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 March 31, 1997
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number 1-9779
NIPSCO Industries, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1719974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5265 Hohman Avenue, Hammond, Indiana 46320-1775
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 853-5200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
-------- --------
As of April 30, 1997, 62,820,977 common shares were outstanding.
<PAGE>
NIPSCO INDUSTRIES, INC.
Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of
NIPSCO Industries, Inc.:
We have audited the accompanying consolidated balance sheet of NIPSCO
Industries, Inc. (an Indiana corporation) and subsidiaries as of March 31,
1997, and December 31, 1996, and the related consolidated statements of
income, common shareholders' equity and cash flows for the three and
twelve month periods ended March 31, 1997 and 1996. These consolidated
financial statements are the responsibility of Industries' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
NIPSCO Industries, Inc. and subsidiaries as of March 31, 1997, and
December 31, 1996, and the results of their operations and their cash flows
for the three and twelve month periods ended March 31, 1997 and
1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Chicago, Illinois
April 28, 1997
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
March 31, December 31,
ASSETS 1997 1996
============= ============
(Dollars in thousands)
<S> <C> <C>
UTILITY PLANT, (INCLUDING CONSTRUCTION
WORK IN PROGRESS OF $147,860 AND
$166,812, RESPECTIVELY)
(Note 2):
Electric $ 4,063,203 $ 4,050,084
Gas 1,351,511 1,344,230
Common 348,637 346,636
Water 537,202 0
------------ ------------
6,300,553 5,740,950
Less - Accumulated provision for
depreciation and amortization 2,679,411 2,546,162
------------ ------------
Total Utility Plant 3,621,142 3,194,788
------------ ------------
OTHER PROPERTY AND INVESTMENTS:
Other property, at cost, less accumulated
provision for depreciation 158,330 147,370
Investments, at equity (Note 2) 61,233 52,260
Investments, at cost (Note 2) 30,476 30,424
Other investments 20,596 20,090
------------ ------------
Total Other Property and Investments 270,635 250,144
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents 92,276 26,333
Accounts receivable, less reserve of
$6,911 and $5,569, respectively (Note 2) 180,423 165,441
Other receivables 82,195 42,184
Fuel adjustment clause (Note 2) 12,930 9,149
Gas cost adjustment clause (Note 2) 87,986 100,214
Materials and supplies, at average cost 62,430 59,859
Electric production fuel, at average cost 24,132 26,483
Natural gas in storage (Note 2) 18,018 65,093
Prepayments and other 31,930 28,491
------------ ------------
Total Current Assets 592,320 523,247
------------ ------------
OTHER ASSETS:
Regulatory assets (Note 2) 241,824 236,205
Intangible assets (Note 2) 80,488 0
Prepayments and other 104,164 84,499
------------ ------------
Total Other Assets 426,476 320,704
------------ ------------
$ 4,910,573 $ 4,288,883
============ ============
<FN>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
March 31, December 31,
CAPITALIZATION AND LIABILITIES 1997 1996
============ ============
(Dollars in thousands)
<S> <C> <C>
CAPITALIZATION:
Common shareholders' equity
(See accompanying statement) $ 1,297,116 $ 1,100,501
Cumulative preferred stocks (Note 12) -
Series without mandatory redemption
provisions (Note 13) 85,622 81,126
Series with mandatory redemption
provisions (Note 14) 61,246 61,246
Long-term debt excluding amounts due
within one year (Note 18) 1,372,086 1,127,106
------------ ------------
Total Capitalization 2,816,070 2,369,979
------------ ------------
CURRENT LIABILITIES:
Current portion of long-term debt (Note 19) 153,143 144,552
Short-term borrowings (Note 20) 273,807 425,985
Accounts payable 299,840 251,730
Sinking funds due within one year
(Notes 14 and 18) 3,328 3,328
Dividends declared on common and
preferred stocks 27,948 28,308
Customer deposits 20,196 17,580
Taxes accrued 151,607 78,723
Interest accrued 19,121 7,557
Accrued employment costs 41,843 44,186
Other accruals 62,184 30,054
------------ ------------
Total Current Liabilities 1,053,017 1,032,003
------------ ------------
OTHER:
Deferred income taxes (Note 9) 632,657 602,745
Deferred investment tax credits, being
amortized over life of related property
(Note 9) 111,111 108,258
Deferred credits 56,861 37,338
Customer advances and contributions
in aid of construction (Note 2) 101,976 15,830
Accrued liability for postretirement
benefits (Note 11) 124,041 109,429
Other noncurrent liabilities 14,840 13,301
------------ ------------
Total Other 1,041,486 886,901
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 3, 5, 6, 8, 21, 22 and 23) $ 4,910,573 $ 4,288,883
============ ============
<FN>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Three Months Twelve Months
Ended March 31, Ended March 31,
---------------------- ----------------------
1997 1996 1997 1996
========== ========== ========== ==========
(Dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues:
(Notes 2, 7, and 25)
Gas $ 333,400 $ 327,604 $ 805,191 $ 734,096
Electric 245,824 248,424 1,019,631 1,041,759
---------- ---------- ---------- ----------
579,224 576,028 1,824,822 1,775,855
---------- ---------- ---------- ----------
Cost of Energy: (Note 2)
Gas costs 214,840 199,258 499,359 426,072
Fuel for electric
generation 58,408 57,202 234,421 245,754
Power purchased 8,960 11,961 50,750 44,678
---------- ---------- ---------- ----------
282,208 268,421 784,530 716,504
---------- ---------- ---------- ----------
Operating Margin 297,016 307,607 1,040,292 1,059,351
---------- ---------- ---------- ----------
Operating Expenses and
Taxes (except income):
Operation 73,510 79,148 288,602 299,298
Maintenance (Note 2) 17,622 17,796 69,849 74,636
Depreciation and
amortization (Note 2) 56,139 53,456 217,711 205,476
Taxes (except income) 20,895 20,745 74,454 73,765
---------- ---------- ---------- ----------
168,166 171,145 650,616 653,175
---------- ---------- ---------- ----------
Operating Income Before
Utility Income Taxes 128,850 136,462 389,676 406,176
---------- ---------- ---------- ----------
Utility Income Taxes
(Note 9) 38,268 41,467 107,796 112,342
---------- ---------- ---------- ----------
Operating Income 90,582 94,995 281,880 293,834
---------- ---------- ---------- ----------
Other Income (Deductions)
(Note 2) 9,304 461 14,536 (2,949)
---------- ---------- ---------- ----------
Interest and Other Charges:
Interest on long-term debt 20,795 21,469 84,708 84,463
Other interest 5,287 3,374 19,362 12,335
Allowance for borrowed
funds used during
construction and carrying
charges (Note 2) (334) (231) (999) (1,969)
Amortization of premium,
reacquisition premium,
discount and expense
on debt, net 1,133 1,159 4,579 4,516
Dividend requirements on
preferred stocks of
subsidiary 2,167 2,199 8,680 8,920
---------- ---------- ---------- -----------
29,048 27,970 116,330 108,265
---------- ---------- ---------- ----------
Net Income 70,838 67,486 180,086 182,620
Dividend requirements on
preferred shares 0 119 0 2,416
---------- ---------- ---------- ----------
Balance available for
common shareholders $ 70,838 $ 67,367 $ 180,086 $ 180,204
========== ========== ========== ==========
Average common shares
outstanding 59,558,343 62,064,667 60,570,358 62,776,503
Earnings per average
common share $ 1.18 $ 1.08 $ 2.97 $ 2.87
========== ========== ========== ==========
Dividends declared per
common share $ 0.45 $ 0.42 $ 1.74 $ 1.62
========== ========== ========== ==========
<FN>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
Dollars in Thousands
---------------------------------------------------
Additional
Common Paid-in Retained
Three Months Ended Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ 1,122,215 $ 870,930 $ 32,210 $ 518,837
Net income 67,486 67,486
Dividends:
Preferred shares (119) (119)
Common shares (25,794) (25,794)
Treasury shares acquired (38,488)
Issued:
Employee stock purchase
plan 303 177
Long-term incentive plan 335 154 Amortization of unearned
compensation 614
Unrealized gain(loss) on
available for sale
securities (53)
Other (149) (9)
----------- ----------- ----------- -----------
Balance, March 31, 1996 $ 1,126,350 $ 870,930 $ 32,541 $ 560,401
=========== =========== =========== ===========
Balance, January 1, 1997 $ 1,100,501 $ 870,930 $ 32,868 $ 591,370
Net income 70,838 70,838
Dividends:
Preferred shares
Common shares (26,273) 26,273)
Treasury shares acquired (56,591)
Issued:
IWC Resources acquisition 207,552 55,043
Employee stock purchase
plan 188 113
Long-term incentive plan 765 94
Amortization of unearned
compensation 503
Unrealized gain (loss) on
available for sale
securities 29
Other (396) (35)
----------- ----------- ----------- -----------
Balance, March 31, 1997 $ 1,297,116 $ 870,930 $ 88,118 $ 635,900
=========== =========== =========== ===========
<CAPTION>
Dollars in Thousands Shares
--------------------------------------- -----------
Currency
Three Months Ended Treasury Translation Common
(continued) Shares Adjustment Other Shares
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ (293,223) $ (1,930) $ (4,609) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (38,488)
Issued:
Employee stock purchase
plan 126
Long-term incentive plan 643 (462)
Amortization of unearned
compensation 614
Unrealized gain (loss) on
available for sale
securities (53)
Other (140)
----------- ----------- ----------- -----------
Balance, March 31, 1996 $ (330,942) $ (2,070) $ (4,510) 73,892,109
=========== =========== =========== ===========
Balance, January 1, 1997 $ (392,995) $ (140) $ (1,532) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (56,591)
Issued:
IWC Resources acquisition 152,509
Employee stock purchase
plan 75
Long-term incentive plan 1,022 (351)
Amortization of unearned
compensation 503
Unrealized gain (loss) on
available for sale
securities 29
Other (361)
----------- ----------- ----------- -----------
Balance, March 31, 1997 $ (295,980) $ (501) $ (1,351) 73,892,109
=========== =========== =========== ===========
<CAPTION>
Shares
-----------
Three Months Ended Treasury
(continued) Shares
======================== ===========
<S> <C>
Balance, January 1, 1996 (11,512,513)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (1,023,677)
Issued:
Employee stock purchase
plan 7,927
Long-term incentive plan 24,900
Amortization of unearned
compensation
Other
-----------
Balance, March 31, 1996 (12,503,363)
===========
Balance, January 1, 1997 (14,086,448)
Net income
Dividends:
Common shares
Treasury shares acquired (1,429,607)
Issued:
IWC Resources acquisition 5,293,875
Employee stock purchase
plan 4,754
Long-term incentive plan 35,550
Amortization of unearned
compensation
Unrealized gain
on available for sale
securities
Other
------------
Balance, March 31, 1997 (10,181,876)
============
<CAPTION>
Dollars in Thousands
------------------------------------------------------
Additional
Common Paid-in Retained
Twelve Months Ended Total Shares Capital Earnings
======================== =========== =========== =========== ===========
<S> <C> <C> <C> <C>
Balance, April 1, 1995 $ 1,134,786 $ 870,930 $ 31,806 $ 481,176
Net income 182,620 182,620
Dividends:
Preferred shares (2,416) (2,416)
Common shares (100,880) (100,880)
Treasury shares acquired (97,223)
Issued:
Employee stock purchase
plan 602 336
Long-term incentive plan 5,858 179
Amortization of unearned
compensation 2,454
Unrealized gain (loss) on
available for sale
securities 1,616
Other (1,067) 220 (99)
----------- ----------- ---------- -----------
Balance, March 31, 1996 $ 1,126,350 $ 870,930 $ 32,541 $ 560,401
----------- ----------- ---------- -----------
Net income 180,086 180,086
Dividends:
Preferred shares 0 0
Common shares (104,460) (104,460)
Treasury shares acquired (123,601)
Issued:
IWC Resources acquisition 207,552 55,043
Employee stock purchase
plan 668 390
Long-term incentive plan 5,441 126
Amortization of unearned
compensation 2,459
Unrealized gain (loss) on
available for sale
securities 1,161
Other 1,460 18 (127)
----------- ----------- ---------- -----------
Balance, March 31, 1997 $ 1,297,116 $ 870,930 $ 88,118 $ 635,900
=========== =========== ========== ===========
<CAPTION>
Dollars in Thousands Shares
-------------------------------------- -----------
Currency
Twelve Months Ended Treasury Translation Common
(continued) Shares Adjustment Other Shares
======================== =========== =========== ========== ===========
<S> <C> <C> <C> <C>
Balance, April 1, 1995 $ (240,222) $ (882) $ (8,022) 73,892,109
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (97,223)
Issued:
Employee stock purchase
plan 266
Long-term incentive plan 6,237 (558)
Amortization of unearned
compensation 2,454
Unrealized gain on
available for sale
securities 1,616
Other (1,188)
----------- ----------- ---------- -----------
Balance, March 31, 1996 $ (330,942) $ (2,070) $ (4,510) 73,892,109
----------- ----------- ---------- -----------
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (123,601)
Issued:
IWC Resources acquisition 152,509
Employee stock purchase
plan 278
Long-term incentive plan 5,776 (461)
Amortization of unearned
compensation 2,459
Unrealized gain (loss) on
available for sale
securities 1,161
Other 1,569
----------- ----------- ---------- -----------
Balance, March 31, 1997 $ (295,980) $ (501) $ (1,351) 73,892,109
=========== =========== ========== ===========
<CAPTION>
Shares
-----------
Twelve Months Ended Treasury
(continued) Shares
======================== ===========
<S> <C>
Balance, April 1, 1995 (10,020,238)
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (2,747,343)
Issued:
Employee stock purchase
plan 16,718
Long-term incentive plan 247,500
Amortization of unearned
compensation
Other
-----------
Balance, March 31, 1996 (12,503,363)
-----------
Net income
Dividends:
Preferred shares
Common shares
Treasury shares acquired (3,199,534)
Issued:
IWC Resources acquisition 5,293,875
Employee stock purchase
plan 17,496
Long-term incentive plan 209,650
Amortization of unearned
compensation
Unrealized gain
on available for sale
securities
Other
-----------
Balance, March 31, 1997 (10,181,876)
===========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months
Ended March 31,
-----------------------
1997 1996
========= =========
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 70,838 $ 67,486
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH:
Depreciation and amortization 56,139 53,456
Deferred federal and state operating
income taxes, net (7,838) 14,991
Deferred investment tax credits, net (1,802) (1,670)
Advance contract payment 475 (18,525)
Change in certain assets and liabilities - *
Accounts receivable, net (26,224) (44,955)
Electric production fuel 2,351 (5,688)
Materials and supplies 220 666
Natural gas in storage 47,075 48,978
Accounts payable 55,650 31,150
Taxes accrued 71,234 44,456
Fuel adjustment clause (3,781) 1,834
Gas cost adjustment clause 12,228 (47,674)
Accrued employment costs (4,821) (8,793)
Other accruals 25,511 12,307
Other, net 7,863 9,081
--------- ---------
Net cash provided by operating activities 305,118 157,100
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Utility construction expenditures (46,396) (37,308)
Construction expenditures related to
Crossroads Pipeline Company (185) (85)
Acquisition of IWC Resources Corporation,
net of cash acquired (288,932) 0
Proceeds from disposition of assets 29,500 0
Other, net (19,352) (13,917)
--------- ---------
Net cash used in investing activities (325,365) (51,310)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of long-term debt 136,302 76,297
Issuance of short-term debt 254,045 339,688
Net change in commercial paper (142,305) (24,100)
Retirement of long-term debt (1,469) (1,117)
Retirement of short-term debt (285,620) (384,735)
Retirement of preferred shares (1) (35,000)
Issuance of common shares 208,486 608
Acquisition of treasury shares (56,591) (38,488)
Cash dividends paid on common shares (26,772) (26,209)
Cash dividends paid on preferred shares 0 (119)
Other, net 115 141
--------- ---------
Net cash provided by (used in)
financing activities 86,190 (93,034)
--------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 65,943 12,756
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 26,333 28,496
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 92,276 $ 41,252
========= =========
<FN>
*Net of effect from purchase of IWC Resources Corporation.
<CAPTION>
Twelve Months
Ended March 31,
-----------------------
1997 1996
========= =========
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 180,086 $ 182,620
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH:
Depreciation and amortization 217,711 205,476
Deferred federal and state operating
income taxes, net 4,590 29,367
Deferred investment tax credits, net (7,540) (7,317)
Advance contract payment 1,900 (18,525)
Change in certain assets and liabilities - *
Accounts receivable, net (37,712) (48,106)
Electric production fuel (4,186) 4,989
Materials and supplies 4,739 4,402
Natural gas in storage (6,112) 10,122
Accounts payable 105,513 32,859
Taxes accrued 43,780 (35,661)
Fuel adjustment clause (4,463) (8,100)
Gas cost adjustment clause (38,889) (70,443)
Accrued employment costs 1,463 (960)
Other accruals (299) 12,436
Other, net (10,578) 8,594
--------- ---------
Net cash provided by operating activities 450,003 301,753
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Utility construction expenditures (193,187) (173,102)
Construction expenditures related to
Crossroads Pipeline Company (4,856) (3,083)
Acquisition of IWC Resources Corporation,
net of cash acquired (288,932) 0
Proceeds from disposition of assets 29,500 0
Other, net (32,655) (57,630)
--------- ---------
Net cash used in investing activities (490,130) (233,815)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of long-term debt 138,371 251,501
Issuance of short-term debt 1,496,567 1,359,800
Net change in commercial paper 73,500 (15,700)
Retirement of long-term debt (90,144) (122,358)
Retirement of short-term debt (1,510,619) (1,304,585)
Retirement of preferred shares (2,605) (38,525)
Issuance of common shares 213,594 6,601
Acquisition of treasury shares (123,601) (97,223)
Cash dividends paid on common shares (103,753) (100,106)
Cash dividends paid on preferred shares (647) (2,416)
Other, net 488 168
--------- ---------
Net cash provided by (used in)
financing activities 91,151 (62,843)
--------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 51,024 5,095
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 41,252 36,157
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 92,276 $ 41,252
========= =========
<FN>
*Net of effect of IWC Resources Corporation.
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) HOLDING COMPANY STRUCTURE: NIPSCO Industries, Inc. (Industries) is an
energy/utility based holding company providing electric energy and natural gas
to the public through its four regulated subsidiaries: Northern Indiana
Public Service Company (Northern Indiana); Kokomo Gas and Fuel Company (Kokomo
Gas); Northern Indiana Fuel and Light Company, Inc. (NIFL); and Crossroads
Pipeline Company (Crossroads). Industries' non-utility businesses are
primarily energy or utility related. These include energy marketing and
trading; power generation; oil and gas exploration and development; gas
transmission, supply and storage; and related products targeted at customer
segments.
On March 25, 1997, Industries acquired IWC Resources Corporation (IWCR).
IWCR's subsidiaries currently include two regulated water utilities and
non-regulated companies providing utility-related services including utility
line locating and marking and installation, and repair and maintenance of
underground pipelines.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION. The consolidated financial statements include
the accounts of Industries; its regulated subsidiaries and all non-utility
subsidiaries. Industries' regulated subsidiaries, including Indianapolis
Water Company (IWC) and Harbour Water Company (Harbour), are referred to as
"Utilities". Industries' regulated gas and electric subsidiaries (Northern
Indiana, Kokomo Gas, NIFL and Crossroads) are referred to as "Energy
Utilities"; and regulated water subsidiaries (IWC and Harbour) are referred
to as "Water Utilities". Investments for which Industries has at least a 20%
interest and certain joint ventures are accounted for under the equity method
of accounting. Investments with less than a 20% interest are accounted for
under the cost method of accounting. The operating results of the non-utility
subsidiaries, as well as the non-operating results of the Utilities, are
included under the caption "Other Income (Deductions)" in the Consolidated
Statement of Income. Interest on long-term debt, other interest, and
amortization of debt discount and expense are reflected as a component of
"Interest and Other Charges." All significant intercompany items have been
eliminated in consolidation. Certain reclassifications were made to conform
the prior years' financial statements to the current presentation.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
OPERATING REVENUES. Revenues are recorded based on estimated service
rendered, but are billed to customers monthly on a cycle basis.
DEPRECIATION AND MAINTENANCE. Northern Indiana provides depreciation
on a straight-line method over the remaining service lives of the electric,
gas, and common properties. The provisions, as a percentage of the cost of
depreciable utility plant, were approximately 4.3% for the three-month and
twelve-month periods ended March 31, 1997, respectively; and 4.2% and 4.1%
for the three-month and twelve-month periods ended March 31, 1996. The
depreciation rates for electric and gas properties were 3.55% and 4.92%,
respectively.
Kokomo Gas provides depreciation on the original cost of utility plant
in service using straight-line rates that averaged approximately 3.2% for the
three-month and twelve-month periods ended March 31, 1997; and 3.1% for the
three-month and twelve-month periods ended March 31, 1996.
NIFL provides depreciation on the original cost of utility plant in
service using straight-line rates that averaged approximately 2.75% for the
three-month and twelve-month periods ended March 31, 1997 and March 31, 1996.
Crossroads provides depreciation on the original cost of utility plant
in service using straight-line rates that averaged approximately 2.5% for the
three-month and twelve-month periods ended March 31, 1997 and March 31, 1996.
The Utilities follow the practice of charging maintenance and repairs,
including the cost of renewals of minor items of property, to maintenance
expense accounts, except for repairs of transportation and service equipment
which are charged to clearing accounts and redistributed to operating expense
and other accounts. When property which represents a retirement unit is
replaced or removed, the cost of such property is credited to utility plant,
and such cost, together with the cost of removal less salvage, is charged to
the accumulated provision for depreciation.
AMORTIZATION OF SOFTWARE COSTS. Industries amortizes capitalized
software costs using the straight-line method based on estimated economic
lives.
PLANT ACQUISITION ADJUSTMENTS. Utility plant includes amounts
representing the excess of purchase price over underlying book values
associated with the acquisitions of Kokomo Gas, NIFL, IWC and Harbour.
These amounts are $171.2 million (see Note 4) and $40.6 million at March 31,
1997 and December 31, 1996, respectively, and are being amortized over a
forty-year period from their respective dates of acquisition.
INTANGIBLE ASSETS. The excess of cost over the fair value of the net
assets of non-utility subsidiaries acquired as part of the IWCR acquisition
(see Note 4) has been recorded as goodwill and is being amortized over a
forty-year period from the date of acquisition.
COAL RESERVES. Northern Indiana has a long-term mining contract to
mine its coal reserves through the year 2001. The costs of these reserves
are being recovered through the rate-making process as such coal reserves are
used to produce electricity.
OIL AND NATURAL GAS ACCOUNTING. NIPSCO Fuel Company, Inc., a
wholly-owned subsidiary of Services, uses the full-cost method of accounting
for its oil and natural gas production activities. Under this method, all
costs incurred in the acquisition, exploration, and development of oil and
natural gas properties are capitalized and amortized on the units-of-
production basis.
POWER PURCHASED. Power purchases and net interchange power with other
electric utilities under interconnection agreements are included in Cost of
Energy under the caption "Power purchased."
ACCOUNTS RECEIVABLE. At March 31, 1997, Northern Indiana had sold
$100 million of its accounts receivable under a sales agreement which expires
May 31, 1997, and is expected to be renewed.
CUSTOMER ADVANCES AND CONTRIBUTIONS IN AID OF CONSTRUCTION. IWC allows
developers to install and provide for the installation of water main
extensions, which are to be transferred to IWC upon completion. The cost
of the main extensions and the amount of any funds advanced for the cost of
water mains installed are included in customer advances for construction and
are generally refundable to the customer over a period of ten years. Advances
not refunded within ten years are permanently transferred to contributions in
aid of construction.
STATEMENT OF CASH FLOWS. For the purposes of the Consolidated Statement
of Cash Flows, Industries considers temporary cash investments with an
original maturity of three months or less to be cash equivalents.
Cash paid during the periods reported for income taxes and interest
was as follows:
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended March 31, Ended March 31,
------------------- -------------------
1997 1996 1997 1996
======== ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Income taxes $ 0 $ 0 $ 75,795 $117,940
Interest, net
of amounts
capitalized $ 12,111 $ 10,404 $ 88,988 $ 83,816
</TABLE>
FUEL ADJUSTMENT CLAUSE. All metered electric rates contain a provision
for adjustment in charges for electric energy to reflect increases and
decreases in the cost of fuel and the fuel cost of purchased power through
operation of a fuel adjustment clause. As prescribed by order of the Indiana
Utility Regulatory Commission (Commission) applicable to metered retail rates,
the adjustment factor has been calculated based on the estimated cost of fuel
and the fuel cost of purchased power in a future three-month period. If two
statutory requirements relating to expense and return levels are satisfied,
any under-recovery or over-recovery caused by variances between estimated and
actual cost in a given three-month period will be included in a future filing.
