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FORM 10-K
SECURlTlES AND EXCHANGE COMMlSSlON
WASHINGTON, D. C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended
December 31, 1999 Commission File Number 1-8644
IPALCO ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
Indiana 35-1575582
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Monument Circle
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317-261-8261
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
IPALCO Enterprises, Inc. New York Stock Exchange
Common Stock (without par value) Chicago Stock Exchange
Common Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to the filing requirements for at least the
past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
As of January 31, 2000, the aggregate market value of the voting stock
held by non-affiliates of the registrant was: $1,330,676,506 based on
the average of the high and low price of the common stock on such date.
As of January 31, 2000, there were 85,700,469 shares of the
registrant's common stock (without par value) outstanding.
-------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the IPALCO Enterprises, Inc. definitive Proxy Statement for
the Annual Meeting of Shareholders to be held on April 19, 2000, are
incorporated by reference into Part III of this Report.
PART I
------
Item 1. BUSINESS
--------
ORGANIZATION
IPALCO Enterprises, Inc. (IPALCO) is a holding company and was
incorporated under the laws of the state of Indiana on September 14, 1983.
IPALCO has 13 employees and has two (2) subsidiaries: Indianapolis Power & Light
Company (IPL), a regulated electric and steam service utility, and Mid-America
Capital Resources, Inc. (Mid-America), a holding company for unregulated
businesses. IPALCO and its subsidiaries are collectively referred to as
"Enterprises."
Enterprises has two business segments, electric and "all other." Steam
operations of IPL and all subsidiaries other than IPL are combined in the "all
other" segment (see Note 15 in the Notes to Consolidated Financial Statements
for additional information about segments).
DESCRIPTION OF BUSINESS OF SUBSIDIARIES
INDIANAPOLIS POWER & LIGHT COMPANY
GENERAL
IPL was incorporated under the laws of the state of Indiana in 1926 and
is a wholly-owned subsidiary of IPALCO. IPL is engaged primarily in generating,
transmitting, distributing and selling electric energy in the city of
Indianapolis and neighboring cities, towns, communities, and adjacent rural
areas, all within the state of Indiana, the most distant point being about 40
miles from Indianapolis. It also produces, distributes and sells steam within a
limited area in such city. There have been no significant changes in the
services rendered, or in the markets or methods of distribution, since the
beginning of the fiscal year. IPL intends to do business of the same general
character as that in which it is now engaged. Indiana law authorizes
electricity suppliers to have exclusive retail service areas.
IPL's business is not dependent on any single customer or group of a few
customers. IPL's electricity sales for 1995-1999 are depicted on page I-5.
The electric utility business is affected by seasonal weather patterns
throughout the year and, therefore, the operating revenues and associated
operating expenses are not generated evenly by month during the year.
IPL's generation, transmission and distribution facilities (electric
system) are described in Item 2, "PROPERTIES." IPL's electric system is directly
interconnected with the electric systems of Indiana Michigan Power Company, PSI
Energy, Inc., Southern Indiana Gas and Electric Company, Wabash Valley Power
Association, Hoosier Energy Rural Electric Cooperative, Inc. and the Indiana
Municipal Power Agency.
Also, IPL is a member of the East Central Area Reliability Group (ECAR),
and is cooperating under an agreement that provides for coordinated planning of
generation and transmission facilities and the operation of such facilities to
promote reliability of bulk power supply in the nine-state region served by
ECAR. Smaller electric utility systems, independent power producers and power
marketers participate as associate members.
REGULATION
IPL is subject to regulation by the Indiana Utility Regulatory Commission
(IURC) as to its services and facilities, valuation of property, the
construction, purchase or lease of electric generating facilities,
classification of accounts, rates of depreciation, rates and charges, issuance
of securities (other than evidences of indebtedness payable less than twelve
months after the date of issue), the acquisition and sale of public utility
properties or securities and certain other matters (see Note 10 in the Notes to
Consolidated Financial Statements).
In addition, IPL is subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC), with respect to short-term borrowings not
regulated by the IURC, the sale and transmission of electric energy in
interstate commerce, the classification of its accounts and the acquisition and
sale of utility property in certain circumstances as provided by the Federal
Power Act.
IPL is also subject to federal, state and local environmental laws and
regulations, particularly as to generating station discharges affecting air and
water quality. The impact of compliance with such regulations on the capital and
operating costs of IPL has been and will continue to be substantial (see Item 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" under "Competition and Industry Changes").
RETAIL RATEMAKING
IPL's tariffs for electric and steam service to retail customers (basic
rates and charges) are set and approved by the IURC after public hearings. Such
proceedings, which have occurred at irregular intervals, involve IPL, the staff
of the IURC, the Office of the Indiana Utility Consumer Counselor, as well as
other interested consumer groups and customers. In Indiana, basic rates and
charges are determined after giving consideration, on a pro-forma basis, to all
allowable costs for ratemaking purposes including a fair return on the fair
value of the utility property used and useful in providing service to customers.
Once set, the basic rates and charges authorized do not assure the realization
of a fair return on the fair value of property. Pursuant to statute, the IURC
conducts a periodic review of the basic rates and charges of all utilities at
least once every four years. Other numerous factors including, but not limited
to, weather, inflation, customer growth and usage, the level of actual
maintenance and capital expenditures, fuel costs, generating unit availability
and purchased power costs and availability can affect the return realized.
During 1998, in an order resulting from an IPL initiated proceeding, the IURC
declined to exercise its jurisdiction in part over IPL customers who voluntarily
select service under IPL's Elect Plan option. Under two of these options, the
customer's prices are not adjusted for changes in fuel costs or other factors.
During 1999, the total revenue from customers choosing the Elect Plan options
was $68 million. The Elect Plan will expire in September 2001 unless a
subsequent plan is approved by the IURC. Substantially all other IPL customers
are served pursuant to retail tariffs that provide for the monthly billing or
crediting to customers of increases or decreases, respectively, in the actual
costs of fuel consumed from estimated fuel costs embedded in base tariffs,
subject to certain restrictions on the level of operating income. Additionally,
most such retail tariffs provide for billing of "lost revenue margins" on
estimated kilowatt-hour (kWh) sales reductions along with current and deferred
costs resulting from IPL's IURC-approved demand side management programs (DSM).
IPL maintains its books and records consistent with generally accepted
accounting principles reflecting the impact of regulation (see Note 1 in the
Notes to Consolidated Financial Statements and Item 7, "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" under "Nature of
Operations and Regulatory Matters").
Future events, including the advent of retail competition within IPL's
service territory, could result in the deregulation of part of IPL's existing
regulated businesses (see "Competition and Industry Changes" in Item 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"). Upon deregulation, adjustments to IPL's accounting records may be
required to eliminate the historical impact of regulatory accounting. Such
adjustments, as required by Statement of Financial Accounting Standards No. 101
(SFAS 101), "Regulated Enterprises - Accounting for the Discontinuation of
Application of FASB Statement No. 71," would eliminate the "effects of any
actions of regulators that have been recognized as assets and liabilities...."
Required adjustments could include expensing of any unamortized net regulatory
assets, elimination of certain tax liabilities and a write down of any impaired
utility plant balances. IPL does not expect to be required to adopt SFAS 101 in
the near term.
FUEL
In 1999, approximately 99% of the total kWh produced by IPL were
generated from coal. Natural gas, No. 2 fuel oil and purchased steam combined to
provide the remaining kWh generation. Natural gas is used in IPL's newer
combustion turbines. In addition to use in oil-fired generating units, fuel oil
is used for start up and flame stabilization in coal-fired generating units.
IPL's long-term coal contracts provide for the major portion of its burn
requirements through the year 2005. The long-term coal agreements are with four
suppliers and the coal is mined entirely in the state of Indiana. It is
presently believed that all coal used by IPL will be mined by others. IPL
normally carries fuel oil and a 60-day supply of coal to offset unforeseen
occurrences such as labor disputes, equipment breakdowns and power sales to
other utilities. IPL increases its stockpile to an approximate 80-day supply
when strikes are anticipated in the coal industry. In preparation for possible
supply problems with Year 2000 issues, IPL temporarily increased its stockpile
to an approximate 100-day supply at the end of 1999.
EMPLOYEE RELATIONS
As of December 31, 1999, IPL had 1,936 employees of whom 971 were
represented by the International Brotherhood of Electrical Workers, AFL-CIO
(IBEW) and 307 were represented by the Electric Utility Workers Union (EUWU), an
independent labor organization. In September 1999, the membership of the IBEW
ratified a new labor agreement that remains in effect until December 16, 2002.
The agreement provided for general pay adjustments of 4% in December 1999, 2% in
December 2000 and 2% in December 2001, and changes in pension and health care
coverage. In February of 1998, the membership of the EUWU ratified a new labor
agreement that remains in effect until February of 2001. The agreement provided
for general pay adjustments of 3% in both 1998 and 1999, as well as an
adjustment of 2% in 2000. The agreement also provides for increases in pension
amounts.
MID-AMERICA CAPITAL RESOURCES, INC. (Mid-America)
GENERAL
Mid-America, the holding company for the unregulated activities of
Enterprises, has as subsidiaries Mid-America Energy Resources, Inc. (Energy
Resources), Indianapolis Campus Energy, Inc. (ICE), Cleveland Thermal Energy
Corporation (Cleveland Thermal) and Cleveland District Cooling Corporation
(Cleveland Cooling).
