February 12, 1998
Securities and Exchange Commission
Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Gentlemen:
We are transmitting herewith Indiana Energy, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997, pursuant to the requirements of Section 13
of the Securities Exchange Act of 1934.
Very truly yours,
/s/Douglas S. Schmidt
Douglas S. Schmidt
DSS:tmw
Enclosures
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9091
INDIANA ENERGY, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1654378
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1630 North Meridian Street, Indianapolis, Indiana 46202
(Address of principal executive offices) (Zip Code)
317-926-3351
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Common Stock - Without par value 22,594,514 January 31, 1998
Class Number of shares Date
TABLE OF CONTENTS
Part I - Financial Information
Consolidated Balance Sheets
at December 31, 1997, and 1996
and September 30, 1997
Consolidated Statements of Income
Three Months Ended December 31, 1997 and 1996,
and Twelve Months Ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1997 and 1996,
and Twelve Months Ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Part II - Other Information
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands - Unaudited)
December 31 September 30
1997 1996 1997
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 20 185 48
Accounts receivable, less reserves
of $2,104,$2,658 and $1,784
respectively (See Note 11) 53,544 45,599 22,318
Accrued unbilled revenues 46,123 37,247 8,964
Materials and supplies - at average
cost 150 4,075 63
Liquefied petroleum gas - at average
cost 878 864 872
Gas in underground storage - at
last-in, first-out cost 17,024 34,336 19,240
Recoverable gas costs - 16,949 5,843
Prepayments and other 5,012 1,024 3,703
122,751 140,279 61,051
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 27,717 11,931 24,549
UTILITY PLANT:
Original cost 922,491 946,934 951,617
Less - accumulated depreciation and
amortization 358,750 351,496 361,936
563,741 595,438 589,681
NONUTILITY PLANT:
Original cost 45,803 4,114 4,114
Less - accumulated depreciation and
amortization 9,004 691 779
36,799 3,423 3,335
DEFERRED CHARGES:
Unamortized debt discount and expense 8,139 7,428 7,074
Other 6,051 8,395 5,155
14,190 15,823 12,229
$ 765,198 $ 766,894 $ 690,845
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Thousands except shares - Unaudited)
December 31 September 30
1997 1996 1997
<S> <C> <C> <C>
CURRENT LIABILITIES:
Maturities and sinking fund requirements
of long-term debt 272 35,272 35,272
Notes payable 72,800 66,800 23,800
Accounts payable (See Note 11) 47,324 52,793 25,523
Refundable gas costs 10,333 - -
Customer deposits and advance payments 19,738 16,533 20,405
Accrued taxes 19,127 14,406 8,659
Accrued interest 4,361 4,561 2,629
Other current liabilities 25,480 26,674 31,817
199,435 217,039 148,105
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 55,736 67,421 55,205
Accrued postretirement benefits other
than pensions 23,744 15,828 23,038
Unamortized investment tax credit 10,012 10,941 10,243
Regulatory income tax liability 1,874 2,835 1,874
Other 2,035 1,821 1,992
93,401 98,846 92,352
COMMITMENTS AND CONTINGENCIES (See Notes 9 & 10) - - -
CAPITALIZATION:
Common stock (no par value) - authorized
64,000,000 shares - issued and outstanding
22,591,388, 22,578,339 and 22,580,543
shares, respectively 146,791 146,445 146,498
Less unearned compensation - restricted
stock grants 1,708 2,170 1,589
145,083 144,275 144,909
Retained earnings 159,420 163,868 147,688
Total common shareholders' equity 304,503 308,143 292,597
Long-term debt 167,859 142,866 157,791
472,362 451,009 450,388
$ 765,198 $ 766,894 $ 690,845
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share data)
(Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Utility $ 170,132 $ 172,481 $ 528,058 $ 548,766
Other 203 - 356 11,831
170,335 172,481 528,414 560,597
OPERATING EXPENSES:
Cost of gas (See Note 11) 107,052 109,836 317,941 346,746
Other operating 18,020 19,255 80,194 85,583
Restructuring costs (See Note 3) - - 39,531 -
Depreciation and amortization 8,906 8,651 35,417 33,846
Taxes other than income taxes 4,913 4,675 17,200 16,993
138,891 142,417 490,283 483,168
OPERATING INCOME 31,444 30,064 38,131 77,429
OTHER INCOME:
Equity in earnings of unconsolidated
affiliates (See Note 10) 1,963 1,492 9,187 1,353
Other - net 405 233 3,274 806
2,368 1,725 12,461 2,159
INCOME BEFORE INTEREST AND
INCOME TAXES 33,812 31,789 50,592 79,588
INTEREST EXPENSE 4,661 4,376 17,416 16,563
INCOME BEFORE INCOME TAXES 29,151 27,413 33,176 63,025
INCOME TAXES 10,795 10,128 11,602 22,632
NET INCOME $ 18,356 $ 17,285 $ 21,574 $ 40,393
AVERAGE COMMON SHARES OUTSTANDING 22,591 22,578 22,583 22,522
EARNINGS PER AVERAGE SHARE OF
COMMON STOCK $ 0.81 $ 0.77 $ 0.96 $ 1.79
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM (REQUIRED FOR)
OPERATING ACTIVITIES:
Net income $ 18,356 $ 17,285 $ 21,574 $ 40,393
Adjustments to reconcile net income
to cash provided from operating
activities -
Noncash restructuring costs - - 32,838 -
Depreciation and amortization 8,953 8,671 35,604 33,939
Deferred income taxes 531 558 (12,645) 661
Investment tax credit (232) (232) (930) (930)
Gain on sale of nonutility assets - - (2,923) -
Undistributed earnings of
unconsolidated affiliates (1,963) (1,417) (9,187) (1,353)
7,289 7,580 42,757 32,317
Changes in assets and liabilities-
Receivables - net (68,385) (60,090) (16,821) 6,923
Inventories 2,123 4,926 21,223 16,820
Accounts payable, customer
deposits, advance payments
and other current
liabilities 14,797 20,196 (3,458) (10,488)
Accrued taxes and interest 12,200 12,209 4,521 (4,122)
Recoverable/refundable gas costs 16,176 (14,239) 27,282 (24,957)
Prepayments (1,309) (978) (3,988) 370
Accrued postretirement benefits
other than pensions 706 924 7,916 3,614
Other - net (2,985) (1,713) (2,258) (2,260)
Total adjustments (19,388) (31,185) 77,174 18,217
Net cash flows from
(required for)operations (1,032) (13,900) 98,748 58,610
CASH FLOWS FROM (REQUIRED FOR)
FINANCING ACTIVITIES:
Repurchase of common stock - - - (1,480)
Sale of long-term debt 35,014 16 50,062 1,067
Reduction in long-term debt (59,946) (213) (60,069) (19,296)
Net change in short-term borrowings 49,000 38,764 6,000 39,800
Dividends on common stock (6,625) (6,389) (26,023) (25,112)
Net cash flows from (required
for) financing activities 17,443 32,178 (30,030) (5,021)
CASH FLOWS REQUIRED FOR INVESTING
ACTIVITIES:
Capital expenditures (16,339) (17,713) (70,533) (71,899)
Nonutility investments - net (100) (400) (1,350) (1,175)
Proceeds from sale of nonutility
assets - - 3,000 -
Net cash flows required for
investing activities (16,439) (18,113) (68,883) (73,074)
NET INCREASE (DECREASE) IN CASH (28) 165 (165) (19,485)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 48 20 185 19,670
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 20 $ 185 $ 20 $ 185
</TABLE>
Indiana Energy, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
1. Financial Statements.
The consolidated financial statements include the
accounts of Indiana Energy, Inc. (Indiana Energy or the
company) and its wholly and majority-owned subsidiaries,
after elimination of intercompany transactions. The
company's consolidated financial statements include the
operations of its regulated gas distribution subsidiary,
Indiana Gas Company, Inc., (Indiana Gas), its
nonregulated administrative services provider, IEI
Services, LLC, and its nonutility subsidiaries and
investments grouped under its nonregulated subsidiary,
IEI Investments, Inc. The nonutility operations include
IGC Energy, Inc. (IGC Energy), Energy Realty, Inc.
(Energy Realty) and Indiana Energy Services, Inc. (IES),
all indirect wholly owned subsidiaries of Indiana
Energy, and interests in ProLiance Energy, LLC, CIGMA,
LLC and Energy Systems Group, LLC.
The interim condensed consolidated financial statements
included in this report have been prepared by Indiana
Energy, without audit, as provided in the rules and
regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
omitted as provided in such rules and regulations.
Indiana Energy believes that the information in this
report reflects all adjustments necessary to fairly
state the results of the interim periods reported, that
all such adjustments are of a normally recurring nature,
and the disclosures are adequate to make the information
presented not misleading. These interim financial
statements should be read in conjunction with the
financial statements and the notes thereto included in
Indiana Energy's latest annual report on Form 10-K.
Because of the seasonal nature of Indiana Energy's gas
distribution operations, the results shown on a
quarterly basis are not necessarily indicative of annual
results.
2. Financial Statement Presentation.
The consolidated financial statements of Indiana Energy,
Inc. and Subsidiary Companies are presented in the
conventional classified format rather than a regulated
utility format, which has been used in the past.
Certain reclassifications have been made to the prior
periods' financial statements to conform to the current
year competitive presentation. These reclassifications
have no impact on net income previously reported.
3. Corporate Restructuring.
In April 1997, the Board of Directors of Indiana Energy
approved a new growth strategy designed to support the
company's transition into a more competitive
environment.
For fiscal 1997, the Indiana Gas Board of Directors
authorized management to undertake the actions necessary
and appropriate to restructure Indiana Gas' operations
and recognize a resulting restructuring charge of $39.5
million ($24.5 million after tax) as described below.
These actions by Indiana Gas were consistent with the
company's new growth strategy. The effect on the
company's earnings for the twelve months ended December
31, 1997, is a reduction in earnings per share of $1.08
per common share.
In July 1997, Indiana Gas advised its employees of its
plan to reduce its work force from about 1,025 full-time
employees at June 30, 1997, to approximately 800
employees within five years. The reductions are being
implemented through involuntary separation and
attrition. As a result primarily of initial work force
reductions during September 1997, employees totaled
approximately 930 as of December 31, 1997. Indiana Gas
recorded restructuring costs of $5.4 million during the
fourth quarter of fiscal 1997 related to the 1997 and
planned work force reductions. These costs include
separation pay in accordance with Indiana Gas' severance
policy, and net curtailment losses related to these
employees' postretirement and pension benefits.
Further, Indiana Gas' management has committed to sell,
abandon or otherwise dispose of certain assets,
including buildings, gas storage fields and intangible
plant. Indiana Gas recorded restructuring costs of $34.1
million during the fourth quarter of fiscal 1997 to
adjust the carrying value of those assets to estimated
fair value. Net assets held for disposal totaled $8.0
million at December 31, 1997, and September 30, 1997, and
are included in Utility Plant on the Consolidated Balance
Sheets.
In October 1997, Indiana Energy formed a new business
unit, IEI Services, LLC (IEI Services), to provide
support services to Indiana Energy and its subsidiaries,
as well as to third-parties in the future. The formation
of IEI Services was established by a contribution of
$32.2 million of net fixed assets at book value from
Indiana Gas, which subsequently dividended its membership
interest to Indiana Energy. These assets, which relate to
the provision of administrative services, are classified
in Nonutility Plant on the Consolidated Balance Sheet at
December 31, 1997. Services provided by IEI Services
include human resources functions, information
technology and various financial services. These
services had been provided by Indiana Gas in the past.