Northern Indiana records any under-recovery or over-recovery as a current
asset or current liability until such time as it is billed or refunded to its
customers. The fuel adjustment factor is subject to a quarterly hearing by
the Commission and remains in effect for a three-month period.
GAS COST ADJUSTMENT CLAUSE. All metered gas rates contain an adjustment
factor which reflects the cost of purchased gas, contracted gas storage, and
storage transportation charges. The Energy Utilities record any under-
recovery or over-recovery as a current asset or current liability until such
time as it is billed or refunded to their customers. The gas cost adjustment
factor for Northern Indiana is subject to a quarterly hearing by the
Commission and remains in effect for a three-month period. The gas cost
adjustment factors for Kokomo Gas and NIFL are subject to semi-annual hearings
by the Commission and remain in effect for a six-month period. If the
statutory requirement relating to the level of return is satisfied, any
under-recovery or over-recovery caused by variances between estimated and
actual cost in a given three-month or six-month period will be included in a
future filing. See Note 7, FERC Order No. 636 for a discussion of gas
transition cost charges.
NATURAL GAS IN STORAGE. Northern Indiana's natural gas in storage is
valued using the last-in, first-out (LIFO) inventory methodology. Based on the
average cost of gas purchased in March 1997 and December 1996 the estimated
replacement cost of gas in storage (current and non-current) at March 31,
1997 and December 31, 1996 exceeded the stated LIFO cost by approximately
$20 million and $96 million, respectively. Certain other subsidiaries
of Industries have natural gas in storage valued at average cost.
HEDGING ACTIVITIES. Industries' gas subsidiaries use commodity futures
contracts, options and swaps (derivative financial instruments) to hedge the
impact of natural gas price fluctuations related to its business activities.
Gains and losses on these derivative financial instruments are deferred and
recognized in income concurrent with the related purchases and sales of
natural gas.
As of March 31, 1997, Industries had open derivative financial
instruments representing hedges of natural gas sales of 5.5 billion cubic
feet (Bcf) and net basis differentials of 3.3 Bcf. The deferred gain on
these derivative financial instruments at March 31, 1997 was not material.
NESI Power Marketing, Inc., a subsidiary of Services, uses options to
hedge price risk associated with a portion of its fixed price purchase and
sale commitments related to electricity. Unrealized gains (losses) on
these option contracts at March 31, 1997 are not material.
IMPACT OF ACCOUNTING STANDARDS. In February 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share". This statement specifies
the computation, presentation, and disclosure requirements for earnings per
share for entities with publicly held common stock. Its objective is to
simplify the computation of earnings per share and to make the U.S. standard
for computing earnings per share more compatible with the standards of other
countries and with that of the International Accounting Standards Committee.
This statement is effective for fiscal years ending after December 15, 1997.
Industries will adopt this statement at year-end 1997 and does not expect
adoption of the statement to have a significant impact on its current earnings
per share calculation.
REGULATORY ASSETS. The Utilities' operations are subject to the
regulation of the Commission and the Federal Energy Regulatory Commission
(FERC). Accordingly, the Utilities' accounting policies are subject to the
provisions of SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation." The Utilities monitor changes in market and regulatory
conditions and the resulting impact of such changes in order to continue to
apply the provisions of SFAS No. 71 to some or all of its operations. As of
March 31, 1997 and December 31, 1996, the regulatory assets identified below
represent probable future revenue to the Utilities associated with certain
incurred costs as these costs are recovered through the rate-making process.
If a portion of the Utilities' operations becomes no longer subject to the
provisions of SFAS No. 71, a write-off of certain of the regulatory assets
identified below might be required. Regulatory assets were comprised of the
following items and were reflected in the Consolidated Balance Sheet as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
============= ============
(Dollars in thousands)
<S> <C> <C>
Unamortized reacquisition premium on
debt (Note 18) $ 49,384 $ 50,262
Unamortized R.M. Schahfer Unit 17 and
Unit 18 carrying charges
and deferred depreciation (See below) 69,709 70,763
Bailly scrubber carrying charges and
deferred depreciation (See below) 10,582 10,816
Deferral of SFAS No. 106 expense not
recovered (Note 11) 91,965 87,557
FERC Order No. 636
transition costs (Note 7) 40,357 47,399
Regulatory income tax asset (Note 9) 7,728 4,736
Other 4,456 0
------------- ------------
274,181 271,533
Less: Current portion of regulatory assets 32,357 35,328
------------- ------------
$ 241,824 $ 236,205
============= ============
</TABLE>
CARRYING CHARGES AND DEFERRED DEPRECIATION. Upon completion of R. M.
Schahfer Units 17 and 18, Northern Indiana capitalized the carrying charges
and deferred depreciation in accordance with orders of the Commission until
the cost of each unit was allowed in rates. Such carrying charges and
deferred depreciation are being amortized over the remaining life of each
unit.
Northern Indiana has capitalized carrying charges and deferred
depreciation and certain operating expenses relating to its scrubber service
agreement for its Bailly Generating Station in accordance with an order of the
Commission. Pursuant to such order, capitalization of carrying charges and
deferral of depreciation and certain operating expenses ceased on December 31,
1995. The accumulated balance of the deferred costs and related carrying
charges is being amortized over the remaining life of the scrubber service
agreement.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION. Allowance for funds
used during construction (AFUDC) is charged to construction work in progress
during the period of construction and represents the net cost of borrowed
funds used for construction purposes and a reasonable rate upon other (equity)
funds. Under established regulatory rate practices, after the construction
project is placed in service, Northern Indiana is permitted to include in the
rates charged for utility services (a) a fair return on and (b) depreciation
of such AFUDC included in plant in service.
At January 1, 1995, a pre-tax rate of 6.0% for all construction was
being used; effective January 1, 1996 the rate decreased to 5.5%; and
effective January 1, 1997, the rate increased to 6.0%.
FOREIGN CURRENCY TRANSLATION. Translation gains or losses are based
upon the end-of-period exchange rate and are recorded as a separate component
of common shareholders' equity.
INVESTMENTS IN REAL ESTATE. NIPSCO Development Company, Inc.
(Development), a wholly-owned subsidiary of Industries, has invested in a
series of affordable housing projects in the Utilities' service territories.
These investments include certain tax benefits, including low-income housing
tax credits and tax deductions for operating losses of the housing projects.
Development accounts for these investments using the equity method.
Investments, at equity, include $31.3 million and $24.1 million relating to
affordable housing projects at March 31, 1997 and December 31, 1996,
respectively.
INCOME TAXES. Deferred income taxes are recognized as costs in the
rate-making process by the commissions having jurisdiction over the rates
charged by the Utilities. Deferred income taxes are provided as a result of
provisions in the income tax law that either require or permit certain items
to be reported on the income tax return in a different period than they are
reported in the financial statements. These taxes are reversed by a debit or
credit to deferred income tax expense as the temporary differences reverse.
Investment tax credits have been deferred and are being amortized to income
over the life of the related property.
(3) PENDING TAX MATTER: On August 1, 1991, the Internal Revenue Service
(IRS) issued a notice of deficiency for Northern Indiana's taxes for the years
1982 through 1985 ($3,785,250 per year plus interest) relating to interest
payments on $70 million of 17-1/4% Notes issued in 1981 by Northern Indiana's
former foreign subsidiary, Northern Indiana Public Service Finance N.V.
(Finance). The IRS believes that interest paid on the Notes should have been
subject to United States tax withholding. The Notes were redeemed in 1985
and Finance was subsequently liquidated. On October 25, 1991, Northern
Indiana challenged the assessment in the United States Tax Court (Tax Court)
and the matter was tried in 1994. On November 6, 1995, the Tax Court ruled
in favor of Northern Indiana, finding that the interest paid on the Notes was
not subject to United States tax withholding. On March 13, 1996, the IRS
appealed the Tax Court's decision to the U. S. Court of Appeals for the
Seventh Circuit, and on March 25, 1996 Northern Indiana filed its cross
appeal. The case was argued on February 20, 1997. Northern Indiana's
management and general counsel believe the favorable ruling of the Tax Court
will prevail.
(4) PURCHASE OF IWC RESOURCES CORPORATION: On March 25, 1997, Industries
acquired all the outstanding common stock of IWC Resources Corporation (IWCR)
for $290.5 million. Industries financed this transaction with debt of
approximately $83.0 million and issuance of approximately 5.3 million
Industries' common shares. Industries accounted for the acquisition as a
purchase, and the purchase price was allocated to the assets and liabilities
acquired based on their estimated fair values. The accompanying consolidated
financial statements reflect a preliminary allocation of the purchase price
(see Note 2) as the purchase price allocation has not been finalized.
Following is a summary of the assets acquired and liabilities assumed in
the acquisition of IWCR:
<TABLE>
(Dollars in thousands)
<S> <C>
Assets acquired:
Utility plant (net of
accumulated depreciation) $ 448,387
Other property and investments 26,526
Other current assets 34,826
Intangible assets 80,020
Other noncurrent assets 22,350
---------
612,109
Less:
Liabilities assumed:
Long-term debt 112,185
Preferred stock 4,497
Short-term debt 28,329
Other current liabilities 23,315
Customer advances and contributions
in aid of construction 86,175
Other noncurrent liabilities 67,071
---------
321,572
---------
Net assets acquired $ 290,537
=========
</TABLE>
On a pro forma basis, the acquisition of IWCR would not have a
significant effect on Industries' consolidated results of operations.
(5) ELM ENERGY AND RECYCLING (UK) LTD.: Development is a 95% shareholder
in Elm Energy and Recycling (UK) Ltd. (Elm), which owns and operates a tire-
fueled electric generating plant in Wolverhampton, England (Project). In
1995, the Project failed certain performance and reliability tests which had
been established under a contract between Elm and TBV Power Limited (TBV), a
company jointly owned by subsidiaries of the Tarmac PLC Group and Black &
Veatch. Elm "rejected" the Project in accordance with the contract, and the
independent Project engineer then certified that 29.6 million British Pounds
Sterling (approximately $48.5 million at March 31, 1997) were to be reimbursed
by TBV to Elm. TBV filed suit in the English courts to enjoin enforcement of
the decision and to allege certain breaches of the underlying construction
contract.
Elm has counterclaimed, and Elm and Development are also seeking
additional remedies at law, in both the United States and the United Kingdom,
for damages and/or sanctions against TBV, Tarmac PLC Group, Black & Veatch and
its chairman. Black & Veatch has counterclaimed against Elm and Development.
Development believes that the claims made against it and Elm are meritless and
that remedies, in conjunction with Elm's rights under the construction
contract, will be sufficient to mitigate any losses which Elm and/or
Development may otherwise incur.
Elm is continuing to operate the Project, and the banks which provide the
non-recourse financing for the Project are continuing to support its
operations. However, because of ongoing defaults under the Project financing
(resulting from the Project's poor performance and the pending litigation),
and the uncommitted nature of a working capital facility provided by the
banks, the banks have the right to ask that the operation of the Project be
terminated at any time. In that event, some or all of Industries' investment
in Elm may be at risk. Industries' investment in Elm, however, was not
material at March 31, 1997.
(6) NESI ENERGY MARKETING CANADA LTD. LITIGATION: On October 31, 1996,
Services' wholly-owned subsidiary NIPSCO Energy Services Canada Ltd.(NESI
Canada) acquired 70% of the outstanding shares of Chandler Energy Inc., a gas
marketing and trading company located in Calgary, Alberta, and subsequently
renamed it NESI Energy Marketing Canada Ltd.(NEMC). Between November 1 and
November 27, 1996, gas prices in the Calgary market increased dramatically.
As a result, NEMC was selling gas, pursuant to contracts entered into prior to
the acquisition date, at prices substantially below its costs to acquire such
gas. On November 27, 1996, NEMC ceased doing business and sought protection
from its creditors under the Companies' Creditors Arrangement Act, a Canadian
corporate reorganization statute.
In December 1996 and January 1997, certain creditors of NEMC filed
claims against Industries, Services, Capital Markets and NESI Canada,
alleging certain misrepresentations relating to NEMC's financial condition
and claiming damages. Industries and its affiliates intend to vigorously
defend against such claims and any other claims seeking to assert that any
party other than NEMC is responsible for NEMC's liabilities. Industries has
fully reserved its equity investment in NEMC. Management believes that any
additional loss relating to NEMC would not be material to the results of
operations or financial position of Industries.
(7) FERC ORDER NO. 636. The Energy Utilities have recorded approximately
$135 million of interstate pipeline transition costs to reflect the impact of
FERC Order No. 636, a majority of which costs have been paid to the pipeline
suppliers. The Energy Utilities expect that additional transition costs will
not be significant; however, the ultimate level of costs will depend on future
events, including the market price of natural gas. The Commission has approved
the recovery of these FERC-allowed transition costs on a volumetric basis from
sales and transportation customers. Regulatory assets, in amounts
corresponding to the costs recorded but not yet collected, have been recorded
to reflect the ultimate recovery of these costs.
(8) ENVIRONMENTAL MATTERS: The Utilities have an ongoing program to remain
aware of laws and regulations involved with hazardous waste and other
environmental matters. It is the Utilities' intent to continue to evaluate
their facilities and properties with respect to these rules and identify
any sites that would require corrective action. The Utilities have recorded
a reserve of $16.9 million to cover probable corrective actions as of
March 31, 1997; however, environmental regulations and remediation
techniques are subject to future change. The ultimate cost could be
significant, depending on the extent of corrective actions required. Based
upon investigations and management's understanding of current laws and
regulations, the Utilities believe that any corrective actions required, after
consideration of insurance coverages and contributions from other potentially
responsible parties, will not have a significant impact on the financial
position or results of operations of Industries.
On December 19, 1996, the Environmental Protection Agency (EPA)
promulgated rules for the second phase of the Acid Rain nitrogen oxides
reduction program. Northern Indiana is evaluating compliance strategies to
meet the reduced emission limitations found in the final rule. Additional
controls may be needed to meet the requirements. A compliance plan must be
submitted to the EPA by December 31, 1997 with details of the plan to meet
the new limits by January 1, 2000.
Because of major investments made in modern environmental control
facilities and the use of low-sulfur coal, all of Northern Indiana's electric
production facilities now comply with the sulfur dioxide limitations contained
in the acid deposition provisions of the Clean Air Act Amendments of 1990
(CAAA). Northern Indiana estimates that total costs of compliance with the
CAAA sulfur dioxide regulations will impact electric rates by less than 5% in
the future.
The CAAA contain provisions that could lead to limitations on emissions
of nitrogen oxides and hazardous air pollutants which may require
significant capital expenditures for control of these emissions. Northern
Indiana is pursuing a nitrogen oxide control program to meet future
requirements. Northern Indiana cannot predict the costs of complying with
CAAA requirements, but Northern Indiana believes that any such mandated costs
would be recoverable through the rate-making process.
The EPA has notified Northern Indiana that it is a "potentially
responsible party" (PRP) under the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA) and may be required to share in the
cost of cleanup of several waste disposal sites identified by the EPA. The
sites are in various stages of investigation, analysis and remediation. At
each of the sites, Northern Indiana is one of several PRPs, and it is expected
that remedial costs, as provided under CERCLA, will be shared among them. At
some sites Northern Indiana and/or the other named PRPs are presently working
with the EPA to clean up the sites and avoid the imposition of fines or added
costs.
The Energy Utilities have instituted a program to investigate former
manufactured-gas plants where one of them is the current or former owner.
The Energy Utilities have identified twenty-eight of these sites and made
visual inspections of these sites. Initial samplings have been conducted at
seventeen sites. Follow-up investigations have been conducted at seven sites
and remedial measures have been selected at four sites. The Energy Utilities
will continue their program to assess and cleanup sites.
During the course of various investigations, the Energy Utilities have
identified impacts to soil, groundwater, sediment and surface water from
former manufactured-gas plants. At three sites where residues were
noted seeping into rivers, Northern Indiana notified the Indiana Department
of Environmental Management (IDEM) and the EPA and immediately took steps to
contain the material. The Energy Utilities have worked with IDEM or the EPA
on investigation or remedial activities at several sites. Two of the sites
have been enrolled in the IDEM Voluntary Remediation Program (VRP). The goal
of placing these sites in the VRP is to obtain IDEM approval of the selection
and implementation of whatever remedial measures, if any, may be required.
The Energy Utilities anticipate placing additional sites in the VRP after
remedial measures have been selected.
Northern Indiana and Indiana Gas Company, Inc. (Indiana Gas) have
entered into an agreement covering cost sharing and management of
investigation and remediation programs at five former manufactured-gas plant
sites at which both companies or their predecessors were former operators or
owners. One of these sites is the Lafayette site which Indiana Gas had
previously notified Northern Indiana is being investigated and remediated
pursuant to an administrative order with IDEM. Northern Indiana also notified
Cinergy Services, Inc. (Cinergy) (formerly PSI Energy, Inc.) that it was a
former owner or operator of seven former manufactured-gas plants at which
Northern Indiana had conducted or was planning investigation or remediation
activities. In December 1996, Northern Indiana sent a written demand to
Cinergy related to one of these sites, Goshen. Northern Indiana demanded that
Cinergy pay Northern Indiana for costs Northern Indiana has already incurred
and to be incurred to implement the needed remedy at the Goshen site.
The Energy Utilities have met with various companies that provided
insurance coverage which the Energy Utilities believe covers costs related to
actions taken at former manufactured-gas plants. In September 1995, certain
insurance companies initiated a suit in Indiana state court against Northern
Indiana to deny coverage. Later in September 1995, Northern Indiana filed a
more comprehensive suit in Federal Court in Indiana against those insurers and
several other insurance companies, seeking coverage for costs associated with
several former manufactured-gas plant sites. The state court action is stayed
pending resolution of the Northern Indiana suit in Federal Court. Both sides
have motions pending in the Federal Court lawsuit that would be dispositive of
the case. Northern Indiana has obtained cash settlements from some of its
insurers.
The possibility that exposure to electric and magnetic fields emanating
(EMF) from power lines, household appliances, and other electric sources may
result in adverse health effects has been the subject of public, governmental,
and media attention. Recently, the U.S. National Research Council of the
National Academy of Sciences concluded in a report, after examining more than
500 EMF studies spanning 17 years, that among other things, there is
insufficient evidence to consider EMF a threat to human health. Despite the
report's findings, future research appropriations are continuing to be
dedicated to explore this issue.
The Water Utilities are subject to pollution control and water quality
control regulations, including those issued by the EPA, IDEM, the Indiana
Water Pollution Control Board, and the Indiana Department of Natural
Resources. Under the Federal Clean Water Act and Indiana's regulations,
IWC must obtain National Pollutant Discharge Elimination System (NPDES)
permits for discharges from its water treatment stations. Application for
renewal of any expiring permits have been filed and are the subject of ongoing
discussions with, but not finalized by, IDEM. These permits continue in
effect pending review of the applications.
Under the Federal Safe Drinking Water Act (SWDA), the Water Utilities
are subject to regulation by the EPA for the quality of water sold and
treatment techniques used to make the water portable. The EPA promulgates
nationally applicable maximum contaminant levels (MCLs) for contaminants found
in drinking water. Management believes its water utilities are currently in
compliance with all MCLs promulgated to date. The EPA has continuing
authority, however, to issue additional regulations under the SDWA. In August
1996, Congress amended the SDWA to allow the EPA more authority to weigh the
costs and benefits of regulations being considered in some (but not all)
cases. The 1996 amendments do not, however, reduce the number of new
standards required by the 1986 amendments. Such standards promulgated could
be costly and require substantial changes in the Water Utilities' operations.
The Water Utilities would expect to recover the costs of such changes through
its water rates; however, such recovery may not necessarily be timely.
Under a 1991 law enacted by the Indiana Legislature, a water utility may
petition the Commission for prior approval of its plans and estimated
expenditures required to comply with provisions of, and regulations under, the
Federal Clean Water Act and SDWA. Upon obtaining such approval, a water
utility may include, to the extent of its estimated costs as approved by the
Commission, such costs in its rate base for rate-making purposes and recover
its costs of developing and implementing the approved plans if statutory
standards are met. The capital costs for such new systems, equipment or
facilities or modifications of existing facilities may be included in a
water utility's rate base upon completion of construction of the project or
any part thereof. While use of this statute is voluntary on the part
of a water utility, if utilized, it should allow water utilities a greater
degree of confidence in recovering major costs incurred to comply with
environmentally related laws on a timely basis.
(9) INCOME TAXES: Industries uses the liability method of accounting for
income taxes under which deferred income taxes are recognized, at currently
enacted income tax rates, to reflect the tax effect of temporary differences
between the financial statement and tax bases of assets and liabilities.
To the extent certain deferred income taxes of the Utilities are
recoverable or payable through future rates, regulatory assets and
liabilities have been established. Regulatory assets are primarily
attributable to undepreciated AFUDC-equity and the cumulative net amount of
other income tax timing differences for which deferred taxes had not
been provided in the past, when regulators did not recognize such taxes as
costs in the rate-making process. Regulatory liabilities are primarily
attributable to the Utilities' obligation to credit to ratepayers deferred
income taxes provided at rates higher than the current federal tax rate
currently being credited to ratepayers using the average rate assumption
method and unamortized deferred investment tax credits.
The components of the net deferred income tax liability at March 31,
1997 and December 31, 1996, are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
============= ============
(Dollars in thousands)
<S> <C> <C>
Deferred tax liabilities -
Accelerated depreciation
and other property differences $ 768,283 $ 727,528
AFUDC-equity 37,109 37,713
Adjustment clauses 37,562 41,181
Take-or-pay gas costs 737 877
Other regulatory assets 40,476 39,458
Reacquisition premium on debt 19,346 19,041
Deferred tax assets -
Deferred investment tax credits (42,131) (41,046)
Removal costs (134,914) (131,718)
FERC Order No. 636 transition costs (7,022) (8,144)
Other postretirement/postemployment
benefits (48,585) (43,446)
Other, net (16,370) (11,987)
------------- ------------
654,491 629,457
Less: Deferred income taxes related to
current assets and liabilities 21,834 26,712
------------- ------------
Deferred income taxes - noncurrent $ 632,657 $ 602,745
============= ============
</TABLE>
Federal and state income taxes as set forth in the Consolidated
Statement of Income are comprised of the following:
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended March 31, Ended March 31,
-------------------- --------------------
1997 1996 1997 1996
========= ========= ========= =========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current income taxes -
Federal $ 41,698 $ 24,374 $ 95,857 $ 78,220
State 6,210 3,772 14,889 12,072
--------- --------- --------- ---------
47,908 28,146 110,746 90,292
--------- --------- --------- ---------
Deferred income taxes, net -
Federal (7,289) 13,760 3,966 26,906
State (549) 1,231 624 2,461
--------- --------- --------- ---------
(7,838) 14,991 4,590 29,367
--------- --------- --------- ---------
Deferred investment tax credits,
net (1,802) (1,670) (7,540) (7,317)
--------- --------- --------- ---------
Total utility operating income
taxes 38,268 41,467 107,796 112,342
Income tax applicable to non-
operating activities and income
of non-utility subsidiaries 645 (1,625) (1,807) (8,819)
--------- --------- --------- ---------
Total income taxes $ 38,913 $ 39,842 $ 105,989 $ 103,523
========= ========= ========= =========
</TABLE>
A reconciliation of total tax expense to an amount computed by applying
the statutory federal income tax rate to pre-tax income is as follows:
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended March 31, Ended March 31,
-------------------- --------------------
1997 1996 1997 1996
========= ========= ========= =========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 70,838 $ 67,486 $ 180,086 $ 182,620
Add-Income taxes 38,913 39,842 105,989 103,523
Dividend requirements on
preferred stocks of subsidiary 2,167 2,199 8,680 8,920
--------- --------- --------- ---------
Income before preferred dividend
requirements of subsidiary and
income taxes $ 111,918 $ 109,527 $ 294,755 $ 295,063
========= ========= ========= =========
Amount derived by multiplying
pre-tax income by the statutory
rate $ 39,171 $ 38,334 $ 103,164 $ 103,272
Reconciling items multiplied by
the statutory rate:
Book depreciation over related
tax depreciation 1,044 983 4,682 3,997
Amortization of deferred
investment tax credits (1,802) (1,670) (7,540) (7,317)
State income taxes, net of
federal income tax benefit 3,567 3,683 10,424 9,812
Reversal of deferred taxes
provided at rates in excess
of the current federal income
tax rate (1,518) (1,674) (6,488) (5,979)
Other, net (1,549) 186 1,747 (262)
--------- --------- --------- ---------
Total income taxes $ 38,913 $ 39,842 $ 105,989 $ 103,523
========= ========= ========= =========
</TABLE>
(10) PENSION PLANS: Industries and its subsidiaries have four
noncontributory, defined benefit retirement plans covering substantially all
employees. Benefits under the plans reflect the employees' compensation,
years of service, and age at retirement.
