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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 (Fee Required)
For the fiscal year ended
December 31, 1995 Commission File Number 1-8644
IPALCO ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
Indiana 35-1575582
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Monument Circle
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317-261-8261
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
IPALCO Enterprises, Inc. New York Stock Exchange
Common Stock (without par value) Chicago Stock Exchange
Common Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for at least the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. (X)
As of January 31, 1996, the aggregate market value of the voting stock
held by non-affiliates of the registrant was: $1,349,738,906 based on
the average of the high and low price of the common stock on such date.
As of January 31, 1996, there were 56,818,576 shares, adjusted to reflect
the three-for-two stock split on February 27, 1996, 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 17, 1996 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
and has 17 employees. IPALCO has two (2) subsidiaries: Indianapolis Power
& Light Company (IPL), an electric utility, and Mid-America Capital
Resources, Inc. (Mid-America), a holding company for unregulated
businesses.
DESCRIPTION OF BUSINESS OF SUBSIDIARIES
INDIANAPOLIS POWER & LIGHT COMPANY
GENERAL
IPL 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 forty 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. No private or municipally-owned electric
public utility companies are competing with IPL in the territory it serves.
IPL operates under indeterminate permits subject to the jurisdiction of
the Indiana Utility Regulatory Commission (IURC). Such permits are subject
to revocation by the IURC for cause. The Public Service Commission Act of
Indiana (the PSC Act), which provides for the issuance of such permits,
also provides that if the PSC Act is repealed, indeterminate permits will
cease and a utility will again come into possession of such franchises as
were surrendered at the time of the issue of the permit, but in no event
shall such reinstated franchise be terminated within less than five years
from the date of repeal of the PSC Act.
IPL's business is not dependent on any single customer or group of
customers. During 1995, IPL's sales, according to the Standard Industrial
Classification, were 33%, 42% and 25% for residential, commercial and
industrial customers, respectively.
The electric utility business is affected by the various seasonal
weather patterns throughout the year and, therefore, the operating revenues
and associated operating expenses are not generated evenly by months during
the year.
IPL's 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 and 29 other electric utilities, known as the East Central
Area Reliability Group (ECAR), are cooperating under an agreement which
provides for coordinated planning of generating and transmission facilities
and the operation of such facilities to provide maximum 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.
In 1995, approximately 99.5% of the total kilowatt-hours sold by IPL
were generated from coal, 0.2% from middle distillate fuel oil, 0.2% from
gas and 0.1% from secondary steam purchased from the Indianapolis Resource
Recovery Project. In addition to use in oil-fired generating units, fuel
oil is used for start up and flame stabilization in coal-fired generating
units as well as for coal thawing and coal handling. Gas fuel is used in
IPL's newer combustion turbines.
IPL's long-term coal contracts provide for the supply of the major
portion of its burn requirements through the year 1999, assuming
environmental regulations can be met. The long-term coal agreements are
with three suppliers and the coal is produced entirely in the state of
Indiana. These three suppliers are not affiliates of IPL; see Exhibits
listed under Part IV Item 14(a)3(20.1). It is presently believed that all
coal used by IPL will be mined by others. IPL normally carries fuel oil
and a 70-day supply of coal to offset unforeseen occurrences such as labor
disputes, equipment breakdowns and power sales to other utilities. When
strikes are anticipated in the coal industry, IPL increases its stockpile
to an approximate 92-day supply.
The combined cost of coal, fuel oil and gas used in the generation of
electric energy for 1995 averaged 1.129 cents per kilowatt-hour or $24.04
per equivalent ton of coal, compared with the 1994 average fuel cost for
electric generation of 1.162 cents per kilowatt-hour or $24.95 per
equivalent ton of coal.
IPL has a long-term contract to purchase steam for use in its steam
distribution system with Ogden Martin Systems of Indianapolis, Inc. (Ogden
Martin). Ogden Martin owns and operates the Indianapolis Resource Recovery
Project which is a waste-to-energy facility located in Marion County,
Indiana. During 1995, IPL's steam system purchased 47.2% of its total
therm requirement from Ogden Martin. Additionally, 35.5% of its 1995 one-
hour peak load was met with steam purchased from Ogden Martin. IPL also
purchased 4.2 million secondary therms which represent Ogden Martin send-
out in excess of the IPL steam system requirements. Such secondary steam
is used to produce electricity at the IPL Perry K and Perry W facilities.
CONSTRUCTION
The cost of IPL's construction program during 1995, 1994 and 1993 was
$175.6 million, $185.6 million and $149.3 million, respectively, including
Allowances for Funds Used During Construction (AFUDC) of $8.7 million, $7.3
million and $3.6 million, respectively.
IPL's construction program is reviewed periodically and is updated to
reflect among other things the changes in economic conditions, revised load
forecasts and cost escalations under construction contracts. Current
projections indicate that IPL will need about 400 megawatts (MW) of new
capacity resources by the summer of 2000 to replace the 200 MW purchase
discussed below and to provide for growth. These resource requirements can
be met in a variety of ways including, but not limited to, a combination of
power purchases and peaking turbines.
During 1992, IPL entered into a five-year firm power purchase agreement
with Indiana Michigan Power Company (IMP), for 200 MW of additional
capacity for the near-term requirements. See Item 7, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
under "Capital Requirements" for additional information regarding the IMP
agreement.
IPL's construction program for the five-year period 1996-2000, is
estimated to cost $528.4 million including AFUDC. The estimated cost of
the program by year (in millions) is $103.6 in 1996; $100.9 in 1997; $106.7
in 1998; $111.9 in 1999 and $105.3 in 2000. It includes $271.2 million for
additions, improvements and extensions to transmission and distribution
lines, substations, power factor and voltage regulating equipment,
distribution transformers and street lighting distribution. The forecast
also includes $107.3 million for combustion turbines with in-service dates
of 1999, 2000 and 2001, and $45.4 million in environmental costs of which
approximately $35 million pertains to the Clean Air Act. With respect to
the expenditures for pollution control facilities to comply with the Clean
Air Act and with respect to the regulatory authority of the IURC as it
relates to the integrated resource plan, see "REGULATORY MATTERS" and Item
7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."
FINANCING
Long-term debt, cash flows from operations and temporary short-term
borrowings are forecasted to provide the funds required for the five-year
construction program. Uncertainties which could affect this forecast
include the impact of inflation on operating expenses, the actual degree of
growth in KWH sales and the level of interchange sales with other
utilities. Additionally, IPL has authority from the IURC to redeem and
replace certain of its existing securities.
EMPLOYEE RELATIONS
As of December 31, 1995, IPL had 2,194 employees of whom 1,110 were
represented by the International Brotherhood of Electrical Workers, AFL-CIO
(IBEW) and 395 were represented by the Electric Utility Workers Union
(EUWU), an independent labor organization. In December 1993, the
membership of the IBEW ratified a new labor agreement which remains in
effect until December 16, 1996. The agreement provided for general pay
adjustments of 4% in 1993 and 3.5% in both 1994 and 1995, and changes in
pension and health care coverage. In March 1995, the membership of the
EUWU ratified a new labor agreement which remains in effect until February
23, 1998. The agreement provided for general pay adjustments of 2% in
1995, 1996 and 1997; lump sum payments of $500 in both 1995 and 1996; and
changes in pension and health care coverage.
REGULATORY MATTERS
IPL is subject to regulation by the 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 9 in the Notes to Consolidated
Financial Statements.
In addition, IPL is subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC), in respect of short-term borrowings not
regulated by the IURC, the sale and transmission of electric energy in
interstate commerce, the classification of its accounts and the acquisition
and sale of utility property in certain circumstances as provided by the
Federal Power Act.
IPL is also subject to federal, state and local environmental laws and
regulations, particularly as to generating station discharges affecting air
and water quality. The impact of compliance with such regulations on the
capital and operating costs of IPL has been and will continue to be
substantial. See Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" under "Capital
Requirements." Accordingly, IPL has developed a plan to reduce sulfur
dioxide and nitrogen oxide emissions from several generating units. This
plan has been approved by the IURC and the Environmental Protection Agency
(EPA). Estimated annual costs for all air, solid waste and water
environmental compliance measures are $25 million and $5 million in 1996
and 1997, respectively.
MID-AMERICA CAPITAL RESOURCES, INC. (Mid-America)
GENERAL
Mid-America, the holding company for the unregulated activities of
IPALCO, has as subsidiaries Indianapolis Campus Energy, Inc. (ICE), Store
Heat And Produce Energy, Inc., which conducts business as SHAPE Energy
Resources (SHAPE) and Mid-America Energy Resources, Inc. (Energy
Resources). Energy Resources has as subsidiaries Cleveland Thermal Energy
Corporation (Cleveland Thermal) and Cleveland District Cooling Corporation
(Cleveland Cooling). During 1995, Mid-America established Vital Resource
Management (VRM) as an operating division within the holding company.
Energy Resources was formed on November 17, 1989, to construct and
operate a multi-phased district cooling system located near downtown
Indianapolis. Operations commenced in mid-1991. During 1995, the plant
capacity was expanded to 27,250 tons to service existing customer loads and
is fully subscribed. In 1991, Energy Resources acquired Cleveland Thermal,
which owns and operates a district steam heating system in Cleveland, Ohio.
During 1992, Energy Resources formed Cleveland Cooling for the purpose of
constructing and operating a district cooling system in downtown Cleveland.
Operations commenced April 15, 1993. Both Cleveland Thermal and Cleveland
Cooling jointly conduct business under the name Cleveland Energy Resources.
At December 31, 1995, Mid-America held 70% of the common stock of SHAPE.
SHAPE conducts research and development of energy storage technology.