Mid-America has also made investments in entities which are not
subsidiaries. At December 31, 1999, it had an investment in Internet Capital
Group, Inc. (Nasdaq: ICGE). Mid-America also had an investment in EnerTech
Capital Partners II L.P., a venture capital fund. (See Item 7, "MANAGEMENT'S
DISCUSSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" under
"LIQUIDITY AND CAPITAL RESOURCES" within the subsection "IPALCO.")
Energy Resources operates a district cooling system in downtown
Indianapolis, Indiana.
ICE owns and operates an energy system under contract to Eli Lilly and
Company (Lilly) to provide cooling capacity to the Lilly Technology Center, in
Indianapolis, Indiana.
Cleveland Thermal owns and operates a district heating system in
Cleveland, Ohio. Cleveland Cooling owns and operates a district cooling system
also located in Cleveland. Cleveland Thermal and Cleveland Cooling conduct
business jointly under the name Cleveland Energy Resources.
EMPLOYEES
As of December 31, 1999, Mid-America and its subsidiaries had 82
employees. There are no labor organizations.
IPALCO ENTERPRISES, INC.
STATISTICAL INFORMATION - ELECTRIC
The following table of statistical information presents additional data on IPL's
operation.
Year Ended December 31,
------------------------------------------------------------------------------------
Operating Revenues (In 1999 (1) 1998 (1) 1997 (1) 1996 1995
Thousands):
------------ ------------ -------------- ------------- --------------
Residential $ 282,254 $ 269,351 $ 261,832 $ 261,819 $ 243,055
Small industrial and commercial 127,027 122,082 125,131 131,465 130,009
Large industrial and commercial 328,903 321,103 306,761 298,720 275,803
Public lighting 10,386 9,754 9,324 9,043 8,369
Miscellaneous 10,600 12,469 12,050 9,264 8,289
------------ ------------ -------------- ------------- --------------
Revenues - ultimate consumers 759,170 734,759 715,098 710,311 665,525
Sales for resale - REMC 1,035 936 1,082 1,141 1,105
Sales for resale - other 40,132 50,140 21,954 13,312 6,758
------------ ------------ -------------- ------------- --------------
Total electric revenues $ 800,337 $ 785,835 $ 738,134 $ 724,764 $ 673,388
============ ============ ============== ============= ==============
Kilowatt-hour Sales (In
Millions):
Residential 4,510 4,359 4,276 4,367 4,277
Small industrial and commercial 1,928 1,888 1,969 2,117 2,197
Large industrial and commercial 7,187 7,138 6,857 6,772 6,509
Public lighting 73 71 69 71 73
------------ ------------ -------------- ------------- --------------
Sales - ultimate consumers 13,698 13,456 13,171 13,327 13,056
Sales for resale - REMC 33 31 29 29 28
Sales for resale - other 1,968 2,252 1,111 725 394
------------ ------------ -------------- ------------- --------------
Total kilowatt-hours sold 15,699 15,739 14,311 14,081 13,478
============ ============ ============== ============= ==============
Customers at End of Year:
Residential 385,799 379,943 374,686 370,029 365,163
Small industrial and commercial 42,610 42,230 41,137 40,393 39,772
Large industrial and commercial 4,107 4,036 3,960 3,657 3,557
Public lighting 509 445 357 313 290
------------ ------------ -------------- ------------- --------------
Total ultimate consumers 433,025 426,654 420,140 414,392 408,782
Sales for resale - REMC 1 1 1 1 1
------------ ------------ -------------- ------------- --------------
Total electric customers 433,026 426,655 420,141 414,393 408,783
============ ============ ============== ============= ==============
(1) Includes estimated electric operating revenue and kilowatt-hour sales for
services delivered but not billed during the period (see Notes 1 and 3 in the
Notes to Consolidated Financial Statements).
Item 2. PROPERTIES
----------
IPL
IPL's executive offices are in the IPALCO Corporate Center located at One
Monument Circle, Indianapolis, Indiana. This facility also houses certain
administrative operations of certain other IPALCO subsidiaries.
IPL also owns two distribution service centers in Indianapolis at 1230
West Morris Street and 3600 North Arlington Avenue. IPL's customer service
center is located at 2102 North Illinois Street in Indianapolis.
IPL owns and operates three primarily coal-fired generating plants that
are used for electric generation. IPL also operates one coal and gas-fired
plant. For electric generation, the total gross nameplate rating is 3,024 MW,
winter capability is 3,036 MW and summer capability is 2,956 MW. For steam
generation, gross capacity is 1,990 Mlbs. (thousands of pounds) per hour.
Total Electric Stations:
H. T. Pritchard plant (Pritchard), located 25 miles southwest of
Indianapolis (seven units in service - one each in 1949, 1950, 1951, 1956 and
1967 and two in 1953) with 367 MW nameplate rating and net winter and summer
capabilities of 344 MW and 341 MW, respectively.
E. W. Stout plant (Stout) located in the southwest part of Marion County
(eleven units in service - one each in 1941, 1947, 1958, 1961, 1967, 1994 and
1995 and four in 1973) with 921 MW nameplate rating and net winter and summer
capabilities of 1,000 MW and 924 MW, respectively.
Petersburg plant (Petersburg), located in Pike County, Indiana (seven units
in service - four in 1967 and one each in 1969, 1977 and 1986) with 1,716 MW
nameplate rating and net winter and summer capabilities of 1,672 MW.
Combination Electric and Steam Station:
C.C.Perry Section K plant (Perry K), located in Indianapolis with 20 MW
nameplate rating (net winter capability 20 MW, summer 19 MW) for electric and a
gross winter and summer capacity of 1,990 Mlbs. per hour for steam.
Net electrical generation during 1999, at the Petersburg, Stout and
Pritchard stations accounted for about 69.0%, 23.3% and 7.7%, respectively, of
IPL's total net generation. Perry K produced all of the steam generated by IPL
for the steam system. In addition, IPL purchases steam from an independent
resource recovery system in Indianapolis.
Included in the above totals are three gas turbine units at the Stout
station added in 1973, one gas turbine added in 1994 and one gas turbine added
in 1995 with a combined nameplate rating of 214 MW. Also included is one diesel
unit each at Pritchard and Stout stations and three diesel units at Petersburg
station, all added in 1967. Each diesel unit has a nameplate rating of 3 MW.
During 1998, IPL announced plans to construct up to 200 megawatts of new
combustion turbines (CTs). The new turbines would be used during times of
highest or "peak" electric demand. One turbine is expected to be placed in
service by June 2000, and is included in the construction forecast. IPL filed a
petition with the IURC recommending that the IURC decline its jurisdiction over
IPL's planned construction and operation of the new CTs and adopt an alternative
procedure for dealing with the sale of power produced by the CTs to IPL's retail
customers. During 1999, the IURC agreed to decline to exercise its jurisdiction
over the construction of the CTs. The Commission also agreed to defer any
determinations regarding all ratemaking issues until a later proceeding.
IPL's transmission system includes 457 circuit miles of 345,000 volt
lines, 359 circuit miles of 138,000 volt lines and 269 miles of 34,500 volt
lines. Underground distribution and service facilities include 686 miles of
conduit and 6,487 wire miles of conductor. Underground street lighting
facilities include 108 miles of conduit and 760 wire miles of conductor. Also
included in the system are 73 bulk power substations and 69 distribution
substations.
Steam distribution properties include 22 miles of mains with 238 customer
connections. Other properties include coal and other minerals, underlying 798
acres in Sullivan County, Indiana, and coal underlying about 6,215 acres in Pike
and Gibson Counties, Indiana. IPL owns approximately 4,067 acres in Morgan
County, Indiana and approximately 884 acres in Switzerland County, Indiana, for
future plant sites.
All critical facilities owned by IPL are well maintained, in good
condition and meet the present needs of IPL.
The Mortgage and Deed of Trust of IPL, together with the Supplemental
Indentures thereto (the "Mortgage"), secure first mortgage bonds issued by IPL.
Pursuant to the terms of the Mortgage, substantially all property owned by IPL
is subject to a direct first mortgage lien.
OTHER SUBSIDIARIES
Energy Resources owns and operates a district cooling facility located
near downtown Indianapolis, which distributes chilled water to subscribers
located downtown for their air conditioning needs. The plant is equipped with
six 5,000 ton chillers powered by steam purchased from IPL and one 2,250 ton
chiller powered by electricity purchased from IPL.
Cleveland Thermal owns and operates two steam plants in Cleveland, Ohio,
with a total of eight boilers having a gross capacity of 1,025 Mlbs. per hour.
The distribution system includes 15.5 miles of mains with 289 services.
Cleveland Cooling owns and operates a district cooling facility located near
downtown Cleveland, which distributes chilled water to subscribers located
downtown for their air conditioning needs. The plant is equipped with two 5,000
ton chillers powered by electricity.
In 1997, Enterprises initiated a plan to sell during 1998, Cleveland
District Cooling Corporation and Cleveland Thermal Corporation (collectively
referred to as CER) and ceased recording depreciation. During the third quarter
of 1998, Enterprises determined that it was not probable that CER would be sold
during 1998, and resumed depreciation on these assets. Enterprises anticipates
the sale of CER in 2000.
ICE owns and operates a chilled water facility in Indianapolis, which
serves the chilled water requirements of Eli Lilly and Company's Lilly
Technology Center. The plant is equipped with three 5,000 ton chillers powered
by electricity purchased from IPL.
Substantially all the property of Mid-America and its subsidiaries is
subject to the lien of existing debt and/or credit agreements of Mid-America,
Energy Resources and ICE.