The plans' funded status as of January 1, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
========= =========
(Dollars in thousands)
<S> <C> <C>
Vested benefit obligation $(550,151) $(549,234)
Nonvested benefit (105,339) (104,814)
--------- ---------
Accumulated benefit obligation $(655,490) $(654,048)
========= =========
Projected benefit obligation for service
rendered to date $(759,406) $(759,681)
Plan assets at fair market value 806,888 706,320
--------- ---------
Plan assets in excess of (or less than)
projected benefit obligation 47,482 (53,361)
Unrecognized transition obligation at January 1,
being recognized over seventeen years 37,401 43,484
Unrecognized prior service cost 25,528 27,242
Unrecognized gains (66,611) (4,217)
--------- ---------
Prepaid pension costs $ 43,800 $ 13,148
========= =========
</TABLE>
The accumulated benefit obligation is the present value of future
pension benefit payments and is based on a plan benefit formula without
considering expected future salary increases. The projected benefit
obligation considers estimated future salary increases.
Rates used to determine the accumulated benefit obligation and
projected benefit obligation at January 1, 1997 and January 1, 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
===== =====
<S> <C> <C>
Discount rate 7.75% 7.25%
Rate of increase in compensation levels 5.50% 5.50%
</TABLE>
The following items are the components of provisions for pensions for
the three-month and twelve-month periods ended March 31, 1997 and March 31,
1996 excluding IWCR and its subsidiaries:
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended Ended
March 31, March 31,
------------------ -------------------
1997 1996 1997 1996
======== ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Service costs $ 4,573 $ 6,267 $ 14,606 $ 15,199
Interest costs 16,536 19,051 50,962 58,224
Estimated return
on plan assets (20,503) (22,604) (85,306) (144,983)
Amortization of
transition
obligation 1,588 1,942 5,068 6,009
Other net
amortization
and deferral 950 914 26,496 86,420
-------- -------- -------- --------
$ 3,144 $ 5,570 $ 11,826 $ 20,869
======== ======== ======== ========
</TABLE>
Assumptions used in the valuation and determination of 1997 and 1996
pension expenses were as follows:
<TABLE>
<CAPTION>
1997 1996
===== =====
<S> <C> <C>
Discount rate 7.75% 7.25%
Rate of increase in compensation levels 5.50% 5.50%
Expected long-term rate of return on assets 9.00% 9.00%
</TABLE>
The plans' assets are invested primarily in common stocks, bonds, and
notes.
IWCR participates in several industry-wide, multi-employer pension
plans for certain of its union employees at Miller Pipeline Corporation
(Miller). These plans provide for monthly benefits based on length of
service. Specified amounts per compensated hour for each employee are
contributed to the trustees of these plans.
(11) POSTRETIREMENT BENEFITS: Industries provides certain health care and
life insurance benefits for retired employees. Substantially all of
Industries' employees may become eligible for those benefits if they reach
retirement age while working for Industries. The expected cost of such
benefits is accrued during the employees' years of service.
Northern Indiana's rate-making has historically included the cost of
providing these benefits based on the related insurance premiums. On December
30, 1992, the Commission authorized the accrual method of accounting for
postretirement benefits for rate-making purposes consistent with SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
authorized the deferral of the differences between the net periodic
postretirement benefit costs and the insurance premiums paid for such benefits
(OPRB) as a regulatory asset until such time as the accrual cost method may be
reflected in the rate-making process. The Commission stated that a deferral
period of four years or less would be rebuttably presumed to be reasonable and
also indicated each utility would have to demonstrate its postretirement
benefit costs were prudent and reasonably incurred at the time such costs were
proposed to be recovered in the rate-making process. Northern Indiana has
been deferring as a regulatory asset the difference between the amount that
would have been charged to expense under pay-as-you-go accounting and the
amount accrued in accordance with the standard in anticipation of approval for
these costs in the rate-making process.
On November 20, 1996, Northern Indiana filed with the Commission for
inclusion of accrual-based postretirement benefit costs in the rate-making
process to be effective February 1, 1997 for electric rates and March 1, 1997
for gas rates. These costs include an amortization of the existing regulatory
asset consistent with the remaining amortization period for the transition
obligation. Northern Indiana discontinued its cost deferral and began
amortizing its regulatory asset concurrent with the dates above and consistent
with its original proposal. Hearings were held during March 1997 and the
matter is pending before the Commission for decision. Northern Indiana
expects a decision during the second quarter of 1997. Management believes
that Northern Indiana will ultimately be successful in obtaining such
approval.
IWC's current rate-making process includes postretirement benefit costs
on an accrual basis, including amortization of the regulatory asset that arose
prior to inclusion of these costs in the rate-making process. IWC currently
remits to a grantor trust amounts collected in the rate-making process in
excess of current cash requirements.
The following table sets forth the plans' accumulated postretirement
benefit obligation as of January 1, 1997 and 1996:
<TABLE>
<CAPTION>
January 1, January 1,
1997 1996
========== ==========
(Dollars in thousands)
<S> <C> <C>
Retirees $ (85,308) $ (99,453)
Fully eligible active plan participants (19,448) (23,084)
Other active plan participants (115,383) (136,322)
---------- ----------
Accumulated postretirement benefit obligation (220,139) (258,859)
Unrecognized transition obligation at January 1,
being recognized over twenty years 188,229 197,088
Unrecognized actuarial gain (91,023) (23,439)
---------- ----------
Accrued liability for postretirement benefits $ (122,933) $ (85,210)
========== ==========
</TABLE>
A discount rate of 7.75% and a pre-Medicare medical trend rate of 9%
declining to a long-term rate of 6% and a discount rate of 7.25%, and a
pre-Medicare medical trend rate of 10% declining to a long-term rate of 6%
were used to determine the accumulated postretirement benefit obligation at
January 1, 1997 and 1996, respectively.
The decrease in the accumulated postretirement benefit obligation (APBO)
and the related increase in unrecognized actuarial gain at January 1, 1997
were primarily attributable to favorable claim experience and the increase in
the discount rate to 7.75%. Additionally, Industries implemented a 3% cap on
its share of retiree cost increases for pre-Medicare benefits for certain non-
bargaining retirees who retire after February 1, 1997. This plan amendment
reduced the APBO and the unrecognized transition obligation by $9.6 million at
January 1, 1997.
Net periodic postretirement benefits costs for the three-month and
twelve-month periods ended March 31, 1997 and March 31, 1996 include the
following components:
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended Ended
March 31, March 31,
------------------ ------------------
1997 1996 1997 1996
======== ======== ======== ========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Service costs $ 1,460 $ 1,620 $ 7,192 $ 6,170
Interest costs 4,460 5,080 17,691 19,366
Amortization of
transition
obligation
over twenty
years 2,764 3,095 11,262 11,789
Amortization of
unrecognized
actuarial
gain (1,008) (583) (979) (2,221)
-------- -------- -------- --------
$ 7,676 $ 9,212 $ 35,166 $ 35,104
======== ======== ======== ========
</TABLE>
The net periodic postretirement benefit costs for 1997 were determined
assuming a 7.75% discount rate, a 5% rate of compensation increase, and a
pre-Medicare medical trend rate of 9% declining to a long-term rate of 6%.
The effect of a 1% increase in the assumed health care cost trend rates for
each future year would increase the accumulated postretirement benefit
obligation at January 1, 1997 by approximately $31.4 million, and increase the
aggregate of the service and interest cost components of plan costs by
approximately $1.1 million for the three-month period ended March 31, 1997.
Amounts disclosed above could be changed significantly in the future by
changes in health care costs, work force demographics, interest rates, or
plan changes.
(12) AUTHORIZED CLASSES OF CUMULATIVE PREFERRED AND PREFERENCE STOCKS:
INDUSTRIES -
20,000,000 shares - Preferred - without par value
Effective March 2, 1990, 2,000,000 of Industries' Series A
Junior Participating Preferred Shares were reserved for issuance pursuant to
the Share Purchase Rights Plan described in Note 16, Common Shares.
NORTHERN INDIANA -
2,400,000 shares - Cumulative Preferred - $100 par value
3,000,000 shares - Cumulative Preferred - no par value
2,000,000 shares - Cumulative Preference - $50 par value
(none outstanding)
3,000,000 shares - Cumulative Preference - no par value
(none issued)
INDIANAPOLIS WATER COMPANY -
300,000 shares - Cumulative Preferred - $100 par value
Note 13 sets forth the preferred stocks which are redeemable solely at
the option of the issuer, and Note 14 sets forth the preferred stocks which
are subject to mandatory redemption requirements or whose redemption is
outside the control of the issuer.
The Preferred shareholders of Industries, Northern Indiana and IWC
have no voting rights, except in the event of default on the payment of four
consecutive quarterly dividends, or as required by Indiana law to authorize
additional preferred shares, or by the Articles of Incorporation in the event
of certain merger transactions.
(13) PREFERRED STOCKS, REDEEMABLE SOLELY AT THE OPTION OF THE ISSUER,
OUTSTANDING AT MARCH 31, 1997 AND DECEMBER 31, 1996 (SEE NOTE 12):
<TABLE>
<CAPTION>
Redemption
Price at
March 31, December 31, March 31,
1997 1996 1997
============= ============= =============
(Dollars in thousands)
<S> <C> <C> <C>
NORTHERN INDIANA PUBLIC SERVICE COMPANY:
Cumulative preferred stock -
$100 par value -
4-1/4% series - 209,141 and
209,145 shares outstanding,
respectively $ 20,914 $ 20,915 $101.20
4-1/2% series - 79,996 shares
outstanding 8,000 8,000 $100.00
4.22% series - 106,198 shares
outstanding 10,620 10,620 $101.60
4.88% series - 100,000 shares
outstanding 10,000 10,000 $102.00
7.44% series - 41,890 shares
outstanding 4,189 4,189 $101.00
7.50% series - 34,842 shares
outstanding 3,484 3,484 $101.00
Premium on preferred stock 254 254
Cumulative preferred stock -
no par value -
Adjustable rate (6.00% at
March 31, 1997), Series A
(stated value $50 per share)
473,285 shares outstanding 23,664 23,664 $50.00
INDIANAPOLIS WATER COMPANY:
Cumulative preferred stock -
$100 par value -
Rates ranging from 4.00% to
5.00%, 44,966 shares
outstanding 4,497 - $100 - $105
------------ ------------
$ 85,622 $ 81,126
============ ============
</TABLE>
During the period April 1, 1995 to March 31, 1997, there were no
additional issuances of the above preferred stocks.
The foregoing preferred stocks are redeemable in whole or in part at
any time upon thirty days' notice at the option of the issuer at the
redemption prices shown.
(14) REDEEMABLE PREFERRED STOCKS OUTSTANDING AT MARCH 31, 1997 AND
DECEMBER 31, 1996 (SEE NOTE 12):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
============= =============
(Dollars in thousands)
<S> <C> <C>
Preferred stocks subject to mandatory redemption
requirements or whose redemption is outside the
control of issuer:
NORTHERN INDIANA PUBLIC SERVICE COMPANY:
Cumulative preferred stock - $100 par value -
8.85% series - 75,000 shares outstanding,
excluding sinking fund payments due
within one year $ 7,500 $ 7,500
7-3/4% series - 44,460 shares outstanding,
excluding sinking fund payments due within
one year 4,446 4,446
8.35% series - 63,000 shares outstanding,
excluding sinking fund payments due within
one year 6,300 6,300
Cumulative preferred stock - no par value -
6.50% series - 430,000 shares outstanding 43,000 43,000
------------- ------------
$ 61,246 $ 61,246
============= ============
</TABLE>
The redemption prices at March 31, 1997, as well as sinking fund
provisions for the cumulative preferred stock subject to mandatory redemption
requirements, or whose redemption is outside the control of Northern Indiana,
are as follows:
<TABLE>
<CAPTION>
Sinking Fund Or
Mandatory Redemption
Series Redemption Price Per Share Provisions
====== ========================== ===========================
<S> <C> <C>
Cumulative preferred stock - $100 par value -
8.85% $101.48, reduced periodically 12,500 shares on or before
April 1.
8.35% $103.93, reduced periodically 3,000 shares on or before
July 1; increasing to
6,000 shares beginning
in 2004; noncumulative
option to double amount
each year.
7-3/4% $104.41, reduced periodically 2,777 shares on or
before December 1;
noncumulative option
to double amount each
year.
Cumulative preferred stock - no par value -
6.50% $100.00 on October 14, 2002 430,000 shares on October 14,
2002.
</TABLE>
Sinking fund requirements with respect to redeemable preferred stocks
outstanding at March 31, 1997 for each of the twelve-month periods subsequent
to March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended March 31,*
==================================
<S> <C>
1999 $1,827,700
2000 $1,827,700
2001 $1,827,700
2002 $1,827,700
<FN>
* Table does not reflect redemptions made after March 31, 1997.
</TABLE>
(15) COMMON SHARE DIVIDEND: During the next few years, Industries
expects that the majority of earnings available for distribution of
dividends will depend upon dividends paid to Industries by Northern Indiana.
Northern Indiana's Indenture provides that it will not declare or pay any
dividends on any class of capital stock (other than preferred or preference
stock) except out of earned surplus or net profits of Northern Indiana. At
March 31, 1997, Northern Indiana had approximately $167.2 million of
retained earnings (earned surplus) available for the payment of dividends.
Future dividends will depend upon adequate retained earnings, adequate future
earnings, and the absence of adverse developments.
(16) COMMON SHARES: Industries has 200,000,000 common shares authorized
without par value.
SHARE PURCHASE RIGHTS PLAN. On February 27, 1990, the Board of
Directors of Industries (Board) declared a dividend distribution of one Right
for each outstanding common share of Industries to shareholders of record on
March 12, 1990. The Rights are not currently exercisable. Each Right, when
exercisable, would initially entitle the holder to purchase from Industries
one one-hundredth of a Series A Junior Participating Preferred Share, without
par value, of Industries at a price of $60 per one one-hundredth of a share.
In certain circumstances, if an acquirer obtained 25% of Industries'
outstanding shares, or merged into Industries or merged Industries into the
acquirer, the Rights would entitle the holders to purchase Industries' or the
acquirer's common shares for one-half of the market price. The Rights will
not dilute Industries' common shares nor affect earnings per share unless they
become exercisable for common shares. The Plan was not adopted in response to
any specific attempt to acquire control of Industries.
COMMON SHARE REPURCHASES. The Board has authorized the repurchase of
Industries' common shares. At March 31, 1997, Industries had purchased
approximately 20.2 million shares at an average price of $27.14 per share
since 1989. Including 5.0 million shares authorized on April 9, 1997,
approximately 5.9 million additional common shares may be repurchased under
the Board's authorization.
(17) LONG-TERM INCENTIVE PLAN: Industries has two Long-Term Incentive
Plans for key management employees that were approved by shareholders on
April 13, 1988 (1988 Plan) and April 13, 1994 (1994 Plan), each of which
provides for the issuance of up to 2.5 million of Industries' common shares to
key employees through 1998 and 2004, respectively. At March 31, 1997, there
were 4,911 shares and 2,205,550 shares reserved for future awards under
the 1988 Plan and 1994 Plan, respectively. The 1988 Plan and 1994 Plan permit
the following types of grants, separately or in combination: nonqualified
stock options, incentive stock options, restricted stock awards, stock
appreciation rights, and performance units. No incentive stock options or
performance units were outstanding at March 31, 1997. Under both Plans,
the exercise price of each option equals the market price of Industries' stock
on the date of grant. Each option's maximum term is ten years and vests one
year from the date of grant.
The stock appreciation rights (SARs) may be exercised only in tandem
with stock options on a one-for-one basis and are payable in cash, Industries
stock, or a combination thereof. Restricted stock awards are restricted as to
transfer and are subject to forfeiture for specific periods from the date of
grant. Restrictions on shares awarded in 1995 lapse five years from date
of grant and vesting is variable from 0% to 200% of the number awarded,
subject to specific earnings per share and stock appreciation goals.
Restrictions on shares awarded in 1996 and 1997 lapse two years from date
of grant and vesting is variable from 0% to 100% of the number awarded,
subject to specific performance goals. If a participant's employment is
terminated prior to vesting other than by reason of death, disability or
retirement, restricted shares are forfeited. There were 271,000 and 262,000
restricted shares outstanding at March 31, 1997 and December 31, 1996,
respectively.
The Industries Nonemployee Director Stock Incentive Plan, which was
approved by shareholders, provides for the issuance of up to 100,000 of
Industries' common shares to nonemployee directors of Industries. The Plan
provides for awards of common shares which vest in 20% per year increments,
with full vesting after five years. The Plan also allows the award of
nonqualified stock options in the future. If a director's service on the
Board is terminated for any reason other than death or disability, any common
shares not vested as of the date of termination are forfeited. As of
March 31, 1997, 30,750 shares were issued under the Plan.
Industries accounts for these plans under Accounting Principles Board
Opinion No. 25, under which no compensation cost has been recognized for non-
qualified stock options. The compensation cost that has been charged against
income for restricted stock awards was $0.5, and $2.0 million for the
three-month and twelve-month periods ending March 31, 1997, respectively. Had
compensation cost for stock options been determined consistent with SFAS No.
123 "Accounting for Stock-Based Compensation," Industries' net income and
earnings per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended Ended
March 31, March 31,
------------------ --------------------
1997 1996 1997 1996
================== ====================
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net Income:
As reported $ 70,838 $ 67,486 $ 180,086 $ 182,620
Pro forma $ 70,539 $ 67,319 $ 179,340 $ 182,204
Earnings Per Share:
As reported $ 1.18 $ 1.08 $ 2.97 $ 2.87
Pro forma $ 1.18 $ 1.08 $ 2.96 $ 2.86
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation costs may not be representative of that to be expected in future
years.
The fair value of each option granted used to determine pro forma
net income is estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants
in the three-month and twelve-month periods ended March 31, 1997 and March 31,
1996, respectively: risk-free interest rate of 6.39% and 6.24%; expected
dividend yield of $1.68 and $1.56 per share; expected option term of five
years; and expected volatility of 13.2% and 13.0%.
Changes in outstanding shares under option and SARs for the three-month,
and twelve-month periods ended March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
NONQUALIFIED STOCK OPTIONS
-------------------------------------------
Weighted Weighted
Average Average
Three Months Ended Option Option
March 31, 1997 Price 1996 Price
=========================== ========= ======== ========= ========
<S> <C> <C> <C> <C>
Balance beginning of period 1,187,150 $ 30.58 1,107,750 $ 28.55
Exercised (26,550) $ 28.03 (12,900) $ 28.96
Canceled (10,850) $ 37.81 (3,000) $ 32.69
--------- ---------
Balance end of period 1,149,750 $ 30.57 1,091,850 $ 28.53
========= =========
Shares exercisable 886,300 $ 28.42 821,400 $ 27.25
========= =========
<CAPTION>
NONQUALIFIED STOCK OPTIONS
-------------------------------------------
Weighted Weighted
Average Average
Twelve Months Ended Option Option
March 31, 1997 Price 1996 Price
=========================== ========= ======== ========= ========
<S> <C> <C> <C> <C>
Balance beginning of period 1,091,850 $ 28.53 1,059,700 $ 26.86
Granted 278,300 $ 37.81 277,450 $ 32.44
Exercised (197,650) $ 28.90 (232,500) $ 25.76
Canceled (22,750) $ 35.83 (12,800) $ 25.13
--------- ---------
Balance end of period 1,149,750 $ 30.57 1,091,850 $ 28.53
========= =========
Shares exercisable 886,300 $ 28.42 821,400 $ 27.25
========= =========
Weighted average fair value
of options granted $ 5.00 $ 3.87
========= =========
<CAPTION>
NONQUALIFIED STOCK OPTIONS WITH SARs
-------------------------------------------
Three Months Ended Option Option
March 31, 1997 Price 1996 Price
=========================== ========= ======== ========= ========
<S> <C> <C> <C> <C>
Balance beginning of period 5,600 $ 10.94 5,600 $ 10.94
Exercised 0 0
--------- ---------
Balance end of period 5,600 $ 10.94 5,600 $ 10.94
========= =========
Shares exercisable 5,600 $ 10.94 5,600 $ 10.94
========= =========
<CAPTION>
NONQUALIFIED STOCK OPTIONS WITH SARs
-------------------------------------------
Twelve Months Ended Option Option
March 31, 1997 Price 1996 Price
=========================== ========= ======== ========= ========
<S> <C> <C> <C> <C>
Balance beginning of period 5,600 $ 10.94 9,900 $ 10.94
Exercised 0 (4,300) $ 10.94
--------- ---------
Balance end of period 5,600 $ 10.94 5,600 $ 10.94
========= =========
Shares exercisable 5,600 $ 10.94 5,600 $ 10.94
========= =========
</TABLE>
The following table summarizes information about non-qualified stock
options at March 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- --------------------------------------------------------------------------
Number Weighted Average
Range of Outstanding at Remaining Weighted Average
Option Price March 31, 1997 Contractual Life Option Price
================ ============== ================== =================
<S> <C> <C> <C>
$10.94 to $17.94 90,800 2.80 years $16.62
$22.94 to $28.75 382,750 6.07 years $26.53
$30.31 to $37.81 676,200 8.21 years $34.73
- ---------------- --------- ---------- ------
$10.94 to $37.81 1,149,750 7.07 years $30.57
=========
<CAPTION>
OPTIONS EXERCISABLE
- --------------------------------------------------------------------------
Number
Range of Exercisable at Weighted Average
Option Price March 31, 1997 Option Price
================ ================== =================
<S> <C> <C>
$10.94 to $17.94 90,800 $16.62
$22.94 to $28.75 382,750 $26.53
$30.31 to $33.19 412,750 $32.76
- ---------------- --------- ------
$10.94 to $33.19 886,300 $28.42
=========
</TABLE>
(18) LONG-TERM DEBT: At March 31, 1997 and December 31, 1996, Industries'
long-term debt, excluding amounts due within one year, issued and
not retired or canceled was as follows:
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
---------------------------
March 31, December 31,
1997 1996
============= ============
(Dollars in thousands)
<S> <C> <C>
First mortgage bonds -
Interest rates between 5.20% and 9.83% with
a weighted average interest rate of 7.21%
and various maturities between October 1, 1998
and December 1, 2022 $ 202,109 $ 109,509
Pollution control notes and bonds -
Interest rates between 3.47% and 5.70% with
a weighted average interest rate of 3.75%
and various maturities between October 1, 2003
and April 1, 2019 242,000 242,000
Medium-term notes -
Interest rates between 5.83% and 7.99% with
a weighted average interest rate of 6.99%
and various maturities between April 6, 1998
and January 19, 2024 772,025 644,025
Subordinated Debentures -
7-3/4%, due March 31, 2026 75,000 75,000
Notes payable -
Interest rates between 6.31% and 8.25% with
a weighted average interest rate of 7.24%
and various maturities between June 30, 1998
and April 1, 2006 39,010 19,522
Variable bank loan -
6.44% - due August, 2003 5,600 -
Term Loan Facility-weighted average interest
rate of 8.12% at March 31, 1997, due
December 31, 2004 39,753 40,576
Unamortized premium and discount
on long-term debt, net (3,411) (3,526)
------------ -----------
Total long-term debt, excluding
amounts due in one year $ 1,372,086 $ 1,127,106
============ ===========
</TABLE>
The sinking fund requirements of long-term debt outstanding at
March 31, 1997 (including the maturity of Northern Indiana's first mortgage
bonds: Series P, 6-7/8%, due October 1, 1998; Northern Indiana's
medium-term notes due from April 6, 1998 to August 15, 2001; Lake Erie Land
Company's notes payable due June 30, 1998; NDC Douglas Properties, Inc.'s
notes payable due December 22, 1999; IWC's first mortgage bonds: Series 5.20%,
due May 1, 2001 and Series 8.00%, due December 15, 2001;and IWCR's senior note
payable, due March 15, 2001), for each of the twelve-month periods subsequent
to March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended March 31,
================================
<S> <C>
1999 $ 62,469,026
2000 $ 19,007,933
2001 $ 176,321,825
2002 $ 43,745,375
</TABLE>
Unamortized debt expense, premium and discount on long-term debt
applicable to outstanding bonds are being amortized over the lives of such
bonds. Reacquisition premiums are being deferred and amortized. These
premiums are not earning a return during the recovery period.
Northern Indiana's Indenture dated August 1, 1939, as amended and
supplemented, securing the first mortgage bonds issued by Northern Indiana,
constitutes a direct first mortgage lien upon substantially all property and
franchises, other than expressly excepted property, owned by Northern Indiana.
IWC's first mortgage bonds are secured by its utility plant. Provisions
of trust indentures related to the 5-7/8% Series Bonds and the 8% Series Bonds
require annual sinking or improvement payments amounting to 1/2% of the
maximum aggregate amount outstanding. As permitted, this requirement has been
satisfied by substituting a portion of permanent additions to utility plant.