4. Cash Flow Information.
For the purposes of the Consolidated Statements of Cash
Flows, Indiana Energy considers cash investments with an
original maturity of three months or less to be cash
equivalents. Cash paid during the periods reported for
interest and income taxes were as follows:
<TABLE>
Three Months Ended Twelve Months Ended
December 31 December 31
Thousands 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest (net of
amount capitalized) $2,593 $2,037 $16,051 $16,093
Income taxes $ 70 $ - $21,921 $30,608
</TABLE>
5. Utility Revenues.
To more closely match revenues and expenses, revenues
are recorded for all gas delivered to customers but not
billed at the end of the accounting period.
6. Gas in Underground Storage.
Based on the average cost of purchased gas during
December 1997, the cost of replacing the current portion
of gas in underground storage exceeded last-in,
first-out cost at December 31, 1997, by approximately
$9,232,000.
7. Refundable or Recoverable Gas Costs.
The cost of gas purchased and refunds from suppliers,
which differ from amounts recovered through rates, are
deferred and are being recovered or refunded in
accordance with procedures approved by the Indiana
Utility Regulatory Commission (IURC).
8. Long-Term Debt.
In October 1997, Indiana Gas filed a registration
statement with the Securities and Exchange Commission
with respect to the issuance of up to $95 million in
debt securities and in November 1997 filed a prospectus
supplement with respect to $95 million in Medium-Term
Notes, Series F. In December 1997, Indiana Gas issued
under this registration statement $35 million in
aggregate principal amount of its Medium-Term Notes,
Series F as follows: $20 million of 6.34% Notes due
December 10, 2027; and $15 million of 6.36% Notes due
December 6, 2004. The net proceeds from the sale of
these new debt securities will be used to refinance
certain of Indiana Gas' long-term debt issues and to
refinance short-term obligations incurred in connection
with Indiana Gas' ongoing construction program and other
corporate purposes.
In December 1997, Indiana Gas retired $35 million of 6
5/8% Series D Notes and, called and redeemed $24.7
million of 8 1/2% Series B Debentures.
9. Environmental Costs.
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
locations of former manufactured gas plants. It has
been seeking to recover the costs of the investigations
and work from insurance carriers and other potentially
responsible parties (PRPs).
The IURC has previously concluded that the costs
incurred by Indiana Gas to investigate and, if
necessary, clean-up former manufactured gas plant sites
are not utility operating expenses necessary for the
provision of service and, therefore, are not recoverable
as operating expenses from utility customers.
On August 12, 1997, Indiana Gas and PSI Energy, Inc.
(PSI) signed an agreement with respect to thirteen of
the nineteen sites where PSI is a PRP, which provides
for an equal sharing between Indiana Gas and PSI of past
and future response costs at the thirteen sites. Indiana
Gas and PSI must jointly approve future management of
the sites and the decisions to spend additional funds.
Indiana Gas previously entered into an agreement with
PSI providing for the sharing of costs related to
another site. Five other sites are already the subject
of an agreement between Indiana Gas and Northern Indiana
Public Service Company (NIPSCO) which provides for
coordination of efforts and sharing of investigation and
clean-up costs incurred and to be incurred at the sites.
Indiana Gas further expects in the near future to
commence negotiations with PSI and NIPSCO regarding
these five sites for the purpose of including PSI in the
Indiana Gas-NIPSCO agreement.
On April 14, 1995, Indiana Gas filed suit in the United
States District Court for the Northern District of
Indiana, Fort Wayne Division (the Court) against a
number of insurance carriers for payment of claims for
investigation and clean-up costs already incurred, as
well as for a determination that the carriers are
obligated to pay these costs in the future. On October
2, 1996, the Court granted several motions filed by
defendant insurance carriers for summary judgment on a
number of issues relating to the insurers' obligations
to Indiana Gas under insurance policies issued by these
carriers. For example, the Court held that because the
placement of residuals on the ground at the sites was
done intentionally, there was no "fortuitous accident"
and therefore no "occurrence" subject to coverage under
the relevant policies. Based on discussions with
counsel, the management of Indiana Gas believes that a
number of the Court's rulings are contrary to Indiana
law and has appealed all adverse rulings to the United
States Court of Appeals for the Seventh Circuit.
However, if these rulings are not reversed on appeal,
they would effectively eliminate coverage under most of
the policies at issue. The oral argument for the appeal
was conducted in early January of 1998. Presently, the
case is before the court awaiting the issuance of a
decision. There can be no assurance as to whether
Indiana Gas will prevail on this appeal. As of December
31, 1997, Indiana Gas has obtained settlements from some
insurance carriers in an aggregate amount of
approximately $14.7 million.
The Court's rulings have had no material impact on
earnings since Indiana Gas has recorded all costs (in
aggregate approximately $14.8 million) which it
presently expects to incur in connection with
remediation activities. It is possible that future
events may require additional remediation activities
which are not presently foreseen.
10. ProLiance Energy, LLC.
ProLiance Energy, LLC (ProLiance) is owned jointly and
equally by IGC Energy and Citizens By-Products Coal
Company, a wholly owned subsidiary of Citizens Gas and
Coke Utility (Citizens Gas). ProLiance is the supplier
of gas and related services to both Indiana Gas and
Citizens Gas, as well as a provider of similar services
to other utilities and customers in Indiana and
surrounding states. ProLiance added power marketing in
late fiscal 1997 to its services offered. Power
marketing involves buying electricity on the wholesale
market and then reselling it to other marketers,
utilities and other customers. IGC Energy's investment
in ProLiance is accounted for using the equity method.
Pretax earnings recognized from ProLiance totaled $1.8
million for the first quarter of fiscal 1998, compared
to $1.5 million for the same period one year ago.
Pretax earnings recognized from ProLiance for the twelve
months ended December 31, 1997, totaled $9.2 million
compared to $1.5 million for the same period last year.
Earnings recognized from ProLiance are included in
Equity in Earnings of Unconsolidated Affiliates on the
Consolidated Statements of Income.
On September 12, 1997, the Indiana Utility
Regulatory Commission (IURC) issued the decision in
the complaint proceeding relating to the gas supply
and portfolio administration agreements between
ProLiance and Indiana Gas and ProLiance and
Citizens Gas. The IURC concluded that these
agreements are consistent with the public interest.
The management of Indiana Energy believes that the
decision is supportive of the utilities'
relationship with ProLiance in all material
respects.
The IURC's decision suggests that all material
provisions of the agreements between ProLiance and
the utilities are reasonable. In the decision the
IURC acknowledged that the utilities' purchases of
gas commodity from ProLiance at index prices, as
compared to ProLiance's actual cost, is not
unreasonable. The IURC also acknowledged that the
amounts paid by ProLiance to the utilities for the
prospect of using pipeline entitlements if and when
they are not required to serve the utilities' firm
customers, and the fees paid by the utilities to
ProLiance for portfolio administration services are
not unreasonable. Nevertheless, with respect to
each of these matters, the IURC concluded that
additional findings in the gas cost adjustment
(GCA) process would be appropriate and directed
that these matters be considered further in the
pending, consolidated GCA proceeding involving
Indiana Gas and Citizens Gas. The IURC has not yet
established a schedule for conducting these
additional proceedings.
On January 12, 1998, the Petitioners and the
Indiana Office of Utility Consumer Counselor filed
with the Indiana Court of Appeals (Court) a joint
assignment of errors in which they set forth their
allegations relating to their challenge of the
IURC's September 12, 1997, decision. Those
allegations primarily relate to whether the IURC
erred in finding that the gas supply and portfolio
administration agreements are in the public
interest and whether the IURC erred in concluding
that ProLiance is not subject to regulation by the
IURC as a public utility.
As a result of the IURC's decision and
notwithstanding the initiation of the appeal,
during the fourth quarter of fiscal 1997, Indiana
Energy recognized approximately $4.8 million pretax
of its share of ProLiance's earnings which had
previously been reserved. Of that amount, $1.9
million related to the twelve months ended December
31, 1996. At December 31, 1997, $1.2 million
continues to be reserved pending the outcome of the
consolidated GCA proceeding involving Indiana Gas
and Citizens Gas.
Although Indiana Gas' management believes that based
upon applicable Indiana law and the IURC's record of
proceedings in the ProLiance case the IURC's decision
should be upheld by the Court, there can be no assurance
as to that outcome.
11. Affiliate Transactions.
ProLiance began providing natural gas supply and related
services to Indiana Gas effective April 1, 1996.
Indiana Gas' purchases from ProLiance for resale and for
injections into storage for the three- and twelve-month
periods ended December 31, 1997, totaled $104.1 million
and $311.7 million, respectively. Indiana Gas'
purchases from ProLiance for the three- and twelve-month
periods ended December 31, 1996, totaled $103.2 million
and $221.1 million, respectively.
As of December 31, 1997, ProLiance has a standby letter
of credit facility with a bank for letters up to $45
million. This facility is secured in part by a support
agreement from Indiana Energy.
CIGMA, LLC, owned jointly and equally by IGC Energy and
Citizens By-Products Coal Company, provides materials
acquisition and related services that are used by the
company and Citizens Gas, as well as similar services
for third parties. The company's purchases of these
services during the three- and twelve-month periods
ended December 31, 1997, totaled $6.6 million and $16.2
million, respectively.
Amounts owed to affiliates totaled $35.6 million and
$47.0 million at December 31, 1997 and 1996,
respectively, and are included in Accounts Payable on
the Consolidated Balance Sheets.
Amounts due from affiliates totaled $6.0 million at
December 31, 1997, and are included in Accounts
Receivable on the Consolidated Balance Sheet.
Indiana Energy, Inc. and Subsidiary Companies
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Earnings
Indiana Energy, Inc.'s (Indiana Energy or the company)
consolidated earnings are from the operations of its gas
distribution subsidiary, Indiana Gas Company, Inc.
(Indiana Gas), its nonregulated administrative services
provider, IEI Services, LLC (IEI Services), and its
nonutility subsidiaries and investments grouped under its
nonregulated subsidiary, IEI Investments, Inc. (IEI
Investments). The nonutility operations include IGC
Energy, Inc. (IGC Energy), Energy Realty, Inc. (Energy
Realty) and Indiana Energy Services, Inc. (IES), all
indirect wholly owned subsidiaries of Indiana Energy, and
interests in ProLiance Energy, LLC, CIGMA, LLC and Energy
Systems Group, LLC. The company is currently implementing
a new growth strategy and restructuring plan which
provides for, among other things, growing the earnings
contribution from nonutility operations to over 20 percent
of its total annual earnings within the next five years,
and aggressively managing costs within its utility
operations.
Income and earnings per average share of common stock
before 1997 restructuring costs for the three- and twelve-
month periods ended December 31, 1997, when compared to
the same periods one year ago, are summarized below:
<TABLE>
(Millions except Three Months Ended Twelve Months Ended
per share amounts) December 31 December 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Indiana Gas &
IEI Services (1) $17.2 $16.4 $38.4 $36.1
IEI Investments 1.2 .9 7.7 4.3
Net income $18.4 $17.3 $46.1 $40.4
Earnings per share:
Indiana Gas &
IEI Services (1) $ .76 $ .73 $1.70 $1.60
IEI Investments .05 .04 .34 .19
Total $ .81 $ .77 $2.04 $1.79
</TABLE>
(1) Income and earnings per share from Indiana Gas and IEI Services
for the twelve-months ended December 31, 1997, after restructuring
costs were $13.9 million and 62 cents, respectively.
The increase in net income and earnings per share for
the three-month period is primarily attributable to lower
operation and maintenance expenses, including lower labor
costs resulting from work force reductions.
The increase in net income and earnings per share
before restructuring costs for the twelve-month period is
due primarily to lower operation and maintenance expenses,
including lower costs for uncollectible accounts and lower
labor costs resulting from work force reductions. Higher
earnings recognized from Indiana Energy's energy marketing
affiliates also contributed to the increase.