Item 3. LEGAL PROCEEDINGS
-----------------
IPL is a party to State of Michigan et al v. U.S. EPA a proceeding
----------------------------------------
instituted in November, 1998, now pending in the U.S. Court of Appeals for
the District of Columbia Circuit. This is a petition for review of EPA's rule
promulgated October 27, 1998, requiring Indiana and 22 other jurisdictions to
impose more stringent limitations on emissions of nitrogen oxides (the "NOx SIP
Call"). Petitioners challenging the NOx SIP Call include seven states, about 60
investor-owned electric utility companies, numerous trade associations, serveral
municipal utilities, co-ops, and labor unions. Intervenor-respondents include
several environmental interest groups, Canada, eight states in the Northeast,
and several eastern electric utility companies.
EPA's NOx SIP Call would require operators of coal-fired electric utility
boilers in the affected states to limit NOx emissions to 0.15 pounds per million
BTUs of heat input as a system-wide average. That limit calls for a reduction of
about 85% from 1990 average emissions from coal-fired electric utility boilers,
and a reduction of about 57% from Enterprises' current emissions.
It is not possible to predict whether EPA's NOx SIP Call will ultimately
survive judicial review. Nor is it possible to predict accurately the costs of
compliance. Enterprises' preliminary estimates are that the NOx SIP Call would
necessitate capital expenditures of about $180 million.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
EXECUTIVE OFFICERS OF THE REGISTRANT AT FEBRUARY 29, 2000.
Name, age (at December 31, 1999), and positions and offices held for the
past five years:
From To
---- --
John R. Hodowal (54)
Chairman of the Board and
President of IPALCO May, 1989
Chairman of the Board of IPL February, 1990
Chief Executive Officer of IPL May, 1989
Ramon L. Humke (67)
Vice Chairman of IPALCO May, 1991
President and Chief Operating
Officer of IPL February, 1990
John R. Brehm (46)
Vice President and Treasurer
of IPALCO May, 1989
Senior Vice President - Finance of IPL May, 1998
Senior Vice President - Finance
and Information Services of IPL May, 1991 May, 1998
Stephen M. Powell (49)
Senior Vice President -
Energy Supply of IPL May, 1998
Manager of Engineering and
Production Services of IPL June, 1994 May, 1998
N. Stuart Grauel (55)
Vice President - Public Affairs
of IPALCO May, 1991
Bryan G. Tabler (56)
Vice President -
Secretary and General Counsel of IPALCO January, 1995
Senior Vice President -
Secretary and General Counsel of IPL January, 1995
Ralph E. Canter (43)
Senior Vice President -
Customer Services of IPL May, 1998
Vice President -
Steam Operations May, 1995 May, 1998
Manager of Steam Operations October, 1990 May, 1995
Paul S. Mannweiler (50)
Senior Vice President -
External Affairs of IPL January, 1997
Partner, Locke Reynolds Boyd and Weisell July, 1980 December, 1996
Max Califar (46)
Vice President - Human
Resources of IPL December, 1992
Michael P. Holstein (42)
Vice President - Strategic Business
Initiatives of IPALCO May, 1998
Vice President - Corporate
Strategy and Marketing April, 1996 May, 1998
Corporate Strategies of IPL July, 1995 April, 1996
Senior Manager, Deloitte & Touche LLP March, 1994 July, 1995
Michael G. Banta (49)
Vice President - Financial Strategy May, 1998
Vice President and Assistant General
Counsel of IPL July, 1995 May, 1998
Daniel L. Short (42)
Assistant Treasurer of IPALCO January, 2000
Treasurer of IPL January, 2000
Treasurer of Mid-America Capital Resources January, 1995
Stephen J. Plunkett (51)
Controller of IPALCO
and IPL May, 1991
PART II
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Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
----------------------------------------------------------------------
On March 15, 1999, IPALCO completed its most recent common stock
purchase plan initiated in late 1998. This plan resulted in IPALCO's purchase,
in the open market and in privately negotiated transactions, of 6 million shares
or 6.6% of its outstanding common stock. All shares purchased remained in
Treasury stock at December 31, 1999.
IPALCO's initial stock purchase plan resulted in the purchase of
25,078,856 shares of IPALCO's common stock during 1997, which remained in
Treasury stock at December 31, 1999.
At December 31, 1999, IPALCO had 18,758 holders of common stock of record
(including shareholders whose shares are held in IPALCO PowerInvest, the
Dividend Reinvestment and Direct Stock Purchase Plan of IPALCO Enterprises,
Inc.). IPALCO's common stock is principally traded on the New York Stock
Exchange and the Chicago Stock Exchange. The high and low sale prices for
IPALCO's common stock during 1999 and 1998 as reported on the Composite Tape in
The Wall Street Journal were as follows:
1999 1998
-------------------------- --------------------------
High Low High Low
Sale Price Sale Price Sale Price Sale Price
---------- ---------- ---------- ----------
First Quarter $28 9/16 $21 13/16 $22 5/8 $19 15/16
Second Quarter 24 3/4 21 23 1/16 20 1/8
Third Quarter 22 7/8 18 15/16 23 7/8 20 3/4
Fourth Quarter 21 15 5/8 27 13/16 22 3/4
The high and low sale prices for IPALCO's common stock reported on the
Composite Tape in The Wall Street Journal for the period January 1, 2000,
through February 25, 2000, were: High - $20 15/16, Low - $15 13/16.
Quarterly dividends paid on the common stock during 1999 and 1998 were as
follows:
1999 1998
---- ----
First Quarter $.1375 $.1250
Second Quarter .1500 .1375
Third Quarter .1500 .1375
Fourth Quarter .1500 .1375
At its meeting on February 29, 2000, the Board declared a regular
quarterly dividend on common stock of $.1625 per share, payable April 15, 2000,
to shareholders of record on March 31, 2000.
Dividend Restrictions
- ---------------------
The following restrictions pertain to IPL but, to the extent that the
dividends of IPALCO depend upon IPL earnings, may have an effect on IPALCO. So
long as any of the several series of bonds of IPL issued under the Mortgage and
Deed of Trust, dated as of May 1, 1940, as supplemented and modified, executed
by IPL to American National Bank and Trust Company of Chicago, as Trustee,
remain outstanding, IPL is restricted in the declaration and payment of
dividends, or other distribution on shares of its capital stock of any class, or
in the purchase or redemption of such shares, to the aggregate of its net
income, as defined in Section 47 of such Mortgage, after December 31, 1939. The
amount which these Mortgage provisions would have permitted IPL to declare and
pay as dividends at December 31, 1999, exceeded retained earnings at that date.
Such restrictions do not apply to the declaration or payment of dividends upon
any shares of capital stock of any class to an amount in the aggregate not in
excess of $1,107,155, or to the application to the purchase or redemption of any
shares of capital stock of any class of amounts not to exceed in the aggregate
the net proceeds received by IPL from the sale of any shares of its capital
stock of any class subsequent to December 31, 1939. In addition, pursuant to
IPL's Articles of Incorporation, no dividends may be paid or accrued and no
other distribution may be made on IPL's common stock unless dividends on all
outstanding shares of IPL preferred stock have been paid or declared and set
apart for payment. The management of IPL believes these restrictions will not
materially restrict anticipated dividends.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
(In Thousands Except Per Share Amounts) 1999 1998 1997 1996 1995
- ---------------------------------------
--------------- --------------- --------------- --------------- ---------------
Total utility operating revenues (1) $ 834,652 $ 821,256 $ 776,427 $ 762,503 $ 709,206
Utility operating income 183,501 179,511 167,315 163,219 147,588
Allowance for funds used during
construction 2,201 2,300 4,407 9,321 11,370
Income before cumulative effect of
accounting change 128,947 130,119 95,699 114,275 98,778
Cumulative effect of accounting change (1) - - 18,347 - -
Net income 128,947 130,119 114,046 114,275 98,778
Utility plant - net 1,750,412 1,748,460 1,766,383 1,787,969 1,792,007
Total assets 2,315,837 2,118,945 2,155,558 2,182,701 2,230,029
Common shareholders' equity 677,746 574,191 524,546 857,358 821,635
Cumulative preferred stock of subsidiary 59,135 59,135 9,135 51,898 51,898
Long-term debt (less current
maturities and sinking
fund requirements) 870,050 907,974 1,032,846 662,591 698,600
Utility construction expenditures 103,452 79,458 73,130 78,543 166,874
Nonutility construction expenditures 295 975 1,569 4,187 34,745
BASIC EARNINGS PER SHARE (2) (3)
Income before cumulative effect of
accounting change 1.50 1.45 1.00 1.00 .87
Cumulative effect of accounting change (1) - - .19 - -
Net Income 1.50 1.45 1.19 1.00 .87
DILUTED EARNINGS PER SHARE (2) (3)
Income before cumulative effect of
accounting change 1.49 1.43 .99 1.00 .87
Cumulative effect of accounting change (1) - - .19 - -
Net Income 1.49 1.43 1.18 1.00 .87
Dividends declared per share of
common stock (3) .60 .55 .50 .74 .72
See consolidated financial statements.
(1) In 1997, IPL adopted the unbilled revenue method of accounting for
electricity and steam delivered during the period. Revenues are accrued for
services provided but unbilled at the end of each month (see Notes 1 and 3
in the Notes to Consolidated Financial Statements).
(2) See Note 6 in the Notes to Consolidated Financial Statements.