ICE was formed to construct, own and operate energy systems in campus
settings such as industrial complexes or college campuses. During 1993,
ICE entered into a contractual agreement with Eli Lilly and Company (Lilly)
to provide cooling capacity to the Lilly Technology Center, in
Indianapolis, Indiana. Construction of the chilled water facility, located
near Morris Street and Kentucky Avenue in Indianapolis, began in late-1994.
Test operations of this campus facility began in December 1995 with chilled
water service expected to commence in mid-1996.
During 1995, Mid-America began providing energy services through VRM to
commercial, industrial and institutional customers from established sales
offices in Indianapolis, Cleveland, Kansas City and Northern Indiana.
During the next five years, 1996-2000, IPALCO may continue to become
involved in unregulated businesses through the formation of one or more
additional Mid-America subsidiaries. The sources of capital to finance
these subsidiaries will be determined at the time they are established.
Opportunities for future diversification investments into other businesses
are continually being reviewed.
CONSTRUCTION AND FINANCING
During 1995, 1994 and 1993, the construction expenditures of Mid-America
and its subsidiaries totaled $34.7 million, $8.6 million and $8.7 million
respectively. These costs were financed with long-term debt of $9.3
million in 1995, construction loans of $10.8 million and $2.4 million in
1995 and 1994, respectively, and through the use of internal funds and
short-term debt.
Capital requirements including funds needed for construction, research
and development and the establishment of product inventories during the
next five years are estimated to be $1.1 million, $0.5 million, $0.2
million, $7.1 million, $13.3 million and $22.0 million for VRM, ICE, SHAPE,
Energy Resources, Cleveland Thermal and Cleveland Cooling, respectively.
Such expenditures are highly contingent upon the development of markets for
the products and services offered by the Mid-America family of companies.
The cash requirements of VRM, ICE, SHAPE, Energy Resources, Cleveland
Thermal and Cleveland Cooling are expected to be funded by Mid-America from
existing liquid assets, future cash flows from operations, $12.0 million of
project specific debt financing and a $30 million line of credit.
EMPLOYEES
As of December 31, 1995, Mid-America and its subsidiaries had 135
employees. There were 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,
----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
Operating Revenues (In Thousands):
Residential $ 243,055 $ 230,805 $ 225,138 $ 212,757 $ 224,039
Small industrial and commercial 130,780 129,346 127,551 126,588 135,456
Large industrial and commercial 275,803 266,703 255,945 243,446 237,200
Public lighting 7,598 6,949 7,186 7,133 7,106
Miscellaneous 8,289 7,186 7,373 6,018 6,960
-------------- -------------- -------------- -------------- --------------
Revenues - ultimate consumers 665,525 640,989 623,193 595,942 610,761
Sales for resale - REMC 1,105 1,098 897 861 900
Sales for resale - other 6,758 7,680 5,237 2,400 4,197
-------------- -------------- -------------- -------------- --------------
Total electric revenues $ 673,388 $ 649,767 $ 629,327 $ 599,203 $ 615,858
============== ============== ============== ============== ==============
Kilowatt-hour Sales (In Millions):
Residential 4,277 4,077 4,014 3,675 3,960
Small industrial and commercial 2,209 2,207 2,202 2,171 2,331
Large industrial and commercial 6,509 6,306 6,169 5,843 5,612
Public lighting 61 64 62 64 64
-------------- -------------- -------------- -------------- --------------
Sales - ultimate consumers 13,056 12,654 12,447 11,753 11,967
Sales for resale - REMC 28 26 24 23 23
Sales for resale - other 394 456 321 169 256
-------------- -------------- -------------- -------------- --------------
Total kilowatt-hours sold 13,478 13,136 12,792 11,945 12,246
============== ============== ============== ============== ==============
Customers at End of Year:
Residential 365,163 360,347 356,015 352,139 347,718
Small industrial and commercial 39,781 38,849 38,359 38,171 38,011
Large industrial and commercial 3,557 3,525 3,342 3,163 2,952
Public lighting 281 266 252 239 229
-------------- -------------- -------------- -------------- --------------
Total ultimate consumers 408,782 402,987 397,968 393,712 388,910
Sales for resale - REMC 1 1 1 1 1
-------------- -------------- -------------- -------------- --------------
Total electric customers 408,783 402,988 397,969 393,713 388,911
============== ============== ============== ============== ==============
Miscellaneous Statistics:
Kilowatt-hour output (In Millions):
Generated (net after station use) 14,032 13,580 13,254 12,525 12,851
Purchased 257 206 325 126 160
-------------- -------------- -------------- -------------- --------------
Total generated and purchased 14,289 13,786 13,579 12,651 13,011
Company use, line loss, etc. 811 650 787 706 765
-------------- -------------- -------------- -------------- --------------
Energy sold 13,478 13,136 12,792 11,945 12,246
============== ============== ============== ============== ==============
Load factor (percent) 56.94 57.64 57.44 56.72 56.37
Average BTU per net kilowatt-hour 10,490 10,445 10,503 10,385 10,455
Cost of fuel per million BTU $ 1.076 $ 1.112 $ 1.096 $ 1.103 $ 1.113
Cost of fuel per ton (includes oil and gas
stated in equivalent tons of coal) $ 24.041 $ 24.946 $ 24.488 $ 24.547 $ 24.804
Summer plant capability (megawatts)* 2,986 2,907 2,829 2,829 2,829
Maximum demand on IPL system (megawatts)* 2,786 2,640 2,635 2,505 2,583
Average use per residential
customer (kilowatt-hours) 11,796 11,393 11,345 10,515 11,460
Average revenue per residential customer $ 670.33 $ 645.02 $ 636.28 $ 608.68 $ 648.36
Average revenue per small industrial and
commercial customer $ 3,311.99 $ 3,327.04 $ 3,310.59 $ 3,305.94 $ 3,552.03
Average revenue per large industrial and
commercial customer $ 76,526.98 $ 77,960.62 $ 78,055.83 $ 79,324.43 $ 83,816.09
Average residential revenue per
kilowatt-hour (cents) 5.683 5.662 5.609 5.789 5.658
* All figures are net of station use.
Item 2. PROPERTIES
IPL
IPL's executive offices are located at One Monument Circle,
Indianapolis, Indiana. This facility contains approximately 201,300 square
feet of space and contains certain administrative operations of IPALCO's
subsidiaries.
IPL also owns two service centers located at 1230 West Morris Street and
3600 North Arlington Avenue, both in Indianapolis, Indiana. IPL's customer
service center is located at 2102 North Illinois Street in Indianapolis.
IPL owns and operates five primarily coal-fired generating plants, three
of which are used for total electric generation and two of which are used
for a combination of electric and steam generation. In relation to
electric generation, there exists a total gross nameplate rating of 3,035
MW, a winter capability of 3,064 MW and a summer capability of 2,986 MW.
All figures are net of station use. In relation to steam generation, there
exists a gross capacity of 2,290 Mlbs. (thousands of pounds) per hour.
Total Electric Stations:
H. T. Pritchard plant (Pritchard), 25 miles southwest of
Indianapolis (seven units in service - one in 1949, 1950, 1951, 1956
and 1967 and two in 1953) with 367 MW nameplate rating and net
winter and summer capabilities of 344 MW and 341 MW, respectively.
E. W. Stout plant (Stout) located in 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 1,690 MW and 1,690 MW, respectively.
Combination Electric and Steam Stations:
C.C. Perry Section K plant (Perry K), in the city of Indianapolis
with 20 MW nameplate rating (net winter capability 20 MW, summer 19
MW) for electric and a gross capacity of 1,990 Mlbs. per hour for
steam.
C.C. Perry Section W plant (Perry W), in the city of Indianapolis
with 11 MW nameplate rating (net winter capability 10 MW, summer 12
MW) for electric and a gross capacity of 300 Mlbs. per hour for
steam.
Net electrical generation during 1995, at the Petersburg, Stout and
Pritchard stations accounted for about 75.0%, 20.1% and 4.9%, respectively,
of IPL's total net generation. All steam generation by IPL for the steam
system was produced by the Perry K and Perry W stations.
Included in the above totals are three gas turbine units at the Stout
station added in 1973, one gas turbine added in 1994 and one gas turbine
added in 1995 with a combined nameplate rating of 214 MW, one diesel unit
each at Pritchard and Stout stations and three diesel units at Petersburg
station, all added in 1967. Each diesel unit has a nameplate rating of 3
MW.
IPL's transmission system includes 457 circuit miles of 345,000 volt
lines, 361 circuit miles of 138,000 volt lines and 271 miles of 34,500 volt
lines. Distribution facilities include 4,693 pole miles and 19,826 wire
miles of overhead lines. Underground distribution and service facilities
include 465 miles of conduit and 5,148 wire miles of conductor.
Underground street lighting facilities include 107 miles of conduit and 670
wire miles of conductor. Also included in the system are 74 bulk power
substations and 80 distribution substations.
Steam distribution properties include 23 miles of mains with 259
services. Other properties include coal and other minerals, underlying 798
acres in Sullivan County and coal underlying about 6,215 acres in Pike and
Gibson Counties, Indiana. Additional land, approximately 4,722 acres in
Morgan County, Indiana and approximately 884 acres in Switzerland County,
Indiana has been purchased for future plant sites.
All of the facilities owned by IPL are well-maintained, in good
condition and adequate to 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 is designed to distribute chilled water
to subscribers located downtown for their air conditioning needs. The
plant is equipped with five 5,000 ton chillers powered by steam purchased
from IPL and one 2,200 ton chiller powered by electricity purchased from
IPL.
Cleveland Thermal owns and operates two steam plants in Cleveland, Ohio,
with a total of nine boilers having a gross capacity of 1,050 Mlbs. per
hour. The distribution system includes 17 miles of mains with 230
services.
Cleveland Cooling owns and operates a district cooling facility located
near downtown Cleveland, which is designed to distribute chilled water to
subscribers located downtown for their air conditioning needs. The plant
is equipped with two 5,000 ton chillers and has 10 customer contracts.