For fiscal 1997, the Indiana Gas Board of Directors
authorized management to undertake the actions necessary
and appropriate to restructure Indiana Gas' operations and
recognize a resulting after-tax restructuring charge of
$24.5 million. These actions by Indiana Gas were
consistent with the company's growth strategy that was
approved by its board of directors during fiscal 1997. The
effect on the company's earnings for the twelve months
ended December 31, 1997, is a reduction in earnings per
share of $1.08 per common share (see New Growth Strategy
and Corporate Restructuring).
Utility Margin (Utility Operating Revenues Less Utility
Cost of Gas)
Utility margin for the quarter ended December 31,
1997, was $63.1 million compared to $62.6 million for the
same period last year. The increase reflects weather 2
percent colder than the same period last year and 3
percent colder than normal, as well as the addition of new
residential and commercial customers.
Utility margin for the twelve-month period ended
December 31, 1997, was $208.3 million compared to $208.0
million for the same period last year. The increase is
primarily attributable to the addition of new residential
and commercial customers, offset substantially by weather
3 percent warmer than the same period last year and 1
percent colder than normal.
Total system throughput (combined sales and
transportation) increased 2 percent (.8 MMDth) for the
first quarter of fiscal 1998, when compared to the same
period last year. Throughput decreased 1 percent (1.3
MMDth) for the twelve-month period, when compared to the
same period one year ago. Indiana Gas' rates for
transportation generally provide the same margins as are
earned on the sale of gas under its sales tariffs.
Approximately one-half of total system throughput
represents gas used for space heating and is affected by
weather.
Total average cost per unit of gas purchased decreased
to $3.87 for the three-month period ended December 31,
1997, compared to $4.04 for the same period one year ago.
For the twelve-month period, cost of gas per unit
increased to $3.60 in the current period compared to $3.55
for the same period last year.
Adjustments to Indiana Gas' rates and charges related
to the cost of gas are made through gas cost adjustment
(GCA) procedures established by Indiana law and
administered by the Indiana Utility Regulatory Commission
(IURC). The GCA passes through increases and decreases in
the cost of gas to Indiana Gas' customers dollar for
dollar.
Other Operating Margin
Included in Operating Revenues and Operating Expenses
on the Consolidated Statements of Income are the
operations of IES. Prior to April 1, 1996, IES provided
natural gas and related services to other gas utilities
and customers in Indiana and surrounding states, and from
January 1, 1996, to March 31, 1996, to Indiana Gas. IES'
contribution to consolidated margin for the twelve months
ended December 31, 1996 was $5.7 million. ProLiance
Energy, LLC (ProLiance) assumed the business of IES
effective April 1, 1996, and now is the supplier of gas
and related services to both Indiana Gas and Citizens Gas
and Coke Utility (see ProLiance Energy, LLC). Earnings
recognized from ProLiance are included in Equity in
Earnings of Unconsolidated Affiliates on the Consolidated
Statements of Income.
Operating Expenses (excluding Cost of Gas)
Other operating expenses decreased $1.2 million for
the three-month period ended December 31, 1997, when
compared to the same period one year ago due primarily to
lower distribution system costs and lower labor costs
resulting from work force reductions.
Other operating expenses decreased $5.4 million for
the twelve-month period when compared to the same period
last year due primarily to lower distribution system
costs, lower costs for uncollectible accounts and lower
labor costs resulting from work force reductions.
Restructuring costs of $39.5 million were recorded in
the fourth quarter of fiscal 1997 related to the
implementation of the company's new growth strategy (see
New Growth Strategy and Corporate Restructuring).
Depreciation and amortization expense increased for
the three- and twelve-month periods ended December 31,
1997, when compared to the same periods one year ago as
the result of additions to plant to serve new customers
and to maintain dependable service to existing customers.
Taxes other than income taxes increased for the three-
month period ended December 31, 1997, when compared to the
same period one year ago due to higher gross receipts tax
expense. Taxes other than income taxes remained
approximately the same for the twelve-month period when
compared to the same period last year.
Other Income
Equity in earnings of unconsolidated affiliates
increased for the three-and twelve-month periods ended
December 31, 1997, when compared to the same periods one
year ago due primarily to higher earnings recognized from
the company's energy marketing affiliate, ProLiance
Energy, LLC (ProLiance). Pretax earnings recognized from
ProLiance totaled $1.8 million for the first quarter of
fiscal 1998, compared to $1.5 million for the same period
one year ago. Pretax earnings recognized from ProLiance
for the twelve months ended December 31, 1997, totaled
$9.2 million compared to $1.5 million for the same period
last year (see ProLiance Energy, LLC).
Other-net remained approximately the same for the
three-month period ended December 31, 1997, when compared
to the same period one year ago. Other-net increased for
the twelve-month period when compared to the same period
last year due primarily to the sale of certain nonutility
assets by IGC Energy which resulted in a gain of
approximately $2.9 million.
Interest Expense
Interest expense increased for the three- and twelve-
month periods ended December 31, 1997, when compared to
the same periods one year ago due to increases in average
debt outstanding slightly offset by decreases in interest
rates.
Income Taxes
Federal and state income taxes increased for the three-
month period ended December 31, 1997, when compared to the
same period one year ago due to an increase in taxable
income. Federal and state income taxes decreased for the
twelve-month period when compared to the same period last
year due primarily to the recording of restructuring
costs.
Other Operating Matters
New Growth Strategy and Corporate Restructuring
In April 1997, the Board of Directors of Indiana
Energy approved a new growth strategy designed to support
the company's transition into a more competitive
environment. As part of this new growth strategy, Indiana
Energy will endeavor to become a leading regional provider
of energy products and services and to grow its
consolidated earnings per share by an average of 10
percent annually over the next five years. To achieve such
earnings growth, Indiana Energy's aim is to grow the
earnings contribution from nonutility operations to over
20 percent of its total annual earnings within the next
five years, and to aggressively manage costs within its
utility operations.
For fiscal 1997, the Indiana Gas Board of Directors
authorized management to undertake the actions necessary
and appropriate to restructure Indiana Gas' operations and
recognize a resulting restructuring charge of $39.5
million ($24.5 million after-tax) as described below.
These actions by Indiana Gas were consistent with the
company's new growth strategy. The effect on the company's
earnings for the twelve months ended December 31, 1997, is
a reduction in earnings per share of $1.08 per common
share.
In July 1997, Indiana Gas advised its employees of its
plan to reduce its work force from about 1,025 full-time
employees at June 30, 1997, to approximately 800 employees
within five years. The reductions are being implemented
through involuntary separation and attrition. As a result
primarily of initial work force reductions during
September 1997, employees totaled approximately 930 as of
December 31, 1997. Indiana Gas recorded restructuring
costs of $5.4 million during the fourth quarter of fiscal
1997 related to the 1997 and planned work force
reductions. These costs include separation pay in
accordance with Indiana Gas' severance policy, and net
curtailment losses related to these employees'
postretirement and pension benefits.
Further, Indiana Gas' management has committed to
sell, abandon or otherwise dispose of certain assets,
including buildings, gas storage fields and intangible
plant. Indiana Gas recorded restructuring costs of $34.1
million during the fourth quarter of fiscal 1997 to adjust
the carrying value of those assets to estimated fair
value. Net assets held for disposal totaled $8.0 million
at December 31, 1997, and September 30, 1997, and are included
in Utility Plant on the Consolidated Balance Sheets.
In October 1997, Indiana Energy formed a new business
unit, IEI Services, LLC (IEI Services), to provide support
services to Indiana Energy and its subsidiaries, as well
as to third-parties in the future. The formation of IEI
Services was established by a contribution of $32.2
million of net fixed assets at book value from Indiana
Gas, which subsequently dividended its membership interest
to Indiana Energy. These assets, which relate to the
provision of administrative services, are classified in
Nonutility Plant on the Consolidated Balance Sheet at
December 31, 1997. Services provided by IEI Services
include human resources functions, information technology
and various financial services. These services had been
provided by Indiana Gas in the past. IEI Services has been
designed to avoid duplicate business unit support costs,
eliminate low-value support activities and to assist in
cost containment, which should help the company in meeting
its earnings growth targets.
As a result of the restructuring, the company expects
reductions in future operating expenses, which should help
the company to be more successful in an increasingly
competitive energy marketplace.
ProLiance Energy, LLC
ProLiance Energy, LLC (ProLiance) is owned jointly and
equally by IGC Energy and Citizens By-Products Coal
Company, a wholly owned subsidiary of Citizens Gas.
ProLiance is the supplier of gas and related services to
both Indiana Gas and Citizens Gas, as well as a provider
of similar services to other utilities and customers in
Indiana and surrounding states. ProLiance added power
marketing in late fiscal 1997 to its services offered.
Power marketing involves buying electricity on the
wholesale market and then reselling it to other marketers,
utilities and other customers.
On September 12, 1997, the Indiana Utility Regulatory
Commission (IURC) issued the decision in the complaint
proceeding relating to the gas supply and portfolio
administration agreements between ProLiance and Indiana
Gas and ProLiance and Citizens Gas. The IURC concluded
that these agreements are consistent with the public
interest. The management of Indiana Energy believes that
the decision is supportive of the utilities' relationship
with ProLiance in all material respects.
This decision is particularly important because the
IURC has recognized that significant customer benefits can
be achieved if utilities are encouraged to work toward
innovative customer solutions in the changing energy
marketplace. As a result of ProLiance's provision of
service to Indiana Gas and Citizens Gas, in excess of $50
million in gas costs savings will be realized for the
customers of those utilities over the initial four and one-
half year term of the utilities' agreements. Further, the
IURC has recognized that benefits for investors are
appropriate when risks are being assumed by those
investors.
The IURC's decision suggests that all material
provisions of the agreements between ProLiance and the
utilities are reasonable. In the decision the IURC
acknowledged that the utilities' purchases of gas
commodity from ProLiance at index prices, as compared to
ProLiance's actual cost, is not unreasonable. The IURC
also acknowledged that the amounts paid by ProLiance to
the utilities for the prospect of using pipeline
entitlements if and when they are not required to serve
the utilities' firm customers, and the fees paid by the
utilities to ProLiance for portfolio administration
services are not unreasonable. Nevertheless, with respect
to each of these matters, the IURC concluded that
additional findings in the gas cost adjustment (GCA)
process would be appropriate and directed that these
matters be considered further in the pending, consolidated
GCA proceeding involving Indiana Gas and Citizens Gas. The
IURC has not yet established a schedule for conducting
these additional proceedings.
On January 12, 1998, the Petitioners and the Indiana
Office of Utility Consumer Counselor filed with the
Indiana Court of Appeals (Court) a joint assignment of
errors in which they set forth their allegations relating
to their challenge of the IURC's September 12, 1997,
decision. Those allegations primarily relate to whether
the IURC erred in finding that the gas supply and
portfolio administration agreements are in the public
interest and whether the IURC erred in concluding that
ProLiance is not subject to regulation by the IURC as a
public utility.
As a result of the IURC's decision and notwithstanding
the initiation of the appeal, during the fourth quarter of
fiscal 1997, Indiana Energy recognized approximately $4.8
million pretax of its share of ProLiance's earnings which
had previously been reserved. Of that amount, $1.9 million
related to the twelve months ended December 31, 1996. At
December 31, 1997, $1.2 million continues to be reserved
pending the outcome of the consolidated GCA proceeding
involving Indiana Gas and Citizens Gas.
Although Indiana Gas' management believes that based
upon applicable Indiana law and the IURC's record of
proceedings in the ProLiance case the IURC's decision
should be upheld by the Court, there can be no assurance
as to that outcome.