(3) Per share amounts have been adjusted to reflect the two-for-one common
stock split issued in March 1999 and three-for-two split in 1996.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (INCLUDING ITEM 7A)
-----------------------------------------
IPALCO Enterprises, Inc. (IPALCO) is a holding company incorporated under
the laws of the state of Indiana. Indianapolis Power & Light Company (IPL) and
Mid-America Capital Resources, Inc. (Mid-America) are subsidiaries of IPALCO
Enterprises, Inc. (collectively referred to as Enterprises). Mid-America is the
holding company for the unregulated activities of IPALCO. IPL represents the
regulated subsidiary. Enterprises has two business segments (electric and "all
other"). IPL steam and all subsidiaries other than IPL were combined in the "all
other" category (see Note 15 in the Notes to Consolidated Financial Statements).
FORWARD-LOOKING STATEMENTS
Enterprises hereby files cautionary statements identifying important
factors that could cause Enterprises' actual results to differ materially from
those projected in forward-looking statements of Enterprises. This Form 10-K,
and particularly Management's Discussion and Analysis, contains forward-looking
statements. Forward-looking statements express an expectation or belief and
contain a projection, plan or assumption with regard to, among other things,
future revenues, income, earnings per share or capital structure. Such
statements of future events or performance are not guarantees of future
performance and involve estimates, assumptions and uncertainties. The words
"anticipate," "believe," "estimate," "expect," "forecast," "project,"
"objective," and similar expressions are intended to identify forward-looking
statements.
Some important factors that could cause Enterprises' actual results or
outcomes to differ materially from those discussed in the forward-looking
statements include, but are not limited to, fluctuations in customer growth and
demand, weather, fuel costs, generating unit availability, purchased power costs
and availability, regulatory action, environmental matters, federal and state
legislation, interest rates, labor strikes, maintenance and capital expenditures
and local economic conditions. In addition, IPL's ability to have available an
appropriate amount of production capacity in a timely manner can significantly
affect IPL's financial performance. The timing of deregulation and competition,
product development and technology changes are also important potential factors.
Most of these factors affect Enterprises through its wholly owned subsidiary,
IPL.
All such factors are difficult to predict, contain uncertainties that may
materially affect actual results and are beyond the control of Enterprises.
LIQUIDITY AND CAPITAL RESOURCES
IPALCO
- ------
On February 25, 1997, the Board of Directors (Board) of IPALCO approved a
new financial strategy designed to maximize shareholder value and position it
for an increasingly competitive business environment. The principal elements of
the strategy include:
A recapitalization of IPALCO to employ a higher degree of leverage in the
capital structure while the electric utility industry is in a transition
period between regulation and competition.
A dividend policy guided by, among other factors, paying out 45% to 50%
of the prior year's earnings (adjusted for one-time events).
A target debt-to-capital ratio of 45%, which IPALCO believes can be
achieved in 2002.
Consistent with the strategy, during 1997, IPALCO purchased
approximately 25.1 million shares, or about 21%, of its outstanding common
stock. Such purchase was accomplished in a single transaction through a
self-tender offer (1997 Tender Offer) at a price of $16 per share, resulting in
a total transaction value of approximately $403.1 million. On March 15, 1999,
IPALCO completed a second common stock purchase plan (1998 Purchase Plan) which
began in 1998. The 1998 Purchase Plan resulted in the purchase, through the open
market and in privately negotiated transactions, of 6 million shares or 6.6% of
IPALCO's outstanding common stock for a total cost of $154 million.
The 1997 Tender Offer was financed with a $401 million revolving credit
facility (revolver) which was issued in April 1997. By July 15, 1998, the
outstanding balance under the revolver had been reduced to $234 million. At that
time, IPALCO replaced the revolver with a commercial paper facility. The 1998
Purchase Plan was financed with the issuance of additional commercial paper
through the commercial paper facility, as well as with cash flows from
operations. The net outstanding balance of the commercial paper facility at
December 31, 1999, was $211.2 million.
As a result of the common stock and debt transactions enumerated above,
Enterprises' debt-to-capital ratio increased from 42.6% at December 31, 1996, to
65.9% at December 31, 1997. At December 31, 1998, Enterprises debt-to-capital
ratio was 59.0% and at December 31, 1999, the debt-to-capital ratio was 55.6%.
Enterprises believes its earnings and cash flow will be sufficient to allow it
to retain earnings and reduce debt so that the target debt-to-capital ratio of
45% can be achieved in 2002. There can be no assurance, however, that such a
target ratio can be achieved or that economic or industry factors will not make
achieving such a ratio impractical or undesirable. Enterprises continually
evaluates additional purchases of outstanding IPALCO common stock, and
investments in new growth, as possible alternatives to its basic plan of using
its cash flow to achieve its target debt-to-capital ratio in 2002. There can be
no assurance as to the timing or outcome of such evaluations.
During 1998 and 1999, Mid-America invested $1.2 million in Internet
Capital Group LLC. The limited liability company, which is an internet holding
company, merged into Internet Capital Group, Inc. (Nasdaq: ICGE) and went public
on August 5, 1999. At December 31, 1999, Mid-America held 1,030,600 shares of
ICGE. During February 2000, Mid-America sold 1 million shares of ICGE at an
average price per share of $113.17. The after-tax proceeds from this sale were
applied primarily to the reduction of IPALCO's outstanding unsecured debt. Also
during 1999, Mid-America made a commitment to invest $15 million in EnerTech
Capital Partners II L.P., a venture capital fund. The fund invests in service
and technology companies providing innovative products and services that take
advantage of opportunities created by deregulation of the energy and
telecommunications industries. At December 31, 1999, Mid-America had funded $1.5
million of such commitment and expects to fund the balance during 2000.
Also consistent with its financial strategy, simultaneously with the
announcement of the 1997 Tender Offer on February 25, 1997, IPALCO reduced its
quarterly dividend from $.185 per share ($.74 annually) to $.125 per share ($.50
annually). Since that time, IPALCO has increased its quarterly dividend each
year. On February 29, 2000, the Board increased the quarterly dividend to $.1625
per share ($.65 annually), up from $.15 per share ($.60 annually) during 1999.
IPALCO believes its financial strategy will enable it to raise sufficient
funds, when necessary, to replace existing assets and undertake investments in
new growth while maintaining a prudent balance between debt and equity in the
capital structure. IPALCO believes its actions preserve the financial
flexibility necessary to accommodate unexpected future cash needs.
Sustaining investment grade debt ratings is a key element for having
adequate liquidity and financial flexibility. As of December 31, 1999, IPALCO's
corporate credit rating was A+ as rated by Standard & Poor's. IPALCO's senior
unsecured debt was rated AA- by Duff & Phelps and its commercial paper was rated
P-1 by Moody's, A-1 by Standard & Poor's and D-1+ by Duff & Phelps.
IPL
- ---
Nature of Operations and Regulatory Matters
-------------------------------------------
Regulation
- ----------
IPL is a regulated public utility and is principally engaged in providing
electric and steam service to the Indianapolis metropolitan area. As a regulated
entity, IPL is required to use certain accounting methods prescribed by
regulatory bodies which may differ from those accounting methods required to be
used by nonregulated entities (see Note 1 in the Notes to Consolidated Financial
Statements).
IPALCO and IPL are subject to extensive regulation at both the federal
and state level. For example, IPALCO is subject to the normal, yet significant,
regulatory requirements of the Securities and Exchange Commission. IPL is
substantially affected by the regulatory jurisdiction of the Environmental
Protection Agency and the Federal Energy Regulatory Commission at the federal
level and the Indiana Department of Environmental Management and the Indiana
Utility Regulatory Commission (IURC) at the state level. Other significant
regulatory agencies affecting the Company include, but are not limited to, the
U.S. Department of Labor and the Indiana Occupational Safety and Health
Administration. The regulatory power of the IURC over IPL is both comprehensive
and typical of the economic regulation generally imposed by state public utility
commissions over investor-owned utilities.
An inherent business risk facing any regulated public utility is that of
unexpected or adverse regulatory action. Regulatory discretion is reasonably
broad in Indiana, as elsewhere. Therefore, IPL attempts to work cooperatively
with regulators and those who participate in the regulatory process, while
remaining vigilant and steadfast in protecting IPL's legal rights in the
regulatory process. IPL takes an active role in addressing regulatory policy
issues in the current regulatory environment, which is subject to rapid change
in large part because of the trend toward restructuring of the United States
electric utility industry and increased activity by environmental regulators.
Elect Plan
- ----------
In 1998, the IURC approved a plan that allows IPL to offer customers with
less than 2,000 kilowatts of demand an opportunity to choose from optional
payment or service plans. IPL's authority to offer these options will expire on
September 18, 2001, and any contracts entered into thereunder must terminate on
or before that date unless a subsequent plan is approved by the IURC.
Under the plan, eligible IPL customers may enter into written contracts
for:
Fixed Rate - Pay a guaranteed fixed rate per unit of consumption
for one or more years.
Green Power - Purchase environmentally friendly or "green" power.
Additionally, residential customers may choose a "Sure Bill" option,
paying the same bill each month for 12 months, regardless of how much
electricity is used. Customers not choosing one of these options continue to
receive electric service under existing tariffs. (See Item 1, BUSINESS, under
the subheading "Retail Ratemaking.")
Authorized Annual Operating Income
- ----------------------------------
During quarterly fuel adjustment clause proceedings, the annual
jurisdictional operating income of IPL's electric business is subject to review.
IPL's steam business is subject to annual fuel adjustment clause proceedings.
Customer refunds could result if actual annual jurisdictional operating income
exceeds levels authorized by the IURC (see Note 1 in the Notes to Consolidated
Financial Statements). IPL does not anticipate any customer refunds to result
from such reviews during 2000.