Beginning in 1996, ICE will own and operate a chilled water facility in
Indianapolis, which is contracted to service 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.
Mid-America began providing energy services to commercial, industrial
and institutional customers during 1995. This energy services effort has
three major activities: (1) energy accounts, focusing on the energy needs
of commercial and governmental buildings, (2) power maintenance,
specializing in maintenance, training and repair of high voltage electrical
equipment and (3) major projects, concentrating on the development of large
heating and/or cooling projects in commercial, industrial or institutional
settings.
Substantially all the Mid-America property is subject to the lien of
existing debt and/or credit agreements of Energy Resources.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT AT FEBRUARY 27, 1996.
Name, age (at December 31, 1995), and positions and offices held for the
past five years:
From To
John R. Hodowal (50) ---- --
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 (63)
Vice Chairman of IPALCO May, 1991
President and Chief Operating
Officer of IPL February, 1990
John R. Brehm (42)
Vice President and Treasurer
of IPALCO May, 1989
Senior Vice President -
Finance and Information
Services of IPL May, 1991
Senior Vice President - Financial
Services of IPL May, 1989 May, 1991
Maurice O. Edmonds (64)
Vice President - Corporate
Affairs of IPALCO December, 1992
Vice President - Human
Resources of IPL May, 1989 December, 1992
N. Stuart Grauel (51)
Vice President - Public Affairs
of IPALCO May, 1991
Vice President - Public Affairs
of IPL May, 1989 May, 1991
Joseph A. Gustin (48)
President of Mid-America December, 1994
Vice President of SHAPE May, 1993
President of ICE April, 1993
President of Energy Resources May, 1991
Vice President of Mid-America May, 1991 December, 1994
Vice President of Energy
Resources January, 1990 May, 1991
Vice President - Steam Operations
of IPL May, 1989 May, 1991
Robert W. Rawlings (54)
Senior Vice President -
Electric Production of IPL May, 1991
Vice President - Electric
Production of IPL May, 1989 May, 1991
Bryan G. Tabler (52)
Vice President -
Secretary and General Counsel of IPALCO January, 1995
Senior Vice President -
Secretary and General Counsel of IPL January, 1995
Partner, Barnes & Thornburg January, 1979 October, 1994
Gerald D. Waltz (56)
Senior Vice President -
Business Development of IPL May, 1991
Senior Vice President -
Engineering and Operations of IPL April, 1986 May, 1991
Max Califar (42)
Vice President - Human
Resources of IPL December, 1992
Assistant Treasurer of IPALCO May, 1989 December, 1992
Treasurer of IPL May, 1989 December, 1992
Steven L. Meyer (37)
Assistant Treasurer of IPALCO May, 1993
Treasurer of IPL December, 1992
Stephen J. Plunkett (47)
Controller of IPALCO
and IPL May, 1991
Assistant Controller of
IPL May, 1989 May, 1991
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
At December 31, 1995, IPALCO had 24,370 holders of common stock
of record (including approximately 2,895 shareholders whose shares
are held in IPALCO's Automatic Dividend Reinvestment and Stock
Purchase Plan). 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 1995 and 1994 as
reported on the Composite Tape in The Wall Street Journal, adjusted to
reflect the three-for-two stock split described in Note 15 in the Notes to
Consolidated Financial Statements, were as follows:
1995 1994
High Low High Low
Sale Price Sale Price Sale Price Sale Price
----------------------- -----------------------
First Quarter $22 1/2 $19 7/8 $23 1/2 $21
Second Quarter 22 20 5/8 21 1/2 18 3/4
Third Quarter 24 1/8 21 20 7/8 19
Fourth Quarter 25 3/4 23 5/8 20 7/8 19
The high and low sale prices for IPALCO's common stock as reported
on the Composite Tape in The Wall Street Journal, adjusted for the common
stock split, for the period January 1, 1996, through March 15, 1996, were:
High - $27 3/8, Low - $25.
Quarterly dividends paid on the common stock, adjusted for the common stock
split, during 1995 and 1994 were as follows:
1995 1994
----- -----
First Quarter $.353 $.34
Second Quarter .36 .353
Third Quarter .36 .353
Fourth Quarter .36 .353
At its meeting on February 27, 1996, IPALCO's Board of Directors declared a
regular quarterly dividend on common stock of $.37 per share on a post-split
basis, payable April 15, 1996, to shareholders of record on March 29, 1996.
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, 1995,
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. 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) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
Total utility operating revenues $ 709,206 $ 686,076 $ 664,303 $ 633,203 $ 647,873
Utility operating income 148,112 143,310 142,368 134,240 149,876
Allowance for funds used during
construction 11,370 9,381 5,527 5,081 2,611
Net income 98,778 92,994 75,422 88,342 101,998
Utility plant - net 1,792,007 1,711,772 1,608,871 1,532,964 1,488,940
Total assets 2,231,197 2,099,361 1,966,023 1,894,427 1,804,012
Utility construction expenditures 166,874 178,295 145,765 112,037 94,633
Nonutility construction expenditures 34,745 9,402 8,788 29,842 14,031
Common shareholders' equity 822,803 801,945 787,211 787,739 769,787
Nonredeemable cumulative
preferred stock 51,898 51,898 51,898 51,898 51,898
Long-term debt (less current
maturities and sinking
fund requirements) 698,600 665,971 541,760 550,141 547,218
Earnings per share of common stock
(based on weighted average number
of shares outstanding) * 1.74 1.64 1.33 1.57 1.81
Dividends declared per share of
common stock * 1.44 1.41 1.36 1.31 1.25
See consolidated financial statements.
* Per share amounts have been adjusted to reflect the three-for-two stock
split as described in Note 15 in the Notes to Consolidated Financial
Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
IPALCO Enterprises, Inc. (IPALCO) is a holding company
incorporated under the laws of the state of Indiana. Indianapolis
Power & Light Company (IPL) and Mid-America Capital Resources, Inc.
(Mid-America) are subsidiaries of IPALCO. Mid-America is the holding
company for the unregulated activities of IPALCO.
LIQUIDITY AND CAPITAL RESOURCES
IPL
---
Nature of Operations and Competition
- ------------------------------------
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.
On a national basis, competition for wholesale and retail sales
within the electric utility industry has been increasing. In
Indiana, competition has been primarily focused on the wholesale
power markets, that is, the sale of bulk power to other public and
municipal utilities. Existing Indiana law provides for public
utilities to have an exclusive permit at the retail level; however,
several other states are currently examining competition at the
retail level. During 1995, the FERC issued a Notice of Proposed
Rulemaking (NOPR) which seeks to increase competition at the
wholesale level by ensuring fair and equal access to the national
transmission grid for any potential power supplier. The FERC in this
NOPR also has proposed new rules dealing with many related
transmission access issues, including access fees and the recovery of
stranded costs. IPALCO and many other affected parties have
submitted comments and responses to the FERC regarding this NOPR.
The FERC is not expected to take any further action on the NOPR
before mid-1996.
Management of IPL believes it can be competitive in the wholesale
market due to its low cost, available capacity and reliability. In
order to remain competitive in the face of increasing competition,
IPL will need to maintain its low cost through controlling costs and
expenses. IPL has formed three Strategic Business Units; Electric
Production, Electric Delivery and Steam, to better evaluate costs and
to prepare for the transition to a more competitive environment.
The impact of continuing competitive pressures, including the
impact of any final order on the FERC NOPR on IPL's wholesale and
retail electric and steam markets, cannot be determined at this time.
Regulatory Matters
- ------------------
Electric Rate Settlement Agreement
----------------------------------
On August 24, 1995, the IURC issued an order approving without
amendment a Stipulation and Settlement Agreement (Settlement
Agreement) resolving all issues in IPL's pending electric general
rate proceeding. The Settlement Agreement authorized IPL to increase
its basic rates and charges for electric service in two steps, to
begin the amortization of regulatory assets and approved IPL's plan
to expense and to fund its annual postretirement benefits. These
issues are discussed further in Note 1, Note 9 and Note 11 in the
Notes to Consolidated Financial Statements.
Environmental Compliance Plan
-----------------------------
IPL is subject to the air quality provisions specified in the
federal Clean Air Act Amendments of 1990 and related regulations (the
Act). IPL has obtained IURC and EPA approval of its Environmental
Compliance Plan, together with the costs and expenses associated
therewith, which provides for the installation of sulfur dioxide and
nitrogen oxide emissions abatement equipment and the installation of
continuous emission monitoring systems to meet the requirements of
both Phase I and Phase II of the Act. See "Capital Requirements."
Effective January 1, 1995, IPL began receiving annual emission
"allowances" for certain of its generating units. Each allowance
permits the emission of one ton of sulfur dioxide. IPL presently
expects that annual sulfur dioxide emissions will not exceed annual
allowances provided to IPL under the Act. Allowances not required in
the operation of IPL facilities may be reserved for future periods or
sold. The value of such unused allowances that may be available to
IPL for use in future periods or for sale is subject to a developing
market and is unknown at this time.
Capital Requirements
- --------------------
The capital requirements of IPL are primarily driven by the need
for facilities to ensure customer service reliability and
environmental compliance and by the maturing of long-term debt.
Forecasted Demand and Energy
----------------------------
From 1995 to 2000, annual peak demand is forecasted to experience
a compound 1.4% increase, while retail kilowatt-hour (KWH) sales are
anticipated to increase at a 1.6% compound growth rate. Both
compound growth rates are computed assuming normal weather
conditions.
Integrated Resource Plan
------------------------
Current projections indicate a need for about 400 MW of new
capacity resources by the summer of 2000 to replace the 200 MW
purchase discussed below and to provide for growth. These resource
requirements can be met in a variety of ways including, but not
limited to, a combination of power purchases and peaking turbines.