On February 13, 1996, Capital Markets issued $75 million of 7-3/4%
Junior Subordinated Deferrable Interest Debentures, Series A, due
March 31, 2026 (Debentures) pursuant to an underwritten public offering.
Proceeds from the sale of the Debentures were used to pay short-term debt
incurred to redeem on January 12, 1996 Industries' $35 million of 8.75%
Preferred Shares, pursuant to mandatory redemption, and to pay other
short-term debt of Capital Markets.
On February 14, 1997, Capital Markets was authorized to issue and sell
up to $300 million of medium-term notes. As of March 31, 1997, $128 million
of the medium-term notes had been issued with various interest rates and
maturities. The proceeds from these issuances were used for the purchase of
IWCR and to pay other outstanding short-term obligations of Capital Markets.
As of April 25, 1997, an additional $118 million of medium-term notes were
issued.
The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed
to make payments of interest and principal on Capital Markets' securities in
the event of a failure to pay by Capital Markets. Restrictions in the
Support Agreement prohibit recourse on the part of Capital Markets' investors
against the stock and assets of Northern Indiana. Under the terms of the
Support Agreement, in addition to the cash flow of cash dividends paid to
Industries by any of its consolidated subsidiaries, the assets of Industries,
other than the stock and assets of Northern Indiana, are available as recourse
to holders of Capital Markets' securities. The carrying value of those assets
(other than Northern Indiana), reflected in the consolidated financial
statements of Industries, was approximately $1.2 billion at March 31, 1997.
(19) CURRENT PORTION OF LONG-TERM DEBT: At March 31, 1997 and December 31,
1996, Industries' current portion of long-term debt due within one year was
as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
============= ============
(Dollars in thousands)
<S> <C> <C>
First Mortgage Bonds -
Interest rates of 5-7/8% and 6-3/8% with a
weighted average interest rate of 6.27% and
maturities of August 1, 1997 and
September 1, 1997 $ 32,522 $ 25,747
Medium-term notes -
Interest rate of 5.85% and maturities
of July 25, 1997 and July 28, 1997 40,000 40,000
Zero Coupon notes -
7.57%, $72,500 at maturity -
due December 1, 1997 69,005 67,731
Notes payable -
Interest rates between 6.72% and 9.00% with a
a weighted average interest rate of 8.32%
and maturities between April 1, 1997 and
March 1, 1998 5,833 5,033
Term loan facility -
Interest rate of 8.12% 5,783 6,041
------------ ------------
Total current portion of long-term debt $ 153,143 $ 144,552
============ ============
</TABLE>
Capital Markets expects to refinance its 7.57% Zero Coupon Notes maturing
in the amount of $72.5 million on December 1, 1997.
Northern Indiana expects to refinance certain maturities of its Medium-
term Notes, Series B and Series D, and First Mortgage Bonds, Series N, Series
O, and Series P during the second quarter of 1997.
(20) SHORT-TERM BORROWINGS: Northern Indiana has a $250 million revolving
Credit Agreement with several banks which terminates August 19, 1999 unless
extended by its terms. As of March 31, 1997, there were no borrowings
outstanding under this agreement. In addition, Northern Indiana has $14.2
million in lines of credit which run to May 31, 1997 which are expected to be
renewed for the subsequent twelve-month period. The credit pricing of
each of the lines varies from either the lending banks' commercial prime or
market rates. Northern Indiana has agreed to compensate the participating
banks with arrangements that vary from no commitment fees to a combination of
fees which are mutually satisfactory to both parties. As of March 31, 1997,
there were no borrowings under these lines of credit. The Credit Agreement
and lines of credit are also available to support the issuance of
commercial paper.
Northern Indiana also has $273.5 million of money market lines of
credit. As of March 31, 1997 and December 31, 1996, there were $67.5
million and $79.0 million of borrowings, respectively, outstanding under
these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
March 31, 1997, there were no borrowings outstanding under this facility.
Northern Indiana and Capital Markets make use of commercial paper to
fund short-term working capital requirements.
As of March 31, 1997 and December 31, 1996, Northern Indiana had
$102.5 million and $193.9 million of commercial paper outstanding,
respectively. At March 31, 1997, the weighted average interest rate of
commercial paper outstanding was 5.41%.
Capital Markets has a $150 million revolving Credit Agreement which
will terminate August 19, 1999, unless extended by its terms. This facility
provides short-term financing flexibility to Industries and also serves as the
back-up instrument for a commercial paper program. As of March 31, 1997,
there were no borrowings outstanding under this agreement.
Capital Markets also has $95 million of money market lines of credit.
As of March 31, 1997 and December 31, 1996, $6.9 million and $27.0 million,
respectively, of borrowings were outstanding under these lines of credit.
As of March 31, 1997 and December 31, 1996, Capital Markets had
$68.4 million and $119.3 million of commercial paper outstanding,
respectively. At March 31, 1997, the weighted average interest rate of
commercial paper outstanding was 5.49%.
As of March 31, 1997, IWCR and its subsidiaries had lines of credit
with banks aggregating $47.9 million. As of March 31, 1997, $21.6 million
of borrowings were outstanding under these lines of credit.
At March 31, 1997 and December 31, 1996, Industries' short-term
borrowings were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
============= ============
(Dollars in thousands)
<S> <C> <C>
Commercial paper $ 170,900 $ 313,205
Notes payable 96,012 106,000
Standby loan facility 5,302 4,949
Revolving loan facility 1,593 1,831
----------- -----------
Total short-term borrowings $ 273,807 $ 425,985
=========== ===========
</TABLE>
(21) OPERATING LEASES: On April 1, 1990, Northern Indiana entered into a
twenty-year agreement for the rental of office facilities from Development at
a current annual rental payment of approximately $3.3 million.
The following is a schedule, by years, of future minimum rental
payments, excluding those to associated companies, required under operating
leases that have initial or remaining noncancelable lease terms in excess of
one year as of March 31, 1997:
<TABLE>
<CAPTION>
Twelve Months Ended March 31,
=================================
(Dollars in thousands)
<S> <C>
1998 $ 14,862
1999 14,731
2000 13,655
2001 13,464
2002 13,409
Later years 129,722
--------
Total minimum
payments required $199,843
========
</TABLE>
The consolidated financial statements include rental expense for all
operating leases as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
============= =============
(Dollars in thousands)
<S> <C> <C>
Three months ended $ 2,248 $ 2,031
Twelve months ended $ 8,338 $ 8,653
</TABLE>
(22) COMMITMENTS: The Utilities estimate that approximately $974 million
will be expended for construction purposes for the period from January 1, 1997
to December 31, 2001. Substantial commitments have been made by the Utilities
in connection with their programs. The Water Utilities will use a major
portion of their budgeted capital expenditures for new mains and distribution
and plant facilities and other operating equipment.
Northern Indiana has entered into a service agreement with Pure Air, a
general partnership between Air Products and Chemicals, Inc. and Mitsubishi
Heavy Industries America, Inc., under which Pure Air provides scrubber
services to reduce sulfur dioxide emissions for Units 7 and 8 at Bailly
Generating Station. Services under this contract commenced on June 15, 1992
with annual charges approximating $20 million. The agreement provides that,
assuming various performance standards are met by Pure Air, a termination
payment would be due if Northern Indiana terminates the agreement prior to the
end of the twenty-year contract period.
Northern Indiana has entered into an agreement with Integrated Systems
Solutions Corporation (ISSC), a wholly-owned subsidiary of IBM, for ISSC to
perform all data center, application development and maintenance, and desktop
management of Northern Indiana.
(23) PRIMARY ENERGY: Primary Energy, a wholly-owned subsidiary of
Industries, is the parent of subsidiaries including Harbor Coal Company
(Harbor Coal), North Lake Energy Corporation (North Lake), Lakeside Energy
Corporation (LEC), Portside Energy Corporation (Portside), and Cokenergy,
Inc (CE). Primary arranges energy-related projects with large industrial
customers and has entered into certain commitments in connection with these
projects.
Harbor Coal has invested in a partnership to finance, construct, own,
and operate a $65 million pulverized coal injection facility which began
commercial operation in August, 1993. The facility receives raw coal,
pulverizes it and delivers it to Inland Steel Company for use in the operation
of its blast furnaces. Harbor Coal is a 50% partner in the project with an
Inland Steel affiliate. Industries has guaranteed the payment and performance
of the partnership's obligations under a sale and leaseback of a 50% undivided
interest in the facility.
North Lake has entered into a lease for the use of a 75-megawatt energy
facility located at Inland Steel Company. The facility uses steam generated
by Inland Steel to produce electricity which is delivered to Inland Steel.
The facility began commercial operation in May 1996. Industries has
guaranteed North Lake's obligations relative to the lease and certain
obligations to Inland Steel relative to the project.
LEC has entered into a lease for the use of a 161-megawatt energy
facility to be located at USS Gary Works. The facility will process
high-pressure steam into electricity and low-pressure steam to be
delivered to USX Corporation-US Steel Group. The fifteen-year lease with
a third-party lessor will commence once the facility is fully constructed.
LEC is currently acting as the agent for the lessor to design, construct,
and start up the energy facility. Capital Markets has guaranteed LEC
obligations to the lessor during the construction period. Capital Markets
also guarantees LEC's security deposit obligations relative to the lease and
certain limited LEC obligations to the lessor. Construction of the project
began in January 1996. The facility is scheduled to be operational in May
1997.
Portside has entered into an agreement with National Steel Corporation
(National) to utilize a new 63-megawatt energy facility at National's Midwest
Division to process natural gas into electricity, process steam and heated
water for a fifteen-year period. Portside intends to lease this facility,
once constructed, from a third party. Additionally, Portside has entered
into an interim agreement, which expires when the lease is established with
the third-party lessor, under which Portside is acting as agent for the lessor
to design, construct, and start up the energy facility. Industries has
guaranteed certain Portside obligations to the lessor during construction.
Capital Markets anticipates guaranteeing certain Portside obligations relative
to the anticipated lease. Construction of the project began in June 1996.
The facility is scheduled to be operational in August 1997.
CE has entered into a fifteen-year service agreement with Inland Steel
Company and the Indiana Harbor Coke Company, LP (Harbor Coke), a subsidiary of
Sun Company, Inc. This agreement provides that CE will utilize a new energy
facility at Inland's Indiana Harbor Works to scrub flue gases and recover
waste heat from the coke facility being constructed by Harbor Coke and produce
process steam and electricity from the recovered heat which will be delivered
to Inland. CE intends to lease these facilities, once constructed, from a
third party. Additionally, CE has entered into an interim agreement, which
expires when the lease is established with the third party lessor, under which
CE is acting as agent to design, construct and start up the facilities.
Capital Markets anticipates guaranteeing certain CE obligations relative to
the anticipated lease. Construction of the project began January, 1997. The
facility is scheduled to be operational in July, 1998.
Primary has advanced approximately $82 million and $42 million, at
March 31, 1997 and December 31, 1996, respectively, to the lessors of the
energy related projects discussed above. These net advances are included in
"Other Receivables" in the Consolidated Balance Sheet and "Other, net"
as a component of operating activities in the Consolidated Statement of
Cash Flows.
(24) FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amount approximates
fair value because of the short maturity of those instruments.
Investments: The fair value of some investments is estimated based
on market prices for those or similar investments.
Long-term debt/Preferred stock: The fair value of long-term debt
and preferred stock is estimated based on the quoted market prices
for the same or similar issues or on the rates offered to Industries
for securities of the same remaining maturities. Certain premium
costs associated with the early settlement of long-term debt are not
taken into consideration in determining fair value.
The carrying values and estimated fair values of Industries' financial
instruments (excluding derivatives) are as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
========== ========== ========== ==========
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 92,276 $ 92,276 $ 26,333 $ 26,333
Investments $ 30,507 $ 33,649 $ 30,003 $ 33,019
Long-term debt (including
current portion) $1,526,729 $1,385,856 $1,273,158 $1,220,492
Preferred stock $ 148,696 $ 128,272 $ 144,200 $ 126,379
</TABLE>
The majority of the long-term debt relates to utility operations.
The Utilities are subject to regulation, and gains or losses may be included
in rates over a prescribed amortization period, if in fact settled at amounts
approximating those above.
(25) CUSTOMER CONCENTRATIONS: Industries' utility subsidiaries supply
natural gas, electric energy and water. Natural gas and electric
energy are supplied to the northern third of Indiana. The water utilities
serve Indianapolis, Indiana and surrounding areas. Although the Energy
Utilities have a diversified base of residential and commercial customers, a
substantial portion of their electric and gas industrial deliveries are
dependent upon the basic steel industry. The basic steel industry accounted
for 4% of gas revenue (including transportation services) and 22% of electric
revenue for the twelve months ended March 31, 1997 and March 31, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
HOLDING COMPANY -
NIPSCO Industries, Inc. (Industries) is an energy/utility based holding
company providing electric energy and natural gas to the public through its
four regulated subsidiaries: Northern Indiana Public Service Company
(Northern Indiana); Kokomo Gas and Fuel Company (Kokomo Gas); Northern Indiana
Fuel and Light Company, Inc. (NIFL); and Crossroads Pipeline Company
(Crossroads). Industries' non-utility businesses are primarily energy or
utility based. These include energy marketing and trading; power generation;
oil and gas exploration and development; gas transmission, supply and storage;
and related products targeted at customer segments.
On March 25, 1997, Industries acquired IWC Resources Corporation (IWCR).
IWCR's subsidiaries currently include two regulated water utilities and
non-regulated companies providing utility-related services including utility
line locating and marking and installation, and repair and maintenance of
underground pipelines.
The following discussion, except where noted, is attributable to the
operations of Northern Indiana, Kokomo Gas, NIFL, and Crossroads (Energy
Utilities).
REVENUES -
Total operating revenues for the twelve months ended March 31, 1997
increased $49.0 million as compared to the twelve months ended March 31,
1996. Gas revenues increased $71.1 million and electric revenues decreased
$22.1 million as compared to the same period in 1996. The increase in gas
revenues was largely attributable to increased sales to industrial and
wholesale customers, increased deliveries of gas transported for others,
increased gas transition costs, and increased gas costs per dekatherm (dth).
The decrease in electric revenues was mainly due to decreased sales to
residential customers resulting from the cooler summer in 1996 and
decreased sales to industrial and wholesale customers.
Total operating revenues for the three months ended March 31, 1997
increased $3.2 million as compared to the three months ended March 31, 1996.
Gas revenues increased $5.8 million and electric revenues decreased
$2.6 million as compared to the same period in 1996. The increase in gas
revenues was mainly due to increased gas costs per dth and increased gas
transition costs, partially offset by decreased sales to residential and
commercial customers as a result of milder weather. The decrease in electric
revenues was mainly due to decreased sales to industrial and wholesale
customers.
The basic steel industry accounted for 31% of natural gas delivered
(including volumes transported) and 35% of electric sales during the twelve
months ended March 31, 1997.
The components of the variations in gas and electric revenues are
shown in the following table:
<TABLE>
<CAPTION>
Variations from Prior Periods
---------------------------------
March 31, 1997
Compared to
March 31, 1996
Three Twelve
Months Months
========= =========
(Dollars in thousands)
<S> <C> <C>
Gas Revenue -
Pass through of net changes in
purchased gas costs, gas storage,
and storage transportation costs $ 28,432 $ 29,497
Gas transition costs 3,114 32,591
Changes in sales levels (26,165) 8,172
Gas transported 415 835
--------- ---------
Gas Revenue Change 5,796 71,095
--------- ---------
Electric Revenue -
Pass through of net changes
in fuel costs 1,241 3,058
Changes in sales levels (3,841) (25,186)
--------- ---------
Electric Revenue Change (2,600) (22,128)
--------- ---------
Total Revenue Change $ 3,196 $ 48,967
========= =========
</TABLE>
See Note 7 to Notes to Consolidated Financial Statements regarding
FERC Order No. 636 transition costs.
GAS COSTS -
The Energy Utilities' gas costs increased $15.6 and $73.3 million for
the three-month and twelve-month periods ended March 31, 1997, respectively.
Gas costs increased for the three-month period due to increased gas costs
per dth, and increased gas transition costs, partially offset by decreased
purchases. Gas costs increased for the twelve-month period due to
increased gas costs per dth, increased gas transition costs, and increased
purchases. The average cost for the Energy Utilities' purchased gas for the
three-month and twelve-month periods ended March 31, 1997, after adjustment
for gas transition costs billed to transport customers, was $3.45 and $3.19
per dth, respectively, as compared to $3.00 and $2.72 per dth for the same
periods in 1996.
FUEL AND PURCHASED POWER -
The cost of fuel for electric generation decreased for the twelve-month
period ended March 31, 1997, compared to the 1996 period, mainly as a result
of decreased production of electricity.
Power purchased increased $6.1 million for the twelve-month period ended
March 31, 1997 as a result of increased bulk power purchases. Power purchases
decreased $3.0 million for the three-month period.
OPERATING MARGINS -
Operating margins for the twelve months ended March 31, 1997 decreased
$19.1 million from the same period a year ago. The operating margin from
gas deliveries decreased $2.2 million due to decreased sales to residential
and commercial customers reflecting milder weather, partially offset by
increased sales to wholesale customers and increased deliveries of gas
transported for others. The operating margin from electric sales decreased
$16.9 million due to decreased sales to residential customers, reflecting
milder 1996 summer weather, and decreased sales to industrial and wholesale
customers.
Operating margins for the three-months ended March 31, 1997 decreased
$10.6 million from the same period a year ago. Gas operating margin
decreased $9.8 million due to decreased sales to residential and commercial
customers reflecting milder weather during the period, and decreased sales to
industrial and wholesale customers, partially offset by increased deliveries
of gas transported for others. Operating margin from electric sales decreased
$0.8 million due to decreased sales to industrial and wholesale customers,
which were partially offset by increased sales to residential and commercial
customers.
OPERATING EXPENSES AND TAXES -
Operation expenses decreased $10.7 million for the twelve-month period
ended March 31, 1997 reflecting decreased employee costs and decreased
electric production pollution control facility costs, partially offset by
increased environmental costs. Operation expenses decreased $5.6 million for
the three-month period mainly reflecting decreased employee related costs,
decreased electric production pollution control facility costs, and various
other decreased operating costs.
Maintenance expenses decreased $4.8 million for the twelve-month period
ended March 31, 1997 mainly reflecting decreased maintenance activity at the
electric production facilities and decreased maintenance on the transmission
and distribution facilities.
Depreciation and amortization expense increased $2.7 and $12.2
million for the three-month and twelve-month periods ended March 31, 1997,
respectively, resulting from plant additions, increased amortization of
computer software, amortization of deferred costs related to scrubber
services provided by Pure Air at the Bailly Generating Station, and
amortization of SFAS No. 106 costs effective February 1, 1997.
Utility income taxes decreased for the three-month and twelve-month
periods ended March 31, 1997 mainly as a result of decreased pre-tax income.
OTHER INCOME (DEDUCTIONS) -
Other Income (Deductions) for the twelve-month period increased $17.5
million mainly resulting from improved results from non-regulated operations,
the disposition of certain oil and natural gas properties, and the sale of
Crescent Dunes Lakeshore property to the National Park Service. Other Income
(Deductions) increased $8.8 million for the three-month period ended March 31,
1997 due to improved results for non-regulated operations and the disposition
of certain oil and natural gas properties.
INTEREST AND OTHER CHARGES -
Interest and other charges increased for the three-month and
twelve-month periods ended March 31, 1997 reflecting the issuance of
$169,275,000 of Northern Indiana's Medium-Term Notes, Series D, and $75
million of Capital Markets' Junior Subordinated Deferrable Interest
Debentures, Series A.
See Note 2 to Notes to Consolidated Financial Statements (Summary of
Significant Accounting Policies) for a discussion of Regulatory Assets,
Carrying Charges and Deferred Depreciation, and Allowance for Funds Used
During Construction. Also see Notes 7, 9, and 11 for a discussion of FERC
Order No. 636, Income Taxes and Postretirement Benefits.
NET INCOME-
Industries' net income for the twelve-month period ended March 31, 1997
was $180.1 million compared to $182.6 million for the twelve-month period
ended March 31, 1996.
Net income for the three months ended March 31, 1997 was $70.8 million
compared to $67.4 million for the three months ended March 31, 1996.
ENVIRONMENTAL MATTERS -
The Utilities have an ongoing program to remain aware of laws and
regulations involved with hazardous waste and other environmental matters. It
is the Utilities' intent to continue to evaluate their facilities and
properties with respect to these rules and identify any sites that would
require corrective action. The Utilities have recorded a reserve of $16.9
million to cover probable corrective actions as of March 31, 1997; however,
environmental regulations and remediation techniques are subject to future
change. The ultimate cost could be significant, depending on the extent of
corrective actions required. Based upon investigations and management's
understanding of current laws and regulations, the Utilities believe that any
corrective actions required, after consideration of insurance coverages and
contributions from other potentially responsible parties, will not have a
significant impact on the financial position or results of operations of
Industries.
On December 19, 1996, the Environmental Protection Agency (EPA)
promulgated rules for the second phase of the Acid Rain nitrogen oxides
reduction program. Northern Indiana is evaluating compliance strategies to
meet the reduced emission limitations found in the final rule. Additional
controls may be needed to meet the requirements. A compliance plan must be
submitted to the EPA by December 31, 1997 with details of the plan to meet
the new limits by January 1, 2000.
Because of major investments made in modern environmental control
facilities and the use of low-sulfur coal, all of Northern Indiana's electric
production facilities now comply with the sulfur dioxide limitations contained
in the acid deposition provisions of the Clean Air Act Amendments of 1990
(CAAA). Northern Indiana estimates that total costs of compliance with the
CAAA sulfur dioxide regulations will impact electric rates by less than 5% in
the future.
The CAAA contain provisions that could lead to limitations on emissions
of nitrogen oxides and hazardous air pollutants which may require
significant capital expenditures for control of these emissions. Northern
Indiana is pursuing a nitrogen oxide control program to meet future
requirements. Northern Indiana cannot predict the costs of complying with
CAAA requirements, but Northern Indiana believes that any such mandated costs
would be recoverable through the rate-making process.
The EPA has notified Northern Indiana that it is a "potentially
responsible party" (PRP) under the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA) and may be required to share in the
cost of cleanup of several waste disposal sites identified by the EPA. The
sites are in various stages of investigation, analysis and remediation. At
each of the sites, Northern Indiana is one of several PRPs, and it is expected
that remedial costs, as provided under CERCLA, will be shared among them. At
some sites Northern Indiana and/or the other named PRPs are presently working
with the EPA to clean up the sites and avoid the imposition of fines or added
costs.
The Energy Utilities have instituted a program to investigate former
manufactured-gas plants where one of them is the current or former owner.
The Energy Utilities have identified twenty-eight of these sites and made
visual inspections of these sites. Initial samplings have been conducted at
seventeen sites. Follow-up investigations have been conducted at seven sites
and remedial measures have been selected at four sites. The Energy Utilities
will continue their program to assess and cleanup sites.
During the course of various investigations, the Energy Utilities have
identified impacts to soil, groundwater, sediment and surface water from
former manufactured-gas plants. At three sites where residues were
noted seeping into rivers, Northern Indiana notified the Indiana Department
of Environmental Management (IDEM) and the EPA and immediately took steps to
contain the material. The Energy Utilities have worked with IDEM or the EPA
on investigation or remedial activities at several sites. Two of the sites
have been enrolled in the IDEM Voluntary Remediation Program (VRP). The goal
of placing these sites in the VRP is to obtain IDEM approval of the selection
and implementation of whatever remedial measures, if any, may be required.
The Energy Utilities anticipate placing additional sites in the VRP after
remedial measures have been selected.
Northern Indiana and Indiana Gas Company, Inc. (Indiana Gas) have
entered into an agreement covering cost sharing and management of
investigation and remediation programs at five former manufactured-gas plant
sites at which both companies or their predecessors were former operators or
owners. One of these sites is the Lafayette site which Indiana Gas had
previously notified Northern Indiana is being investigated and remediated
pursuant to an administrative order with IDEM. Northern Indiana also notified
Cinergy Services, Inc. (Cinergy) (formerly PSI Energy, Inc.) that it was a
former owner or operator of seven former manufactured-gas plants at which
Northern Indiana had conducted or was planning investigation or remediation
activities. In December 1996, Northern Indiana sent a written demand to
Cinergy related to one of these sites, Goshen. Northern Indiana demanded that
Cinergy pay Northern Indiana for costs Northern Indiana has already incurred
and to be incurred to implement the needed remedy at the Goshen site.