Competition and Industry Changes
--------------------------------
In recent years, various forms of proposed industry-restructuring
legislation and/or rulemakings have been introduced at the federal level and in
several states. Generally, the intent of these initiatives is to encourage an
increase in competition within the regulated electric utility industry. While
federal rulemaking to date has addressed only the electric wholesale market,
various state legislatures are considering or have enacted new laws impacting
the retail energy markets within their respective states. A discussion of the
legislative and regulatory initiatives most likely to affect IPL follows:
Wholesale Energy Market
- -----------------------
In April 1996, the Federal Energy Regulatory Commission (FERC) issued
Orders 888 and 889 concerning open access transmission service for wholesale
sales. These Orders require all utilities under FERC jurisdiction to: 1. file
open, nondiscriminatory transmission access tariffs with FERC; 2. offer
transmission to eligible customers comparable to service they provide
themselves; and 3. take service under the tariffs for their own wholesale sales
and purchases of electricity. IPL filed its open access transmission tariff on
January 6, 2000. Historically, FERC has issued an order making such tariffs
effective as of their date of filing. FERC Order 888 also provides for the
recovery of utility stranded costs that are defined as the difference between
revenues received by utilities under traditional ratemaking and market-based
prices.
In December 1999, FERC issued Order 2000, which provides for the
voluntary formation of regional transmission organizations (RTOs), entities
created to operate, plan and control utility transmission assets. Order 2000
also prescribes certain characteristics and functions of acceptable RTO
proposals. The rule requires all public utilities that own, operate or control
interstate transmission to individually file in October 2000, either a proposal
to join an RTO or the reasons for not participating in an RTO.
Retail Energy Market
- --------------------
The legislatures of several states have enacted, and many other states
are considering, new laws that would allow various forms of competition for
retail sales of electric energy. While each state proposal is different, most
provide for some recovery of a utility's stranded costs and require an extended
transition period before competition is fully effective. Additionally, a few
states have implemented pilot programs that experiment with allowing some form
of customer choice of electricity suppliers.
In Indiana, competition among electric energy providers for sales has
focused primarily on the sale of bulk power to other public and municipal
utilities. Indiana law provides for electricity suppliers to have exclusive
retail service areas.
In 1995, the Indiana General Assembly, anticipating increasing
competitive forces in the regulated public utility industry, enacted I.C.
8-1-2.5. This law enables the IURC to consider and approve, on an individual
utility basis, utility-initiated proposals wherein the IURC declines to exercise
jurisdiction over the whole or any part of the utility, or its retail energy
service or both. The IPL Elect Plan was approved by the IURC under this law.
During 1997, the Indiana General Assembly authorized a legislative study
committee to assess the issue of electric utility competition and restructuring.
A comprehensive restructuring bill was introduced in the Indiana Senate in 1998,
but failed to pass. Subsequently, comprehensive restructuring bills were
submitted in both 1999 and 2000, and also failed to pass. IPL continues to work
cooperatively with other electric utilities in Indiana regarding future
legislation. However, the outcome of such efforts is uncertain.
National Ambient Air Quality Standards
- --------------------------------------
On July 16, 1997, the United States Environmental Protection Agency (EPA)
promulgated final rules tightening the National Ambient Air Quality Standards
for ozone and creating new fine particulate matter standards. On October 29,
1999, after conducting a rehearing of its initial decision of May 14, 1999, the
United States Court of Appeals for the District of Columbia Circuit determined
that the new ozone standards were not issued lawfully, but left open the
question of future remedy. The Court also determined that the standards for fine
particulate matter were legally deficient in certain respects. EPA has
petitioned the Supreme Court to review the Court of Appeals' decision.
NOx SIP Call
- ------------
On October 27, 1998, EPA issued a final rule calling for Indiana, along
with 22 other jurisdictions in the eastern third of the United States, to impose
more stringent limits on nitrogen oxides (NOx) from fossil-fuel fired steam
electric generators, such as those operated by Enterprises. This rule (the NOx
SIP Call) was based in part on the new ozone standards that were later held
unlawful in the Court of Appeals' decision discussed above. In a separate
decision on May 25, 1999, the Court of Appeals stayed the compliance deadlines
in the NOx SIP Call.
Because power plants emit nitrogen oxides, as well as certain air
pollutants that may contribute to formation of fine particulate matter, existing
Enterprises sources may be required to be retrofitted with additional air
pollution controls in the future, either as a result of EPA's 1997 and 1998
regulations or due to future regulatory actions. Enterprises is a party to
litigation concerning EPA's 1997 and 1998 final regulations, and that litigation
is still in progress.
EPA's NOx SIP Call would require operators of coal-fired electric utility
boilers in the affected states to limit NOx emissions to 0.15 pounds per million
BTUs of heat input as a system-wide average. That limit calls for a reduction of
about 85% from 1990 average emissions from coal-fired electric utility boilers,
and a reduction of about 57% from Enterprises' current emissions.
It is not possible to predict whether EPA's NOx SIP Call will ultimately
survive judicial review. Nor is it possible at this time to predict accurately
the costs of compliance. Enterprises' preliminary estimates are that the NOx SIP
Call would necessitate capital expenditures of about $180 million.
The Indiana Department of Environmental Management has recently
circulated a draft rule calling for coal-fired electric utilities to meet an
emission limit of 0.25 pounds of NOx per million BTUs of heat input on a
company-wide basis. Preliminary estimates are that compliance with such a limit
would call for Enterprises to expend capital of approximately $81 million. It is
not possible to predict whether the draft rule will ever become effective.
As to timing, if either of the requirements discussed in the two
preceding paragraphs became effective, they would likely do so during the
2000-2001 period and would probably necessitate deployment of capital during the
period between 2002 and 2005. There can be no certainty about these estimates.
Enterprises expects to refine the above estimates as engineering studies
progress and when, as, and if such rules become effective.
Liquidity, Financing Requirements and Capital Market Access
-----------------------------------------------------------
Liquidity is the ability of an entity to meet its short-term and
long-term cash needs. IPL's liquidity is a function of its ability to generate
internal funds, its construction program, its mortgage covenants and loan
agreements and its access to external capital markets.
Sustaining investment grade debt ratings is also a key element for having
adequate liquidity and financial flexibility. As of December 31, 1999, IPL's
senior secured debt was rated AA- by Standard & Poor's, Aa2 by Moody's Investor
Services and AA+ by Duff & Phelps, and IPL's commercial paper was rated A-1+ by
Standard & Poor's, P-1 by Moody's Investor Services and D-1+ by Duff & Phelps.
IPL expects to be able to maintain investment grade debt ratings into the
foreseeable future.
During 1999, IPL refinanced its $23.5 million 7.45% Series first mortgage
bonds with the use of proceeds from a $23.5 million unsecured note. The 1999
Series note has an interest rate based on tax-exempt auction rates and has a
maturity date of August 1, 2030 (see Note 7 in the Notes to Consolidated
Financial Statements).
IPL has no long-term debt that matures during 2000. However, other
existing higher-rate debt may be refinanced depending upon market conditions.
During the next five years, IPL expects to meet its cash requirements
without any additional permanent financing. Cash flows from operations and
temporary short-term borrowings are projected to provide the funds required for
IPL's construction program. See the following section for discussion of the
construction program.
Future Performance
------------------
Traditionally, retail KWH sales, after adjustments for weather
variations, have grown in reasonable correlation with growth in service
territory economic activity. During the past 10 years, IPL's retail KWH sales
have grown at a compound annual rate of 2.0%, while the Indianapolis economy
grew at an annual rate of 2.5%. The Indianapolis economy is expected to grow at
an annual rate of 2.7% for 2000 through 2004, according to the Kelley School of
Business at Indiana University.
IPL's wholesale KWH sales decreased 12% in 1999 from the level achieved
in 1998, largely as a result of planned and unplanned generating unit outages.
As IPL's retail sales grow, the level of generating capacity available for
wholesale sales is more limited. The ability to sell power in the highly
competitive wholesale market is also highly dependent on market conditions and
the level and frequency of unplanned outages. IPL is unable to predict, with any
degree of certainty, the level of wholesale sales that may be achieved in 2000.
Operating and maintenance expenses were $425.0 million in 1999. These
expenses in 2000 will be influenced by the level of KWH generation, generating
unit availability and overhaul costs, purchased power costs, cost control
programs and inflation. IPL depends on purchased power, in part, to meet its
retail obligations. Purchased power costs are highly volatile and, therefore,
IPL is unable to predict with any degree of certainty the level of those costs
for 2000.
IPL's construction program for the three-year period 2000-2002 is
estimated to cost $294.0 million including AFUDC. The estimated cost of the
program by year (in millions) is $106.5 in 2000, $103.9 in 2001 and $83.6 in
2002. It includes $152.2 million for additions, improvements and extensions to
transmission and distribution lines, substations, power factor and voltage
regulating equipment, distribution transformers and street lighting facilities.
The construction program also includes $6.6 million of the remaining costs for
construction of a 100-megawatt combustion turbine expected to be in service by
June 2000. These projected amounts also include $20.7 million of costs
associated with new environmental standards proposed by the EPA which are
currently under appeal in the United States Court of Appeals (see "Competition
and Industry Changes").
Other
-----
Cumulative Effect of Accounting Change
- --------------------------------------
On December 31, 1997, effective January 1, 1997, IPL adopted the unbilled
revenue method of accounting for all electric and steam sales to more closely
match revenues with expenses. Under this method, IPL accrues revenues for all
electric and steam energy delivered to customers during the period, whether
billed or not. Previously, IPL recognized these revenues only as customers were
billed, with the service rendered after monthly meter reading dates through the
end of a calendar month recognized as operating revenues in the following month.