IPL continues to review its resource plan to consider the
appropriateness of all reasonable resource options to meet capacity
requirements over the decade of the 1990s and beyond. The following
discussion makes certain assumptions regarding IPL's plans to meet
these requirements.
IPL is receiving 200 MW of firm capacity under an existing power
purchase agreement. The 200 MW purchase agreement provides for
monthly capacity payments by IPL of $1.2 million and expires March
31, 1997. IPL is presently evaluating available options to purchase
firm power in 1997 and beyond. The exact timing, MW capacity and
cost of any such purchase cannot be ascertained at this time.
IPL placed in service an 80 MW combustion turbine on January 13,
1995. IPL's near-term conceptual supply plan through the year 2000
includes two additional 100 MW combustion turbines with in-service
dates in 1999 and 2000; however, the availability of purchased power
due to a more robust competitive wholesale market may enable IPL to
postpone or avoid such additional combustion turbines.
Cost of Construction Program
----------------------------
The cost of IPL's construction program during 1995, 1994 and 1993
was $175.6 million, $185.6 million and $149.3 million, including
AFUDC of $8.7 million, $7.3 million and $3.6 million, respectively.
IPL estimates the cost of the construction program for the five
years, 1996-2000, to be approximately $528.4 million, including AFUDC
of $15.1 million. This program is subject to continuing review and
is revised from time to time in light of changes in the actual
customer demand for electric energy, IPL's financial condition and
construction cost escalations. The five-year construction program
includes $107.3 million for combustion turbines with in-service dates
of 1999, 2000 and 2001, and $34.6 million, in 1996, to comply with
the Clean Air Act. IPL estimates that no additional significant
capital expenditures will be required to bring generating units into
compliance with the Clean Air Act until the year 2010 and beyond.
Expenditures for the new capacity are contingent upon the review of
power market conditions and other factors.
Retirement of Long-term Debt Securities
---------------------------------------
During 1995, 1994 and 1993, IPL retired long-term debt, including
sinking fund payments, of $80.4 million, $85.9 million and $97.9
million, respectively, which required replacement in part with other
debt securities at a lower cost.
IPL will retire $15.2 million and $11.3 million of maturing long-
term debt during 1996 and 1997, respectively, which may require
replacement in whole or in part with other debt or equity securities.
In addition, other existing higher rate debt may be refinanced
depending upon market conditions.
Liquidity and Financing Requirements
- ------------------------------------
Liquidity is the ability of an entity to generate adequate amounts
of cash to meet its short-term and long-term needs. IPL's liquidity
is a function of its construction program, its debt service
requirements, its ability to generate internal funds and its access
to external capital markets.
During the three-year period ended December 31, 1995, IPL's
permanent financing totaled $406.5 million in long-term debt. The
net proceeds of these securities were used to retire existing long-
term debt of $264.1 million, including premiums, and to partially
fund IPL's construction expenditures. The remaining cash
requirements during this three-year period were funded with cash
flows from operations and short-term debt.
During the next five years, IPL is forecasted to meet its
liquidity requirements without additional permanent financing. Cash
flows from operations and temporary short-term borrowings are
forecasted to provide the funds required for IPL's construction
program and the retirement of maturing long-term debt. Additionally,
a reasonable debt capitalization ratio, favorable debt ratings and a
low construction forecast (see "Capital Requirements") are expected
to improve IPL's ability to access external capital markets during
this period, if necessary. IPL's debt capitalization ratio was 46.1%
at December 31, 1995. IPL's senior secured debt is rated AA- by
Standard & Poor's, Aa2 by Moody's Investor Services and AA by Duff &
Phelps. IPL's commercial paper is rated A-1+ by Standard & Poor's
and P-1 by Moody's Investor Services.
Uncertainties which could affect this forecast include the impact
of inflation on operating expenses, the actual degree of growth in
KWH sales and the level of interchange sales with other utilities.
Financial Flexibility
---------------------
At December 31, 1995, IPL had unused lines of credit of $100
million and an uncommitted line of credit of $25 million of which $16
million was unused. See Note 7 in the Notes to Consolidated
Financial Statements. As of the same date and considering all
existing restrictions, IPL had the capacity to issue approximately
$952 million of additional long-term debt. IPL also has authority
from the IURC to redeem and replace certain of its existing
securities.
IPL is limited in its ability to issue certain securities by
restrictions under its Mortgage and Deed of Trust (Mortgage) and its
Amended Articles of Incorporation (Articles). The restriction under
the Articles requires that the net income of IPL, as specified
therein, shall be at least one and one-half times the total interest
on the funded debt and the proforma dividend requirements on the
outstanding preferred stock and on any preferred stock proposed to be
issued, before any additional preferred stock can be issued. The
Mortgage restriction requires that net earnings as calculated
thereunder be two and one-half times the annual interest requirements
before additional bonds can be authenticated on the basis of property
additions. Based on IPL's net earnings for the twelve months ended
December 31, 1995, the ratios under the Articles and the Mortgage are
3.24 and 7.94, respectively. IPL believes these requirements will
not restrict any anticipated future financings.
MID-AMERICA
-----------
Nature of Operations
- --------------------
Mid-America, the holding company for the unregulated activities of
IPALCO, has as subsidiaries Indianapolis Campus Energy, Inc. (ICE),
Store Heat And Produce Energy, Inc., which conducts business as SHAPE
Energy Resources (SHAPE), and was 70% owned as of December 31, 1995, and
Mid-America Energy Resources, Inc. (Energy Resources). Energy Resources,
in addition to its own operations, has as subsidiaries Cleveland Thermal
Energy Corporation (Cleveland Thermal) and Cleveland District Cooling
Corporation (Cleveland Cooling), which jointly do business as
Cleveland Energy Resources. Energy Resources has operated a district
cooling system in downtown Indianapolis, Indiana, since 1991. During
1995, the plant capacity was expanded to 27,250 tons to service
existing customer loads and is fully subscribed. Cleveland Thermal
operates a district heating system in downtown Cleveland, Ohio, and
was acquired by Energy Resources in July, 1991. Cleveland Cooling
began operations of its district cooling system in downtown
Cleveland, Ohio, during 1993. Also during 1993, ICE entered into an
agreement to provide chilled water to the Lilly Technology Center
located near downtown Indianapolis. Test operations of this campus
facility began in December 1995 with chilled water service expected
to commence in mid-1996. SHAPE became a majority-owned subsidiary of
Mid-America during 1993. During 1995, Mid-America established Vital
Resource Management (VRM) as an operating division within the holding
company.
On December 14, 1994, Mid-America's Board of Directors approved a
Long-Term Incentive Plan (the Incentive Plan) that covers key
executives of Mid-America and certain officers of IPALCO effective
January 1, 1995. See Note 12 in the Notes to Consolidated Financial
Statements.
Capital and Financing Requirements
- ----------------------------------
During 1995, 1994 and 1993, the capital expenditures of Mid-
America and its subsidiaries totaled $34.7 million, $8.6 million and
$8.7 million, respectively. These costs were financed with long-term
debt of $9.3 million in 1995, construction loans of $10.8 million and
$2.4 million in 1995 and 1994, respectively, and through the use of
internal funds and short-term debt.
Capital requirements, including funds needed for construction,
research and development and the establishment of product inventories
during the next five years, are estimated to be $1.1 million, $0.5
million, $0.2 million, $7.1 million, $13.3 million and $22.0 million
for VRM, ICE, SHAPE, Energy Resources, Cleveland Thermal and
Cleveland Cooling, respectively. Such expenditures are highly
contingent upon the development of markets for the products and
services offered by the Mid-America family of companies. The cash
requirements of Mid-America subsidiaries are expected to be funded by
Mid-America from existing liquid assets, future cash flows from
operations and from project-specific debt financing.
Future Outlook
--------------
During the next five years, 1996-2000, IPALCO may continue to
become involved in unregulated businesses through the formation of
one or more additional Mid-America subsidiaries. The sources of
capital to finance these businesses will be determined at the time
they are established.
IPALCO ENTERPRISES CONSOLIDATED
-------------------------------
Additional information regarding IPALCO's historical cash flows
from operations, investing and financing for the past three years,
including the capital expenditures of IPL and Mid-America, are
disclosed in the Statements of Consolidated Cash Flows and in the
Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
All per share information presented herein has been restated to
reflect the common stock split on a retroactive basis. See Note 15 in
the Notes to Consolidated Financial Statements.
Earnings per share during 1995 were $1.74, or $0.10 above the
$1.64 attained in 1994. Earnings per share during 1994 were $1.64, or
$0.31 above the $1.33 attained in 1993. The following discussion
highlights the factors contributing to these results.
Operating Revenues
- ------------------
Operating revenues in 1995 and 1994 increased from the prior year
by $23.1 million and by $21.8 million, respectively. The increases
in revenues resulted from the following:
Increase (Decrease)
1995 over 1994 1994 over 1993
--------------------------------
(Millions of Dollars)
Electric:
Increase in base rates $ 12.2 $ 0.0
Additional KWH sales - net of fuel 14.1 8.2
Fuel revenues (2.9) 9.8
Steam revenues (0.5) 1.3
Sales for resale (0.9) 2.7
Other revenues 1.1 (0.2)
------ ------
Total change in operating revenues $ 23.1 $ 21.8
====== ======
The increase in base rate electric revenues is the result of new
tariffs, effective September 1, 1995, designed to produce $35-million
additional annual revenues. The increase in retail KWH sales during
1995, as compared to 1994, reflects customer growth and increased
sales resulting primarily from warmer and colder weather in the third
and fourth quarters of 1995, respectively. The 1995 cooling and
heating degree days were higher by 7.4% and 14.9%, respectively, as
compared to 1994. The increased retail KWH sales in 1994, as
compared to 1993, reflects increased residential and industrial sales
resulting from an improved economy, partially offset by slightly
milder heating season weather. The changes in fuel revenues in 1995
and 1994 from the prior year reflect changes in total fuel costs
billed customers. The decreased wholesale sales during 1995 and the
increased wholesale sales during 1994 reflect energy requirements of
other utilities in those years.