The Energy Utilities have met with various companies that provided
insurance coverage which the Energy Utilities believe covers costs related to
actions taken at former manufactured-gas plants. In September 1995, certain
insurance companies initiated a suit in Indiana state court against Northern
Indiana to deny coverage. Later in September 1995, Northern Indiana filed a
more comprehensive suit in Federal Court in Indiana against those insurers and
several other insurance companies, seeking coverage for costs associated with
several former manufactured-gas plant sites. The state court action is stayed
pending resolution of the Northern Indiana suit in Federal Court. Both sides
have motions pending in the Federal Court lawsuit that would be dispositive of
the case. Northern Indiana has obtained cash settlements from some of its
insurers.
The possibility that exposure to electric and magnetic fields (EMF)
emanating from power lines, household appliances, and other electric sources
may result in adverse health effects has been the subject of public,
governmental, and media attention. Recently, the U.S. National Research
Council of the National Academy of Sciences concluded in a report, after
examining more than 500 EMF studies spanning 17 years, that among other
things, there is insufficient evidence to consider EMF a threat to human
health. Despite the report's findings, future research appropriations are
continuing to be dedicated to explore this issue.
The Water Utilities are subject to pollution control and water quality
control regulations, including those issued by the EPA, IDEM, the Indiana
Water Pollution Control Board, and the Indiana Department of Natural
Resources. Under the Federal Clean Water Act and Indiana's regulations,
IWC must obtain National Pollutant Discharge Elimination System (NPDES)
permits for discharges from its water treatment stations. Application for
renewal of any expiring permits have been filed and are the subject of ongoing
discussions with, but not finalized by, IDEM. These permits continue in
effect pending review of the applications.
Under the Federal Safe Drinking Water Act (SWDA), the Water Utilities
are subject to regulation by the EPA for the quality of water sold and
treatment techniques used to make the water portable. The EPA promulgates
nationally applicable maximum contaminant levels (MCLs) for contaminants found
in drinking water. Management believes its' water utilities are currently in
compliance with all MCLs promulgated to date. The EPA has continuing
authority, however, to issue additional regulations under the SDWA. In August
1996, Congress amended the SDWA to allow the EPA more authority to weigh the
costs and benefits of regulations being considered in some (but not all)
cases. The 1996 amendments do not, however, reduce the number of new
standards required by the 1986 amendments. Such standards promulgated could
be costly and require substantial changes in the Water Utilities' operations.
The Water Utilities would expect to recover the costs of such changes through
its water rates; however, such recovery may not necessarily be timely.
Under a 1991 law enacted by the Indiana Legislature, a water utility may
petition the Commission for prior approval of its plans and estimated
expenditures required to comply with provisions of, and regulations under, the
Federal Clean Water Act and SDWA. Upon obtaining such approval, a water
utility may include, to the extent of its estimated costs as approved by the
Commission, such costs in its rate base for ratemaking purposes and recover
its costs of developing and implementing the approved plans if statutory
standards are met. The capital costs for such new systems, equipment or
facilities or modifications of existing facilities may be included in a
water utility's rate base upon completion of construction of the project or
any part thereof. While use of this statute is voluntary on the part
of a water utility, if utilized, it should allow water utilities a greater
degree of confidence in recovering major costs incurred to comply with
environmentally related laws on a timely basis.
LIQUIDITY AND CAPITAL RESOURCES -
During the next few years, it is anticipated that the majority of
earnings available for distribution of dividends will depend upon dividends
paid to Industries by Northern Indiana. See Note 15 of Notes to Consolidated
Financial Statements for a discussion of the Common Share dividend.
On February 13, 1996, Capital Markets issued $75 million of 7-3/4%
Junior Subordinated Deferrable Interest Debentures, Series A, due March 31,
2026 (Debentures), pursuant to an underwritten public offering. Proceeds from
the sale of the Debentures were used to pay short-term debt incurred to redeem
on January 12, 1996 Industries' $35 million of 8.75% Preferred Shares,
pursuant to mandatory redemption, and to pay other short-term debt of Capital
Markets.
On February 14, 1997, Capital Markets was authorized to issue and
sell up to $300 million of medium-term notes. As of March 31, 1997, $128
million of the medium-term notes had been issued with various interest rates
and maturities. The proceeds from these issuances were used for the purchase
of IWCR and to pay other outstanding short-term obligations of Capital
Markets. As of April 25, 1997, an additional $118 million of medium-term
notes were issued.
Capital Markets expects to refinance its 7.57% Zero Coupon Notes
maturing in the amount of $72.5 million on December 1, 1997.
On March 25, 1997, Industries acquired all the outstanding common stock
of IWCR for $290.5 million. Industries financed this transaction with debt of
approximately $83.0 million and issuance of approximately 5.3 million
Industries' common shares. Industries accounted for the acquisition as a
purchase, and the purchase price was allocated to the assets and liabilities
acquired based on their estimated fair values. See Note 2 of Notes to
Consolidated Financial Statements for a discussion of the preliminary
allocation of the purchase price.
Capital Markets has a $150 million revolving Credit Agreement which
will terminate August 19, 1998, unless extended by its terms. This facility
provides short-term financing flexibility to Industries and also serves as
the backup instrument for a commercial paper program. As of March 31, 1997,
there were no borrowings outstanding under this agreement.
Capital Markets also has $95 million of money market lines of credit.
As of March 31, 1997, $6.9 million of borrowings were outstanding under
these lines of credit.
As of March 31, 1997 and December 31, 1996, Capital Markets had
$68.4 million and $119.3 million of commercial paper outstanding,
respectively. At March 31, 1997, the weighted average interest rate of
commercial paper outstanding was 5.49%.
The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed
to make payments of interest and principal on Capital Markets' securities in
the event of a failure to pay by Capital Markets. Restrictions in the Support
Agreement prohibit recourse on the part of Capital Markets' investors against
the stock and assets of Northern Indiana. Under the terms of the Support
Agreement, in addition to the cash flow of cash dividends paid to Industries
by any of its consolidated subsidiaries, the assets of Industries, other than
the stock and assets of Northern Indiana, are available as recourse to holders
of Capital Markets' securities. The carrying value of those assets (other
than Northern Indiana), reflected in the consolidated financial statements of
Industries, is approximately $1.2 billion at March 31, 1997.
Cash flow from operations has provided sufficient liquidity to meet
current operating requirements. Because of the seasonal nature of the utility
business and the construction program, Northern Indiana makes use of
commercial paper intermittently as short-term financing. As of March 31,
1997 and December 31, 1996, Northern Indiana had $102.5 million and $193.9
million of commercial paper outstanding, respectively. At March 31, 1997,
the weighted average interest rate of commercial paper outstanding was 5.41%.
Northern Indiana has a $250 million revolving Credit Agreement with
several banks which terminates August 19, 1999 unless extended by its terms.
As of March 31, 1997, there were no borrowings outstanding under this
agreement. In addition, Northern Indiana has $14.2 million in lines of credit
which run to May 31, 1997, which are expected to be renewed for the
subsequent twelve-month period. The credit pricing of each of the lines
varies from either the lending banks' commercial prime or market rates.
Northern Indiana has agreed to compensate the participating banks with
arrangements that vary from no commitment fees to a combination of fees which
are mutually satisfactory to both parties. As of March 31, 1997, there were
no borrowings under these lines of credit. The Credit Agreement and lines of
credit are also available to support the issuance of commercial paper.
Northern Indiana also has $273.5 million of money market lines of
credit. As of March 31, 1997, $67.5 million of borrowings were outstanding
under these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
March 31, 1997, there were no borrowings outstanding under this facility.
Northern Indiana expects to refinance certain maturities of its Medium-
term Notes, Series B and Series D, and First Mortgage Bonds, Series N, Series
O, and Series P during the second quarter of 1997.
During recent years, Northern Indiana has been able to finance its
construction program with internally generated funds and expects to be able to
meet future commitments through such funds.
As of March 31, 1997, IWCR and its subsidiaries had lines of credit
with banks aggregating $47.9 million. As of March 31, 1997, $21.6 million
of borrowings were outstanding under these lines of credit.
The Utilities do not expect the effects of inflation at current levels
to have a significant impact on their results of operations, ability to
contain cost increases, or need to seek timely and adequate rate relief. The
Energy Utilities do not anticipate the need to file for gas and electric base
rate increases in the near future.
EMPLOYEE RELATIONS
At March 31, 1997, approximately 74% of Northern Indiana's employees
(physical and clerical workers) were represented by two local unions of the
United Steelworkers of America, AFL-CIO-CLC. The bargaining unit employees'
current contracts expire May 31, 1997. Northern Indiana has begun to
negotiate new agreements with the two local unions, but cannot predict the
timing or terms of new agreements.
COMPETITION
The Energy Policy Act of 1992 (Energy Act) allowed FERC to order
electric utilities to grant access to transmission systems by third-party
power producers. The Energy Act specifically prohibits federally mandated
wheeling of power for retail customers. On April 24, 1996, the FERC issued
its Order No. 888 which opens wholesale power sales to competition and
requires public utilities owning, controlling, or operating transmission lines
to file non-discriminatory open access tariffs that offer others the same
transmission service they provide themselves. Order No. 888 also provides
for the full recovery of stranded costs - that is, costs that were prudently
incurred to serve power customers and that could go unrecovered if these
customers use open access to move to another supplier. FERC expects
this rule will accelerate competition and bring lower prices and more choices
to wholesale energy customers. Although wholesale customers represent a
relatively small portion of Northern Indiana's sales, Northern Indiana
will continue its efforts to retain and add customers by offering competitive
rates.
In January 1997, legislation was introduced to the Indiana General
Assembly addressing electric utility competition and deregulation. Under the
proposed legislation, an electric utility would be required to separate its
production and marketing functions from the transmission and distribution
functions to eliminate a competitive market advantage related to
organizational structure. There would be a transition period from October 1,
1999 through June 30, 2004, during which an electric utility's cost of service
rates would transition to a target price based upon Indiana utility averages.
Amounts collected by an electric utility above the target price during the
transition period would provide for recovery of transition costs. Under the
proposed legislation, each electric utility company would be required to file
a proposed distribution comparability tariff for unbundled electric service.
Customers would have the right to choose their electricity supplier effective
with the transition period. During the transition period, access charges
would be billed to those customers choosing a new supplier. Regulatory assets
not recovered during the transition period and not included as part of the
cost-based transmission and distribution function would not be recoverable
from customers. After the transition period, customers would be required to
make an affirmative election as to their electricity supplier; if no election
is made, the Commission would assign a supplier. This proposed legislation has
not been adopted, however a study commission on electric competition and
deregulation was established by the Indiana General Assembly.
Operating in a competitive environment will place added pressures on
utility profit margins and credit quality. Increasing competition in the
electric utility industry has already led the credit rating agencies to apply
more stringent guidelines in making credit rating determinations.
Competition within the electric utility industry will create
opportunities to compete for new customers and revenues, as well as
increase the risk of the loss of customers. Industries' management has
taken steps to make the company more competitive and profitable in the
changing utility environment, including partnering on energy projects
with major industrial customers and conversions of some of its generating
units to allow use of lower cost, low sulfur coal.
FERC Order No. 636 shifted primary responsibility for gas acquisition,
transportation, and peak days' supply from pipelines to local gas distribution
companies such as the Energy Utilities. Although pipelines continue to
transport gas, they no longer provide sale service. The Energy Utilities
believe they have taken appropriate steps to ensure the continued acquisition
of adequate gas supplies at reasonable prices.
The mix of gas revenues from retail sales, interruptible retail sales,
firm transportation service, and interruptible transportation services has
changed significantly over the past several years. The deregulation of the gas
industry, since the mid-1980's, allows large industrial and commercial
customers to purchase their gas supplies directly from producers and use the
Energy Utilities' facilities to transport the gas. Transportation customers
pay the Energy Utilities only for transporting their gas from the pipeline to
the customers' premises.
Northern Indiana filed a petition for an Alternative Regulatory Plan
(ARP) with the Commission on November 29, 1995. The purpose of the ARP is to
create a business and regulatory environment and structure which will permit
increased choice for gas customers, competition among suppliers, and improved
natural gas service. In its ARP, Northern Indiana proposes to implement new
rates and services that would include, but not be limited to, further
unbundling of services for additional customer classes which would include
increased customer choice for sources of natural gas supply, negotiated
services and prices, and incentive gas and storage cost mechanisms. The
Commission will hold hearings on the ARP during the second quarter of 1997.
To date, the Energy Utilities' system has not been materially affected
by competition, and management does not foresee substantial adverse effects
in the near future, unless the current regulatory structure is substantially
altered. The Energy Utilities believe the steps they are taking to deal with
increased competition will have significant, positive effects in the next few
years.
<PAGE>
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Industries and Northern Indiana are parties to various pending
proceedings, including suits and claims against them for personal injury,
death and property damage, but, in the opinion of their counsel, the nature of
such proceedings and suits, and the amounts involved, do not depart from the
ordinary routine litigation and proceedings incidental to the kind of business
conducted by Industries and Northern Indiana, except as described under Note 3
(Pending Tax Matter), Note 5 (Elm Energy and Recycling (UK) Ltd.), Note 6
(NESI Energy Marketing Canada Ltd.) and Note 8 (Environmental Matters) in the
Notes to Consolidated Financial Statements under Part I, Item 1 of this report
on Form 10-Q.
To the knowledge of Industries no other material legal proceedings
against Industries, Northern Indiana or their subsidiaries are contemplated by
governmental authorities and other parties.
Item 2. CHANGES IN SECURITIES.
None
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 9, 1997, at the Annual Meeting of Shareholders of the
registrant, shareholders of the registrant elected Arthur J. Decio, Gary L.
Neale, and Robert J. Welsh as directors to serve until the 2000 Annual Meeting
of Shareholders. Directors whose terms of office as director continue after
the 1997 Annual Meeting of Shareholders are Steven C. Beering, Ernestine M.
Raclin, and Denis E. Ribordy, whose terms expire at the 1998 Annual Meeting of
Shareholders, and Ian M. Rolland, John W. Thompson and Edmund A. Schroer,
whose terms expire at the 1999 Annual Meeting of Shareholders.
There were no abstentions or broker non-votes for any of the nominees
for directors. The number of votes cast for, or withheld, for each nominee
for director was as follows:
Votes Votes
Received Withheld
========== ==========
Arthur J. Decio 47,228,178 1,678,164
Gary L. Neale 47,202,010 1,704,332
Robert J. Welsh 47,241,299 1,665,043
Additionally at the Annual Meeting of Shareholders, shareholders of
the registrant approved an amendment to the Articles of Incorporation to
increase the number of directors from nine to ten. The number of votes cast
for, or withheld, was as follows:
Votes Votes Votes
For Against Abstain
========== ========== ==========
46,920,431 1,596,638 389,273
At the meeting of the Board of Directors of Industries following the
Annual Meeting of the Shareholders, the Directors elected James T. Morris,
Chairman, Chief Executive Officer, and President of IWCR, to fill the newly
created position as a Director, for a term to expire in 1998.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 3(a) - Articles of Incorporation
Exhibit 3(b) - By-laws of Registrant effective April 9, 1997
Exhibit 11.1 - Computation of Per Share Earnings
Three-Month and Twelve-Month Periods Ended
March 31, 1997.
Exhibit 11.2 - Computation of Per Share Earnings
Three-Month and Twelve-Month Periods Ended
March 31, 1997.
Exhibit 23 - Consent of Arthur Andersen LLP
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K was filed under the date of February 14,
1997. All events were reported under Item 5, Other Events.
<PAGE>
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.
NIPSCO Industries, Inc.
(Registrant)
/s/Jerry M. Springer
Controller
and Chief Accounting Officer
Date May 13, 1997
EXHIBIT 11.1
<TABLE>
<CAPTION>
COMPUTATION OF PER SHARE EARNINGS
Three-Month and Twelve-Month
Periods Ended March 31, 1997
Fully
Three Months Ended March 31, 1997: Primary Diluted
====================================== ========== ==========
<S> <C> <C>
Weighted Average Number of Shares:
Average Common Shares Outstanding at
March 31, 1997 59,558,343 59,558,343
Dilutive Effect for Nonqualified
Stock Options at March 31, 1997 259,364 259,364
---------- ----------
Weighted Average Shares at
March 31, 1997 59,817,707 59,817,707
========== ==========
<CAPTION>
Net Income to Be Used to Compute
Earnings Per Average Common Share:
(Dollars in thousands)
<S> <C> <C>
Net Income $ 70,838 $ 70,838
Dividend Requirements on Preferred Shares 0 0
---------- ----------
Balance Available for Common Shareholders $ 70,838 $ 70,838
========== ==========
Earnings Per Average Common Share $ 1.18(a) $ 1.18(a)
========== ==========
<CAPTION>
Fully
Twelve Months Ended March 31, 1997: Primary Diluted
======================================= ========== ==========
<S> <C> <C>
Weighted Average Number of Shares:
Average Common Shares Outstanding at
March 31, 1997 60,570,358 60,570,358
Dilutive Effect for Nonqualified
Stock Options at March 31, 1997 236,433 257,080
---------- ----------
Weighted Average Shares at
March 31, 1997 60,806,791 60,827,438
========== ==========
<CAPTION>
Net Income to Be Used to Compute
Earnings Per Average Common Share:
(Dollars in thousands)
<S> <C> <C>
Net Income $ 180,086 $ 180,086
Dividend Requirements on Preferred Shares 0 0
---------- ----------
Balance Available for Common Shareholders $ 180,086 $ 180,086
========== ==========
Earnings Per Average Common Share $ 2.96(a) $ 2.96(a)
========== ==========
<FN>
(a) This calculation is submitted in accordance with regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
EXHIBIT 11.2
<TABLE>
<CAPTION>
COMPUTATION OF PER SHARE EARNINGS
Three-Month and Twelve-Month
Periods Ended March 31, 1996
Fully
Three Months Ended March 31, 1996: Primary Diluted
====================================== ========== ==========
<S> <C> <C>
Weighted Average Number of Shares:
Average Common Shares Outstanding at
March 31, 1996 62,064,667 62,064,667
Dilutive Effect for Nonqualified
Stock Options at March 31, 1996 277,295 277,295
---------- ----------
Weighted Average Shares at
March 31, 1996 62,341,962 62,341,962
========== ==========
<CAPTION>
Net Income to Be Used to Compute
Earnings Per Average Common Share:
(Dollars in thousands)
<S> <C> <C>
Net Income $ 67,486 $ 67,486
Dividend Requirements on Preferred Shares 119 119
---------- ----------
Balance Available for Common Shareholders $ 67,367 $ 67,367
========== ==========
Earnings Per Average Common Share $ 1.08(a) $ 1.08(a)
========== ==========
<CAPTION>
Fully
Twelve Months Ended March 31, 1996: Primary Diluted
======================================= ========== ==========
<S> <C> <C>
Weighted Average Number of Shares:
Average Common Shares Outstanding at
March 31, 1996 62,776,503 62,776,503
Dilutive Effect for Nonqualified
Stock Options at March 31, 1996 181,895 255,287
---------- ----------
Weighted Average Shares at
March 31, 1996 62,958,398 63,031,790
========== ==========
<CAPTION>
Net Income to Be Used to Compute
Earnings Per Average Common Share:
(Dollars in thousands)
<S> <C> <C>
Net Income $ 182,620 $ 182,620
Dividend Requirements on Preferred Shares 2,416 2,416
---------- ----------
Balance Available for Common Shareholders $ 180,204 $ 180,204
========== ==========
Earnings Per Average Common Share $ 2.86(a) $ 2.86(a)
========== ==========
<FN>
(a) This calculation is submitted in accordance with regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-Q into Industries'
previously filed Form S-8 Registration Statement No. 33-30619; Form S-8
Registration Statement No. 33-30621; Form S-8 Registration Statement
No. 333-08263;Form S-8 Registration Statement No. 333-19981; Form S-8
Registration Statement No. 333-19983; Form S-8 Registration Statement
No. 333-19985; and Form S-3 Registration Statement No. 333-22347.
/s/ Arthur Andersen LLP
Chicago, Illinois
May 13, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of NIPSCO Industries, Inc. for three months ended
March 31, 1997, 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> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,621,142
<OTHER-PROPERTY-AND-INVEST> 270,635
<TOTAL-CURRENT-ASSETS> 592,320
<TOTAL-DEFERRED-CHARGES> 104,164
<OTHER-ASSETS> 322,312
<TOTAL-ASSETS> 4,910,573
<COMMON> 574,950
<CAPITAL-SURPLUS-PAID-IN> 86,767
<RETAINED-EARNINGS> 635,399
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,297,116
61,246
85,622
<LONG-TERM-DEBT-NET> 496,698
<SHORT-TERM-NOTES> 102,907
<LONG-TERM-NOTES-PAYABLE> 875,388
<COMMERCIAL-PAPER-OBLIGATIONS> 170,900
<LONG-TERM-DEBT-CURRENT-PORT> 154,643
1,828
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,664,225
<TOT-CAPITALIZATION-AND-LIAB> 4,910,573
<GROSS-OPERATING-REVENUE> 579,224
<INCOME-TAX-EXPENSE> 38,268
<OTHER-OPERATING-EXPENSES> 450,374
<TOTAL-OPERATING-EXPENSES> 488,642
<OPERATING-INCOME-LOSS> 90,582
<OTHER-INCOME-NET> 9,304
<INCOME-BEFORE-INTEREST-EXPEN> 99,886
<TOTAL-INTEREST-EXPENSE> 29,048
<NET-INCOME> 70,838
0
<EARNINGS-AVAILABLE-FOR-COMM> 70,838
<COMMON-STOCK-DIVIDENDS> 26,273
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 305,118
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
EXHIBIT 3(a)
NIPSCO INDUSTRIES, INC.
BY-LAWS
Effective April 9, 1997
ARTICLE I.
OFFICES.
SECTION 1.1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Indiana shall be at 5265 Hohman Avenue, in
the City of Hammond, County of Lake.
SECTION 1.2. PRINCIPAL BUSINESS OFFICE. The principal business
office of the Corporation shall be at 801 East 86th Avenue, in the Town of
Merrillville, County of Lake, in the State of Indiana.
ARTICLE II.
SHAREHOLDERS' MEETINGS.
SECTION 2.1. PLACE OF MEETINGS. Meetings of the shareholders of the
Corporation shall be held at such place, within or without the State of
Indiana, as may be specified by the Board of Directors in the notice of such
meeting, but if no such designation is made, then at the principal business
office of the Corporation.
SECTION 2.2. ANNUAL MEETINGS. The annual meeting of the shareholders
shall be held in each year on the second Wednesday in the month of April,
if not a legal holiday, and if a legal holiday, then on the next succeeding
business day that is not a legal holiday or on such other day as the Board
of Directors may determine; at the hour of ten o'clock a.m. or at such other
time as the Board of Directors may determine, for the purpose of electing
Directors and for the transaction of such other business as may legally
come before the meeting.
If for any reason any annual meeting shall not be held at the time
herein provided, the same may be held at any time thereafter, upon notice
as hereinafter provided, or the business thereof may be transacted at any
special meeting of shareholders called for that purpose.
SECTION 2.3. SPECIAL MEETINGS. Special meetings of the shareholders,
for any purpose or purposes, unless otherwise prescribed by statute, may be
called by the Chairman, the President, or the Board of Directors, and shall
be called by the Chairman at the request in writing of a majority of the
Board of Directors, or at the request in writing of the shareholders holding
at least one-fourth of all the shares outstanding and entitled to vote on
the business proposed to be transacted thereat. All requests for special
meetings of
shareholders shall state the time, place and the purpose or purposes thereof.
SECTION 2.4. NOTICE OF SHAREHOLDERS' MEETINGS. Notice of each meeting
of shareholders, stating the date, time and place, and, in the case of special
meetings, the purpose or purposes for which such meeting is called, shall be
given to each shareholder entitled to vote thereat not less than 10 nor more
than 60 days before the date of the meeting unless otherwise prescribed by
statute.
SECTION 2.5. RECORD DATES. (a) In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights,
or entitled to exercise any rights in respect of any change, conversion or
exchange of shares or for the purpose of any other lawful action, the
Board of Directors may fix, in advance, a future date as the record date,
which shall not be more than 60 nor less than 10 days before the date of
such meeting or any other action requiring a determination by shareholders.
(b) If a record date has not been fixed as provided in preceding
subsection (a), then:
(i) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close
of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held; and
(ii) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(c) Only those who shall be shareholders of record on the record date
so fixed as aforesaid shall be entitled to such notice of, and to vote at,
such meeting and any adjournment thereof, or to receive payment of such
dividend or other distribution, or to receive such allotment of rights, or
to exercise such rights, as the case may be, notwithstanding the transfer
of any shares on the books of the Corporation after the applicable record
date; provided, however, the Corporation shall fix a new record date if a
meeting is adjourned to a date more than 120 days after the date originally
fixed for the meeting.