The cumulative effect of this change in accounting method as of January 1, 1997,
net of taxes, was a one-time income increase of $18.3 million, and was reported
as a separate component of net income for 1997. This accounting change does not
affect IPL's cash flow or liquidity (see Note 3 in the Notes to Consolidated
Financial Statements).
Preferred Stock, Debt Issuance and Dividend Restrictions
- --------------------------------------------------------
Restrictions on IPL's ability to issue certain securities or pay cash
dividends are contained in its Mortgage and Deed of Trust (Mortgage) and its
Amended Articles of Incorporation (Articles). The Articles require that, so long
as any shares of preferred stock are outstanding, the net income of IPL, as
specified therein, be at least one and one-half times the total interest on the
funded debt and the pro forma dividend requirements on the outstanding, and any
proposed, preferred stock before any additional preferred stock is issued. The
Mortgage requires that net earnings as calculated thereunder be two and one-half
times the annual interest requirements before additional bonds can be
authenticated on the basis of property additions. Based on IPL's net earnings
for the 12 months ended December 31, 1999, the ratios under the Articles and the
Mortgage are 5.05 and 12.35, respectively.
The following restrictions pertain to IPL but, to the extent that the
dividends of IPALCO depend upon IPL earnings, may have an effect on IPALCO. So
long as any of the several series of bonds of IPL issued under its Mortgage
remain outstanding, and subject to certain exceptions, IPL is restricted in the
declaration and payment of dividends, or other distribution on shares of its
capital stock of any class, or in the purchase or redemption of such shares, to
the aggregate of its net income, as defined in Section 47 of such Mortgage,
after December 31, 1939. The amount which these Mortgage provisions would have
permitted IPL to declare and pay as dividends at December 31, 1999, exceeded
retained earnings at that date. In addition, pursuant to IPL's Articles, no
dividends may be paid or accrued and no other distribution may be made on IPL's
common stock unless dividends on all outstanding shares of IPL preferred stock
have been paid or declared and set apart for payment.
IPL believes these requirements will not restrict any anticipated future
financings or cash dividend payments. At December 31, 1999, and considering all
existing restrictions, IPL had the capacity to issue approximately $1.2 billion
of additional long-term debt.
MID-AMERICA
- -----------
Nature of Operations
--------------------
Mid-America, the holding company for the unregulated activities of
Enterprises, has as subsidiaries Mid-America Energy Resources, Inc. (Energy
Resources), Indianapolis Campus Energy, Inc. (ICE), Cleveland Thermal Energy
Corporation (Cleveland Thermal) and Cleveland District Cooling Corporation
(Cleveland Cooling). Energy Resources owns and operates a district cooling
system in downtown Indianapolis, Indiana. ICE provides chilled water to the
Lilly Technology Center located near downtown Indianapolis. Cleveland Thermal
owns and operates a district heating system in Cleveland, Ohio. Cleveland
Cooling owns and operates a district cooling system in Cleveland.
Capital and Financing Requirements
----------------------------------
Total capital requirements of Mid-America and its subsidiaries, including
funds needed for construction and maturing debt obligations, are estimated to be
$2.1 million, $3.5 million and $3.7 million during the next three years. The
cash requirements of Mid-America subsidiaries are expected to be funded by
Mid-America from its existing liquid assets, future cash flows from its
operations and from temporary short-term borrowings.
During 1999, Energy Resources refinanced its $9.5 million 7.25% note due
2011, and its $9.3 million variable rate note due 2030, with the proceeds of an
$18.8 million variable rate note which varies with the tax-exempt weekly rate.
The new $18.8 million note has a $9.5 million maturity on December 1, 2011, and
the remainder is due on September 1, 2030 (see Note 7 in the Notes to
Consolidated Financial Statements).
In 1997, Enterprises initiated a plan to sell, during 1998, Cleveland
Thermal and Cleveland Cooling (collectively referred to as CER) and ceased
recording depreciation. During the third quarter of 1998, Enterprises determined
that it was not probable that CER would be sold during 1998, and resumed
depreciation on these assets. Enterprises anticipates the sale of CER in 2000.
IPALCO ENTERPRISES CONSOLIDATED
- -------------------------------
Market Risk Sensitive Instruments and Positions
-----------------------------------------------
The primary market risk to which Enterprises is exposed is related to
interest rate risk. Enterprises uses long-term debt as a primary source of
capital in its business. A portion of this debt has an interest component that
resets on a periodic basis to reflect current market conditions. The following
table presents the principal cash repayments and related weighted average
interest rates by maturity date for Enterprises' long-term fixed-rate debt and
its other types of long-term debt at December 31, 1999:
Maturity Schedule
Period Ending December 31
Fair
(Dollars in Millions) 2000 2001 2002 2003 2004 Thereafter Total Value
- ---------------------------------------------------------------------------------------------------------------
Long-term debt
Fixed rate $1.7 $3.3 $3.4 $3.8 $84.1 $423.6 $519.9 $505.2
Average rate 7.9% 7.9% 7.9% 7.9% 6.1% 7.0% 6.9%
Variable rate - - - - - $192.3 $192.3 $192.3
Average rate - - - - - 3.8% 3.8%
Recapitalization debt $50.8 $80.2 $80.2 - - - $211.2 $211.2
Average rate 6.7% 6.7% 6.7% - - - 6.7%
To manage Enterprises' exposure to fluctuations in interest rates and to
lower funding costs, Enterprises constantly evaluates the use of, and has
entered into, interest rate swaps. Under these swaps, Enterprises or its
subsidiaries agree with counterparties to exchange, at specified intervals, the
difference between fixed-rate and floating-rate interest amounts calculated on
an agreed notional amount. This interest differential paid or received is
recognized in the consolidated statements of income as a component of interest
expense.
At December 31, 1999, IPALCO had an interest rate swap agreement
outstanding with a notional amount of $150 million, of which the notional amount
decreases $25 million each quarter. Enterprises has agreed to pay a fixed rate
of 6.3575% and receive a floating rate based on applicable LIBOR. The fair value
of IPALCO's swap agreement was $(0.1) million at December 31, 1999.
At December 31, 1999, IPL had an interest rate swap agreement with a
notional amount of $40 million, which expires in January 2023. IPL agrees to pay
interest at a fixed rate of 5.21% to a swap counter party and receive a variable
rate based on the tax-exempt weekly rate. The fair value of IPL's swap agreement
was $0.4 million at December 31, 1999.
Other
-----
Year 2000
- ---------
Enterprises has not discovered any significant problems associated with
its systems as a result of the year change from 1999 to 2000. It is unlikely
that any such problems will be encountered in the future. However, should such
problems occur, Enterprises has established a Year 2000 Committee which would
act to correct any problems as a result of the year changeover. It is not likely
that any such occurrences would have a material effect on the financial position
or results of operations of the Company.
Cash Flows
- ----------
Additional information regarding Enterprises' historical cash flows from
operations, investing and financing for the past three years, including the
capital expenditures of IPL and Mid-America, are disclosed in the Statements of
Consolidated Cash Flows and in the Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following discussion pertains to the consolidated financial
statements of IPALCO Enterprises, Inc.
Diluted earnings per share during 1999 were $1.49, or $.06 above the
$1.43 attained in 1998. Diluted earnings per share during 1998 were $1.43, or
$.25 above the $1.18 attained in 1997. The following discussion highlights the
factors contributing to these results.
The weighted average shares used to calculate diluted earnings per share
for each of the years reported were substantially affected by stock purchases.
The first purchase occurred in April 1997 and resulted in the purchase by IPALCO
of approximately 25.1 million shares (approximately 21%) of its outstanding
common stock. On March 15, 1999, IPALCO completed a second common stock purchase
plan. This plan, which began in 1998, resulted in the purchase, in the open
market and in privately negotiated transactions, of 6 million shares or 6.6% of
IPALCO's outstanding common stock. Of the 6 million shares purchased during the
second plan, 3.5 million shares were purchased during 1999.
Utility Operating Revenues
- --------------------------
Operating revenues in 1999 and 1998 increased from the prior year
by $13.4 million and $44.8 million, respectively. The increases in
revenues resulted from the following:
Increase (Decrease)
-------------------
1999 over 1998 1998 over 1997
-------------- --------------
(In Millions)
Electric:
Change in retail KWH sales - net of fuel $ 17.5 $ 14.5
Change in estimate for unbilled revenue 8.0 -
Fuel revenue (0.1) 3.5
Wholesale revenue (9.9) 28.0
DSM tracker revenue 0.8 1.3
Steam revenue (1.1) (2.9)
Other revenue (1.8) 0.4
------ ------
Total change in operating revenues $ 13.4 $ 44.8
====== ======
The increase in retail KWH sales in 1999 primarily was due to economic
growth in Indianapolis. The increase in 1998 also reflected economic growth in
Indianapolis, as well as an increase in cooling degree days during the summer
partially offset by a decrease in heating degree days. Actual and percentage
changes in electric customers and in heating and cooling degree days for these
periods are as follows:
Increase (Decrease)
-------------------
1999 over 1998 1998 over 1997
-------------- --------------
Electric Residential Customers 5,856 1.5% 5,257 1.4%
Commercial & Industrial Customers 451 1.0% 1,169 2.6%
Heating Degree Days 448 10.1% (1,261) (22.2)%
Cooling Degree Days (73) (5.8)% 381 43.8%
A change in the estimate for unbilled revenue was made during 1999. The
changes in fuel revenues in 1999 and 1998 from the prior year reflect
differences in fuel costs billed to customers. Wholesale sales were $41.2
million, $51.1 million and $23.1 million for 1999, 1998 and 1997, respectively.