Operating Expenses
- ------------------
Fuel costs decreased by $0.6 million and increased by $11.4
million from the prior year during 1995 and 1994, respectively. The
decrease in 1995 was due to decreased unit costs of coal and oil of
$6.5 million and decreased deferred fuel costs of $1.2 million,
partially offset by increased fuel consumption of $7.1 million. The
increase in fuel costs during 1994 was due to increased deferred fuel
costs of $6.7 million, increased unit costs of coal and oil of $2.7
million and increased fuel consumption of $2.0 million.
Other operating expenses in 1995 and 1994 increased from the prior
year by $12.2 million and by $3.4 million, respectively. The
increase for 1995 was primarily due to an increase in administrative
and general expenses of $8.5 million which mainly resulted from the
recording of postretirement benefit expense in connection with the
rate case, an increase in distribution expenses of $1.5 million,
miscellaneous steam power operating expenses at the Petersburg plant
of $1.2 million, an increase in customer accounts expense of $0.5
million and an increase in other production expenses of $0.5 million.
Other operating expenses for 1994 increased primarily due to an
increase in administrative and general expenses of $1.7 million, an
increase in miscellaneous power station operating expenses at the
Petersburg plant of $1.2 million and an increase in other production
expenses of $0.5 million.
Purchased steam in 1995 and 1994 decreased in both years due to
lower prices and decreased therms purchased from an independent
resource recovery system located within the city of Indianapolis.
Maintenance expenses decreased by $5.5 million and increased by
$1.2 million from the prior year during 1995 and 1994, respectively.
The decrease for 1995 reflected decreased unit overhaul expenses of
$4.2 million and decreased distribution and transmission expenses of
$1.3 million. The increase in maintenance expenses in 1994 was due
to increased overhead distribution expenses of $3.1 million and
increased transmission and other distribution expenses of $0.7
million, partially offset by decreased unit overhaul expenses in
1994, compared to 1993.
Depreciation and amortization expense in 1995 and 1994 increased
from the prior year by $14.0 million and by $8.7 million,
respectively. These increases resulted primarily from adjustments to
property held for future use, increases in the depreciable utility
plant balances and from the amortization of property-related
regulatory deferrals effective with the September 1, 1995, electric
rate increase. The adjustments to property held for future use were
$12.3 million in 1995 and $3.9 million in 1994. These adjustments
reflect expired regulatory permits and specific design and
engineering costs of a future generating station in Patriot, Indiana.
Income taxes - net, in 1995 and 1994 decreased from the prior year
by $1.6 million and by $4.3 million, respectively. The decrease in
1995 reflects an adjustment to deferred taxes on removal costs of
$2.0 million partially offset by an increase in pretax utility
operating income. The decrease for 1994 resulted from a decrease in
pretax utility operating income.
Other Income And Deductions
- ---------------------------
Allowance for equity funds used during construction in 1995 and
1994 increased from the prior year by $1.3 million and by $2.7
million, respectively. The increases were the result of an increased
construction base in both years primarily due to the construction of
new environmental facilities and, in 1995, from carrying charges on
regulatory assets of $1.4 million resulting from the 1995 Settlement
Agreement.
During 1993, IPALCO incurred a one-time charge against earnings of
$33.9 million, before taxes ($21.1 million net of applicable income
taxes), for legal, financial and administrative costs pertaining to
IPALCO's effort to acquire PSI Resources, Inc. There was no such
charge in 1994 or 1995.
Other - net, which includes the pretax operating and investment
income from operations other than IPL, increased by $4.6 million and
decreased by $4.2 million from the prior year during 1995 and 1994,
respectively. The increased income for 1995 was the result of an
increase in customers and revenues for Energy Resources and due to
the sale of investment securities at Mid-America. The decrease in
other - net for 1994 was primarily due to lower pretax income from
nonutility investments and operations of $3.6 million. The lower
investment income for 1994 reflects decreased cash balances available
for investment at IPALCO and at Mid-America, as a result of the
capital requirements of Mid-America's subsidiaries, primarily for
construction of district cooling facilities. Operations other than
IPL, in total, experienced a net loss of $4.3 million during 1995.
This compares to a net loss of $7.6 million and $3.1 million during
1994 and 1993, respectively.
Interest and Other Charges
- --------------------------
Interest on long-term debt decreased slightly during 1995 from the
prior year and increased by $4.7 million during 1994 from the prior
year. The increase during 1994 was due primarily to the issuance of
$180 million long-term debt on February 3, 1994, (6.05% Series, First
Mortgage Bonds and 7.05% Series, First Mortgage Bonds). The interest
on long-term debt was partially offset by the refinancing of three
series of IPL's First Mortgage Bonds in March 1994 as follows: the
7.4% Series, First Mortgage Bonds; the 7 1/8% Series, First Mortgage
Bonds and the 7.65% Series, First Mortgage Bonds; all of which were
replaced with the 6.05% Series, First Mortgage Bonds.
Other interest charges increased by $3.6 million during 1995 from
the prior year and decreased by $0.9 million during 1994 from the
prior year. The increase during 1995 was primarily due to increased
short-term debt borrowings, whereas, the decrease during 1994 was due
to decreased short-term debt borrowings.
The allowance for borrowed funds used during construction in 1995
and 1994 increased from the prior year by $0.7 million and by $1.2
million, respectively, primarily due to an increased construction
base for both years and also for 1995, compared to 1994, partially
offset by decreased carrying charges on regulatory assets.
1996
----
Factors having a bearing on 1996 earnings compared to 1995 will
include the impact of economic conditions, weather conditions, the
level of construction expenditures and the implementation in mid-1996
of new electric system tariffs.
The overall effect these factors will have on 1996 earnings cannot
be accurately determined at this time.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of IPALCO Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets and
statements of consolidated preferred stock and long-term debt of
IPALCO Enterprises, Inc. and its subsidiaries as of December 31, 1995
and 1994, 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, 1995. 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, 1995 and
1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Indianapolis, Indiana
January 26, 1996
(February 27, 1996 as to Note 15)
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
Statements of Consolidated Income
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
-------------- -------------- --------------
(In Thousands Except Per Share Amounts)
UTILITY OPERATING REVENUES (Note 9):
Electric $ 673,388 $ 649,767 $ 629,327
Steam 35,818 36,309 34,976
-------------- -------------- --------------
Total operating revenues 709,206 686,076 664,303
-------------- -------------- --------------
UTILITY OPERATING EXPENSES:
Operation:
Fuel 169,206 169,756 158,390
Other 116,428 104,273 100,890
Power purchased 19,102 19,060 19,407
Purchased steam 6,680 7,653 8,051
Maintenance 63,013 68,562 67,326
Depreciation and amortization 100,984 87,028 78,372
Taxes other than income taxes 31,706 30,891 29,627
Income taxes - net (Note 8) 53,975 55,543 59,872
-------------- -------------- --------------
Total operating expenses 561,094 542,766 521,935
-------------- -------------- --------------
UTILITY OPERATING INCOME 148,112 143,310 142,368
-------------- -------------- --------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 6,003 4,672 2,010
Costs of withdrawn tender offer (Note 14) - - (33,948)
Other - net (7,407) (12,005) (7,828)
Income taxes - net (Note 8) 2,573 4,536 17,502
-------------- -------------- --------------
Total other income and (deductions) - net 1,169 (2,797) (22,264)
-------------- -------------- --------------
INCOME BEFORE INTEREST AND OTHER CHARGES 149,281 140,513 120,104
-------------- -------------- --------------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 46,170 46,248 41,589
Other interest 5,293 1,685 2,629
Allowance for borrowed funds used during construction (5,367) (4,709) (3,517)
Amortization of redemption premiums and expenses on
debt - net 1,225 1,113 799
Preferred dividend requirements of subsidiary 3,182 3,182 3,182
-------------- -------------- --------------
Total interest and other charges - net 50,503 47,519 44,682
-------------- -------------- --------------
NET INCOME $ 98,778 $ 92,994 $ 75,422
============== ============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 15) 56,745 56,611 56,502
============== ============== ==============
EARNINGS PER SHARE OF COMMON STOCK (Note 15) $ 1.74 $ 1.64 $ 1.33
============== ============== ==============
See notes to consolidated financial statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
- ----------------------------------------------------------------------------------------------------
ASSETS 1995 1994
- ----------------------------------------------------------------------------------------------------
(In Thousands)
UTILITY PLANT:
Utility plant in service (Note 2) $ 2,517,790 $ 2,415,531
Less accumulated depreciation 984,910 916,943
----------------- -----------------
Utility plant in service - net 1,532,880 1,498,588
Construction work in progress 249,249 191,010
Property held for future use 9,878 22,174
----------------- -----------------
Utility plant - net 1,792,007 1,711,772
----------------- -----------------
OTHER ASSETS:
Nonutility property (Note 2) 117,215 82,480
Less accumulated depreciation 8,884 5,809
----------------- -----------------
Nonutility property - net 108,331 76,671
Other investments 6,256 9,637
----------------- -----------------
Other assets - net 114,587 86,308
----------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents 11,554 8,148
Financial investments - 7,025
Accounts receivable (less allowance for doubtful
accounts - 1995, $851,000 and 1994, $855,000) 59,073 48,659
Fuel - at average cost 30,250 37,749
Materials and supplies - at average cost 57,605 57,236
Prepayments and other current assets 4,412 9,132
----------------- -----------------
Total current assets 162,894 167,949
----------------- -----------------
DEFERRED DEBITS:
Regulatory assets (Note 4) 142,711 115,865
Miscellaneous 18,998 17,467
----------------- -----------------
Total deferred debits 161,709 133,332
----------------- -----------------
TOTAL $ 2,231,197 $ 2,099,361
================= =================
See notes to consolidated financial statements.
