. The
benefits payable under this Plan shall be exempt from the claims
of creditors or other claimants and from all orders, decrees,
levies and executions and any other legal process to the fullest
extent permitted by law.
(10) The Compensation Committee of the Board of Directors of the
Company shall be empowered to place the Plan in effect under such
additional conditions and terms as shall not be inconsistent with
the terms stated above and as shall not jeopardize the status of
the Plan as a deferred compensation plan allowing an Officer or a
Director of the Company not to include deferred amounts
(including interest) in gross income under Federal income tax
laws until the taxable year or years such amounts are actually
paid.
(11) The term "Current Interest Rate" shall mean the rate in
effect on the last day of each calendar month that is equal to
Indianapolis Power & Light Company's ("IPL's") cost of capital as
determined by the Indiana Utility Regulatory Commission in IPL's
last general retail electric rate order, unless otherwise
determined by the Compensation Committee or the Board of
Directors.
(12) Upon the occurrence of an Acquisition of Control (as defined
below) and notwithstanding anything contained in this Plan or in
a deferral agreement entered into by the Company and the Officer
or Director to the contrary, payment of any amounts deferred
under this Plan shall be paid as soon as practicable after the
Acquisition of Control and in no event later than thirty (30)
calendar days following the Acquisition of Control. For purposes
of this Plan, an Acquisition of Control means:
(A) 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 (i) the then outstanding shares of common stock of
IPALCO Enterprises, Inc. (the "Outstanding IPALCO Common Stock")
or (ii) the combined voting power of the then outstanding voting
securities of IPALCO Enterprises, Inc. 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 Enterprises, Inc. (excluding an
acquisition by virtue of the exercise of a conversion privilege),
(b) any acquisition by IPALCO Enterprises, Inc., (c) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by IPALCO Enterprises, Inc., Indianapolis
Power & Light Company or any corporation controlled by IPALCO
Enterprises, Inc. or (iii) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subsection
(C) of this paragraph (12) are satisfied;
(B) Individuals who, as of the date hereof, constitute the Board
of Directors of IPALCO Enterprises, Inc. (the "Incumbent Board")
cease for any reason to constitute at least a majority of the
Board of Directors of IPALCO Enterprises, Inc.; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by
IPALCO Enterprises, Inc.'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 of Directors; or
(C) Approval by the shareholders of IPALCO Enterprises, Inc. of
a reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) 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 Common Stock and
Outstanding IPALCO Voting Securities, as the case may be, (ii) no
Person (excluding IPALCO Enterprises, Inc., any employee benefit
plan or related trust of IPALCO Enterprises, Inc., Indianapolis
Power & Light Company or such corporation resulting from 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 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 the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) 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;
(D) Approval by the shareholders of IPALCO Enterprises, Inc. of
(i) a complete liquidation or dissolution of IPALCO Enterprises,
Inc. or (ii) the sale or other disposition of all or
substantially all of the assets of IPALCO Enterprises, Inc.,
other than to a corporation, with respect to which following such
sale or other disposition (a) 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, (b) no Person (excluding IPALCO Enterprises,
Inc. and any employee benefit plan or related trust of IPALCO
Enterprises, Inc., Indianapolis Power & Light Company 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 (c) 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 of
Directors providing for such sale or other disposition of assets
of IPALCO Enterprises, Inc.; or
(E) 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 Enterprises, Inc. would constitute an
"acquisition of control" under subsection (C) or (D) of this
paragraph (12).
EXHIBIT 10.2
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. D0392A1A98
DECLARATIONS NO. 1
Item 1: This POLICY provides indemnification with respect
to the DIRECTORS and OFFICERS of:
IPALCO Enterprises, Inc.
One Monument Circle
Indianapolis, IN 46204
Item 2: POLICY PERIOD: from the 1st day of June, 1998, to
the 1st day of June, 1999 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: $197,950.
B. MINIMUM PREMIUM: $ 79,180.
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. D0392A1A98
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 Admin. Benefits & Risk Mgmt.
ENTITY Indianapolis Power & Light Company
ADDRESS One 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: 1-5
Countersigned at Jersey City, New Jersey
On July 14, 1998
AEGIS Insurance Services, Inc.
By /s/ Brian Madden
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 Operating Officer
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 1 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
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/ Brian Madden
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 2 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
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 was acting in
such capacity; provided, however, that 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/ Brian Madden
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Attachment OPC-FPM1 to Endorsement No. 2 Effective Date of Endorsement
June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
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, 1998
Attached to and forming part of POLICY No. D0392A1A98
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.