SECTION 2.6. QUORUM AND ADJOURNMENT. The holders of a majority of
all the capital shares issued and outstanding and entitled to vote at
any meeting of the shareholders, represented by the holders thereof in
person or by proxy, shall be requisite at all meetings of the
shareholders to constitute a quorum for the election of Directors or
for the transaction of other business, unless otherwise
provided by law or by the Corporation's Articles of Incorporation, as amended
(the "Articles of Incorporation"). Whether or not there is such a quorum, the
chairman of the meeting or the shareholders present or represented by proxy
representing a majority of the shares present or represented may adjourn the
meeting from time to time without notice other than an announcement at the
meeting. At such adjourned meeting at which the requisite number of voting
shares shall be present or represented, any business may be transacted which
might have been transacted at the meeting originally called.
SECTION 2.7. VOTING BY SHAREHOLDERS; PROXIES. Every shareholder shall
have the right at every shareholders' meeting to one vote for each share
standing in his name on the books of the Corporation, except as otherwise
provided by law or by the Articles of Incorporation, and except that no
share shall be voted at any meeting upon which any installment is due and
unpaid, or which belongs to the Corporation. Election of directors at all
meetings of the shareholders at which directors are to be elected shall
be by ballot, and a plurality of the votes cast thereat shall be necessary
to elect any Director. If a quorum exists, action on a matter (other
than the election of directors) submitted to shareholders entitled to vote
thereon at any meeting shall be approved if the votes cast favoring the
action exceed the votes cast opposing the action, unless a greater
number of affirmative votes is required by law or by the Articles of
Incorporation. A shareholder may vote either in person or by proxy
executed in writing by the shareholder or a duly authorized attorney in
fact. No proxy shall be valid after eleven months from the date of its
execution unless a longer time is expressly provided therein. All voting
at meetings of shareholders shall be by ballot, except that the presiding
officer of the meeting may call for a viva voce vote on any matter other
than the election of directors, unless the holder or holders of ten
percent (10%) or more of the shares entitled to vote demands or demand
a vote by ballot.
SECTION 2.8. LIST OF SHAREHOLDERS. The Secretary shall make, or
cause the agent having charge of the stock transfer books of the
Corporation to make, at least five (5) days before each meeting of
shareholders, a complete list of the shareholders entitled by the
Articles of Incorporation to vote at said meeting, arranged in
alphabetical order, with the address and number of shares so entitled
to vote held by each, which list shall be on file at the principal business
office of the Corporation and subject to inspection by any shareholder
within the usual business hours during said five (5) days either at the
principal business office of the corporation or a place in the city
where the meeting is to be held, which place shall be specified in the
notice of meeting, or, if not so specified, at the place where said
meeting is to be held. Such list shall be produced and kept open at
the time and place of the meeting and subject to the inspection of
any shareholder during the holding of such meeting.
SECTION 2.9. CONDUCT OF BUSINESS. (a) PRESIDING OFFICER. The Chairman,
when present, and in the absence of the Chairman the President, shall be the
presiding officer at all meetings of shareholders, and in the absence of the
Chairman and the President, the Board of Directors shall choose a presiding
officer. The presiding officer of the meeting shall have plenary power to
determine procedure and rules of order and make definitive rulings at meetings
of the shareholders.
(b) ANNUAL MEETINGS OF SHAREHOLDERS. (i) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the shareholders may be made at an annual meeting
of shareholders (A) pursuant to the Corporation's notice of meeting, (B) by or
at the direction of the Board of Directors or (C) by any shareholder of the
Corporation who was a shareholder of record at the time of giving of notice
provided for in this Section 2.9, who is entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 2.9.
(ii) For nominations or other business to be properly brought before any
annual meeting by a shareholder pursuant to clause (C) of paragraph (b)(i) of
this Section 2.9, the shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal business office of
the Corporation not later than 150 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than 30 days or delayed by more
than 60 days from such anniversary date, notice by the shareholder to be
timely must be so delivered not later than the 150th day prior to such
annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Such shareholder's
notice shall set forth (A) as to each person whom the shareholder proposes
to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations
of proxies for election of directors, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the shareholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the proposal
is made; and (C) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (x)
the name and address of such shareholder, as they appear on the
Corporation's books, and of such beneficial owner and (y)the class and
number of shares of the Corporation which are owned beneficially
and of record by such shareholder and such beneficial owner.
(iii) The notice procedures of this Section 2.9 shall not apply
to any annual meeting if (A) with respect to annual meetings of shareholders
subsequent to the 1994 annual meeting of shareholders, the Corporation shall
not have set forth in its proxy statement for the preceding annual meeting
of shareholders the date by which notice of nominations by shareholders of
persons for election as directors or of other business proposed to be
brought by shareholders at the next annual meeting of shareholders must be
received by the Corporation to be considered timely pursuant to this Section
2.9 or (B) with respect to the 1994 annual meeting of shareholders, the
Corporation shall have failed to issue a public announcement setting forth
such information not less than 30 days prior to the date by which a
shareholder's notice must be received by the Corporation
to be considered timely pursuant to this Section 2.9.
(c) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be
made at a special meeting
of shareholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (A) by or at the direction of the Board of
Directors or (B) by any shareholder of the Corporation who is a shareholder
of record at the time of giving of notice provided for in this Section 2.9,
who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.9. Nominations by shareholders of
persons for election to the Board of Directors may be made at such a
special meeting of shareholders if a shareholder's notice containing the
information set forth in paragraph (b)(ii) of this Section 2.9 shall be
delivered to the Secretary at the principal executive offices of the
Corporation not later than the 150th day prior to such Special Meeting or the
10th day following the date on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
(d) GENERAL. (i) Only such persons who are nominated in accordance
with the procedures set forth in this Section 2.9 shall be eligible to
serve as directors and only such business shall be conducted at a meeting
of shareholders as shall have been brought before the meeting in accordance
with the procedures
set forth in this Section 2.9. The presiding officer at the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with
the procedures set forth in this Section 2.9 and, if any proposed
nomination or business is not in compliance with this Section 2.9,
to declare that such defective proposal shall be disregarded.
(ii) For purposes of this Section 2.9, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 2.9,
a shareholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect
to the matters set forth in this Section 2.9. Nothing in this Section 2.9
shall be deemed to affect any rights of shareholders to request inclusion
of proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act.
SECTION 2.10. ORGANIZATION OF MEETINGS. The Secretary, who may call
on any officer or officers of the Corporation for assistance, shall make all
necessary and appropriate arrangements for all meetings of shareholders,
receive all proxies and ascertain and report to each meeting of
shareholders the number of shares present, in person and by proxy.
In the absence of the Secretary, the Assistant Secretary shall perform
the foregoing duties. The certificate and report of the Secretary or
Assistant Secretary, as to the regularity of such proxies and as to
the number of shares present, in person and by proxy, shall be
received as prima facie evidence of the number of shares present in person and
by proxy for the purpose of establishing the presence of a quorum at such
meeting and for organizing the same, and for all other purposes.
SECTION 2.11. INSPECTORS. At every meeting of shareholders it
shall be the duty of the presiding officer to appoint three (3) shareholders
of the Corporation inspectors of election to receive and count the votes of
shareholders. Each inspector shall take an oath to fairly and impartially
perform the duties of a inspector of the election and to honestly and truly
report the results thereof. Such inspectors shall be responsible for tallying
and certifying the vote taken on any matter at each meeting which is
required to be tallied and certified by them in the resolution of the
Board of Directors appointing them or the appointment of the presiding
officer at such meeting as the case may be. Except as otherwise provided
by these By-Laws or by law, such inspectors shall also decide all questions
touching upon the qualification of voters, the validity of proxies and
ballots, and the acceptance and rejection of votes. The Board of Directors
shall have the authority to make rules establishing presumptions as to the
validity and sufficiency of proxies.
SECTION 2.12. MINUTES OF SHAREHOLDER MEETINGS. The presiding officer,
secretary, and inspectors of election serving at a shareholders' meeting
shall constitute a committee to correct and approve the minutes of such
meeting. The approval thereof shall be evidenced by an endorsement thereon
signed by a majority of the committee.
ARTICLE III.
BOARD OF DIRECTORS.
SECTION 3.1. POWERS. The Board of Directors shall have the general
direction, management and control of all the property, business and affairs of
the Corporation and shall exercise all the powers that may be exercised or
performed by the Corporation, under the statutes, the Articles of
Incorporation, and these By-Laws.
SECTION 3.2. NUMBER, ELECTION AND TERM OF OFFICE. The Board of
Directors shall consist of ten (10) members, classified with respect to
the time for which they shall severally hold office by dividing them
into three classes, and after being so classified one-third (1/3) of
the Directors, or as near as may be shall be elected annually for a
term of three (3) years.
SECTION 3.3. VACANCIES. Any vacancy in the Board of Directors caused by
death, resignation or other reason shall be filled for the remainder of the
Director's term by a majority vote of the remaining Directors although less
than a quorum, or by the sole remaining director, and any director so
chosen shall hold office for a term expiring at the annual meeting of
shareholders at which the term of office of the class of directors to
which such director has been elected expires. All Directors of the
Corporation shall hold office until their successors are duly elected
and qualified.
SECTION 3.4. ANNUAL MEETINGS. A meeting of the Directors whose
terms have not expired and the newly elected Directors, to be known as
the annual meeting of the Board of Directors, for the election of
officers and for the transaction of such other business as may
properly come before the meeting, shall be held on the same day as the
annual meeting of the shareholders, at that time and place determined
by the Board of Directors or at such date, time and place otherwise
set by the Chairman.
SECTION 3.5. REGULAR MEETINGS. Regular monthly meetings of the Board of
Directors shall be held from time to time (either within or without the state)
as the Board may by resolution determine, without call and without notice, and
unless otherwise determined all such regular monthly meetings shall be held at
the principal business office of the Corporation on the fourth Tuesday of each
and every month at 10:30 a.m.
SECTION 3.6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman, by the President,
or by the Chairman upon the written request of any four (4) Directors by
giving, or causing the Secretary to give, to each Director, notice in
accordance with Article IV of these By-Laws.
SECTION 3.7. QUORUM. At all meetings of the Board of Directors, a
majority of the Directors shall constitute a quorum for the transaction
of business and the act of a majority of those present shall be necessary
and sufficient for the taking of any action thereat, but a less number may
adjourn the meeting from time to time until a quorum is present.
SECTION 3.8. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
statute, the Articles of Incorporation or these By-Laws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent
thereto is signed by all directors or by all members of such committee,
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or of such committee.
SECTION 3.9. ATTENDANCE BY CONFERENCE TELEPHONE. Members of the Board
of Directors or any committee thereof may participate in a meeting of such
Board of Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.10. COMMITTEES. (a) The Board of Directors may from time to
time, in its discretion, by resolution passed by a majority of the Board,
designate, and appoint, from the directors, committees of one or more persons
which shall have and may exercise such lawfully delegable powers and duties
conferred or authorized by the resolutions of designation and appointment.
The Board of Directors shall have power at any time to change the members
of any such committee, to fill vacancies, and to discharge any such
committee.
(b) Unless the Board of Directors shall provide otherwise, the presence
of one-half of the total membership of any committee of the Board of Directors
shall constitute a quorum for the transaction of business at any meeting of
such committee and the act of a majority of those present shall be necessary
and sufficient for the taking of any action thereat.
ARTICLE IV.
NOTICES.
SECTION 4.1. NOTICES. Notices to directors and shareholders shall be in
writing and delivered personally or mailed to their addresses appearing on the
records of the Corporation or, if to directors, by telegram, cable, telephone,
telecopy, facsimile or a nationally recognized overnight delivery service.
Notice to directors of special meetings by mail shall be given at least two
days before the meeting. Notice to directors of special meetings by
telegram, cable, personal delivery, telephone, telecopy or facsimile
shall be given a reasonable time before the meeting, but in no event
less than one hour before the meeting. Notice by mail or recognized
overnight delivery service shall be deemed to be given when sent to the
director at his or her address appearing on the records of the Corporation.
Notice by telegram or cable shall be deemed to be given when the telegram
or cable addressed to the director at his or her address appearing
on the records of the Corporation is delivered to the telegraph company.
Notice
by telephone, telecopy or facsimile shall be deemed to be given when
transmitted by telephone, telecopy or facsimile to the telephone,
telecopy or facsimile number appearing on the records of the Corporation
for the director (regardless of whether the director shall have personally
received such telephone call or telecopy or facsimile message).
SECTION 4.2. WAIVER OF NOTICE. Whenever any notice is required, a
waiver thereof signed by the person entitled to such notice, whether
before or after the time stated therein, and filed with the minutes or
corporate records, shall be deemed equivalent thereto. Attendance of any
person at any meeting of shareholders or directors shall constitute a
waiver of notice of such meeting, except when such person attends only
for the express purpose of objecting, at the beginning of the meeting
(or in the case of a director's meeting, promptly upon such director's
arrival), to the transaction of any business at the meeting and
does not thereafter vote for or assent to action taken at the meeting.
ARTICLE V.
OFFICERS.
SECTION 5.1. DESIGNATION; NUMBER; ELECTION. The officers of the
Corporation shall be chosen by the Board of Directors and may consist of a
Chairman, a President, one or more Vice Presidents, a Secretary, one or more
Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, a
Controller and one or more Assistant Controllers. One person may hold any two
offices except those of Chairman or President, and Secretary.
SECTION 5.2. TERM OF OFFICE; VACANCIES; REMOVAL. Such officers shall be
elected by the Board of Directors at its annual meeting, and shall hold office
for one year and/or until their respective successors shall have been duly
elected. The Board of Directors may from time to time, elect or appoint such
other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such
duties as may be prescribed by the Board of Directors. Vacancies
among the officers of the Corporation shall be filled by the Board of
Directors. Any officer or agent elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a
majority of the whole Board of Directors.
SECTION 5.3. COMPENSATION OF OFFICERS. The Board of Directors or a
committee of the Board shall have the authority to fix the compensation of the
officers of the Corporation.
SECTION 5.4. CHAIRMAN. The Chairman shall be the chief executive
officer of the Company and shall have general authority and supervision
over the management and direction of the affairs of the Company, and
supervision of all departments and of all officers of the Company. The
Chairman shall, subject to the other provisions of these by-laws, have
such other powers and perform such other duties as usually devolve
upon the chief executive officer of a company or as may be prescribed by
the Board of Directors, and shall, when present, preside at all meetings
of the shareholders and of the Board of Directors. When the
Board of Directors is not in session, the Chairman shall have authority
to suspend the authority of any other officer or officers, subject,
however, to the pleasure of the Board of Directors at its next meeting.
In case of the absence, disability, death, resignation or removal from
office of the Chairman, the powers and duties of the Chairman shall for
the time being devolve upon and be exercised by the President, unless
otherwise ordered by the Board of Directors.
SECTION 5.5. PRESIDENT. The President shall be the chief operating
officer of the Corporation and shall have such general authority and
supervision over the management and direction of the affairs of the
Corporation, subject to the authority of the Chairman, as shall
usually devolve upon a chief operating officer of a corporation. The
President shall, subject to the other provisions of these By-Laws,
have such other powers and perform such other duties as usually
devolve upon the President of a corporation, and such further duties
as may be prescribed for the President by the Chairman or the Board of
Directors. In case of the absence, disability, death, resignation or
removal from office of the President, the powers and duties of the
President shall, for the time being, devolve upon and be exercised
by the Chairman, and in case of the absence, disability, death,
resignation, or removal from office of both the Chairman and
the President, the powers and duties of the President shall for the time being
devolve upon and be exercised by the Vice President so appointed by the Board
of Directors.
SECTION 5.6. VICE PRESIDENTS. Each of the Vice Presidents shall have
such powers and duties as may be prescribed by the Board of Directors, the
Chairman or the President.
SECTION 5.7. SECRETARY. The Secretary shall attend and keep the minutes
of all meetings of the Board of Directors and of the shareholders. The
Secretary shall have charge and custody of the corporate records and
corporate seal of the Corporation, and shall in general perform all the
duties incident to the office of secretary of a corporation, subject at
all times to the direction and control of the Board of Directors, the
Chairman and the President.
SECTION 5.8. ASSISTANT SECRETARIES. Each of the Assistant Secretaries
shall have such duties and powers as may be prescribed by the Board of
Directors or be delegated by the Chairman or the President. In the
absence or disability of the Secretary, the powers and duties of the
Secretary shall devolve upon such one of the Assistant Secretaries as the
Board of Directors, the Chairman or the President may designate, or, if
there be but one Assistant Secretary, then upon such Assistant Secretary;
and such Assistant Secretary shall thereupon have and exercise such
powers and duties during such absence or disability of the Secretary.
SECTION 5.9. TREASURER. The Treasurer shall have charge of, and
shall be responsible for, the collection, receipt, custody and
disbursement of the funds of the Corporation, and shall also have the
custody of all securities belonging to the Corporation. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper receipts or making proper vouchers
for such disbursements, and shall at all times preserve the same
during the term of office. When necessary or proper, the Treasurer shall
endorse, on behalf of the Corporation, all checks, notes, or other obligations
payable to the Corporation or coming into possession of the Treasurer for
and on behalf of the Corporation, and shall deposit the funds arising
therefrom, together with all other funds of the Corporation coming into
possession of the Treasurer, in the name and to the credit of the
Corporation in such bank or banks as the Board of Directors shall from
time to time by resolution direct. The Treasurer shall perform all
duties which are incident to the office of treasurer of a corporation,
subject at all time to the direction and control of the Board of Directors,
the Chairman and the President.
The Treasurer shall give the Corporation a bond if required by the
Board of Directors in a sum, and with one or more sureties, satisfactory
to the Board, for the faithful performance of the duties of the office of
Treasurer, and for the restoration to the Corporation, in case of the
death, resignation, retirement or removal from office of the Treasurer,
of all books, papers, vouchers, money or other property of whatever .
kind in the possession or under the control of the Treasurer belonging
to the Corporation.
SECTION 5.10. ASSISTANT TREASURERS. Each of the Assistant Treasurers
shall have such powers and duties as may be prescribed by the Board of
Directors or be delegated by the Chairman or the President. In the
absence or disability of the Treasurer, the powers and duties shall
devolve upon such one of the Assistant Treasurers as the Board of
Directors, the Chairman or the President may designate, or, if there
be but one Assistant Treasurer, then upon such Assistant Treasurer who
shall thereupon have and exercise such powers and duties during such
absence or disability of the Treasurer. Each Assistant Treasurer shall
likewise give the Corporation a bond if required by the Board of Directors
upon like terms and conditions as the bond required of the Treasurer.
SECTION 5.11. CONTROLLER. The Controller shall have control over all
accounts and records pertaining to moneys, properties, materials and supplies.
The Controller shall have executive direction of the bookkeeping and
accounting departments, and shall have general supervision over the
records in all other departments pertaining to moneys, properties,
materials and supplies. The Controller shall have charge of the
preparation of the financial budget, and such other powers and duties
as are commonly incident to the office of controller of a corporation,
subject at all times to the direction and control of the Board of
Directors, the Chairman and the President.
SECTION 5.12. ASSISTANT CONTROLLERS. Each of the Assistant Controllers
shall have such powers and duties as may be prescribed by the Board of
Directors or be delegated by the Chairman or the President. In the
absence or disability of the Controller, the powers and duties of the
Controller shall devolve upon such one of the Assistant Controllers as the
Board of Directors, the Chairman or the President may designate, or,
if there be but one Assistant Controller, then upon such Assistant
Controller who shall thereupon have and exercise such powers and duties
during such absence or disability of the Controller.
ARTICLE VI.
CONDUCT OF BUSINESS.
SECTION 6.1. CONTRACTS, DEEDS AND OTHER INSTRUMENTS. All agreements
evidencing obligations of the Corporation, including but not limited to
contracts, trust deeds, promissory notes, sight drafts, time drafts and
letters of credit (including applications therefor), may be signed by
any one of the Chairman, the President, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary, any Assistant Secretary,
any other person authorized by a resolution of the Board of Directors,
and any other person authorized by the Chairman, as evidenced by a
written instrument of delegation. Any such authorization by the Board of
Directors or the Chairman shall remain in effect until rescinded by
action of the Board of Directors or (in the case of a delegation by the
Chairman) by the Chairman and, where it identifies the authorized
signatory by office rather than by name, shall not be rescinded solely
by virtue of a change in the person holding that office or a temporary vacancy
in that office.
A certified copy of these By-Laws and/or any authorization given
hereunder may be furnished as evidence of the authorities herein granted,
and all persons shall be entitled to rely on such authorities in the
case of a specific contract, conveyance or other transaction without
the need of a resolution of the Board of Directors specifically
authorizing the transaction involved.
SECTION 6.2. CHECKS. Checks and other negotiable instruments for the
disbursement of Corporation funds may be signed by any one of the Chairman,
the President, any Vice President, the Treasurer, the Controller and the
Secretary in such manner as shall from time to time be determined by
resolution of the Board of Directors. Electronic or wire transfers to
funds may be authorized by any officer of the Corporation who is
authorized pursuant to this Section 6.2 to disburse Corporation funds
by check or other negotiable instrument.
SECTION 6.3. DEPOSITS. Securities, notes and other evidences of
indebtedness shall be kept in such places, and deposits of checks, drafts and
funds shall be made in such banks, trust companies or depositories, as shall
be recommended and approved by any two of the Chairman, the President, any
Vice President and the Treasurer.
SECTION 6.4. VOTING OF STOCK. Unless otherwise ordered by the Board
of Directors, the Chairman, the President or any Vice President shall
have the power to execute and deliver on behalf of the Corporation
proxies on stock owned by the Corporation appointing a person or persons
to represent and vote such stock at any meeting of stockholders, with
full power of substitution, and shall have power to alter or rescind such.
appointment. Unless otherwise ordered by the Board of Directors, the
Chairman, the President or any Vice President shall have the power on
behalf of the Corporation to attend and to act and vote at any meeting of
stockholders of any corporation in which the Corporation holds stock
and shall possess and may exercise any and all rights and powers incident to
the ownership of such stock, which, as the owner thereof, the Corporation
might have possessed and exercised if present. The Board may confer like
powers upon any other person or persons.
SECTION 6.5. TRANSFER OF STOCK. Such form of transfer or assignment
customary or necessary to effect a transfer of stocks or other securities
standing in the name of the Corporation shall be signed by the Chairman, the
President, any Vice President or the Treasurer, and the Secretary or an
Assistant Secretary shall sign as witness if required on the form. A
corporation or person transferring any such stocks or other securities
pursuant to a form of transfer or assignment so executed shall be fully
protected and shall be under no duty to inquire whether the Board of
Directors has taken action in respect thereof.
ARTICLE VII.
SHARE CERTIFICATES AND THEIR TRANSFER.
SECTION 7.1. SHARE CERTIFICATES. Certificates for shares of the
Corporation shall be signed by the Chairman, the President or any Vice
President, and by the Secretary or any Assistant Secretary, and shall not
be valid unless so signed. Such certificates shall be appropriately
numbered and contain the name of the registered holder, the number of
shares and the date of issue. If such certificate is countersigned (a)
by a transfer agent other than the Corporation or its employee, or (b)
by a registrar other than the Corporation or its employee, any other
signature on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued,
it may be issued by the Corporation with the same effect as if he, she or
it were such officer, transfer agent, or registrar at the date of issue.
SECTION 7.2. TRANSFER OF SHARES. Upon surrender to the Corporation or a
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation and such transfer agent to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction. No certificate shall be issued in
exchange for any certificate until the former certificate for the same
number of shares of the same class and series shall have been surrendered
and cancelled, except as provided in Section 7.4.
SECTION 7.3. REGULATIONS. The Board of Directors shall have authority
to make rules and regulations concerning the issue, transfer and
registration of certificates for shares of the Corporation.
SECTION 7.4. LOST, STOLEN AND DESTROYED CERTIFICATES. The Corporation
may issue a new certificate or certificates for shares in place of any
issued certificate alleged to have been lost, stolen or destroyed upon such
terms and conditions as the Board of Directors may prescribe.
SECTION 7.5. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to treat the holder of record (according to the books of the Corporation) of
any share or shares as the holder in fact thereof and shall not be bound to
recognize any equitable or other claim to or interest in such share or
shares on the part of any other party whether or not the Corporation shall
have express or other notice thereof, except as expressly provided by law.
SECTION 7.6. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
from time to time appoint a transfer agent and a registrar in one or more
cities, may require all certificates evidencing shares of the Corporation
to bear the signatures of a transfer agent and a registrar, may provide that
such certificates shall be transferable in more than one city, and may
provide for the functions of transfer agent and registrar to be combined in
one agency.
ARTICLE VIII.
INDEMNIFICATION.