- ---------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1995 1994
- ---------------------------------------------------------------------------------------------------------
(In Thousands)
CAPITALIZATION:
Common shareholders' equity (Note 5):
Common stock, no par, authorized - 145,000,000 shares,
issued and outstanding - 56,802,256 shares in 1995,
56,633,949 shares in 1994 (Note 15) $ 385,032 $ 381,228
Premium on 4% cumulative preferred stock 1,363 1,363
Retained earnings 436,408 419,354
----------------- -----------------
Total common shareholders' equity 822,803 801,945
Cumulative preferred stock (See Statements) 51,898 51,898
Long-term debt (See Statements) 698,600 665,971
----------------- -----------------
Total capitalization 1,573,301 1,519,814
----------------- -----------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper (Note 7) 69,122 29,753
Current maturities and sinking fund requirements (Note 6) 17,500 350
Accounts payable and accrued expenses 81,984 75,257
Dividends payable 21,567 21,096
Taxes accrued 21,225 18,569
Interest accrued 14,719 14,933
Other current liabilities 16,092 13,298
----------------- -----------------
Total current liabilities 242,209 173,256
----------------- -----------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net (Note 8) 292,417 280,684
Unamortized investment tax credit 50,636 53,762
Accrued postretirement benefits (Note 11) 30,517 34,854
Accrued pension benefits (Note 10) 31,834 27,103
Miscellaneous 10,283 9,888
----------------- -----------------
Total deferred credits and other long-term liabilities 415,687 406,291
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 13)
TOTAL $ 2,231,197 $ 2,099,361
================= =================
See notes to consolidated financial statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
---------------- ---------------- ----------------
(In Thousands)
CASH FLOWS FROM OPERATIONS:
Net income before preferred dividend requirements
of subsidiary $ 101,960 $ 96,176 $ 78,604
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 109,793 91,713 82,026
Income from financial investments - (737) (2,159)
Deferred income taxes and investment tax credit adjustments - net (4,517) 2,685 (1,450)
Allowance for funds used during construction (11,370) (9,381) (5,476)
Premiums on redemptions of debt (2,506) (1,363) (1,122)
Change in certain assets and liabilities:
Accounts receivable (10,414) 1,107 1,281
Fuel, materials and supplies 7,130 (2,205) 8,662
Accounts payable 6,727 20,296 (8,393)
Taxes accrued 2,656 (4,484) (911)
Accrued pension benefits 4,731 4,563 4,711
Other - net 4,684 21,349 12,831
---------------- ---------------- ----------------
Net cash provided by operating activities 208,874 219,719 168,604
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING:
Purchase of marketable securities - - (1,408)
Proceeds from maturities of marketable securities 7,984 - 3,258
Withdrawals from financial investments 7,025 3,800 44,244
Construction expenditures - utility (166,874) (178,295) (145,765)
Construction expenditures - nonutility (34,745) (9,402) (8,788)
Other (26,441) (11,457) (30,040)
---------------- ---------------- ----------------
Net cash used in investing activities (213,051) (195,354) (138,499)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 130,100 202,350 96,500
Retirement of long-term debt (80,350) (85,928) (97,856)
Short-term debt - net 39,369 (60,247) 48,300
Dividends paid (84,471) (82,421) (79,253)
Issuance of common stock related to incentive compensation plans 1,549 1,768 898
Other 1,386 (2,452) (1,230)
---------------- ---------------- ----------------
Net cash provided by (used in) financing activities 7,583 (26,930) (32,641)
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,406 (2,565) (2,536)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,148 10,713 13,249
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,554 $ 8,148 $ 10,713
================ ================ ================
- --------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 47,310 $ 41,429 $ 42,682
================ ================ ================
Income taxes $ 50,557 $ 54,103 $ 46,846
================ ================ ================
See notes to consolidated financial statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Preferred Stock and Long-Term Debt
December 31, 1995 and 1994
1995 1994
-------------- --------------
(In Thousands)
CUMULATIVE PREFERRED STOCK - IPL (Note 5):
Nonredeemable - $100 par value, authorized
2,000,000 shares Call Price at
December 31, 1995
-----------------
4% Series, 100,000 shares $118.00 $ 10,000 $ 10,000
4.20% Series, 39,000 shares 103.00 3,900 3,900
4.60% Series, 30,000 shares 103.00 3,000 3,000
4.80% Series, 50,000 shares 101.00 5,000 5,000
6% Series, 100,000 shares 102.00 10,000 10,000
8.20% Series, 199,985 shares 101.00 19,998 19,998
-------------- --------------
Total cumulative preferred stock $ 51,898 $ 51,898
============== ==============
VARIABLE CLASS PREFERRED STOCK - IPL:
Par value undetermined, authorized
3,000,000 shares, none issued
LONG-TERM DEBT - IPL (Notes 2 and 6):
First mortgage bonds:
5 1/8% Series, due April 1996 $ 15,000 $ 15,200
5 5/8% Series, due May 1997 11,400 11,550
6.05% Series, due February 2004 (issued 2/94) 80,000 80,000
8% Series, due October 2006 58,800 58,800
7 3/8% Series, due August 2007 80,000 80,000
9 5/8% Series, due September 2012 (redeemed 12/95) - 40,000
10 5/8% Series, due December 2014 (redeemed 3/95) - 40,000
6.10% Series, due January 2016 (issued 4/93) 41,850 41,850
5.40% Series, due August 2017 (issued 10/93) 24,650 24,650
9 5/8% Series, due June 2019 50,000 50,000
7.45% Series, due August 2019 23,500 23,500
5.50% Series, due October 2023 (issued 10/93) 30,000 30,000
7.05% Series, due February 2024 (issued 2/94) 100,000 100,000
6 5/8% Series, due December 2024 (issued 2/95) 40,000 -
Unamortized discount - net (1,050) (1,079)
-------------- --------------
Total first mortgage bonds 554,150 594,471
Variable rate, Series 1991, Note, due August 2021 40,000 40,000
Variable rate, Series 1995B, Note, due January 2023 (issued 10/95) 40,000 -
Variable rate, Series 1994A, Note, due December 2024 (issued 12/94) 20,000 20,000
Variable rate, Series 1995C, Note, due December 2029 (issued 12/95) 30,000 -
Current maturities and sinking fund requirements (15,150) (350)
-------------- --------------
Total long-term debt - IPL 669,000 654,121
LONG-TERM DEBT - OTHER (Note 6):
Energy Resources - 7.25% note, due December 2011 9,500 9,500
Energy Resources - variable note, due September 2030 (issued 9/95) 9,300 -
Indianapolis Campus Energy, Inc. - project loan 13,150 2,350
Current maturities (2,350) -
-------------- --------------
Total long-term debt $ 698,600 $ 665,971
============== ==============
See notes to consolidated financial statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Common Shareholders' Equity
For the Years Ended December 31, 1995, 1994 and 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock Premium on 4%
---------------------- Cumulative Retained
Shares Amount Preferred Stock Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Balance at January 1, 1993 56,494 $ 378,562 $ 1,363 $ 407,814 $ 787,739
Net income 75,422 75,422
Cash dividends declared ($1.36 per share) (76,848) (76,848)
Exercise of stock options 45 898 898
------- --------------- -------------- --------------- ---------------
Balance at December 31, 1993 56,539 379,460 1,363 406,388 787,211
Net income 92,994 92,994
Cash dividends declared ($1.41 per share) (80,028) (80,028)
Exercise of stock options 95 1,768 1,768
------- --------------- -------------- --------------- ---------------
Balance at December 31, 1994 56,634 381,228 1,363 419,354 801,945
Net income 98,778 98,778
Cash dividends declared ($1.44 per share) (81,724) (81,724)
Exercise of stock options 81 1,549 1,549
Restricted stock grants 87 2,255 2,255
------- --------------- -------------- --------------- ---------------
Balance at December 31, 1995 56,802 $ 385,032 $ 1,363 $ 436,408 $ 822,803
======= =============== ============== =============== ===============
See notes to consolidated financial statements.
Per share amounts and the number of shares have been adjusted to reflect the
three-for-two stock split as described in Note 15 in the Notes to Consolidated
Financial Statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
=========================================
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------
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) and one 70% owned subsidiary. All significant
intercompany items have been eliminated in consolidation.
The operating components of all subsidiaries other than IPL which had
revenue of $23.0 million, $16.5 million and $15.6 million for 1995, 1994
and 1993, respectively, are included under the captions OTHER INCOME AND
(DEDUCTIONS), "Other-net" and "Income taxes-net" and INTEREST AND OTHER
CHARGES, "Interest on long-term debt" 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.
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: Utility operating revenues are recorded as billed to
customers on a monthly cycle billing basis. Revenue is not accrued for
energy delivered but unbilled at the end of the year. A fuel adjustment
charge provision, which is established after public hearing, is applicable
to substantially all the rate schedules of IPL, and permits the billing or
crediting of estimated fuel costs above or below the levels included in
such rate schedules. Actual fuel costs in excess of, or under, estimated
fuel costs billed are deferred or accrued, respectively.
Authorized Annual Operating Income: In an IURC order dated August 24,
1995, IPL's maximum authorized annual electric operating income, for
purposes of quarterly earnings tests, was established at $150 million
through June 29, 1996, or such date upon scrubber completion, if later, at
which time it increases to $163 million effective with the implementation
of new tariffs in mid-1996. This level will be maintained until changed
by an IURC order in a future IPL general electric rate proceeding.
Additionally, through the date of IPL's next general electric rate order,
IPL is required to file upward and downward adjustments in fuel cost
credits and charges on a quarterly basis.
Pursuant to an order of the IURC, IPL's authorized annual steam net
operating income is $6.2 million, plus any cumulative annual underearnings
occurring during the five-year period subsequent to the implementation of
the new rate tariffs.