COMMON WRONGFUL ACT ENDORSEMENT
(OUTSIDE POSITION COVERAGE - FOR-PROFIT ORGANIZATION)
Insuring Agreement I(B) Limits of Liability, is amended by
the addition of the following:
(5) With respect to ULTIMATE NET LOSS arising out of any
WRONGFUL ACT in connection with service for an outside FOR-
PROFIT ORGANIZATION as provided in Endorsement No. 2 "OUTSIDE
POSITION COVERAGE" attached to this POLICY, 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 UTLIMATE 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 ISSUER; 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.
As used in this Endorsement, reference to Endorsement No. 2
shall include not only the Endorsement as originally issued,
but also any and all subsequent amendments thereto.
/s/ Brian Madden
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 4 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
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.
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/ Brian Madden
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 5 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
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.
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 , 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/ Brian Madden
Signature of Authorized Representative
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED
Endorsement No. 6 Effective Date of Endorsement June 1, 1998
Attached to and forming part of POLICY No. D0392A1A98
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.
Endorsement No. 3 - Common Wrongful Act Endorsement is
deleted in its entirety.
/s/ Brian Madden
Signature of Authorized Representative
<TABLE>
<CAPTION>
IPALCO ENTERPRISES, INC. EXHIBIT 11.1
Computation of Per Share Earnings
For the Years Ended December 31, 1998, 1997 and 1996
(Dollars in Thousands)
YEAR ENDED DECEMBER 31, 1998:
Basic Diluted
--------------- ---------------
Weighted average number of shares
<S> <C> <C>
Average common shares outstanding at December 31, 1998 89,979,192 89,979,192
Dilutive effect for stock options at December 31, 1998 - 1,297,978
--------------- ---------------
Adjusted weighted average shares at December 31, 1998 89,979,192 91,277,170
=============== ===============
Net income to be used to compute
diluted earnings per share
Net income $130,119 $130,119
=============== ===============
Earnings per share $1.45 $1.43
=============== ===============
YEAR ENDED DECEMBER 31, 1997:
Basic Diluted
--------------- ---------------
Weighted average number of shares
Average common shares outstanding at December 31, 1997 95,883,514 95,883,514
Dilutive effect for stock options at December 31, 1997 - 571,166
--------------- ---------------
Adjusted weighted average shares at December 31, 1997 95,883,514 96,454,680
=============== ===============
Net income to be used to compute
diluted earnings per share
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 $1.00 $0.99
Cumulative effect of accounting change .19 .19
--------------- ---------------
Earnings per share $1.19 $1.18
=============== ===============
YEAR ENDED DECEMBER 31, 1996:
Basic Diluted
--------------- ---------------
Weighted average number of shares
Average common shares outstanding at December 31, 1996 113,848,822 113,848,822
Dilutive effect for stock options at December 31, 1996 - 232,740
--------------- ---------------
Adjusted weighted average shares at December 31, 1996 113,848,822 114,081,562
=============== ===============
Net income to be used to compute
diluted earnings per share
Net Income $114,275 $114,275
=============== ===============
Earnings per share $1.00 $1.00
=============== ===============
Per share amounts and the number of shares have been adjusted to reflect the
two-for-one stock split as described in Note 14 in the Notes to Consolidated
Financial Statements.
</TABLE>
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 22, 1999 (February 23,
1999 as to Note 14), appearing in this Annual Report on Form 10-K of IPALCO
Enterprises, Inc. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
February 25, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000728391
<NAME> IPALCO ENTERPRISES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,748,460
<OTHER-PROPERTY-AND-INVEST> 84,068
<TOTAL-CURRENT-ASSETS> 150,873
<TOTAL-DEFERRED-CHARGES> 135,544
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,118,945
<COMMON> 434,681
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 612,941
<TOTAL-COMMON-STOCKHOLDERS-EQ> 574,191
0
59,135
<LONG-TERM-DEBT-NET> 907,974
<SHORT-TERM-NOTES> 25,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,425
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 551,020
<TOT-CAPITALIZATION-AND-LIAB> 2,118,945
<GROSS-OPERATING-REVENUE> 821,256
<INCOME-TAX-EXPENSE> 80,190
<OTHER-OPERATING-EXPENSES> 561,555
<TOTAL-OPERATING-EXPENSES> 641,745
<OPERATING-INCOME-LOSS> 179,511
<OTHER-INCOME-NET> 16,125
<INCOME-BEFORE-INTEREST-EXPEN> 195,636
<TOTAL-INTEREST-EXPENSE> 65,517
<NET-INCOME> 130,119
3,119
<EARNINGS-AVAILABLE-FOR-COMM> 130,119
<COMMON-STOCK-DIVIDENDS> 48,235
<TOTAL-INTEREST-ON-BONDS> 60,489
<CASH-FLOW-OPERATIONS> 232,668
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.43
</TABLE>