Environmental Matters
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
locations of former manufactured gas plants. It has been
seeking to recover the costs of the investigations and
work from insurance carriers and other potentially
responsible parties (PRPs).
The IURC has previously concluded that the costs
incurred by Indiana Gas to investigate and, if necessary,
clean-up former manufactured gas plant sites are not
utility operating expenses necessary for the provision of
service and, therefore, are not recoverable as operating
expenses from utility customers.
On August 12, 1997, Indiana Gas and PSI Energy, Inc.
(PSI) signed an agreement with respect to thirteen of the
nineteen sites where PSI is a PRP, which provides for an
equal sharing between Indiana Gas and PSI of past and
future response costs at the thirteen sites. Indiana Gas
and PSI must jointly approve future management of the
sites and the decisions to spend additional funds. Indiana
Gas previously entered into an agreement with PSI
providing for the sharing of costs related to another
site. Five other sites are already the subject of an
agreement between Indiana Gas and Northern Indiana Public
Service Company (NIPSCO) which provides for coordination
of efforts and sharing of investigation and clean-up costs
incurred and to be incurred at the sites. Indiana Gas
further expects in the near future to commence
negotiations with PSI and NIPSCO regarding these five
sites for the purpose of including PSI in the Indiana
Gas-NIPSCO agreement.
On April 14, 1995, Indiana Gas filed suit in the
United States District Court for the Northern District of
Indiana, Fort Wayne Division (the Court) against a number
of insurance carriers for payment of claims for
investigation and clean-up costs already incurred, as well
as for a determination that the carriers are obligated to
pay these costs in the future. On October 2, 1996, the
Court granted several motions filed by defendant insurance
carriers for summary judgment on a number of issues
relating to the insurers' obligations to Indiana Gas under
insurance policies issued by these carriers. For example,
the Court held that because the placement of residuals on
the ground at the sites was done intentionally, there was
no "fortuitous accident" and therefore no "occurrence"
subject to coverage under the relevant policies. Based on
discussions with counsel, the management of Indiana Gas
believes that a number of the Court's rulings are contrary
to Indiana law and has appealed all adverse rulings to the
United States Court of Appeals for the Seventh Circuit.
However, if these rulings are not reversed on appeal, they
would effectively eliminate coverage under most of the
policies at issue. The oral argument for the appeal was
conducted in early January of 1998. Presently, the case
is before the court awaiting the issuance of a decision.
There can be no assurance as to whether Indiana Gas will
prevail on this appeal. As of December 31, 1997, Indiana
Gas has obtained settlements from some insurance carriers
in an aggregate amount of approximately $14.7 million.
The Court's rulings have had no material impact on
earnings since Indiana Gas has recorded all costs (in
aggregate approximately $14.8 million) which it presently
expects to incur in connection with remediation
activities. It is possible that future events may require
additional remediation activities which are not presently
foreseen.
Pace Carbon Synfuels Investors, L.P.
On February 5, 1998, IEI Synfuels, Inc. (IEI
Synfuels), a wholly-owned, indirect subsidiary of IEI
Investments, purchased one limited partnership unit in
Pace Carbon Synfuels Investors, L.P. (Pace Carbon), a
Delaware limited partnership formed to develop, own and
operate four projects to produce and sell coal-based
synthetic fuel. Pace Carbon will convert coal fines
(small coal particles) into coal pellets that can be
sold to major coal users such as utilities and steel
companies. This process is eligible for federal tax
credits under Section 29 of the Internal Revenue Code
(Code) and the Internal Revenue Service has issued a
private letter ruling with respect to the four projects.
IEI Synfuels has committed an initial investment
of $7.5 million in Pace Carbon (of which $2.2 million
was paid February 5, 1998) for an 8.3 percent ownership
interest in the partnership. The balance of the
initial investment will be paid in installments during
1998 following the satisfaction by Pace Carbon of
certain project milestones regarding the construction
and operation of the coal pellet production plants and
related coal fines feedstock plants. In addition to its
initial investment, IEI Synfuels has a continuing obligation
to invest in Pace Carbon up to approximately $43 million,
with any such additional investments to be funded
solely from federal tax credits that are realized from
the production and sale of coal pellets by the projects.
The realization of the tax credits from this
investment is dependent upon a number of factors
including among others (1) the production facilities must
be in operation by June 30, 1998, (2) adequate coal fines
must be available to produce the coal pellets, and (3)the coal
pellets must be produced and sold. Management believes that
significant project benefits, primarily in the form of tax
savings and tax credits realized, will be achieved but cannot
be assured.
The Year 2000 Issue
Many existing computer programs use only two
digits to identify a year in the date field. These
programs were designed and developed without
considering the impact of the upcoming change in the
century. If not corrected, many computer applications
could fail or create erroneous results by or at the
year 2000.
The company has developed plans to address the
exposures related to the impact on its computer systems
of the year 2000, including plans to address
modifications to and replacements of key financial and
operational systems required by December 31, 1999. The
financial impact of making the required changes is not
expected to be material to the company's financial
position or results of operations.
Liquidity and Capital Resources
Consolidated capitalization objectives for Indiana
Energy are 55-65 percent common equity and preferred stock
and 35-45 percent long-term debt, but may vary from time
to time, depending on particular business opportunities.
Indiana Energy's common equity component was 64 percent of
total capitalization at December 31, 1997. The long-term
debt of Indiana Energy is currently rated Aa3 by Moody's
Investors Service and A+ by Standard & Poor's Corporation.
Because of its current capital structure, the company
does have the ability to issue additional long-term debt,
if necessary, to fund nonutility investments or for other
corporate purposes and still meet its capitalization
objectives. This is particularly important as it relates
to the company's new growth strategy, which provides for,
among other things, expansion of its nonutility
operations.
In October 1997, Indiana Energy formed a new
subsidiary, IEI Capital Corp., to conduct the financing
for Indiana Energy and its subsidiaries other than Indiana
Gas. IEI Capital Corp. will provide the non-regulated
businesses with short-term financing for working capital
requirements, as well as secure permanent financing for
those entities.
On January 28, 1998, the shareholders of Indiana
Energy approved an amendment to the company's Articles of
Incorporation to increase the authorized shares of common
stock from 64,000,000 shares to 200,000,000 shares.
Indiana Gas' capitalization objectives, which are 55-
65 percent common equity and preferred stock and 35-45
percent long-term debt, remain unchanged from prior years.
Indiana Gas' common equity component was 60 percent of its
total capitalization at December 31, 1997.
New construction, normal system maintenance and
improvements, and information technology investments
needed to provide service to a growing customer base will
continue to require substantial expenditures. Capital
expenditures for fiscal 1998 are estimated at $70.8
million of which $16.3 million have been expended during
the three-month period ended December 31, 1997. For the
twelve months ended December 31, 1997, capital
expenditures totaled $70.5 million.
Nonutility investments, including commitments, totaled
approximately $1.0 million and $8.0 million for the
three- and twelve-month periods ended December 31, 1997,
respectively.
Indiana Gas' long-term goal is to internally fund at
least 75 percent of its capital expenditure program. This
will help Indiana Gas to maintain its high
creditworthiness. The long-term debt of Indiana Gas is
currently rated Aa2 by Moody's Investors Service and AA-
by Standard & Poor's Corporation. For the twelve months
ended December 31, 1997, 58 percent of Indiana Gas'
capital expenditures was funded internally (i.e. from
utility income less dividends plus charges to utility
income not requiring funds).
In October 1997, Indiana Gas filed a registration
statement with the Securities and Exchange Commission with
respect to the issuance of up to $95 million in debt
securities and in November 1997 filed a prospectus
supplement with respect to $95 million in Medium-Term
Notes, Series F. In December 1997, Indiana Gas issued
under this registration statement $35 million in aggregate
principal amount of its Medium-Term Notes, Series F as
follows: $20 million of 6.34% Notes due December 10, 2027;
and $15 million of 6.36% Notes due December 6, 2004. In
January 1998, an additional $15 million of 5.75% Medium-
Term Notes, Series F, due January 15, 2003, were issued
under this registration statement. The net proceeds from
the sale of these new debt securities will be used to
refinance certain of Indiana Gas' long-term debt issues
and to refinance short-term obligations incurred in
connection with Indiana Gas' ongoing construction program
and other corporate purposes.
In December 1997, Indiana Gas retired $35 million of 6
5/8% Series D Notes and, called and redeemed $24.7 million
of 8 1/2% Series B Debentures.
Short-term cash working capital is required primarily
to finance customer accounts receivable, unbilled utility
revenues resulting from cycle billing, gas in underground
storage and capital expenditures until permanently
financed. Short-term borrowings tend to be greatest during
the heating season when accounts receivable and unbilled
utility revenues are at their highest. Indiana Gas'
commercial paper is rated P-1 by Moody's and A-1+ by
Standard & Poor's. Recently, bank lines of credit have
been the primary source of short-term financing.
Forward-Looking Information
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform
Act of 1995.
A "safe harbor" for forward-looking statements is
provided by the Private Securities Litigation Reform
Act of 1995 (Reform Act of 1995). The Reform Act of
1995 was adopted to encourage such forward-looking
statements without the threat of litigation, provided
those statements are identified as forward-looking and
are accompanied by meaningful cautionary statements
identifying important factors that could cause the
actual results to differ materially from those
projected in the statement. Certain matters described
in Management's Discussion and Analysis of Results of
Operations and Financial Condition, including, but not
limited to, Indiana Energy's new earnings growth
strategy, are forward-looking statements. Such
statements are based on management's beliefs, as well
as assumptions made by and information currently
available to management. When used in this filing the
words "aim," "anticipate," "endeavor," "estimate,"
"expect," "objective," "projection," "forecast,"
"goal," and similar expressions are intended to
identify forward-looking statements. In addition to any
assumptions and other factors referred to specifically
in connection with such forward-looking statements,
factors that could cause Indiana Energy, Inc. and
subsidiary companies' actual results to differ
materially from those contemplated in any forward-
looking statements include, among others, the
following:
Factors affecting utility operations such as
unusual weather conditions; catastrophic weather-
related damage; unusual maintenance or repairs;
unanticipated changes to gas supply costs, or
availability due to higher demand, shortages,
transportation problems or other developments;
environmental or pipeline incidents; or gas pipeline
system constraints.
Increased competition in the energy environment,
including effects of industry restructuring and
unbundling.
Regulatory factors such as unanticipated changes
in rate-setting policies or procedures; recovery of
investments made under traditional regulation, and the
frequency and timing of rate increases.
Financial or regulatory accounting principles or
policies imposed by the Financial Accounting Standards
Board, the Securities and Exchange Commission, the
Federal Energy Regulatory Commission, state public
utility commissions, state entities which regulate
natural gas transmission, gathering and processing, and
similar entities with regulatory oversight.
Economic conditions including inflation rates and
monetary fluctuations.
Changing market conditions and a variety of other
factors associated with physical energy and financial
trading activities, including, but not limited to,
price, basis, credit, liquidity, volatility, capacity,
interest rate and warranty risks.
Availability or cost of capital, resulting from
changes in: Indiana Energy, Inc. and its subsidiaries,
interest rates, and securities ratings or market
perceptions of the utility industry and energy-related
industries.
Employee workforce factors, including changes in
key executives, collective bargaining agreements with
union employees or work stoppages.
Legal and regulatory delays and other obstacles
associated with mergers, acquisitions and investments
in joint ventures such as the ProLiance complaint
proceeding.
Costs and other effects of legal and
administrative proceedings, settlements,
investigations, claims and other matters, including,
but not limited to, those described in the Other
Operating Matters section of Management's Discussion
and Analysis of Results of Operations and Financial
Condition.