Allowance For Funds Used During Construction: In accordance with the
prescribed uniform system of accounts, IPL capitalizes an allowance for
the net cost of funds (interest on borrowed funds and a reasonable rate on
equity funds) used for construction purposes during the period of
construction with a corresponding credit to income. IPL capitalized
amounts using pretax composite rates of 8.5%, 9.5% and 8.0% during 1995,
1994 and 1993, respectively.
Utility Plant and Depreciation: Utility plant is stated at original
cost as defined for regulatory purposes. The cost of additions to utility
plant and replacements of retirement units of property, as distinct from
renewals of minor items which are charged to maintenance, are charged to
plant accounts. Units of property replaced or abandoned in the ordinary
course of business are retired from the plant accounts at cost; such
amounts plus removal costs, less salvage, are charged to accumulated
depreciation. Depreciation is computed by the straight-line method based
on functional rates approved by the IURC and averaged 3.5% during 1995 and
1994 and 3.4% during 1993. Depreciation expense for 1995 and 1994
includes adjustments to property held for future use of approximately
$12.3 million and $3.9 million, respectively. These adjustments reflect
expired regulatory permits and specific design and engineering costs of a
future generating station in Patriot, Indiana. IPL's most recent long-
term load and construction forecasts have deferred the need for base load
capacity to beyond the year 2000. The specific timing and design of this
future capacity cannot be determined at this time.
Nonutility property is recorded at cost, and depreciation is calculated
by the straight-line method over the estimated service lives of the
related property. Nonutility depreciation expense was $3.1 million, $2.3
million and $1.7 million for 1995, 1994 and 1993, respectively.
Financial Investments: Financial investments represent investments in
limited partnerships and managed asset funds which are actively managed
stock and bond funds which value their investments at market. Enterprises
accounts for these investments on the equity method.
Regulatory Assets: Regulatory assets represent deferred costs that
have been, or that are expected to be, included as allowable costs for
ratemaking purposes. IPL has recorded regulatory assets relating to
certain costs as authorized by the IURC. As of December 31, 1995, all
nontax related regulatory assets have been included as allowable costs in
orders of the IURC authorizing IPL to increase customer tariffs except for
approximately $6 million in costs for demand side management (DSM)
incurred subsequent to January 1995. See Note 9. IPL is amortizing such
regulatory assets to expense over periods authorized by these orders.
Specific regulatory assets are disclosed in Note 4.
Through August 31, 1995, IPL had deferred as regulatory assets $40.9
million of certain post in-service date costs and carrying charges of its
investment in Petersburg Unit 4, including $8.2 million of allowance for
earnings on shareholders' investment previously recognized for ratemaking
purposes but not for financial reporting purposes. As authorized in the
1995 Electric Rate Settlement Agreement discussed in Note 9, IPL,
effective September 1, 1995, is amortizing to expense $32.7 million and
$8.2 million of such costs over a 31-year and 2-year period, respectively.
Additionally, IPL has recorded as deferred income the $8.2 million of
allowance on shareholders' investment which is being amortized to OTHER
INCOME AND DEDUCTIONS, "Allowance for equity funds used during
construction," over a 2-year period beginning September 1, 1995.
In accordance with regulatory treatment, IPL defers as regulatory
assets nonsinking fund debt redemption premiums, and amortizes such costs
over the life of the original debt or, in the case of preferred stock
redemption premiums, over 20 years.
Derivatives: IPL has limited involvement with derivative financial
instruments, and these financial instruments are not used for trading
purposes. They are used to manage well-defined interest rate risks as
more fully discussed in Note 6.
Income Taxes: Deferred taxes are provided for all significant
temporary differences between book and taxable income. The effects of
income taxes are measured based on enacted laws and rates. Such
differences include the use of accelerated depreciation methods for tax
purposes, the use of different book and tax depreciable lives, rates and
in-service dates and the accelerated tax amortization of pollution control
facilities. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of existing differences between the
financial reporting and tax reporting basis of assets and liabilities.
IPL has recorded as regulatory assets and net deferred tax liabilities,
income taxes payable and includable in allowable costs for ratemaking
purposes in future years.
Investment tax credits which reduced federal income taxes in the years
they arose have been deferred and are being amortized to income over the
useful lives of the properties in accordance with regulatory treatment.
Statements of Cash Flows - Cash Equivalents: Enterprises considers all
highly liquid investments purchased with original maturities of 90 days or
less to be cash equivalents.
Employee Benefit Plans: Substantially all employees of IPALCO and IPL
and certain management employees of Mid-America are covered by a defined
benefit pension plan, a defined contribution plan and by a postretirement
benefit plan.
The defined benefit pension plan (the Plan) is noncontributory and is
funded through two trusts. Additionally, a select group of management
employees of IPALCO, IPL and Mid-America are covered under a funded
supplemental retirement plan. Collectively, these two plans are referred
to as Plans. Benefits are based on each individual employee's years of
service and compensation. IPL's funding policy is to contribute annually
not less than the minimum required by applicable law, nor more than the
maximum amount which can be deducted for federal income tax purposes.
The defined contribution plan is sponsored by IPL as the Employees'
Thrift Plan of Indianapolis Power & Light Company (Thrift Plan).
Employees elect to make contributions to the Thrift Plan based on a
percentage of their annual base compensation. IPL matches each employee's
contributions in amounts up to, but not exceeding, 4% of the employee's
annual base compensation.
The postretirement benefit plan is sponsored by IPL and provides
certain health care and life insurance benefits to employees who retire
from active service on or after obtaining age 55 and have rendered at
least 10 years of service. This plan is funded through a Voluntary
Employee Beneficiary Association (VEBA) Trust. IPL's policy is to fund
the annual actuarially determined postretirement benefit cost.
Substantially all non-management employees of Mid-America and its
subsidiaries are covered by a contributory 401(k) plan.
Long-Lived Assets: The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," in March 1995. This statement is effective for
years beginning after December 15, 1995. Enterprises anticipates adopting
this standard on January 1, 1996, and does not expect that it will have a
material impact on its financial position or results of operations based
on the current regulatory structure in which it operates. As competitive
factors influence pricing in the utility industry, this opinion may change
in the future. The general requirements of SFAS 121 apply to property,
plant and equipment of Enterprises and require impairment to be considered
whenever evidence suggests that it is no longer probable that future cash
flows are at least equal to the carrying amount of the asset.
Stock-Based Compensation: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation," which requires
adoption in 1996. The new standard defines a fair value method of
accounting for stock options and similar equity instruments. Under the
fair value method, compensation cost is measured at the grant date based
on the fair value of the award and is recognized over the service period,
which is usually the vesting period. Pursuant to the new standard,
companies are encouraged, but not required, to adopt the fair value method
of accounting for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," but would be required to disclose in a note to the financial
statements pro forma net income and, if presented, earnings per share as
if the company had applied the new method of accounting. The accounting
requirements of the new method are effective for all employee awards
granted after the beginning of the fiscal year of adoption. Enterprises
has not yet determined if it will elect to change to the fair value
method, however, it does not anticipate that the new standard will have a
material impact on net income or earnings per share. Adoption of the new
standard will have no effect on Enterprises' cash flows.
Use of Management Estimates: The preparation of financial statements
in conformity with generally accepted accounting principles requires that
management make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. The reported amounts
of revenues and expenses during the reporting period may also be affected
by the estimates and assumptions management is required to make. Actual
results may differ from those estimates.
Reclassification: Certain amounts from prior years' financial
statements have been reclassified to conform to the current year
presentation.
2. PLANT IN SERVICE AND OTHER PROPERTY
Utility Plant in Service
------------------------
The original cost of utility plant in service at December 31,
segregated by functional classifications, follows:
1995 1994
- ------------------------------------------------------------------
(In Thousands)
Production $1,490,958 $1,434,041
Transmission 231,410 227,988
Distribution:
Electric 630,991 600,288
Steam 45,249 44,492
General 119,182 108,722
---------- ----------
Total utility plant in service $2,517,790 $2,415,531
========== ==========
Substantially all of IPL's property is subject to the lien of the
indentures securing IPL's First Mortgage Bonds.
Nonutility Property
-------------------
The original cost of nonutility property at December 31 follows:
1995 1994
- ------------------------------------------------------------------
(In Thousands)
District Cooling $ 97,537 $ 65,862
District Heating 15,884 13,251
General 3,794 3,367
-------- --------
Total nonutility property $117,215 $ 82,480
======== ========
Substantially all the District Cooling and Heating property is
subject to the lien of existing debt and/or credit agreements of Energy
Resources.
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments have been
determined by Enterprises, using available market information and
appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that Enterprises could realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have an effect on the estimated fair value
amounts.
Cash, cash equivalents, marketable securities and notes payable: The
carrying amount approximates fair value due to the short maturity of these
instruments.
Other property - other investments: Mid-America has an investment in
the publicly traded common stock of a company which owns and operates
radio stations. The fair value of this investment as determined by the
market value of its common stock at December 31, 1995 and 1994 was $3.4
million and $7.5 million, respectively. At December 31, 1995 and 1994,
the carrying value of this investment was $1.9 million and $7.4 million,
respectively. The decrease in the carrying value of the stock is due to
the sale of shares during 1995.
Long-term debt, including current maturities and sinking fund
requirements: Interest rates that are currently available to IPL and
Energy Resources for issuance of debt with similar terms and remaining
maturities are used to estimate fair value. The variable rate debt has
been included at the face amount for both carrying amount and fair value.
The $3.6 million fair value of the interest rate swap agreement has been
estimated based on the amount that IPL would have to pay to enter into an
equivalent agreement at December 31, 1995, with the swap counter party.