SECTION 8.1. LITIGATION BROUGHT BY THIRD PARTIES. 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, criminal, administrative or investigative, formal or informal (other
than an action by or in the right of the Corporation) (an "Action") by
reasons of the fact that he or she is or was a director, officer, employee or
agent of the Corporation (a "Corporate Person"), or is or was serving at the
request of the Corporation as a director, officer, employee, agent, partner,
trustee or member or in another authorized capacity (collectively, an
"Authorized Capacity") of or for another corporation, unincorporated
association, business trust, partnership, joint venture, trust,
individual or other legal entity, whether or not organized or formed
for profit (collectively, "Another Entity"), against expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with such Action ("Expenses") if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her 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, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, or,
with respect to any criminal action or proceeding, that the person had
reasonable cause to believe his or her conduct was unlawful.
SECTION 8.2. LITIGATION BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any action by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact
that he or she is or was a Corporate Person, or is or was serving at
the request of the Corporation in an Authorized Capacity of or for
Another Entity against Expenses actually and reasonably incurred by
him or her in connection with that defense or settlement of such action
if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged
to be liable for willful negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that a court of
equity or the court in which such action was pending shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court of equity or
other court shall deem proper.
SECTION 8.3. SUCCESSFUL DEFENSE. To the extent that a person who
is or was a Corporate Person or is or was serving in an Authorized Capacity
of Another Entity at the request of the Corporation and has been successful
on the merits or otherwise in defense of any action, referred to in Section
8.1 or 8.2 of this Article, or in defense of any claim, issue or matter
therein, he or she shall be indemnified against Expenses actually and
reasonably incurred by him or her in connection therewith.
SECTION 8.4 DETERMINATION OF CONDUCT. Any indemnification under Section
8.1 or 8.2 of this Article (unless ordered by a court) shall be made by the
Corporation only upon a determination that indemnification of the person is
proper in the circumstances because he or she has met the applicable
standard of conduct set forth in said Section 8.1 or 8.2. Such
determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of directors not at the time parties to such
action, suit or proceeding, or (b) if a quorum cannot be obtained, by a
majority vote of a committee duly designated by the Board of Directors
(in which designation directors who are parties may participate)
consisting of two or more directors not at the time parties to such
action, suit or proceeding, or (c) by special legal counsel, or (d) by
the shareholders; provided, however, that shares owned by or voted
under the control of persons who are at the time parties to such action,
suit or proceeding may not be voted on the determination.
SECTION 8.5. ADVANCE PAYMENT. The Corporation shall advance Expenses
reasonably incurred by any Corporate Person in any Action in advance of the
final disposition thereof upon the undertaking of such party to repay the
advance unless it is ultimately determined that such party is entitled to
indemnification hereunder, if (a) the indemnitee furnishes the Corporation
a written affirmation of his or her good faith belief that he or she has
satisfied the standard of conduct in Section 8.1 or 8.2 and (b) a
determination is made by those making the decision pursuant to Section 8.4
that the facts then known would not preclude indemnification under these
By-Laws.
SECTION 8.6. BY-LAW NOT EXCLUSIVE. The indemnification provided by this
Article 8 shall not be deemed exclusive of any other rights to which any
person may be entitled under any by-law, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 8.7. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Corporate Person 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 him or
her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have
the power to indemnify him or her against such liability under the
provisions of this Article 8 or the Indiana Business Corporation Law.
SECTION 8.8. EFFECT OF INVALIDITY. The invalidity or
unenforceability of any provision of this Article 8 shall not affect the
validity or enforceability of the remaining provisions of this Article 8.
SECTION 8.9. DEFINITION OF CORPORATION. For purposes of this Article 8,
references to "the Corporation" shall include, in addition to the surviving or
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger.
SECTION 8.10. CHANGE IN LAW. Notwithstanding the foregoing provisions
of Article 8, the Corporation shall indemnify any person who is or was a
Corporate Person or is or was serving at the request of the Corporation
in an Authorized Capacity of or for Another Entity to the full extent
permitted by the Indiana Business Corporation Law or by any other
applicable law, as may from time to time be in effect.
ARTICLE IX.
GENERAL.
SECTION 9.1. FISCAL YEAR. The fiscal year of the Corporation shall
begin on the 1st day of January and end on the 31st day of December in
each year.
SECTION 9.2. CORPORATE SEAL. The corporate seal shall be circular in
form and shall have inscribed thereon the words "NIPSCO Industries, Inc. -
Corporate Seal - Indiana."
SECTION 9.3. AMENDMENTS. These By-Laws may be altered, amended or
repealed in whole or in part, and new By-Laws may be adopted, at any
annual, regular or special meeting of the Board of Directors by the
affirmative vote of a majority of a quorum of the Board of Directors.
SECTION 9.4. DIVIDENDS. Subject to any provisions of any applicable
statute or of the Articles of Incorporation, dividends may be declared upon
the capital stock of the Corporation by the Board of Directors at any
regular or special meeting thereof; and such dividends may be paid in cash,
property or shares of the Corporation.
SECTION 9.5. CONTROL SHARES. The Terms "control shares" and "control
share acquisition" used in this Section 9.5 shall have the meanings set
forth in Indiana Business Corporation Law Section 23-1-42-1, et seq. (the
"Act"). Control shares of the Corporation acquired in a control share
acquisition shall have only such voting rights as are conferred by the Act.
Control shares of the Corporation acquired in a control share acquisition
with respect to which the acquiring person has not filed with the Corporation
the Statement required by the Act may, at any time during the period ending
sixty days after the last acquisition of control shares by the acquiring
person, be redeemed by the Corporation at the fair value thereof pursuant
to procedures authorized by a resolution of the Board of Directors. Such
authority may be exercised generally or confined to specific instances.
Control shares of the Corporation acquired in a control share acquisition
with respect to which the acquiring person was not granted full voting
rights by the shareholders as provided in the Act may, at any time after
the shareholder vote required by the Act, be redeemed by the Corporation at
the fair value thereof pursuant to procedures authorized by a resolution of
the Board of Directors. Such authority may be exercised generally or
confined to specific instances.
EXHIBIT 3(b)
ARTICLES OF INCORPORATION
OF
NIPSCO INDUSTRIES, INC.
The undersigned incorporator desiring to form a corporation
(hereinafter referred to as the "Corporation) pursuant to the
provisions of the Indiana Business Corporation Law, as amended
(the "Act"), executives the following Articles of Incorporation:
ARTICLE I
Name
The name of the Corporation is NIPSCO Industries, Inc.
ARTICLE II
Period of Duration
The period during which the Corporation shall continue is perpetual.
ARTICLE III
Purpose and Powers
Purpose. The purpose for which the Corporation is formed is the
transaction of any or all lawful business for which corporations
may be incorporated under the Act.
Powers. The Corporation shall have the capacity to act possessed
by natural persons and, subject to any limitations or restrictions
imposed by the Act, other law or the Articles of Incorporation, shall
have the power to do all acts and things necessary, convenient or
expedient to carry out the purposes for which it is formed.
ARTICLE IV
Registered Office and Agent
The street address of the Corporation's initial registered
office in Indiana and the name of its initial registered agent at
that office is Edmund A. Schroer, 5265 Hohman Avenue, Hammond,
Indiana 46320.
ARTICLE V
Authorized Shares
A. Authorized Capital Shares
The total number of shares which the Corporation shall have the
authority to issue shall be 220,000,000 shares, of which 200,000,000
shares shall be Common Shares without par value and 20,000,000 shares
shall be Preferred Shares without par value.
B. Preferred Shares
Preferred Shares may be issued from time to time in one or more
series as may from time to time be determined by the Board of Directors.
Each series shall be distinctly designated. All shares of any one series
of the Preferred Shares shall be alike in every particular, except that
there may be different dates from which dividends thereon, if any, shall
be cumulative, if made cumulative. The powers, preferences and relative,
participating, optional and other rights of each, such series, and the
qualifications, limitations or restrictions thereof, if any, may differ
from those of any other series at any time outstanding. Subject to the
provisions of Section C of this ARTICLE V, the Board of Directors is
hereby expressly granted authority to fix by resolution or resolutions
adopted prior to the issuance of any shares of each particular series of
Preferred Shares, the designation, powers, preferences and relative,
participating, optional and other rights, and the qualifications,
limitations and restrictions thereof, if any, of such series, including,
but without limiting the generality of the foregoing, the following:
(a) the distinctive designation of, and the number of Preferred
Shares which shall constitute the series, which number may be increased
(except as otherwise fixed by the Board of Directors) or decreased, (but
not below the number of shares thereof then outstanding) from time to
time by action of the Board of Directors.
(b) the rate and times at which, and the terms and conditions
upon which, dividends, if any, on shares of the series shall be paid,
the extent of preferences or relations, if any, of such dividends to
the dividends payable on any other class or classes of shares of the
Corporation, or on any series of Preferred Shares or of any other class
or classes of shares of the Corporation and whether such dividends shall
be cumulative or noncumulative:
(c) the right, if any, of the holders of shares of the series to
convert the same into, or exchange the same for, shares of any other
class or classes of shares of the Corporation, or any series of Preferred
Shares, and the terms and conditions of such conversion or exchange:
(d) whether shares of the series shall be subject to a redemption
price or prices including, without limitation, a redemption price or
prices payable in Common Shares and the time or times at which, and the
terms and conditions upon which shares of the series may be redeemed;
(e) the rights, if any, of the holders of shares of the series
upon voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets dissolution or winding up of the
Corporation;
(f) the terms of the sinking fund or redemption or purchase
account, if any, to be provided for shares of the series; and
(g) the voting powers, if any, of the holders of shares of
the series which may, without limiting the generality of the foregoing,
include (i) the right to more or less than one vote per share on any
or all matters voted upon by the shareholders and (ii) the right to
vote. as a series by itself or together with other series of Preferred
Shares or together with all series of Preferred Shares as a class, upon
such matters, under such circumstances and upon such conditions as the
Board of Directors may fix, including, without limitation, the right,
voting as a series by itself or together with other series of Preferred
Shares or together with all series of Preferred Shares as a class, to
elect one or more directors of this Corporation in the event there shall
have been a default in the payment of dividends on any one or more
series of Preferred Shares or under such other circumstances and upon
such conditions as the Board of Directors may determine.
No holder of any shares of any series of Preferred Shares shall
be entitled to vote for the election of directors or in respect of any
other matter except as may be required by the Indiana Business
Corporation Law, as amended, or as is permitted by the resolution or
resolutions adopted by the Board of Directors, authorizing the issue
of such series of Preferred Shares.
C. Common Shares
1. After the requirements with respect to the preferential
dividends on Preferred Shares (fixed in accordance with the provisions
of Section B of this ARTICLE V), if any, shall have been met and after
this Corporation shall have complied with all the requirements, if any,
with respect to the setting aside of sums as sinking funds or redemption
or purchase accounts (fixed in accordance with the provisions of
Section B of this ARTICLE V) and subject further to any other conditions
which may be fixed in accordance with the provisions of Section B of
this ARTICLE V, then, but not otherwise, the holders of Common Shares
shall be entitled to receive such dividends, if any, as may be declared
from time to time by the Board of Directors.
2. After distribution in full of the preferential amount (fixed
in accordance with the provisions of Section B of this ARTICLE V), if
any, to be distributed to the holders of Preferred Shares in the event
of voluntary or involuntary liquidation, distribution or sale of assets,
dissolution or winding up of the Corporation, the holders of the Common
Shares shall be entitled to receive all the remaining assets of the
Corporation, tangible and intangible, of whatever kind available for
distribution to shareholders, ratably in proportion to the number of
Common Shares held by each.
3. Except as may otherwise be required by law, these Articles
of Incorporation or the provisions of the resolution or resolutions
as may be adopted by the Board of Directors pursuant to Section B of the
ARTICLE V, each holder of Common Shares shall have one vote in respect
of each Common Shares held by such holder on each matter voted upon by
the shareholders and any such right to vote shall not be cumulative.
D. Other Provisions.
1. The relative powers, preferences, and rights of each series
of Preferred Shares in relation to the powers, preferences and right of
each other series of Preferred Shares shall, in each case, be as fixed
from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in Section B of this
ARTICLE V, and the consent by class or series vote or otherwise, of the
holders of the Preferred Shares or such of the series of the Preferred
Shares as are from time to time outstanding shall not be required for
the issuance by the Board of Directors of any other series of Preferred
Shares whether the powers, preferences and rights of such other series
shall be fixed by the Board of Directors as senior to, or on a parity
with, powers, preferences and rights of such outstanding series, or any
of them, provided, however, that the Board of Directors may provide in
such resolution or resolutions adopted with respect to any series of
Preferred Shares that the consent of the holders of a majority (or such
greater proportion as shall be therein fixed) of the outstanding shares
of such series voting thereon shall be required for the issuance of any
or all other series of Preferred Shares.
2. Subject to the provisions of Paragraph 1 of this Section D,
shares of any series of Preferred Shares may be issued from time to time
as the Board of Directors shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
3. Common Shares may be issued from time to time as the Board
of Directors shall determine and on such terms and for such consideration
as shall be fixed by the Board of Directors.
4. No holder of any of the shares of any class or series of
shares or securities convertible into such shares of any class or series
of shares, or of options, warrants or other rights to purchase or
acquire shares of any class or series of shares or of other securities
of the Corporation shall have any preemptive right to purchase, acquire
or subscribe for any unissued shares of any class or series or any
additional shares of any class or series to be issued by reason of any
increase of the authorized capital shares of the Corporation of any
class or series, or bonds, certificates of indebtedness, debentures
or other securities convertible into or exchangeable for shares or any
class or series, or carrying any right to purchase or acquire shares
of any class or series, but any such unissued shares, additional
authorized issue of shares of any class or series of shares or
securities convertible into or exchangeable for shares, or carrying
any right to purchase or acquire shares, may be issued and disposed
of pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, and upon such terms as may be
deemed advisable by the Board of Directors in the exercise of its sole
discretion.
5. The Corporation reserves the right to increase or decrease
its authorized capital shares, or any class or series thereof, or to
reclassify the same and to amend, alter, change or repeal any provision
contained in the Articles of Incorporation, or in any amendment thereto,
in the manner now or hereafter prescribed by law, but subject to such
conditions and limitations as are hereinbefore prescribed, and all right
conferred upon shareholders in the Articles of Incorporation of this
Corporation, or any amendment thereto, are granted subject to this
reservation.
6. Unless any statute of the State of Indiana shall expressly
provide to the contrary and subject to the limitations hereinbefore set
forth in this ARTICLE V, the Corporation may acquire, hold and dispose
of any of its shares of any class heretofore issued and outstanding.
E. Series A Junior Participating Preferred Shares
1. This Section E of the ARTICLE V hereby creates a series of
Preferred Shares and hereby states the designation and number of shares,
and fixes the relative powers, preferences and rights of such series.
2. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Shares" (the
"Series A Preferred Shares") and the number of shares constituting
the Series A Preferred Shares shall be 2,000,000. Such number of
shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of
Series A Preferred Shares to a number less than the number of shares
then outstanding plus the number of shares reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Shares.
3. Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any
series of Preferred Shares (or any similar shares) ranking prior and
superior to the Series A Preferred Shares with respect to dividends, the
holders of Series A Preferred Shares, in preference to the holders of
Common Shares and of any other junior shares, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable
in cash on the 20th day of February, May, August and November in each
year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of
Series A Preferred Shares, in an amount per share (rounded to the nearest
cent) equal to the greater of (i) $26 or (ii) subject to the provision
for adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions,
other than a dividend payable in Common Shares or a subdivision of the
outstanding Common Shares (by reclassification or otherwise), declared
on the Common Shares since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any Series A Preferred Share or
fraction of a Series A Preferred Share. In the event the Corporation
shall at any time declare or pay any dividend on the Common Shares
payable in Common Shares, or effect a subdivision or combination or
consolidation of the outstanding Common Shares (by reclassification
or otherwise than by payment of a dividend in Common Shares) into a
greater or lesser number of Common Shares, then in each such case the
amount to which holders of Series A Preferred Shares were entitled
immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of Common Shares outstanding
immediately after such event and the denominator of which is the
number of Common Shares that were outstanding immediately prior to
such event.
(b) The Corporation shall declare a dividend or distribution
on the Series A Preferred Shares as provided in paragraph 3(a) of
the Section E immediately after it declares a dividend or distribution
on the Common Shares (other than a dividend payable in Common Shares);
provided that, in the event no dividend or distribution shall have been
declared on the Common Shares during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $26 per share on the Series A Preferred Shares shall
be nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding Series A Preferred Shares from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless
the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of Series A
Preferred Shares entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the Series A Preferred Shares in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of Series A Preferred
Shares entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
4. Voting Rights. The holders of Series A Preferred Shares will
have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each Series A Preferred Share shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the shareholders
of the Corporation. In the event the Corporation shall at any time
declare or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision or combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise than by
payment of a dividend in Common Shares) into a greater or lesser number
of Common Shares, then in each such case the number of votes per share
to which holders of Series A Preferred Shares were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator of which
is the number of Common Shares that were outstanding immediately prior
to such event.
(b) Except as otherwise provided herein, in any other provisions
of the Articles of Incorporation of the Corporation creating a series of
Preferred Shares or any similar shares, or by law, the holders of
Series A Preferred Shares and the holders of Common Shares and any other
capital shares of the Corporation having general voting rights shall
vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(c) If at the time of any annual meeting of shareholders for the
election of directors a "default in preference dividends" on the Series A
Preferred Shares shall exist, the number of directors constituting the
Board of Directors of the Company shall be increased by two (2), and
the holders of the Preferred Shares of all series (whether or not the
holders of such series of Preferred Shares would be entitled to vote
for the election of directors if such default in preference dividends
did not exist) shall have the right at such meeting, voting together
as a single class without regard to series, to the exclusion of the
holders of Common Shares, to elect two (2) directors of the Company
to fill such newly created directorships. Such right shall continue
until there are no dividends in arrears upon the Preferred Shares. Each
director elected by the holders of Preferred Shares (a "Preferred
Director") shall continue to serve as such director for the full term
for which he shall have been elected, notwithstanding that prior to the
end of such term a default in preference dividends shall cease to exist.
Any Preferred Director may be removed by, and shall not be removed
except by, the vote of the holders of record of the outstanding Preferred
Shares voting together as a single class without regard to series, at a
meeting of the shareholders or of the holders of Preferred Shares called
for the purpose. So long as a default in any preference dividends on the
Preferred Shares shall exist (i) any vacancy in the office of a Preferred
Director may be filled (except as provided in the following clause (ii))
by an instrument in writing signed by the remaining Preferred Director
and filed with the Company and (ii) in the case of the removal of any
Preferred Director, the vacancy may be filled by the vote of the holders
of the outstanding Preferred Shares voting together as a single class
without regard to series, at the same meeting at which such removal
shall voted. Each director appointed as aforesaid by the remaining
Preferred Director shall be deemed, for all purposes hereof, to be a
Preferred Director. Whenever the term of office of the Preferred
Directors shall end and a default in preference dividends shall no
longer exist, the number of directors constituting the Board of
Directors of the Company shall be reduced by two (2). For the purposes
hereof, a "default in preference dividends" on the Preferred Shares
shall be deemed to have occurred whenever the amount of accrued
dividends upon any series of the Preferred Shares shall be equivalent
to six (6) full quarterly dividends or more, and, having so occurred,
such default shall be deemed to exist thereafter until, but only until,
all accrued dividends on all Preferred Shares of each and every series
then outstanding shall have been paid to the end of the last preceding
quarterly dividend period.
(d) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Shares shall have no special voting rights
and their consent shall not be required (except to the extend they are
entitled to vote with holders of Common Shares as set forth herein)
for taking any corporate action.
5. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Shares as provided in
paragraph 3 of this Section E are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not declared,
on Series A Preferred Shares outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A
Preferred Shares;
(ii) declare or pay dividends, or make any other
distributions, on any shares ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Shares, except dividends paid ratably on the
Series A Preferred Shares and all such parity shares on which dividends
are payable or in arrears in proportion to the total amount to which
the holders of all such shares are then entitled:
(iii) redeem or purchase or otherwise acquire for
consideration any shares ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred
Shares, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior shares in exchange for
any shares of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Shares; or
(iv) redeem or purchase or otherwise acquire for
consideration any Series A Preferred Shares, or any shares ranking on
a parity with the Series A Preferred Shares, except in accordance with
a purchase offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares upon such terms
as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of the Corporation unless the Corporation could, under paragraph
5(a) of the Section E, purchase or otherwise acquire such shares at
such time and in such manner.
6. Reacquired Shares. Any Series A Preferred Shares purchased
or otherwise acquired by the Corporation in any manner whatsoever shall
be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
Preferred Shares and may be reissued as part of a new series of
Preferred Shares subject to the conditions and restrictions on issuance
set forth in the Articles of Incorporation of the Corporation creating
a series of Preferred Shares or any similar shares or as otherwise
required by law.
7. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (a) to the holders of shares ranking junior
(either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Shares unless, prior thereto, the holders of
Series A Preferred Shares shall have received $6,000 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, provided that the
holders of Series A Preferred Shares shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of Common Shares, or (b) to the holders
of shares ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, except
distributions made ratably on the Series A Preferred Shares and all
such parity shares in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any
time declare or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision or combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise than by
payment of a dividend in Common Shares) into a greater or lesser number
of Common Shares, then in each such case the aggregate amount to which
holders of Series A Preferred Shares were entitled immediately prior
to such event under the provision in clause (A) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of a Common Shares outstanding
immediately after such event and the denominator of which is the number
of Common Shares that were outstanding immediately prior to such event.
8. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction
in which the Common Shares are exchanged for or changed into other
shares or securities, cash and/or any other property, then in any such
case each Series A Preferred Share shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 100 times the aggregate
amount of shares, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each Common Share
is changed or exchanged. In the event the Corporation shall at any time
declare or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision or combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise than by
payment of a dividend in Common Shares) into a greater or lesser number
of Common Shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of Series A
Preferred Shares shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator of which
is the number of Common Shares that were outstanding immediately prior
to such event.
9. No Redemption. The Series A Preferred Shares shall not be
redeemable.
10. CONVERSION. The Series A Preferred Shares shall not be convertible into
Common Shares or shares of any other series of any other class of Preferred
Shares.
11. RANK. The Series A Preferred Shares shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of
any other class of Preferred Shares, unless the terms of any such series shall
provide otherwise.
12. AMENDMENT. The Articles of Incorporation of the Corporation shall not be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Shares so as to affect
them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding Series A Preferred Shares, voting together as a
single class.
F. 8.75% SERIES CUMULATIVE PREFERRED SHARES.
1. This Section F of this ARTICLE V hereby creates a series of Preferred
Shares and hereby states the designation and number of shares, and fixes the
powers, preferences and relative participating, optional and other rights of
such series, and the qualifications, limitation and restrictions thereof.
2. DESIGNATION AND AMOUNT. The shares of such series shall be designated
as "8.75% Series Cumulative Preferred Shares (Liquidation Preference $100 Per
Share)" (the "8.75% Series Preferred Shares") and the number of shares
constituting the 8.75% Series Preferred Shares shall be 350,000.
3. DIVIDENDS.
(a) The holders of 8.75% Series Preferred Shares, in preference to the
holders of the Series A Preferred Shares, the Common Shares and of any other
junior shares hereafter created, shall be entitled to receive, when, as and
if declared by the Board of Directors, out of funds legally available for the
purpose, cumulative quarterly dividends at the rate of 8.75% per annum,
computed on the liquidation preference of the 8.75% Series Preferred Shares
(using for such computation a month of 30 days and a year of 360 days),
payable in arrears in cash on the 14th day of January, April, July and October
in each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date") to the holders of record as of the 14th day of the month prior
to such respective dates, commencing on January 14, 1991. Dividends shall
accumulate on a daily basis. Holders of 8.75% Series Preferred Shares shall
not be entitled to any dividend, whether payable in cash, property or stock,
in excess of full cumulative dividends, as herein provided on such shares.
No interest, or sum of money in lieu of interest, shall be payable in respect
of any dividend payment or payments on 8.75% Series Preferred Shares that may
be in arrears. The initial dividend shall be that proportion of a quarterly
dividend that the number of days (using a month of 30 days and a year of 360
days) from the date of sale and delivery of such shares (including such date)
to January 14, 1991, (excluding such date) bears to ninety days.
(B) Except as set forth in the next sentence, no dividends shall be
declared, paid or set apart for payment on, or any other distributions made
in respect of, shares of any class or series ranking, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, on a parity with the 8.75% Series Preferred Shares, unless
full cumulative dividends have been or contemporaneously are declared and
paid on the 8.75% Series Preferred Shares through the most recent Quarterly
Dividend Payment Date. When dividends are not paid in full as aforesaid,
upon the 8.75% Series Preferred Shares, or on any such parity shares through
the most recent respective dividend payment date(s) thereof, all dividends
declared upon the 8.75% Series Preferred Shares and such parity shares shall
be declared contemporaneously and pro rate so that the amount of dividends
declared per share on the 8.75% Series Preferred Shares and such parity shares
shall in all cases bear to each other the same ratio that accumulated
dividends per share on the 8.75% Series Preferred Shares and such other shares
bear to each other (for purposes of the foregoing, the amount of dividends
declared per share shall be based on the applicable dividend rate for such
shares for the dividend period(s) for which dividends were not paid in full).