Changes in Federal, state or local legislative
requirements, such as changes in tax laws or rates,
environmental laws and regulations.
Indiana Energy, Inc. and its subsidiaries undertake no
obligation to publicly update or revise any forward-
looking statements, whether as a result of changes in
actual results, changes in assumptions, or other
factors affecting such statements.
Indiana Energy, Inc. and Subsidiary Companies
Part II - Other Information
Item 1. Legal Proceedings
See Note 9 of the Notes to Consolidated Financial
Statements for litigation matters involving insurance
carriers pertaining to Indiana Gas' former manufactured
gas plants and storage facilities.
See Note 10 of the Notes to Consolidated Financial
Statements for discussion of the IURC's decision in the
complaint proceeding relating to the gas supply and
portfolio administration agreements between ProLiance
and Indiana Gas and ProLiance and Citizens Gas, and
discussion of the subsequent appeal to that decision.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3-A Articles of Incorporation as Amended
and Restated on January 28, 1998,
filed herewith.
27 Financial Data Schedule, filed herewith.
(b) On October 8, 1997, Indiana Energy and
Indiana Gas filed a Current Report on Form 8-
K with respect to the appeal by a small
group of Indiana Gas' and Citizens Gas'
customers and the Office of Utility Consumer
Counselor of the IURC's September 12, 1997,
decision in the ProLiance complaint
proceeding. Items reported include:
Item 5. Other Events
Information related to the
appeal of the IURC's decision in
the ProLiance complaint proceeding.
On October 31, 1997, Indiana Energy and
Indiana Gas filed a Current Report on Form 8-
K with respect to a press release (dated
October 31, 1997), announcing the recording
of a restructuring charge by Indiana Gas.
Items reported include:
Item 5. Other Events
Press release dated October 31,1997.
On November 14, 1997, Indiana Energy and Indiana
Gas filed a Current Report on Form 8-K which
included the September 30, 1997, audited
Consolidated Financial Statements and Notes to
Consolidated Financial Statements of Indiana
Energy and Subsidiary Companies, as well as
Management's Discussion and Analysis of Results
of Operations and Financial Condition (MD&A).
Items reported include:
Item 5. Other Events
Indiana Energy, Inc. and
Subsidiary Companies' September
30, 1997, audited Consolidated
Financial Statements and Notes,
and MD&A.
On December 5, 1997, Indiana Gas filed a
Current Form on 8-K to file as Exhibit 4
thereto: Officers' Certificate with respect
to the establishment of the Medium Term
Notes, Series F (including Administrative
Procedures and forms of Fixed Rate Note and
Floating Rate Note).
On December 5, 1997, Indiana Gas filed a
Current Form on 8-K to file as Exhibit 1
thereto: Distribution Agreement dated
November 19, 1997, among Indiana Gas
Company, Inc. and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
INDIANA ENERGY, INC.
Registrant
Dated February 12, 1998 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
President and Chief Operating Officer
Dated February 12, 1998 /s/Jerome A. Benkert
Jerome A. Benkert
Vice President and Controller
EXHIBIT 3-A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INDIANA ENERGY, INC.
Restatement filed with the
Indiana Secretary of State on January 12, 1987
ARTICLE 1
IDENTIFICATION
The name of the Corporation is INDIANA ENERGY, INC.
ARTICLE 2
PURPOSES AND POWERS
SECTION 2.01. Purposes. The purposes for which the
Corporation is formed are the transaction of any or all
lawful business for which corporations may be incorporated
under the Indiana Business Corporation Law, as the same may,
from time to time, be amended (the "Act").
SECTION 2.02. Powers. The Corporation, subject to any
limitations or restrictions imposed by the Act, other law or
these Articles of Incorporation (these "Articles"), shall
have the following general rights, privileges and powers:
Clause (a). Personal Property. To acquire (by
purchase, exchange, lease, hire or otherwise), hold,
own, use, lease, mortgage, pledge, give as security,
sell, convey, exchange or otherwise deal in and dispose
of, either alone or in conjunction with others,
personal property, tangible or intangible, and
commodities of every kind, character and description
whatsoever and any interests therein.
Clause (b). Real Estate. To acquire (by purchase,
grant, exchange, lease, hire or otherwise), hold, own,
use, lease, mortgage, sell, convey, exchange or
otherwise deal in and dispose of, either alone or in
conjunction with others, real estate of every kind,
character and description whatsoever and any interests
therein, and any improvements thereon or appurtenances
thereto.
Clause (c). Operating Rights. To acquire (by
application, grant, purchase, exchange, lease or
otherwise) permits, concessions, grants, franchises,
indeterminate permits, licenses, rights and privileges
of every kind and nature; to hold, own, use, develop,
operate under, lease, mortgage, pledge, sell, convey,
exchange or otherwise deal with and dispose of the same
to the extent permitted by law.
Clause (d). Patents and Similar Rights. To acquire
(by application, purchase, exchange, lease, hire or
otherwise), hold, own, use, lease, mortgage, pledge,
sell, convey, exchange, and grant licenses or
sublicenses in respect of, or otherwise deal with and
dispose of, letters patent of the United States of
America or any foreign country, patent rights,
licenses, privileges, inventions, discoveries,
improvements, processes, formulae, copyrights,
trademarks, trade names and intellectual property of
any kind or character.
Clause (e). Acquisition of Assets, Properties,
Business, and Goodwill. To acquire (by purchase,
exchange, lease, hire or otherwise) all or any part of
the assets, properties, business or goodwill of any
corporation, unincorporated association, business
trust, estate, partnership, trust, joint venture,
individual or other legal entity (collectively, "Legal
Entities," and individually, a "Legal Entity"); to pay
for the same in cash, shares or obligations of the
Corporation or otherwise; to assume in connection
therewith any liabilities of any such transferor; and
to hold, own, use, develop, operate and in any manner
dispose of the whole, or any part, of the assets,
properties, business or goodwill so acquired.
Clause (f). Securities. To purchase, take,
receive, subscribe for or otherwise acquire, guarantee,
own, hold, vote, use, employ, sell, mortgage, lend,
pledge or otherwise deal in and dispose of shares or
other interests in, or obligations of, any one or more
Legal Entities, including direct or indirect
obligations or other securities of the United States of
America or of any other government, State, territory,
governmental district or municipality or of any agency
or instrumentality thereof.
Clause (g). Arrangements with Others. To enter
into any lawful arrangement for sharing profits, union
of interest, joint venture, reciprocal association, or
cooperative association or partnership with any one or
more Legal Entities.
Clause (h). Agency. To act as agent of or
representative for any one or more Legal Entities.
Clause (i). To Raise Funds. To borrow or raise
monies from time to time, without limit as to amount;
to issue, execute, accept, endorse and deliver, as
evidence of such borrowing, all kinds of securities,
including without limitation promissory notes, drafts,
bills of exchange, bonds, debentures and other
negotiable or non-negotiable instruments and evidences
of indebtedness; and to secure the payment and
performance of the obligations thereunder, by mortgage
on, pledge of, or other security interest in the whole
or any part of the assets, properties, business or
goodwill of the Corporation, whether owned at the time
or thereafter acquired.
Clause (j). To Loan Funds. To lend money to any
one or more Legal Entities, including employees of the
Corporation or its subsidiaries; to take and hold any
property as security for the payment of funds so
loaned; but to make no loan of money or property to,
and no guarantee of any obligation of, any of the
Directors of the Corporation (collectively, the
"Directors," and individually, a "Director"), except in
the manner and upon the terms provided by the Act.
Clause (k). Contracts. To enter into, perform,
modify, terminate and rescind contracts and other
agreements.
Clause (l). Guarantees. To make any guarantee
respecting the shares, dividends, securities,
indebtedness, interest, contracts or other obligations
created by any one or more Legal Entities.
Clause (m). Dealing in Its Own Shares. To
purchase, take, receive or otherwise acquire, hold,
own, use, pledge, cancel, sell, transfer or otherwise
dispose of shares of the Corporation (collectively,
"Shares," and individually, a "Share") to the extent
permitted by the Act and these Articles, as the same
may, from time to time, be amended.
Clause (n). Contributions. To make payments or
donations for the public welfare or for charitable,
scientific, or educational purposes.
Clause (o). Capacity to Act. To have the capacity
to act possessed by natural persons, but to have
authority to perform only such acts as are necessary or
convenient to carry out its business and affairs.
Clause (p). Officers, Agents and Employees. To
elect Officers of the Corporation (collectively,
"Officers," and individually, an "Officer"), to appoint
agents and to hire employees of the Corporation; to
define their duties; to determine their compensation;
and to pay pensions and establish and administer
pension plans, pension trusts, profit sharing plans,
stock bonus plans, stock option plans, welfare plans,
qualified and non-qualified retirement plans, and
benefit or incentive plans for any or all of its
current or former Directors, Officers and employees.
Clause (q). Indemnification. To indemnify persons
to the extent, upon the terms and in the manner
permitted by the Act, and as provided in Section 8.08
hereof.
Clause (r). Statutory Powers. To have and exercise
all the general rights, privileges and powers set forth
in the Act.
Clause (s). Ancillary Powers. To do all acts and
things that are necessary or convenient to carry out
its business and affairs.
SECTION 2.03. Construction of Powers as Purposes. The
powers enumerated in Section 2.02 shall be construed as
purposes as well as powers, and the matters expressed in
each Clause thereof shall be in no wise limited by reference
to, or inference from, the terms of any other Clause, each
of such Clauses being regarded as creating independent
powers and purposes. Enumeration of specific additional
powers in the Clauses of Section 2.02 shall not be construed
as limiting or restricting in any manner, either the meaning
of general terms used in this Article 2 or the scope of
powers of the Corporation created thereby; nor shall the
expression of one thing be deemed to exclude another not
expressed although it be of like nature.
SECTION 2.04. Carrying Out of Purposes and Exercise of
Powers in Any Jurisdiction. The Corporation may carry out
its purposes and exercise its powers in any State,
territory, district or possession of the United States of
America, or in any foreign country (collectively,
"Governmental Jurisdictions," and individually, a
"Governmental Jurisdiction"), to the extent that such
purposes and powers are not forbidden by the respective laws
of such Governmental Jurisdictions; and, in the case of any
Governmental Jurisdiction in which one or more of such
purposes or powers are forbidden by law, to limit, in any
application to do business in such Governmental
Jurisdiction, the purpose or purposes that the Corporation
proposes to carry on or the powers it proposes to exercise
in such Governmental Jurisdiction to such purpose or
purposes or powers as are not forbidden by the law thereof.
ARTICLE 3
REGISTERED OFFICE AND REGISTERED AGENT
The street address of the registered office of the
Corporation is:
1630 North Meridian Street
Indianapolis, Indiana 46202-1496
and the name and business office address of its registered
agent in charge of such office are:
Lawrence A. Ferger
1630 North Meridian Street
Indianapolis, Indiana 46202-1496
ARTICLE 4
NUMBER OF SHARES
The Corporation shall have authority to issue a total
of Two Hundred Four Million (204,000,000) Shares.
ARTICLE 5
GENERAL PROVISIONS REGARDING SHARES OF THE CORPORATION
SECTION 5.01. Preferred Stock. Four Million (4,000,000)
of the Shares that the Corporation has authority to issue
constitute a separate and single class of Shares known as
"Preferred Stock," which may be issued in one or more
series. The Board of Directors of the Corporation (the
"Board") is vested with authority to determine and state the
designations and the relative preferences, limitations,
voting rights, if any, and other rights of each such series
by the adoption and filing in accordance with the Act,
before the issuance of any Shares of such series, of an
amendment or amendments to these Articles determining the
terms of such series (a "Section 5.01 Amendment"). All
Shares of Preferred Stock of the same series shall be
identical with each other in all respects.