The decrease in wholesale revenues in 1999 was a result of both planned and
unplanned generating unit outages during 1999. The increase in wholesale
revenues during 1998 reflected increased wholesale marketing efforts and energy
requirements of other utilities. The decrease in other revenues during 1999
reflects decreased service revenues.
Utility Operating Expenses
- --------------------------
Fuel expense decreased in 1999 by $7.2 million due primarily to a
decrease in deferred fuel cost and a 0.3% decrease in generation caused by
unscheduled unit outages. During 1998, fuel expense increased by $16.5 million
primarily as a result of increased total KWH sales.
Other operating expenses decreased $18.3 million in 1999 primarily due to
decreased administrative and general expenses of $10.5 million and increased
sales of emission allowances of $4.8 million (reduced operating expenses) as
well as other cost improvements. The decreased administrative and general
expenses were primarily due to decreased benefits expense as well as the
non-recurrence of a $2.2 million charge in 1998 for a voluntary early retirement
and separation program. During 1998, other operating expenses increased from the
prior year by $12.3 million. The increase in 1998 was partially due to increased
administrative and general expenses of $7.7 million. This increase was due to
the voluntary early retirement and separation program as well as increased
outside services and increased labor costs. Electric distribution expenses
increased $1.7 million and production expenses increased $1.5 million during
1998.
Power purchased increased by $22.6 million during 1999 as a result of the
combination of higher market prices for scheduled summer peaking power and a
$13.0 million increase in replacement power costs due to the unusually high
level of generating unit outages during peak electricity demand in the third
quarter of 1999. Power purchased decreased $0.7 million during 1998 due to
decreased demand charges partially offset by increased purchases of KWH.
Maintenance expenses increased by $4.1 million during 1999 and decreased
by $3.2 million during 1998. These variances primarily reflect the timing of
major generating unit overhauls.
Taxes other than income taxes decreased by $0.9 million during 1999
primarily due to decreased employment taxes. During 1998, taxes other than
income taxes increased $2.0 million from the prior period due to increased
property taxes, gross income taxes and employment taxes.
Income taxes - net increased in both 1999 and 1998 from the prior
years by $4.3 million and $6.9 million, respectively. These changes reflect
increases in pretax operating income.
Other Income And Deductions
- ---------------------------
Allowance for equity funds used during construction did not change during
1999 from the prior period. During 1998, allowance for equity funds used during
construction decreased $2.1 million. In mid-1997, the amortization of deferred
carrying charges on a plant asset ended, contributing to this decrease.
Other - net, which includes the pretax income before interest charges of
operations other than IPL, as well as pre-tax non-operating income from IPL,
increased by $6.6 million during 1999 and decreased by $5.1 million during 1998,
as compared to the prior years. The increase in 1999 was due to an insurance
recovery of $3.2 million and the non-recurrence of a $3.0 million charitable
contribution in 1998. The decrease in 1998 was due primarily to the
non-recurring gain from the sale of a retired IPL plant site in 1997, and the
charitable contribution of $3.0 million in 1998.
During 1998, a gain from the liquidation and termination of an agreement
to purchase power was recognized by IPL in the amount of $12.5 million before
taxes.
The provision for impairment of nonutility property during 1997 reflects
a charge of $32 million to write down the carrying values of Cleveland Thermal
and Cleveland Cooling (see Note 2 in the Notes to Consolidated Financial
Statements).
Interest and Other Charges
- --------------------------
Interest on long-term debt decreased by $1.9 million during 1999 from the
prior period. The decrease was primarily due to a lower average amount of
principal outstanding on the recapitalization debt facility at IPALCO and from
decreased interest expense on floating rate debt at IPL due to lower average
interest rates during the year.
Other interest charges increased by $0.6 million during 1999 as a result
of increased short-term debt borrowing at IPL. Interest expense decreased $0.7
million during 1998 primarily due to decreased short-term debt borrowings and
decreased interest on tax assessments.
Amortization of redemption premiums and expenses on debt - net increased
in 1999 and 1998 compared to the previous periods. The 1999 increase of $0.5
million was primarily due to costs associated with Energy Resources' replacement
of its $9.5 million 7.25% Series note and its $9.3 million 1995 Series variable
rate note with the $18.8 million 1999 Series variable rate note. The increased
expense during 1998 was due to a full year of amortization of the costs
associated with debt issued during 1997.
Preferred stock transaction costs increased $0.4 million during 1999 and
$1.7 million during 1998 as compared to the prior periods. The increases reflect
the dividends of the January 1998 issue of 500,000 shares of 5.65% preferred
stock and the 1997 retirement of preferred stock.
Cumulative Effect of Accounting Change
- --------------------------------------
A cumulative effect of accounting change in the amount of $18.3 million,
net of taxes, was recorded during 1997. Effective January 1, 1997, IPL adopted
the unbilled revenue method of accounting for electricity and steam delivered
during the period. Revenues are accrued for services provided but unbilled at
the end of each month (see Notes 1 and 3 in the Notes to Consolidated Financial
Statements).
New Accounting Pronouncement
- ----------------------------
The Financial Accounting Standards Board issued Statement of Financial
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities," in June 1998. SFAS 137 delayed the effective date of this standard
to all fiscal quarters of all fiscal years beginning after June 15, 2000 (see
Note 1 in the Notes to Consolidated Financial Statements).
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
============================
To the Shareholders and Board of Directors of IPALCO Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of IPALCO
Enterprises, Inc. and its subsidiaries as of December 31, 1999 and 1998, and the
related statements of consolidated income, common shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of IPALCO Enterprises, Inc. and its
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, in 1997 the
Company changed its method of accounting for unbilled revenue.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
January 20, 2000
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
Statements of Consolidated Income
For the Years Ended December 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
UTILITY OPERATING REVENUES (Notes 3 and 10):
Electric $ 800,337 $ 785,835 $ 738,134
Steam 34,315 35,421 38,293
----------- ------------ -----------
Total operating revenues 834,652 821,256 776,427
----------- ------------ -----------
UTILITY OPERATING EXPENSES:
Operation:
Fuel 173,872 181,036 164,578
Other 137,348 155,610 143,311
Power purchased 29,769 7,170 7,833
Purchased steam 6,391 5,968 7,075
Maintenance 77,637 73,501 76,679
Depreciation and amortization 107,469 103,223 103,230
Taxes other than income taxes 34,190 35,047 33,071
Income taxes - net (Note 9) 84,475 80,190 73,335
----------- ------------ -----------
Total operating expenses 651,151 641,745 609,112
----------- ------------ -----------
UTILITY OPERATING INCOME 183,501 179,511 167,315
----------- ------------ -----------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 1,372 1,389 3,462
Other - net 3,580 (2,995) 2,140
Gain on termination of agreement (Note 13) - 12,500 -
Provision for impairment of nonutility property (Note 2) - - (32,000)
Income taxes - net (Note 9) 5,688 5,231 19,004
----------- ------------ -----------
Total other income and (deductions) - net 10,640 16,125 (7,394)
----------- ------------ -----------
INCOME BEFORE INTEREST AND OTHER CHARGES 194,141 195,636 159,921
----------- ------------ -----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 58,584 60,489 60,385
Other interest 1,671 1,071 1,799
Allowance for borrowed funds used during construction (829) (911) (945)
Amortization of redemption premiums and expenses on
debt - net 2,555 2,062 1,903
Preferred stock transactions 3,213 2,806 1,080
----------- ------------ -----------
Total interest and other charges - net 65,194 65,517 64,222
----------- ------------ -----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 128,947 130,119 95,699
CUMULATIVE EFFECT OF ACCOUNTING CHANGE-
NET OF TAXES (Note 3) - - 18,347
----------- ------------ -----------
NET INCOME $ 128,947 $ 130,119 $ 114,046
=========== ============ ===========
BASIC EARNINGS PER SHARE (Note 6):
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 1.50 $ 1.45 $ 1.00
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3) - - .19
----------- ------------ -----------
NET INCOME $ 1.50 $ 1.45 $ 1.19
=========== ============ ===========
DILUTED EARNINGS PER SHARE (Note 6):
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 1.49 $ 1.43 $ .99
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3) - - .19
----------- ------------ -----------
NET INCOME $ 1.49 $ 1.43 $ 1.18
=========== ============ ===========
See notes to consolidated financial statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
- -------------------------------------------------------------------------------------------------------------------------
ASSETS 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands)
UTILITY PLANT:
Utility plant in service (Note 2) $ 2,922,338 $ 2,859,899
Less accumulated depreciation 1,299,122 1,202,356
---------------- ----------------
Utility plant in service - net 1,623,216 1,657,543
Construction work in progress 116,478 80,198
Property held for future use 10,718 10,719
---------------- ----------------
Utility plant - net 1,750,412 1,748,460
---------------- ----------------
OTHER ASSETS:
Nonutility property (Note 2) 84,937 91,319
Less accumulated depreciation 15,881 19,485
---------------- ----------------
Nonutility property - net 69,056 71,834
Available for sale securities (Note 14) 175,202 -
Other investments 13,970 12,234
---------------- ----------------
Other assets - net 258,228 84,068
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 23,935 9,075
Accounts receivable and unbilled revenue (less allowance for doubtful
accounts - 1999, $1,360,000 and 1998, $1,212,000) 51,357 39,702
Fuel - at average cost 52,016 39,147
Materials and supplies - at average cost 48,694 48,624
Tax refund receivable 770 9,647
Prepayments and other current assets 9,465 4,863