4. VOTING RIGHTS. The holders of 8.75% Series Preferred Shares shall have
voting rights only as provided by law or as specifically set forth in
Section F.
(a) Each 8.75% Series Preferred Share shall entitle the holder thereof
to one vote on all matters on which the shares may be voted.
(b) If at the time of any annual meeting of shareholders for the election
of directors a "default in preference dividends" on the 8.75% Series Preferred
Shares, or on any series of Preferred Shares, ranking on a parity with
the 8.75% Series Preferred Shares as to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding up,
shall exist, the holders of the 8.75% Series Preferred Shares and such
parity shares shall have the right at such meeting, voting together as a
single class without regard to series, to the exclusion of the holders of
Common Shares and all other securities of the Corporation,
to elect two (2) directors of the Corporation. Such right shall continue
until there are no dividends in arrears upon the 8.75% Series Preferred
Shares. Each director elected by the holders of Preferred Shares as aforesaid
and any such parity shares (a "Preferred Director") shall continue to serve as
such director for the full term for which he shall have been elected,
notwithstanding that prior to the end of such term a default in preference
dividends shall cease to exist. Any Preferred Director may be removed by,
and shall not be removed except by, the vote of the holders of record of the
outstanding 8.75% Series Preferred Shares and any such parity shares voting
together as a single class without regard to series, at a meeting of the
shareholders or of the holders of 8.75% Series Preferred Shares and any such
parity shares called for the purpose. So long as a default in any preference
dividends on the 8.75% Series Preferred Shares or any such parity shares shall
exist, (i) any vacancy in the office of a Preferred Director may be filled
(except as provided in the following clause [ii]) by an instrument in writing
signed by the remaining Preferred Director and filed with the Company and
(ii) in the case of the removal of any Preferred Director, the vacancy may
be filled by the vote of the holders of the outstanding 8.75% Series Preferred
Shares and any such parity shares voting together as a single class without
regard to series, at the same meeting at which such removal shall be voted.
Each director appointed as aforesaid by the remaining Preferred Director shall
be deemed, for all purposes hereof, to be a Preferred Director. For the
purposes hereof, a "default in preference dividends" shall be deemed to have
occurred whenever the amount of accumulated dividends upon the 8.75% Series
Preferred Shares or any series of shares ranking on a parity therewith as to
the payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up shall be equivalent to four (4) full quarterly
dividends or more, and, having so occurred, such default shall be deemed to
exist thereafter until, but only until, all accumulated dividends on all 8.75%
Series Preferred Shares and any such parity shares then outstanding shall have
been paid to the end of the last preceding quarterly dividend period or
equivalent thereof.
(c) The Corporation shall not, without the vote or consent of the holders
of two-thirds of the outstanding 8.75% Series Preferred Shares and Preferred
Shares ranking on a parity with the 8.75% Series Preferred Shares as to the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, amend its Articles of Incorporation to create or
authorize any class or series of shares, or any class or series of securities
convertible into any class or series of shares, which would rank prior to the
8.75% Series Preferred Shares and such parity shares as to the payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding up.
5. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends payable on the 8.75% Series Preferred
Shares as provided in paragraph 3 of this Section F are in arrears, or in the
event the Corporation shall have failed to redeem the 8.75% Series Preferred
Shares on January 14, 1996, in accordance with the provisions of Section 8
hereof, thereafter and until all accumulated and unpaid dividends, whether
or not earned or declared, on 8.75% Series Preferred Shares outstanding shall
have been paid in full, or until such redemption shall have been effected, as
the case may be, the Corporation shall not:
(i) declare, pay or set apart for payment dividends, or make any
other distributions, on any shares ranking junior (either as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up) to the 8.75% Series Preferred Shares;
(ii) redeem or purchase or otherwise acquire for consideration any
shares ranking junior (either as to the payment of dividends or as to the
distribution of assets upon liquidation, dissolution or winding up) to the
8.75% Series Preferred Shares, provided that the Corporation may at any time
redeem, purchase or otherwise acquire any such junior shares in exchange for
any shares of the Corporation ranking junior (either as to the payment of
dividends or as to the distribution of assets upon dissolution, liquidation
or winding up) to the 8.75% Series Preferred Shares; or
(iii) redeem or purchase or otherwise acquire for consideration any
8.75% Series Preferred Shares, or any shares ranking on a parity with the
8.75% Series Preferred Shares, except in accordance with a purchase offer made
in writing or by publication (as determined by the Board of Directors) to all
holders of all such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall determine
in good faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of the
Corporation unless the Corporation could, under paragraph 5(a) of this
Section F, purchase or otherwise acquire such shares at such time and in such
manner.
6. REACQUIRED SHARES. Any 8.75% Series Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued Preferred
Shares and may be reissued as part of a new series of Preferred Shares subject
to the conditions and restrictions on issuance set forth herein and in the
Articles of Incorporation of the Corporation creating a series of Preferred
Shares or any similar shares or as otherwise required by law.
7. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon the liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of 8.75% Series Preferred Shares will be entitled
to receive and to be paid out of the assets of the Corporation available for
distribution to its shareholders, before any payment or distribution shall
be made on the Common Shares or on any other class of shares of the
Corporation ranking junior to the 8.75% Series Preferred Shares as to the
distribution of assets upon liquidation, dissolution or winding up, an amount
equal to the liquidation preference with respect to such shares plus an amount
equal to all dividends thereon (whether or not earned or declared) accumulated
but unpaid to the date of final distribution. The liquidation preference for
8.75% Series Preferred Shares shall be $100.00 per share. After the payment
to the holders of 8.75% Series Preferred Shares of the full preferential
amounts provided for as described herein, the holders of 8.75% Series
Preferred Shares as such shall have no right or claim to any of the remaining
assets of the Corporation. In the event the assets of the Corporation
available for distribution to the holders of 8.75% Series Preferred Shares
upon any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such holders are entitled, no such distribution shall be made on account
of any shares of any other class or series of Preferred Shares ranking on a
parity with the 8.75% Series Preferred Shares upon such liquidation,
dissolution or winding up unless proportionate distributive amounts shall be
paid on account of the shares of 8.75% Series Preferred Shares, ratable, in
proportion to the full distributable amounts for which holders of all such
parity shares are respectively entitled upon such liquidation. Subject to
the rights of the holders of shares of any series or class or classes of
shares ranking on a parity with the 8.75% Series Preferred Shares with respect
to the distribution of assets upon liquidation, dissolution or winding up of
the Corporation, after payment shall have been made in full to the holders of
the 8.75% Series Preferred Shares as described herein, but not prior thereto,
any other series or class or classes of shares ranking junior to the 8.75%
Series Preferred Shares with respect to the distribution of assets upon
liquidation, dissolution or winding up shall, subject to the respective terms
and provisions (if any) applying thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of the 8.75%
Series Preferred Shares shall not be entitled to share therein.
8. REDEMPTION.
(a) The 8.75% Series Preferred Shares shall be redeemed in whole by the
Corporation on January 14, 1996, at the redemption price of $100 per share
plus all unpaid cumulative dividends accumulated thereon to the date of
redemption, whether or not earned or declared. The Corporation shall give
notice of such redemption to the holders of the 8.75% Series Preferred Shares
by mail not more than sixty (60) but not less than thirty (30) days prior to
the redemption date, but failure to so mail such notice or any defect therein
or in the mailing thereof shall not affect the validity of such redemption.
(b) The Corporation shall, after giving notice of redemption as herein
provided, or after giving to the bank or trust company hereinafter referred
to irrevocable authority to give due notice, deposit at any time on or prior
to the redemption date specified in such notice, and after the earliest date
on which notice of redemption may be given as herein provided, the amount of
the aggregate redemption price plus all unpaid cumulative dividends
accumulated to the redemption date (whether or not earned or declared)
on the 8.75% Series Preferred Shares to be redeemed, with a bank or trust
company having a capital and surplus of at least five million dollars and
its principal office in the City of Chicago, Illinois, designated in such
notice, in trust for the holders
of such shares so to be redeemed, payable to the holders thereof on the date
fixed for redemption, and then, from and after the date of such deposit, such
shares, notwithstanding that any certificate for such shares so called for
redemption shall not have been surrendered for cancellation, shall no longer
be deemed outstanding and shall be deemed canceled and retired, and each
holder thereof shall not thereafter be entitled to receive any further
dividends or be entitled to exercise any rights as a holder of such shares,
excepting only the right to receive the redemption price thereof plus all
unpaid cumulative dividends accumulated theron to the date of redemption
(whether or not earned or declared), but without interest thereon. The
moneys so deposited for the redemption of such shares shall be paid to the
holders of such shares upon the surrender to the Corporation for cancellation
of the certificates representing such shares, properly endorsed in blank for
transfer or accompanied by proper instruments of assignment in blank (if
required by the Corporation) and bearing all necessary stock transfer tax
stamps thereto affixed and canceled.
(c) In case the holder of any certificate for any 8.75% Series Preferred
Shares which shall have been redeemed shall not, within six (6) years after
such redemption date, claim the amount deposited for the redemption thereof,
any such bank or trust company shall, upon demand, pay over to the Corporation
such unclaimed amount and shall thereupon be relieved of all responsibility
in respect therof; provided such bank or trust company, before being required
to make any such payment, may (at the expense of the Corporation) cause to be
published once a week on any business day of the week for two (2) consecutive
weeks in a newspaper of general circulation in the city of Chicago, Illinois,
customarily published on each business day, a notice that such moneys have
not been so called for and that after a date named therein such moneys will be
returned to the Corporation.
9. CONVERSION. The 8.75% Series Preferred Shares shall not be convertible
into Common Shares or shares of any other class or series of the Corporation.
10. RANK. The 8.75% Series Preferred Shares shall rank, with respect to the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, on a parity with all series of Preferred Shares,
unless the terms of any such series shall provide otherwise. The Series A
Preferred Shares shall rank junior to the 8.75% Series Preferred Shares both
as to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up.
11. AMENDMENT. The Articles of Incorporation of the Corporation shall not
be amended in any manner which would materially alter or change the
designation, rights or preferences of the 8.75% Series Preferred Shares so
as to affect them adversely without the affirmative vote of the holders of
at least two-thirds of such shares then outstanding.
ARTICLE VI
DIRECTORS.
1. The Board of Directors of the Corporation shall consist of ten (10)
directors. The directors shall be divided into three classes, and each
class shall consist of one-third, or as near as may be, of the total
number of directors constituting the Board of Directors. At the 1988
and at each succeeding annual meeting of shareholders, successors to the
class of directors whose terms expire at that annual meeting shall be
elected to hold office for a three-year term, so that the term of office
of one class of directors shall expire in each year. In the event that
the holders of Preferred Shares are entitled at any shareholders meeting to
elect directors, then the term of office of all persons who may be directors
shall terminate upon the election of their successors at such meeting of
shareholders.
2. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement, age
and service limitations as may be set forth in the Bylaws, disqualification
or removal from office. Any vacancy on the Board of Directors shall be
filled by a majority of the Board of Directors then in office even if less
than a quorum, or by a sole remaining director. Any director elected by
the Board of Directors shall hold office until the annual meeting for the
year in which the term for that Class of Directors shall expire.
3. A director may be removed by the directors or the shareholders, but
only for cause. If by directors, such action may be taken only at a
meeting of the Board, the meeting notice for which must state that the
purpose, or one of the purposes, of the meeting is the removal of the
director, and the affirmative vote of two-thirds of the remaining
directors is necessary to remove the director. If removal is by vote of
the shareholders, it may only be considered at an annual meeting of
shareholders, and the affirmative vote of two-thirds of the shares then
entitled to vote for the election of directors is necessary to remove the
director. For purposes of this section, cause for removal shall be
construed to exist only if a director whose removal is proposed has been
convicted of a felony by a court of competent jurisdiction and such
conviction is no longer subject to appeal, or has been adjudged by a
court of competent jurisdiction to be liable for willful misconduct in
the performance of his or her duty to the Corporation in a matter of
substantial importance to the Corporation and such adjudication is no
longer subject to appeal.
ARTICLE VII
Business Combinations
A. Market Value Required.
Notwithstanding any other provision of these Articles, the Corporation
may not engage in any Business Combination (hereinafter defined) with any
Interested Shareholder (hereinafter defined) of the Corporation unless the
Business Combination meets the requirement specified in either paragraphs 1,
2, 3 following:
1. A Business Combination approved by the Board of Directors of the
Corporation before the Interested Shareholders Acquisition Date, or as
to which the purchase of shares made by the Interested Shareholder on the
Interested Shareholder's Acquisition Date had been approved by the Board
of Directors of the Corporation before the Interested Shareholder's
Acquisition Date.
2. A Business Combination approved by the affirmation vote of the
holders of a majority of the outstanding voting shares not beneficially
owned by the Interested Shareholder proposing the Business Combination,
or any Affiliate or Associate of the Interested Shareholder proposing
the Business Combination, at a meeting called for that purpose no
earlier than five (5) years after the Interested Shareholder's Acquisition
Date.
3. A Business Combination that meets all of the following conditions:
(a) The aggregate amount of cash and the 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 Shares in such Business Combination, shall be at least equal to
the highest amount determined under clauses (i) and (ii) below:
(i) the highest per share price paid by or behalf of the Interested
Shareholder when the Interested Shareholder was the beneficial owner
(directly or indirectly) of five percent (5%) of the outstanding
voting shares for any Common Share in connection with the acquisition
by the Interested Shareholder of beneficial ownership of Common Shares
(x) within the five-year period immediately prior to the first public
announcement of the proposed Business Combination (the "Announcement
Date") or (y) in the transaction in which it became an Interested
Shareholder, whichever is higher, plus, in either case, interest compounded
annually from the earliest date on which the highest per share acquisition
price was paid through the consummation date at the rate specified in
the Act less the aggregate amount of any cash dividends paid, and the
market value of any dividends paid other than in cash, per common share
since the earliest date, up to the amount of the interest.
(ii) the Market Value per Common Share on the Announcement Date or
on the date on which the Interested Shareholder became an Interested
Shareholder (the "Acquisition Date"), whichever is higher, plus interest
compounded annually from that date through the consummation date at
the rate specified in the Act less the aggregate amount of any cash
dividends paid, and the market value of any dividends paid other than
in cash, per common share since the earliest date, up to the amount of
the interest.
(b) The aggregate amount of cash and the 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
shares of any class or series of outstanding Preferred Shares in such
Business Combination shall be at least equal to the highest amount
determined under clauses (i), (ii) and (iii) below:
(i) the highest per share price paid by or on behalf of the Interested
Shareholder at a time when the Interested Shareholder was the beneficial
owner, directly or indirectly, of five percent (5%) or more of the
outstanding voting shares of the Corporation for any share of such
class or series of Preferred Shares in connection with the acquisition
by the Interested Shareholder of beneficial ownership of shares of such
class or series of Preferred Shares (x) within the five-year period
immediately prior to the Announcement Date or (y) in the transaction
in which it became an Interested Shareholder, whichever is higher,
plus in either case, interest compounded annually from the earliest
date on which the highest per share acquisition price was paid through
the consummation date at the rate specified in the Act less the aggregate
amount of any cash dividends paid, and the market value of any dividends
paid other than in cash, per common share since the earliest date, up
to the amount of the interest.
(ii) The Market Value per share of such class or series of Preferred
Shares on the Announcement Date or on the Acquisition Date, whichever
is higher, plus interest compounded annually from that date through the
consummation date at the rate specified in the Act less the aggregate
amount of any cash dividends paid, and the market value of any dividends
paid other than in cash, per common share since the earliest date,
up to the amount of the interest.
(iii) the highest preferential amount per share to which the holders
of shares of such class or series of Preferred Shares would be entitled
in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, plus the aggregate amount
of any dividends declared or due as to which the holders are entitled
before payment of dividends on some other class or series of shares,
unless the aggregate amount of the dividends is included in the
preferential amount.
(c) The consideration to be received by holders of a particular class
or series of outstanding Capital Shares shall be in cash or in the
same form as previously has been paid by or on behalf of the Interested
Shareholder in connection with its direct or indirect acquisition of
beneficial ownership of shares of such class or series of Capital
Shares. If the consideration previously paid by the Interested
Shareholder to acquire shares of any class or series of Capital
Shares varied among the recipients thereof as to form, the form of
consideration to be paid for such class or series of Capital Shares in
connection with the Business Combination shall be either cash or the
form used to acquire beneficial ownership of the largest number of
shares of such class or series of Capital Shares previously acquired
by the Interested Shareholder, and the consideration shall be distributed
promptly.
(d) After the Interested Shareholder's Acquisition Date and before the
Consummation Date with respect to the Business Combination, the Interested
Shareholder has not become the Beneficial Owner of any additional voting
shares of the Corporation except: (1) as part of the transaction that
resulted in the Interested Shareholder becoming an Interested Shareholder;
(ii) by virtue of proportionate share splits, share dividends, or other
distributions of shares in respect of shares not constituting a Business
Combination; (iii) through a Business Combination meeting all of the
conditions of the Articles or (iv) through purchase by the Interested
Shareholder at any price that, if the price had been paid in an
otherwise permissible Business Combination the Announcement Date and
Consummation Date of which were the date of the purchase, would have
satisfied the requirements of these Articles.
B. Exceptions.
The provisions of the preceding Section A shall not be applicable
to any particular Business Combination if, in addition to any affirmative
vote required by law or these Articles of Incorporation, such Business
Combination shall be approved by the affirmative vote of not less than
eighty percent (80%) of the votes entitled to be cast by the holders of
all the outstanding Voting Shares (hereinafter defined), voting together
as a single class. Such Affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or
separate class vote may be specified, by law or in any agreement with any
national securities exchange or otherwise.
C. Definitions.
The following definitions shall apply with respect to this ARTICLE VII:
1. The term "Business Combination" shall mean:
(a) any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with (i) any Interested Shareholder or (ii) any other
corporation (whether or not itself an Interested Shareholder) which is or
after such merger or consolidation would be an Affiliate or Associate of
an Interested Shareholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) with or
for the benefit of any Interested Shareholder or any Affiliate of
Associate of any Interested Shareholder involving any assets, securities
or commitments of the Corporation or any Subsidiary (i) having an
aggregate Market Value equal to ten percent (10%) or more of the aggregate
Market Value of (x) all the assets, determined on a consolidated basis,
of the Corporation, or (y) all the outstanding shares of the Corporation
or (ii) representing ten percent (10%) or more of the earning power or
net income, determined on a consolidated basis, of the Corporation; or
(c) the issuance or transfer by the Corporation or any Subsidiary of the
Corporation (in one (1) transaction or a series on transactions) of
any shares of the Corporation or any subsidiary of the Corporation that
have an aggregate market value equal to five percent (5%) or more of the
aggregate market value of all the outstanding shares of the Corporation
to the Interested Shareholder or an affiliate or the associate of the
Interested Shareholder except under the exercise of warrants or rights
to purchase shares offered, or a dividend or distribution paid or made
pro rata to all shareholders of the Corporation; or
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation which is voted for or consented to by any
Interested Shareholder or any Affiliate or Associate thereof; or
(e) any reclassification of securities (including any share split, share
dividend, or other distribution of shares in respect of shares, or reverse
share 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 otherwise involving an
Interested Shareholder) that has the effect, directly or indirectly, of
increasing the proportionate share of any class or series of outstanding
shares of any class or series of voting shares or any securities
convertible into voting shares of the Corporation or any Subsidiary, that
is beneficially owned by an Interested Shareholder or any Affiliate or
Associate of any Interested Shareholder; or
(f) any receipt by the Interested Shareholder or any Affiliate or
Associate of the Interested Shareholder of the benefit (directly or indirectly,
except proportionately as a shareholder of the Corporation),
of any loans, advances, guarantees, pledges, or other financial assistance
or any tax credits or other tax advantages provided by or through the
Corporation.
2. The term "Capital Shares" shall mean all capital shares of the
Corporation authorized to be issued from time to time under ARTICLE V
of these Articles of Incorporation, and the term "Voting Shares" shall
mean all Capital Shares that by its terms may be voted on all matters
submitted to shareholders of the Corporation generally.
3. The term "Interested Shareholder" shall mean any person (other than
the Corporation or any Subsidiary) who (i) is the beneficial owner
directly or indirectly of Voting Shares representing ten percent (10%)
or more of the votes entitled to be cast by the holders of all then
outstanding Voting Shares or (ii) is an Affiliate or Associate of the
Corporation and at any time within the five-year period immediately
prior to the Announcement Date was the beneficial owner of Voting Shares
representing ten percent (10%) or more of the votes entitled to be cast
by the holders of all then outstanding Voting Shares. For the purpose
of the number of Voting Shares of the Corporation considered to be
outstanding includes shares considered to be beneficially owned by
the person, but does not include any other unissued shares of Voting
Shares of the Corporation that may be issuable under any agreement,
arrangement, or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
4. A person shall be a "Beneficial Owner" of any Capital Shares (i)
which such person individually or any of its Affiliates or Associates
beneficially owns, directly or indirectly; (ii) which such person
individually or any of its Affiliates or Associates has, directly or
indirectly, (x) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise on
conversion rights, exchange rights, warrants or options, or otherwise,
or (y) the right to vote pursuant to any agreement, arrangement or
understanding; or (iii) which is 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 Capital
Shares.
5. The term "Associate" when used to indicate a relationship with any
person, means: (1) Any corporation or organization of which the person
is an officer or partner or is, directly or indirectly, the Beneficial
Owner of ten percent (10%) or more of any class or voting shares; (2) Any
trust or other estate in which the person has a substantial beneficial
interest, or as to which the person serves as trustee or in a similar
fiduciary capacity; and (3) Any relative or spouse of the person, or any
relative of the spouse, who has the same home as the person.
6. The term "Affiliate" means a person that directly or indirectly
through one (1) or more intermediaries, controls, is controlled by, or
is under common control with a specified person.
7. The term "Subsidiary" of the Corporation means any other corporation
of which voting shares constituting a majority of the outstanding voting
shares of the other corporation entitled to be cast are owned (directly or
indirectly) by the Corporation.
8. The term "Market Value" means (i) in the case of shares, the highest
closing sale price during the 30-day period immediately preceding the
date in question of such a share on the Composite Tape for New York Stock
Exchange listed shares, or, if such shares are not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such shares are not listed
on such Exchange, on the principal United States securities exchange on
which such shares are listed, or, if such shares are not listed on any
such exchange, the highest closing bid quotation with respect to such
a share during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations
System or any similar system then in use, or if no such quotations are
available, the Market Value on the date in question of such a share as
determined by a majority of the directors in good faith; and (ii) in
the case of property other than cash or shares, the Market Value of such
property on the date in question as determined in good faith by a
majority of the directors.
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as
used in subparagraphs 3(a) and 3(b) of Section A of this ARTICLE VII shall
include the Common Shares and/or the shares of any other class or series
of Capital Shares retained by the holders of such shares.
ARTICLE VIII
Indemnification
Each director and each officer of the Corporation shall be
indemnified by the Corporation to the fullest extent permitted by
law against expenses (including attorney's fees) judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection within the defense of any proceeding in
which he or she was or is a party or is threatened to be made a party
by reason of being or having been a director or an officer of the
Corporation. Such right of indemnification is not exclusive of any
other rights to which such director or officer may be entitled under
any now or hereafter existing statute, any other provision of there
Articles, bylaw, agreement, vote of shareholders or otherwise. If
the Indiana Business Corporation Law is amended to authorize corporate
action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall
be eliminated or limited to the fullest extent permitted by the Indiana
Business Corporation Law, as so amended. Any repeal or modification
of this Article VIII by the shareholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
ARTICLE IX
Amendments
The Corporation reserves the right to amend, alter, change or
repeal any provision in these Articles of Incorporation as permitted by
law, and all rights conferred on shareholders herein are granted subject
to this reservation. Notwithstanding the foregoing, the provision of
Articles VI, VII, VIII and this Article IX may not be amended, altered,
change or repealed unless such amendment, alteration, change or repeal
is approved by the affirmative vote of the holders of not less than
seventy-five percent (75%) of the outstanding shares entitled to vote
thereon.
ARTICLE X
Incorporator
The name and post office address of the Incorporator of the Corporation is
as follows:
Richard M. Schumacher
Eichhorn, Eichhorn & Link
200 Russell Street
P.O. Box 6328
Hammond, IN 46325
This document must be signed by all Incorporators.
/s/Richard M. Schumacher