SECTION 5.02. Common Stock. All of the remaining Shares
that the Corporation has authority to issue constitute a
separate and single class of Shares known as "Common Stock,"
which shall be without par value and shall not be issued in
series. All Shares of Common Stock shall be identical with
each other in all respects.
SECTION 5.03. Issues of Shares. The Board has authority
to authorize and direct the issuance by the Corporation of
Shares of Preferred Stock and Common Stock at such times, in
such amounts, to such persons, for such consideration and
upon such terms and conditions as it may, from time to time,
determine upon, subject only to the restrictions,
limitations, conditions and requirements imposed by the Act,
other applicable laws and these Articles, as the same may,
from time to time, be amended.
SECTION 5.04. Distributions Upon Shares. The Board has
authority to authorize and direct in respect of the issued
and outstanding Shares of Preferred Stock and Common Stock
(i) the payment of dividends and the making of other
distributions by the Corporation at such times, in such
amounts and forms, from such sources and upon such terms and
conditions as it may, from time to time, determine upon,
subject only to the restrictions, limitations, conditions
and requirements imposed by the Act, other applicable laws
and these Articles, as the same may, from time to time, be
amended, and (ii) the making by the Corporation of Share
dividends and Share splits, pro rata and without
consideration, in Shares of the same class or series or in
Shares of any other class or series without obtaining the
affirmative vote or the written consent of the holders of
the Shares of the class or series in which the payment or
distribution is to be made.
SECTION 5.05. Acquisition of Shares. The Board has
authority to authorize and direct the acquisition by the
Corporation of the issued and outstanding Shares of
Preferred Stock and Common Stock at such times, in such
amounts, from such persons, for such considerations, from
such sources and upon such terms and conditions as it may,
from time to time, determine upon, subject only to the
restrictions, limitations, conditions and requirements
imposed by the Act, other applicable laws and these
Articles, as the same may, from time to time, be amended.
SECTION 5.06. Record Ownership of Shares or Rights. The
Corporation, to the extent permitted by law, shall be
entitled to treat the person in whose name any Share or
Right of the Corporation (a "Right") is registered on the
books of the Corporation as the owner thereof, for all
purposes, and shall not be bound to recognize any equitable
or other claim to, or interest in, such Share or Right on
the part of any other person, whether or not the Corporation
shall have notice thereof.
SECTION 5.07. Recognition Procedure for Beneficial
Ownership of Shares or Rights. The Board may establish in
the Code of By-Laws of the Corporation (the "By-Laws") a
recognition procedure by which the beneficial owner of any
Share or Right that is registered on the books of the
Corporation in the name of a nominee is recognized by the
Corporation, to the extent provided in any such recognition
procedure, as the owner thereof.
SECTION 5.08. Disclosure Procedure for Beneficial
Ownership of Shares or Rights. The Board may establish in
the By-Laws a disclosure procedure by which the name of the
beneficial owner of any Share or Right that is registered on
the books of the Corporation in the name of a nominee shall,
to the extent not prohibited by the Act or other applicable
laws, be disclosed to the Corporation. Any disclosure
procedure established by the Board may include reasonable
sanctions to ensure compliance therewith, including without
limitation (i) prohibiting the voting of, (ii) providing for
mandatory or optional reacquisition by the Corporation of,
and (iii) the withholding or payment into escrow of any
dividend or other distribution in respect of, any Share or
Right as to which the name of the beneficial owner is not
disclosed to the Corporation as required by such disclosure
procedure.
ARTICLE 6
VOTING RIGHTS OF SHARES OF THE CORPORATION
SECTION 6.01. Preferred Stock. The holders of Shares of
Preferred Stock have the right, voting separately by class
or by series, to cast one vote for each duly authorized,
issued and outstanding Share of Preferred Stock held by them
upon each question or matter in respect of which, under the
Act, such holders are entitled to vote by class or by
series. The holders of a series of Preferred Stock shall
also have such other voting rights, if any, as may have been
provided for such series in a Section 5.01 Amendment.
SECTION 6.02. Common Stock. The holders of Shares of
Common Stock have the right, voting separately by class, to
cast one vote for each duly authorized, issued and
outstanding Share of Common Stock held by them upon each
question or matter in respect of which, under the Act, such
holders are entitled to vote by class. Such holders also
have the right to cast one vote for each duly authorized,
issued and outstanding Share of Common Stock held by them
upon each question or matter submitted generally to the
holders of Shares of the Corporation (collectively, the
"Shareholders," and individually, a "Shareholder") in
respect of which, under the Act, voting by class or by
series is not required (a "General Voting Matter"). If and
to the extent voting rights with respect to any General
Voting Matter are provided, in a Section 5.01 Amendment, to
the holders of a series of Preferred Stock, the holders of
Common Stock shall have the right to vote on such General
Voting Matter either in common with, or separately by class
from, the holders of such series of Preferred Stock,
depending on the provisions of such Section 5.01 Amendment.
ARTICLE 7
DIRECTORS
SECTION 7.01. Number. The number of Directors of the
Corporation shall not be less than nine (9) nor more than
fifteen (15), as may be specified in the initial Code of By-
Laws of the Corporation or by amendment to the Code of By-
Laws of the Corporation adopted by a majority vote of the
Directors then in office. If and whenever the Code of By-
Laws of the Corporation does not contain a provision
specifying the number of Directors, the number shall be nine
(9). The Directors elected by the Shareholders shall be
divided into three (3) classes, with the term of office of
the first class to expire at the 1987 annual meeting of
Shareholders, the term of the office of the second class to
expire at the 1988 annual meeting of Shareholders and the
term of office of the third class to expire at the 1989
annual meeting of Shareholders. At each annual meeting of
Shareholders following such initial classification and
election, Directors elected by the Shareholders to succeed
those Directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual
meeting of Shareholders after their election. Each Director
shall hold office until his successor is chosen and
qualified. Directors need not be Shareholders of the
Corporation.
SECTION 7.02. Vacancies. Except as may be expressly
provided by law, newly created directorships resulting from
any increase in the authorized number of Directors or any
vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from
office or other cause shall be filled by a majority vote of
the Directors then in office, and Directors so chosen shall
hold office for a term expiring at the Annual Meeting of
Shareholders at which the term of the class to which they
have been elected expires.
SECTION 7.03. Removal. Any Director, or the entire
Board of Directors, may be removed from office at any time,
but only for cause and only by the affirmative vote of the
holders of at least 80% of the voting power of all of the
shares of the Corporation entitled to vote generally in the
election of Directors, voting together as a single class.
SECTION 7.04. Amendment, Repeal. Notwithstanding
anything contained in these Articles of Incorporation to the
contrary, the affirmative vote of the holders of at least
80% of the voting power of all of the shares of the
Corporation entitled to vote generally in the election of
Directors, voting together as a single class, shall be
required to alter, amend or repeal this Article 7.
ARTICLE 8
PROVISIONS FOR REGULATION OF BUSINESS
AND CONDUCT OF AFFAIRS OF CORPORATION
SECTION 8.01. Action by Shareholders. Meetings of the
Shareholders shall be held at such place, within or without
the State of Indiana, as may be specified in or fixed in
accordance with the By-Laws or in the respective notices, or
waivers of notice, thereof. Any action required or permitted
to be taken at any meeting of the Shareholders may be taken
without a meeting if a consent in writing setting forth the
action so taken is signed by all the Shareholders entitled
to vote with respect thereto, and such written consent is
filed with the minutes of the proceedings of the
Shareholders.
SECTION 8.02. Action by Directors. Meetings of the
Board or any committees thereof (collectively, "Committees,"
and individually, a "Committee") shall be held at such
place, within or without the State of Indiana, as may be
specified in or fixed in accordance with the By-Laws or in
the respective notices, or waivers of notice, thereof and
shall be conducted in such manner as may be specified in the
By-Laws or permitted by the Act. Any action required or
permitted to be taken at any meeting of the Board or a
Committee may be taken without a meeting if a consent in
writing setting forth the action so taken is signed by all
members of the Board or such Committee, and such written
consent is filed with the minutes of the proceedings of the
Board or such Committee.
SECTION 8.03. Code of By-Laws. The Board shall have
power, without the assent or vote of the Shareholders, to
make, alter, amend or repeal the By-Laws by the affirmative
vote of a number of Directors equal to a majority of the
number who would constitute a full Board at the time of such
action. If the Shareholders are or become entitled by law to
alter, amend or repeal the By-Laws, notwithstanding anything
contained in these Articles or the By-Laws to the contrary,
the affirmative vote of the holders of at least 80% of the
voting power of all of the Shares entitled to vote generally
in the election of Directors, voting as a single class,
shall be required to alter, amend or repeal the By-Laws.
SECTION 8.04. Board Committees. Unless the By-Laws
otherwise provide, the Board may, by resolution adopted by a
majority of the actual number of Directors elected and
qualified, from time to time, designate from among its
members one or more Committees, each of which shall, to the
extent provided in the resolution or By-Laws and not
prohibited by the Act and other applicable laws, have and
exercise all of the authority of the Board in the management
of the Corporation.
SECTION 8.05. Places of Keeping of Corporate Records.
The Corporation shall keep at its principal office a copy of
(1) these Articles, and all amendments thereto currently in
effect; (2) the By-Laws, and all amendments thereto
currently in effect; (3) minutes of all meetings of the
Shareholders and records of all actions taken by the
Shareholders without a meeting (collectively, "Shareholders
Minutes") for the prior three years; (4) all written
communications by the Corporation to the Shareholders
including the financial statements furnished by the
Corporation to the Shareholders for the prior three years;
(5) a list of the names and business addresses of the
current Directors and the current Officers; and (6) the most
recent Annual Report of the Corporation as filed with the
Secretary of State of Indiana. The Corporation shall also
keep and maintain at its principal office, or at such other
place or places within or without the State of Indiana as
may be provided, from time to time, in the By-Laws, (1)
minutes of all meetings of the Board and of each Committee,
and records of all action taken by the Board and by each
Committee without a meeting; (2) appropriate accounting
records of the Corporation; (3) a record of the Shareholders
in a form that permits preparation of a list of the names
and addresses of all the Shareholders, in alphabetical order
by class of Shares, stating the number and class of Shares
held by each Shareholder; and (4) Shareholders Minutes for
periods preceding the prior three years. All of the records
of the Corporation described in this Section (collectively,
the "Corporate Records") shall be maintained in written form
or in another form capable of conversion into written form
within a reasonable time.
SECTION 8.06. Provisions for Working Capital. The Board
shall have the power, from time to time, to fix and
determine and to vary the amount to be reserved as working
capital of the Corporation and, before the payment of any
dividends, it may set aside out of the net profits of the
Corporation such sum or sums as it may from time to time in
its absolute discretion determine to be proper, whether as a
reserve fund to meet contingencies or for the equalizing of
dividends, or for repairing or maintaining any property of
the Corporation, or for any corporate purposes that the
Board shall think conducive to the best interest of the
Corporation, subject only to such limitations as the By-Laws
may from time to time impose.
SECTION 8.07. Interest of Directors in Contracts. Any
contract or other transaction between the Corporation and
(i) any Director, or (ii) any Legal Entity (A) in which any
Director has a material financial interest or is a general
partner, or (B) of which any Director is a director, officer
or trustee (collectively, a "Conflict Transaction"), shall
be valid for all purposes, if the material facts of the
Conflict Transaction and the Director's interest were
disclosed or known to the Board, a Committee with authority
to act thereon, or the Shareholders entitled to vote
thereon, and the Board, such Committee or such Shareholders
authorized, approved or ratified the Conflict Transaction. A
Conflict Transaction is authorized, approved or ratified:
(1) By the Board or such Committee, if it receives
the affirmative vote of a majority of the Directors who
have no interest in the Conflict Transaction,
notwithstanding the fact that such majority may not
constitute a quorum or a majority of the Board or such
Committee or a majority of the Directors present at the
meeting, and notwithstanding the presence or vote of
any Director who does have such an interest; provided,
however, that no Conflict Transaction may be
authorized, approved or ratified by a single Director;
and
(2) By such Shareholders, if it receives the vote
of a majority of the Shares entitled to be counted, in
which vote Shares owned or voted under the control of
any Director who, or of any Legal Entity that, has an
interest in the Conflict Transaction may be counted.