---------------- ----------------
Total current assets 186,237 151,058
---------------- ----------------
DEFERRED DEBITS:
Regulatory assets (Note 5) 107,948 116,801
Miscellaneous 13,012 18,558
---------------- ----------------
Total deferred debits 120,960 135,359
---------------- ----------------
TOTAL $ 2,315,837 $ 2,118,945
================ ================
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1999 1998
- --------------------------------------------------------------------------------------------------------------------
(In Thousands)
CAPITALIZATION:
Common shareholders' equity (Note 6):
Common stock, no par, authorized - 290,000,000 shares,
116,806,470 issued and 85,727,614 outstanding in 1999,
116,412,526 issued and 88,863,026 outstanding in 1998 $ 439,066 $ 435,300
Unearned compensation - restricted stock (1,979) (6,003)
Premium on 4% cumulative preferred stock 649 649
Retained earnings 690,455 612,941
Accumulated other comprehensive income (Note 14) 106,733 -
Treasury stock, at cost (557,178) (468,696)
--------------- ---------------
Total common shareholders' equity 677,746 574,191
Cumulative preferred stock of subsidiary (Note 6) 59,135 59,135
Long-term debt (Notes 2 and 7) 870,050 907,974
--------------- ---------------
Total capitalization 1,606,931 1,541,300
--------------- ---------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper (Note 8) 57,578 25,200
Current maturities and sinking fund requirements (Note 7) 52,477 1,425
Accounts payable and accrued expenses 56,798 71,835
Dividends payable 13,859 13,392
Taxes accrued 22,237 20,723
Interest accrued 13,767 14,376
Other current liabilities 13,356 13,731
--------------- ---------------
Total current liabilities 230,072 160,682
--------------- ---------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Deferred income taxes - net (Note 9) 400,588 318,327
Unamortized investment tax credit 39,226 41,993
Accrued postretirement benefits (Note 11) 4,338 10,768
Accrued pension benefits (Note 11) 29,018 39,953
Miscellaneous 5,664 5,922
--------------- ---------------
Total deferred credits and other long-term liabilities 478,834 416,963
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 12)
TOTAL $ 2,315,837 $ 2,118,945
=============== ===============
See notes to consolidated financial statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
CASH FLOWS FROM OPERATIONS:
Net income $ 128,947 $ 130,119 $ 114,046
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 110,297 102,977 103,841
Amortization of regulatory assets 14,470 14,246 16,210
Deferred income taxes and investment tax credit adjustments - net 9,622 (2,056) 3,533
Allowance for funds used during construction (2,201) (2,300) (4,407)
Cumulative effect of accounting change - before taxes (Note 3) - - (29,915)
Provision for impairment of nonutility property (Note 2) - - 32,000
Change in certain assets and liabilities:
Accounts receivable - excluding cumulative effect
of accounting change (11,655) 7,331 (6,019)
Fuel, materials and supplies (12,939) (4,098) (321)
Accounts payable and accrued expenses (15,037) 5,730 3,883
Taxes accrued 1,514 (1,403) (1,033)
Accrued pension benefits (10,935) 132 2,538
Other - net 1,705 (15,271) (4,729)
---------------- ---------------- ---------------
Net cash provided by operating activities 213,788 235,407 229,627
---------------- ---------------- ---------------
CASH FLOWS FROM INVESTING:
Construction expenditures - utility (103,452) (79,458) (73,130)
Construction expenditures - nonutility (295) (975) (1,569)
Other (8,594) 1,193 (7,371)
---------------- ---------------- ---------------
Net cash used in investing activities (112,341) (79,240) (82,070)
---------------- ---------------- ---------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 140,900 271,500 451,300
Issuance of preferred stock (Note 6) - 50,000 -
Retirement of long-term debt (127,830) (398,094) (89,250)
Reacquired common stock (Note 6) (88,482) (65,595) (403,101)
Preferred stock redemptions (Note 6) - - (41,814)
Short-term debt - net 32,378 (8,500) (12,300)
Common dividends paid (50,920) (48,235) (57,653)
Issuance of common stock related to incentive compensation plans 9,014 30,488 4,089
Other (1,647) 4,051 (852)
---------------- ---------------- ---------------
Net cash used in financing activities (86,587) (164,385) (149,581)
---------------- ---------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,860 (8,218) (2,024)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,075 17,293 19,317
---------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23,935 $ 9,075 $ 17,293
================ ================ ===============
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 60,454 $ 62,381 $ 59,761
================ ================ ===============
Income taxes $ 66,577 $ 82,067 $ 63,915
================ ================ ===============
See notes to consolidated financial statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Common Shareholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Common Stock
Balance at beginning of the year $ 435,300 $ 395,851 $ 389,966
Exercise of stock options 9,014 29,869 4,089
Restricted stock issues / adjustments (3,205) 11,605 1,796
Restricted stock repurchased (2,043) (2,025) -
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of the year 439,066 435,300 395,851
- ------------------------------------------------------------------------------------------------------------------------
Unearned Compensation
Balance at beginning of the year (6,003) (1,583) (368)
Amortization of restricted stock 819 7,185 581
Restricted stock issues / adjustments 3,205 (11,605) (1,796)
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of the year (1,979) (6,003) (1,583)
- ------------------------------------------------------------------------------------------------------------------------
Premium on 4% Cumulative Preferred Stock
Balance at beginning of the year 649 649 1,363
Reacquired and retired preferred stock - - (714)
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of the year 649 649 649
- ------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance at beginning of the year 612,941 532,730 466,397
Net income 128,947 130,119 114,046
Cash dividends declared (1999 - $.60 per share;
1998 - $.55 per share; 1997 - $.50 per share) (51,433) (49,418) (47,713)
Subsidiary capital stock expense - (490) -
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of the year 690,455 612,941 532,730
- ------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income Other comprehensive income, net of tax:
Unrealized gains on securities (Note 14) 106,733
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of the year 106,733
- ------------------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of the year (468,696) (403,101)
Reacquired common stock (1999-3,529,356 shares;
1998-2,470,644 shares; 1997-25,078,856 shares) (88,482) (65,595) (403,101)
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of the year (557,178) (468,696) (403,101)
- ------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity at end of the year $ 677,746 $ 574,191 $ 524,546
========================================================================================================================
See notes to consolidated financial statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
=========================================
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: IPALCO Enterprises, Inc. (IPALCO) owns all of
the outstanding common stock of its subsidiaries (collectively referred to as
Enterprises). The consolidated financial statements include the accounts of
IPALCO, its regulated utility subsidiary, Indianapolis Power & Light Company
(IPL), and its unregulated subsidiary, Mid-America Capital Resources, Inc.
(Mid-America). Mid-America conducts its businesses through various wholly owned
subsidiaries, including Mid-America Energy Resources, Inc. (Energy Resources),
Indianapolis Campus Energy, Inc. (ICE), Cleveland Thermal Energy Corporation
(Cleveland Thermal) and Cleveland District Cooling Corporation (Cleveland
Cooling). All significant intercompany items have been eliminated in
consolidation.
The operating components of all subsidiaries other than IPL are included
under the captions OTHER INCOME AND (DEDUCTIONS), "Other-net" and "Income
taxes-net" and INTEREST AND OTHER CHARGES, "Interest on long-term debt," "Other
Interest" and "Amortization of redemption premiums and expenses on debt-net" in
the Statements of Consolidated Income.
Nature of Operations: IPL is engaged principally in providing electric
and steam service to the Indianapolis metropolitan area. Mid-America operates
energy-related businesses in Indianapolis, Indiana and Cleveland, Ohio.
Concentrations of Risk: Substantially all of Enterprises' business
activity is with customers located within the Indianapolis area. In addition,
approximately 63% of Enterprises' employees are covered by collective bargaining
agreements.
Regulation: The retail utility operations of IPL are subject to the
jurisdiction of the Indiana Utility Regulatory Commission (IURC). IPL's
wholesale power transactions are subject to the jurisdiction of the Federal
Energy Regulatory Commission. These agencies regulate IPL's utility business
operations, tariffs, accounting, depreciation allowances, services, security
issues and the sale and acquisition of utility properties. The financial
statements of IPL are based on generally accepted accounting principles,
including the provisions of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation," which gives
recognition to the ratemaking and accounting practices of these agencies.
Revenues: Effective January 1, 1997, IPL adopted the unbilled revenue
method of accounting for electricity and steam delivered during the period (see
Note 3). Revenues are accrued for services provided but unbilled at the end of
each month.
A fuel adjustment charge provision, which is established after public
hearing, is applicable to most of the rate schedules of IPL and permits the
billing or crediting of estimated fuel costs above or below the levels included
in such rate schedules. Actual fuel costs in excess of or under estimated fuel
costs billed are deferred or accrued, respectively.
On August 18, 1999, the IURC issued an order that allows for the
recovery of purchased power costs based on a benchmark. This benchmark will be
determined by the calculation of a utility's highest on-system fuel cost. If the
cost per Mwh of power purchases is not greater than the benchmark, then the
purchased power costs should be considered net energy costs that are presumed
fuel costs included in purchased power. If the average cost per Mwh of power
purchases is greater than the benchmark, then the costs are recoverable only
through demonstration of the reasonableness of those purchases to the IURC. The
Indiana Office of Utility Consumer Counselor has appealed that order and the
eventual outcome of this matter is unknown at this time.
Authorized Annual Operating Income: Indiana law requires electr