This Section shall not be construed to require
authorization, ratification or approval by the Shareholders
of any Conflict Transaction, or to invalidate any Conflict
Transaction that would otherwise be valid under the common
and statutory law applicable thereto.
SECTION 8.08. Limitation of Liability and
Indemnification of Directors Officers and Others.
Clause (a). Limitation of Liability. The following
provisions apply with respect to liability on the part
of a Director, a member of any Committee or of another
committee appointed by the Board (an "Appointed
Committee"), Officer, employee or agent of the
Corporation (collectively, "Corporate Persons," and
individually, a "Corporate Person") for any loss or
damage suffered on account of any action taken or
omitted to be taken by a Corporate Person:
(i) General Limitation. No Corporate Person
shall be liable for any loss or damage if, in
taking or omitting to take any action causing such
loss or damage, either (1) such Corporate Person
acted (A) in good faith, (B) with the care an
ordinarily prudent person in a like position would
have exercised under similar circumstances, and
(C) in a manner such Corporate Person reasonably
believed was in the best interests of the
Corporation, or (2) such Corporate Person's breach
of or failure to act in accordance with the
standards of conduct set forth in Clause (a)(i)(1)
above (the "Standards of Conduct") did not
constitute willful misconduct or recklessness.
(ii) Reliance on Corporate Records and Other
Information. Any Corporate Person shall be fully
protected, and shall be deemed to have complied
with the Standards of Conduct, in relying in good
faith, with respect to any information contained
therein, upon (1) the Corporate Records, or (2)
information, opinions, reports or statements
(including financial statements and other
financial data) prepared or presented by (A) one
or more other Corporate Persons whom such
Corporate Person reasonably believes to be
competent in the matters presented, (B) legal
counsel, public accountants or other persons as to
matters that such Corporate Person reasonably
believes are within such person's professional or
expert competence, (C) a Committee or an Appointed
Committee, of which such Corporate Person is not a
member, if such Corporate Person reasonably
believes such Committee or Appointed Committee
merits confidence, or (D) the Board, if such
Corporate Person is not a Director and reasonably
believes that the Board merits confidence.
Clause (b). Indemnification of Corporate Persons
and Related Matters. The following provisions apply to
the indemnification by the Corporation of Corporate
Persons and matters related thereto:
(i) Indemnification Standards. The
Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to
any threatened, pending or completed action, suit
or proceeding, whether civil or criminal,
administrative or investigative, formal or
informal (an "Action"), by reason of the fact that
he is or was a Corporate Person of the Corporation
or is or was serving at the request of the
Corporation as a Corporate Person, partner,
trustee or member or in another authorized
capacity (collectively, an "Authorized Capacity")
of or for another Legal Entity, whether or not
organized or formed for profit (collectively,
"Another Entity"), against expenses (including
attorneys' fees) ("Expenses") and judgments,
penalties, fines and amounts paid in settlement
actually and reasonably incurred by him in
connection with such Action, if such person (1)
acted in good faith, (2) acted in a manner he
reasonably believed (A) with respect to actions as
a Corporate Person of the Corporation, to be in
the best interests of the Corporation, or (B) with
respect to actions in an Authorized Capacity of or
for Another Entity, was not opposed to the best
interests of the Corporation, and (3) with respect
to any criminal Action, either (A) had reasonable
cause to believe his conduct was lawful, or (B)
had no reasonable cause to believe his conduct was
unlawful. The termination of any Action by
judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall
not, of itself, be determinative that the person
did not meet the standards for indemnification set
forth in this Clause (b)(i) (the "Indemnification
Standards").
(ii) Indemnification in Successfully Defended
Actions. To the extent that a person who is or was
a Corporate Person of the Corporation, or is or
was serving at the request of the Corporation in
an Authorized Capacity of or for Another Entity,
has been successful on the merits or otherwise in
the defense of any Action referred to in Clause
(b)(i) above, or in the defense of any claim,
issue or matter in any such Action, the
Corporation shall indemnify him against Expenses
actually and reasonably incurred by him in
connection therewith.
(iii) Indemnification Procedure. Unless
ordered by a court, any indemnification of any
person under Clause (b)(i) above shall be made by
the Corporation only as authorized in the specific
case upon a determination that indemnification of
such person is proper in the circumstances because
he met the Indemnification Standards. Such
determination shall be made (1) by the Board, by a
majority vote of a quorum consisting of Directors
who are not at the time parties to the Action
involved ("Parties"); or (2) if a quorum cannot be
obtained under Subparagraph (1), by a majority
vote of a Committee duly designated by the Board
(in which designation Directors who are Parties
may participate), consisting solely of two or more
Directors who are not at the time Parties; or (3)
by written opinion of independent legal counsel
(A) selected by the Board or Committee in the
manner prescribed in Subparagraphs (1) or (2),
respectively, or (B) if a quorum cannot be
obtained and a Committee cannot be designated
under Subparagraphs (1) and (2), respectively,
selected by a majority of the full Board, in which
selection Directors who are Parties may
participate; or (4) by the Shareholders who are
not at the time Parties, voting together as a
single class.
(iv) Advances for Expenses. Expenses
reasonably incurred in defending an Action by any
person who may be entitled to indemnification
under Clause (b)(i) above may be paid by the
Corporation in advance of the final disposition of
such Action if (1) such person furnishes the
Corporation with (A) a written affirmation of his
good faith belief that he has met, and (B) a
written undertaking, executed personally or on his
behalf, to repay the advance (an "Undertaking") if
it is ultimately determined that he did not meet,
the Indemnification Standards; and (2) a
determination is made, under the procedure set
forth in Clause (b)(iii) above, that the facts
then known to those making the determination would
not preclude indemnification under Clause (b)(i)
above. An Undertaking must be an unlimited general
obligation of the person making it, but need not
be secured and may be accepted by the Corporation
without reference to such person's financial
ability to make repayment.
(v) Rights Not Exclusive. The indemnification
provided in these Articles (1) shall not be deemed
exclusive of any other rights to which a person
seeking indemnification may be entitled under (A)
any law, (B) the By-Laws, (C) any resolution of
the Board or of the Shareholders, (D) any other
authorization, whenever adopted, after notice, by
a majority vote of all Shares entitled to vote on
General Voting Matters, or (E) the articles of
incorporation, code of by-laws or other governing
documents, or any resolution of or other
authorization by the directors, shareholders,
partners, trustees, members, owners or governing
body, of Another Entity; (2) shall inure to the
benefit of the heirs, executors and administrators
of such person; and (3) shall continue as to any
such person who has ceased to be a Corporate
Person of the Corporation or to be serving in an
Authorized Capacity for Another Entity.
(vi) Insurance. The Corporation shall have
power to purchase and maintain insurance on behalf
of any person who is or was a Corporate Person of
the Corporation, or is or was serving at the
request of the Corporation in an Authorized
Capacity of or for Another Entity, against any
liability asserted against and incurred by him in
any such capacity, or arising out of his status as
such, whether or not the Corporation would have
the power to indemnify him against such liability
under the provisions of this Clause (b).
(vii) Definition of Corporation. For the
purposes of this Clause (b), references to "the
Corporation" include any constituent corporation
absorbed in a consolidation or merger (a
"Constituent") as well as the resulting or
surviving corporation (the "Survivor"), such that
any person who is or was a Corporate Person of
such a Constituent, or is or was serving at the
request of such Constituent in an Authorized
Capacity of or for Another Entity, shall stand in
the same position under the provisions of this
Clause (b) with respect to the Survivor as he
would if he had served the Survivor, or at its
request, in the same capacity.
SECTION 8.09. Compensation of Directors. The Board is
hereby specifically authorized, in and by the By-Laws, or by
resolution duly adopted by the Board, to make provision for
reasonable compensation to its members for their services as
Directors, and to fix the basis and conditions upon which
such compensation shall be paid. Any Director may also serve
the Corporation in any other capacity and receive
compensation therefor in any form.
SECTION 8.10. Direction of Purposes and Exercise of
Powers by Directors. The Board, subject to any specific
limitations or restrictions imposed by the Act or these
Articles, shall direct the carrying out of the purposes and
exercise the powers of the Corporation, without previous
authorization or subsequent approval by the Shareholders.
SECTION 8.11. Amendments of Articles of Incorporation.
Except as otherwise expressly provided in Articles 7 and 9
hereof, and subject to the terms of any outstanding series
of Preferred Stock, the Corporation reserves the right to
increase or decrease the number of its authorized Shares, or
any class or series thereof, and to reclassify the same, and
to amend, alter, change or repeal any provision contained in
these Articles, or in any amendment hereto, or to add any
provision to these Articles or to any amendment hereto, in
any manner now or hereafter prescribed or permitted by the
Act or by any other applicable laws; and all rights
conferred upon the Shareholders in these Articles or any
amendment hereto are granted subject to this reservation. No
Shareholder has a vested property right resulting from any
provision in these Articles, or authorized to be in the By-
Laws by the Act or these Articles, including without
limitation provisions relating to management, control,
capital structure, dividend entitlement, or purpose or
duration of the Corporation.
ARTICLE 9
PROVISIONS FOR CERTAIN BUSINESS COMBINATIONS
SECTION 9.01. Vote Required.
Clause (a). Higher Vote for Certain Business
Combinations. In addition to any affirmative vote
required by law or these Articles of Incorporation, and
except as otherwise expressly provided in Section 9.02
of this Article 9:
(1) Any merger or consolidation or any
similar transaction of the Corporation or any
Subsidiary (as hereinafter defined) with (A) any
Interested Shareholder (as hereinafter defined),
or (B) any other corporation (whether or not
itself an Interested Shareholder) which is, or
after such merger or consolidation would be, an
Affiliate (as hereinafter defined) or an
Interested Shareholder; or
(2) Any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one
transaction or a series of transactions) to or
with any Interested Shareholder or any Affiliate
of any Interested Shareholder of any assets of the
Corporation or any Subsidiary having an aggregate
Fair Market Value of $1,000,000 or more; or
(3) The issuance or transfer by the
Corporation or any Subsidiary (in one transaction
or a series of transactions) of any securities of
the Corporation or any Subsidiary to any
Interested Shareholder or any Affiliate of any
Interested Shareholder in exchange for cash,
securities or other property (or a combination
thereof) having an aggregate Fair Market Value of
$1,000,000 or more; or
(4) The adoption of any plan or proposal for
the liquidation or dissolution of the Corporation
proposed by or on behalf of an Interested
Shareholder or any Affiliate of any Interested
Shareholder; or
(5) Any reclassification of securities
(including any reverse stock split), or
recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of
its Subsidiaries or any other transaction (whether
or not with or into or otherwise involving an
Interested Shareholder) which has the effect,
directly or indirectly, of increasing the
proportionate share of the outstanding shares of
any class of equity or convertible securities of
the Corporation or any Subsidiary which is
directly or indirectly owned by any Interested
Shareholder or any Affiliate of any Interested
Shareholder;
shall require the affirmative vote of the holders of at
least 80% of the voting power of the then outstanding shares
of capital stock of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"),
voting together as a single class (it being understood that
for purposes of this Article 9, each share of the Voting
Stock shall have the number of votes granted to it pursuant
to Article 6 of these Articles of Incorporation). Such
affirmative vote shall be required, notwithstanding the fact
that no vote may be required, or that a lesser percentage
may be specified, by law or in any agreement with any
national securities exchange or otherwise.
Clause (b). Definition of "Business Combination."
The term "Business Combination" as used in this Article
9 shall mean any transaction which is referred to in
any one or more of paragraphs (1) through (5) of Clause
(a) of this Section 9.01.
SECTION 9.02. When Higher Vote is Not Required. The
provisions of Section 9.01 of this Article 9 shall not be
applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative
vote as is required by law and any other provision of these
Articles of Incorporation, if all of the conditions
specified in either of the following Clauses (a) and (b) are
met:
Clause (a). Approval by Continuing Directors. The
Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter
defined).
Clause (b). Price and Procedure Requirements. All
of the following conditions shall have been met:
(1) The aggregate amount of the cash and the
Fair Market Value (as hereinafter defined) as of
the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by holders of Common Stock in
such Business Combination shall be at least equal
to the highest of the following:
(A) The highest per share price
(including any brokerage commissions,
transfer taxes and soliciting dealers' fees)
paid by the Interested Shareholders for any
shares of Common Stock acquired by it (i)
within the two-year period immediately prior
to the first public announcement of the
proposal of the Business Combination (the
"Announcement Date") or (ii) in the
transaction in which it became an Interested
Shareholder, whichever is higher;
(B) The Fair Market Value per Share of
Common Stock on the Announcement Date or on
the date on which the Interested Shareholder
became an Interested Shareholder (such latter
date is referred to in this Article 9 as the
"Determination Date"), whichever is higher;
and
(C) The price per share equal to the
Fair Market Value per share of Common Stock
determined pursuant to Clause (b)(1)(B)
above, multiplied by the ratio of (i) the
highest per share price (including any
brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the
Interested Shareholder for any shares of
Common Stock acquired by it within the
two-year period immediately prior to the
Announcement Date to (ii) the Fair Market
Value per share of Common Stock on the first
day in such two-year period upon which the
Interested Shareholder acquired any shares of
Common Stock.
(2) The aggregate amount of the cash and the
Fair Market Value as of the date of the
consummation of the Business Combination of
consideration other than cash to be received per
share by holders of shares of any other class or
series of outstanding Voting Stock shall be at
least equal to the highest of the following (it
being intended that the requirements of this
Clause (b)(2) shall be required to be met with
respect to every class of outstanding Voting Stock
whether or not the Interested Shareholder has
previously acquired any Shares of a particular
class of Voting Stock):
(A) The highest per share price
(including any brokerage commissions,
transfer taxes and soliciting dealers' fees)
paid by the Interested Shareholder for any
shares of such class of Voting Stock acquired
by it (i) within the two-year period
immediately prior to the Announcement Date or
(ii) in the transaction in which it became an
Interested Shareholder, whichever is higher;
(B) The highest preferential amount per
share to which the holders of shares of such
class of Voting Stock are entitled in the
event of any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation;
(C) The Fair Market Value per share of
such class of Voting Stock on the
Announcement Date or on the Determination
Date, whichever is higher; and
(D) The price per share equal to the
Fair Market Value per share of such class of
Voting Stock determined pursuant to Clause
(b)(2)(C) above, multiplied by the ratio of
(i) the highest per share price (including
any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the
Interested Shareholder for any shares of such
class of Voting Stock acquired by it within
the two-year period immediately prior to the
Announcement Date or (ii) the Fair Market
Value per share of such class of Voting Stock
on the first day in such two-year period upon
which the Interested Shareholder acquired any
shares of such class of Voting Stock;
(3) The consideration to be received by
holders of a particular class of outstanding
Voting Stock (including Common Stock) shall be in
cash or in the same form as the Interested
Shareholder has previously paid for shares of such
class of Voting Stock. If the Interested
Shareholder has paid for shares of any class of
Voting Stock with varying forms of consideration,
the form of consideration for such class of Voting
Stock shall be either cash or the form used to
acquire the largest number of shares of such class
of Voting Stock previously acquired by it.
(4) After such Interested Shareholder has
become an Interested Shareholder and prior to the
consummation of such Business Combination:
(A) except as approved by a majority of
the Continuing Directors, there shall have
been no failure to declare and pay at the
regular date therefor any full quarterly
dividends (whether or not cumulative) on any
outstanding Preferred Stock;
(B) there shall have been (i) no
reduction in the annual rate of dividends
paid on the Common Stock (except as necessary
to reflect any subdivision of the Common
Stock), except as approved by a majority of
the Continuing Directors, and (ii) an
increase in such annual rate of dividends as
necessary to reflect any reclassification
(including any reverse stock split),
recapitalization, reorganization or any
similar transaction which has the effect of
reducing the number of outstanding shares of
the Common Stock, unless the failure so to
increase such annual rate is approved by a
majority of the Continuing Directors; and
(C) such Interested Shareholder shall
have not become the beneficial owner of any
additional shares of Voting Stock except as
part of the transaction which results in such
Interested Shareholder becoming an Interested
Shareholder.
(5) After such Interested Shareholder has
become an Interested Shareholder, such Interested
Shareholder shall not have received the benefit,
directly or indirectly (except proportionately as
a Shareholder), of any loans, advances,
guarantees, pledges or other financial assistance
or any tax credits or other tax advantages
provided by the Corporation, whether in
anticipation of or in connection with such
Business Combination or otherwise.
(6) A proxy or information statement
describing the proposed Business Combination and
complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing
such Act, rules or regulations) shall be mailed to
Shareholders of the Corporation at least 30 days
prior to the consummation of such Business
Combination (whether or not such proxy or
information statement is required to be mailed
pursuant to such Act or subsequent provisions).
SECTION 9.03. Certain Definitions. For the purposes of
this Article 9:
Clause (a). A "person" shall include any
individual, firm, corporation or other entity. When two
or more persons act as a partnership, limited
partnership, syndicate, or other group for the purpose
of acquiring voting stock of the Company, such
partnership, syndicate or group shall be deemed a
"person".
Clause (b). "Interested Shareholder" shall mean
any person (other than the Corporation or any
Subsidiary) who or which:
(1) Is the beneficial owner, directly or
indirectly, of more than 10% of the voting power
of the outstanding Voting Stock; or
(2) Is an Affiliate of the Corporation and at
any time within the two-year period immediately
prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of
the voting power of the then outstanding Voting
Stock; or
(3) Is an assignee of or has otherwise
succeeded to any shares of Voting Stock which were
at any time within the two-year period immediately
prior to the date in question beneficially owned
by any Interested Shareholder, if such assignment
or succession shall have occurred in the course of
a transaction or series of transactions not
involving a public offering within the meaning of
the Securities Act of 1933.
Clause (c). A person shall be a "beneficial owner"
of any Voting Stock:
(1) Which such person or any of its
Affiliates or Associates (as hereinafter defined)
beneficially owns, directly or indirectly; or
(2) Which such person or any of its
Affiliates or Associates has (A) the right to
acquire (whether such right is exercisable
immediately or only after the passage of time),
pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to
any agreement, arrangement or understanding; or
(3) Which are beneficially owned, directly or
indirectly, by any other person with which such
person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
Clause (d). For the purpose of determining whether
a person is an Interested Shareholder pursuant to
Clause (b) of this Section 9.03, the number of shares
of Voting Stock deemed to be outstanding shall include
shares deemed owned through application of Clause (c)
of this Section 9.03, but shall not include any other
shares of Voting Stock which may be issuable pursuant
to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or
otherwise.
Clause (e). "Affiliate" or "Associate" shall have
the respective meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on
October 28, 1983.
Clause (f). "Subsidiary" means any corporation of
which a majority of any class of equity security is
owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the
definition of Interested Shareholders set forth in
Clause (b) of this Section 9.03, the term "Subsidiary"
shall mean only a corporation of which a majority of
each class of equity security is owned, directly or
indirectly, by the Corporation.
Clause (g). "Continuing Director" means any member
of the Board of Directors of the Corporation (the
"Board") who is unaffiliated with the Interested
Shareholder and was a member of the Board prior to the
time that the Interested Shareholder became an
Interested Shareholder, and any successor of a
Continuing Director who is unaffiliated with the
Interested Shareholder and is recommended to succeed a
Continuing Director by a majority of Continuing
Directors then on the Board.
Clause (h). "Fair Market Value" means:
(1) In the case of stock, the highest closing
sale price during the 30-day period immediately
preceding the date in question of a share of such
stock on the Composite Tape for New York Stock
Exchange-List Stock, or if such stock is not
quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on
such Exchange, on the principal United States
securities exchange registered under the
Securities Exchange Act of 1934 on which such
stock is listed, or, if such stock is not listed
on any such exchange, the highest closing bid
quotation with respect to a share of such stock
during the 30-day period preceding the date in
question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any
system then in use, or if no such quotation of a
share of such stock as determined by the
Board in good faith; and
(2) In the case of property other than cash
or stock, the fair market value of such property
on the date in question as determined by the Board
in good faith.
Clause (i). In the event of any Business
Combination in which the Corporation survives, the
phrase "other consideration to be received" as used in
Clauses (b)(1) and (2) of Section 9.02 of this Article
9 shall include the shares of Common Stock and/or the
shares of any other class of outstanding Voting Stock
by the holders of such shares.
SECTION 9.04. Powers of the Board of Directors. A
majority of the directors of the Corporation shall have the
power and duty to determine for the purposes of this Article
9, on the basis of information known to them after
reasonable inquiry, (a) whether a person is an Interested
Shareholder, (b) the number of shares of Voting Stock
beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another and (d) whether the assets
which are the subject of any Business Combination have, or
the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary
in any Business Combination has, an aggregate Fair Market
Value of $1,000,000 or more.
SECTION 9.05. No Effect on Fiduciary Obligations of
Interested Shareholders. Nothing contained in this Article 9
shall be construed to relieve any Interested Shareholder
from any fiduciary obligation imposed by law.
SECTION 9.06. Amendment, Repeal, etc. Notwithstanding
any other provisions of these Articles of Incorporation or
the Code of By-Laws of the Corporation (and notwithstanding
the fact that a lesser percentage may be specified by law,
these Articles of Incorporation or the Code of By-Laws of
the Corporation), the affirmative vote of the holders of 80%
or more of the voting power of the shares of the then
outstanding Voting Stock, voting together as a single class,
shall be required to amend or repeal, or adopt provisions
inconsistent with, this Article 9 of these Articles of
Incorporation.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Indiana
Energy, Inc.'s consolidated financial statements as of December 31, 1997, and
for the three months then ended and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 563,741
<OTHER-PROPERTY-AND-INVEST> 64,516
<TOTAL-CURRENT-ASSETS> 122,751
<TOTAL-DEFERRED-CHARGES> 14,190
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 765,198
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<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 159,420
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0
0
<LONG-TERM-DEBT-NET> 167,859
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0
<CAPITAL-LEASE-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 219,764
<TOT-CAPITALIZATION-AND-LIAB> 765,198
<GROSS-OPERATING-REVENUE> 170,335
<INCOME-TAX-EXPENSE> 9,897
<OTHER-OPERATING-EXPENSES> 138,891
<TOTAL-OPERATING-EXPENSES> 148,788
<OPERATING-INCOME-LOSS> 21,547
<OTHER-INCOME-NET> 1,470
<INCOME-BEFORE-INTEREST-EXPEN> 23,017
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0
<EARNINGS-AVAILABLE-FOR-COMM> 18,356
<COMMON-STOCK-DIVIDENDS> 6,625
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