The fair value of the debt outstanding has been determined on the basis of
the specific securities issued and outstanding. Accordingly, the purpose
of this disclosure is not to approximate the value on the basis of how the
debt might be refinanced. At December 31, 1995 and 1994, the consolidated
carrying amount of Enterprises' long-term debt, including current
maturities and sinking fund requirements, and the approximate fair value
are as follows:
1995 1994
---------------------------------------------------
(In Thousands)
Carrying amount $716,100 $666,321
Approximate fair value $751,100 $624,225
4. REGULATORY ASSETS
The amounts of regulatory assets at December 31, 1995 and 1994, are as
follows:
1995 1994
- -----------------------------------------------------------------------------
(In Thousands)
Postretirement Benefit Costs in Excess of Cash Payments
and Amounts Capitalized (Note 11) $ 30,016 $ 25,182
Unamortized Reacquisition Premium on Debt (Note 1) 22,600 20,047
Related to Deferred Taxes (Note 1) 34,178 21,054
Unamortized Petersburg Unit 4 Carrying Charges (Note 1) 39,143 40,595
Demand Side Management Costs (Note 9) 10,853 4,713
Other 5,921 4,274
-------- --------
Total Regulatory Assets $142,711 $115,865
======== ========
Amortization of nontax regulatory assets amounted to $6.1 million,
$1.0 million and $0.7 million for 1995, 1994 and 1993, respectively.
5. CAPITAL STOCK
Common Stock: IPALCO has a Rights Agreement designed to protect
IPALCO's shareholders against unsolicited attempts to acquire control of
IPALCO that do not offer what the Board believes is a fair and adequate
price to all shareholders. The Board declared a dividend of one Right for
each share of common stock to shareholders of record on July 11, 1990.
The Rights will expire at the time of redemption or exchange, or on July
11, 2000, whichever occurs earliest. At this time, the Rights are
attached to and trade with the common stock. The Rights are not taxable
to shareholders or to IPALCO, and they do not affect reported earnings per
share. Under the Rights Agreement, IPALCO has authorized and reserved 60
million shares for issuance.
IPALCO's Automatic Dividend Reinvestment and Stock Purchase Plan allows
common shareholders to purchase shares of common stock by reinvestment of
dividends and limited additional cash investments. The plan provides that
such shares may be purchased on the open market or directly from IPALCO at
the option of IPALCO. IPALCO is authorized to issue 81,877 additional
shares as of December 31, 1995, pursuant to this plan.
Under the Thrift Plan, shares may be purchased either on the open
market or, if available, as original issue shares directly from IPALCO.
IPALCO is authorized to issue 135,115 additional shares of common stock
pursuant to the Energy Resources 401(k) plan.
IPALCO has a stock option plan (1990 Plan) for key employees under
which options to acquire shares of common stock may be granted. One and one-
half million shares of common stock have been authorized for issuance under the
1990 Plan. The maximum period for exercising an option may not exceed 10
years and one day after grant or 10 years for incentive stock options.
Upon the first anniversary date after the grant, and each anniversary date
thereafter, these options are exercisable in proportion to the number of
years expired in a three-year period.
During 1991, the 1991 Directors' Stock Option Plan (1991 Plan) was
established. This plan provides to the nonemployee Directors of IPALCO
options to acquire shares of common stock. These options are exercisable
for the period beginning on the six-month anniversary of, and ending on
the ten-year anniversary of, the grant date. Under the 1991 Plan, 375,000
shares of common stock have been authorized for issuance and 213,000 are
available for future grants.
A summary of options issued under both plans is as follows:
Range of Option Number of
Price per Share Shares
- --------------------------------------------------------------------------
Outstanding, January 1, 1993 $16.8317 - $23.5393 666,000
Granted 25.3308 - 25.3725 693,750
Canceled 16.8317 - 23.5393 (9,000)
Exercised 16.8317 - 18.7481 (45,000)
---------
Outstanding, December 31, 1993 16.8317 - 25.3725 1,305,750
Granted 21.2895 30,000
Canceled 16.8317 (15,000)
Exercised 16.8317 - 18.7481 (94,500)
---------
Outstanding, December 31, 1994 16.8317 - 25.3725 1,226,250
Granted 20.9146 45,000
Reinstated 16.8317 15,000
Exercised 16.8317 - 18.7481 (81,000)
---------
Outstanding, December 31, 1995 16.8317 - 25.3725 1,205,250
=========
The number of shares exercisable at December 31, 1995, 1994 and 1993
were 983,012; 781,767 and 616,500, respectively.
As approved by the Board of Directors on October 25, 1994, and approved
by the shareholders at the April 19, 1995 Annual Meeting, the 1990 Long-
Term Performance Incentive Plan was amended and restated effective January
1, 1995, as the IPALCO Enterprises, Inc. Long-Term Performance and
Restricted Stock Incentive Plan (1995 Plan). Pursuant to the 1995 Plan,
600,000 shares of common stock of IPALCO have been authorized and reserved
for issuance and initial awards of 87,304 shares of restricted common
stock were made to participating employees on January 1, 1995. On January
1, 1996, an additional 7,319 shares were issued under this plan. Under
the 1995 Plan, shares of restricted common stock with value equal to a
stated percentage of participants' base salary are initially awarded at
the beginning of a three-year performance period, subject to adjustment to
reflect the participants' actual base salary for the first year of each
performance period (except for the first performance period for which the
average of the three years is used). The shares remain restricted and
nontransferable throughout each three-year performance period, vesting in
one-third increments on July 1 of each of the three years following the
end of the performance period. The first performance period is from
January 1, 1995, to December 31, 1997, with subsequent three-year
performance periods commencing annually on January 1 of each year from
1998 to 2004. At the end of a performance period, awards are subject to
adjustment to reflect Enterprises' performance compared to peer companies
under two performance criteria, cost-effective service and total return to
shareholders. Depending on Enterprises' performance under these criteria,
final awards may range from 200% of the initial awards to zero.
Restrictions on the payment of cash dividends or other distributions on
IPL common stock held by IPALCO and on the purchase or redemption of such
shares by IPL are contained in the indentures securing IPL's First
Mortgage Bonds. All of IPL's retained earnings at December 31, 1995, were
free of such restrictions. There are no other restrictions on the
retained earnings of IPALCO.
Cumulative Preferred Stock: Preferred stock shareholders are entitled
to two votes per share for IPL matters, and if four full quarterly
dividends are in default on all shares of the preferred stock then
outstanding, they are entitled to elect the smallest number of IPL
Directors to constitute a majority.
6. LONG-TERM DEBT
The 6.10% Series due 2016, 5.40% Series due 2017, 5.50% Series due
2023, 6 5/8% Series due 2024 and the variable rate Series 1991, 1994A,
1995B and 1995C notes (all referred to as "notes") are issued to the city
of Petersburg, Indiana (City), by IPL to secure the loan of proceeds from
various tax-exempt instruments issued by the City. The Series 1991 note
provides for an interest rate which varies with the tax-exempt commercial
paper rate. The 1994A, 1995B and 1995C notes provide for an interest rate
which varies with the tax-exempt weekly rate. The IPL variable rate notes
can be converted into long-term fixed interest rate instruments by the
issuance of IPL's First Mortgage Bond. The notes are classified as long-
term liabilities because IPL maintains long-term credit facilities
supporting these agreements which were unused at December 31, 1995.
Energy Resources' 1995 variable long-term note due 2030 was issued to the
Indiana Development Finance Authority and bears interest which varies with
the tax-exempt weekly rate.
The average interest rates and the year-end interest rates for the
variable rate notes are as follows:
Average Interest Rate for Interest Rate at
the Year Ended December 31, December 31,
1995 1994 1995 1994
- ---------------------------------------------------------------------
Series 1991 3.91% 2.98% 3.72% 3.85%
Series 1994A 3.94% 5.50% 5.10% 5.50%
Series 1995B 5.14% - 5.21% -
Series 1995C 4.41% - 5.10% -
Energy Resources
variable note 4.20% - 5.80% -
In conjunction with the issuance of the 1995B notes, IPL entered into
an interest rate swap agreement. Pursuant to the swap agreement, IPL will
pay interest at a fixed rate of 5.21% to a swap counter party and will
receive a variable rate of interest in return, which is identical to the
variable rate payment made on the 1995B notes. The result is to
effectively establish a fixed rate of interest on the 1995B notes of
5.21%.
On October 7, 1994, ICE entered into an $18 million project loan which
can be converted to a $10.8 million fully amortizing 15-year secured term
loan once the project becomes operational. The net proceeds from the
project loan will provide funds to construct a chilled water facility.
Upon completion, the project will be leased to a customer under a long-
term capital lease.
Maturities and sinking fund requirements on long-term debt for the five
years subsequent to December 31, 1995, are as follows:
Net Sinking Fund
Maturities Requirements Total
- ---------------------------------------------------------------------
(In Thousands)
1996 $17,350 $ 150 $17,500
1997 11,250 - 11,250
1998 - 2000 - - -
IPL redeemed the $19.65 million, 6.9% Series and the $22.2 million,
6.6% Series First Mortgage Bonds in June 1993; the $24.65 million, 5.8%
Series and the $30.0 million, 10 1/4% Series First Mortgage Bonds in
November 1993 and the $33.2 million, 7.4% Series, the $19.75 million, 7
1/8% Series and the $25.2 million, 7.65% Series First Mortgage Bonds in
March 1994.
7. LINES OF CREDIT
IPALCO has a line of credit of $2 million, of which $2 million was
unused at December 31, 1995. The line of credit requires the payment of a
commitment fee and expires June 27, 1996.
IPL has lines of credit with banks of $100 million at December 31,
1995, to provide loans for interim financing. These lines of credit,
based on separate formal and informal agreements, have expiration dates
ranging from January 31, 1996, to November 30, 1996, and require the
payment of commitment fees. At December 31, 1995, these credit lines were
unused. Lines of credit supporting commercial paper were $56 million at
December 31, 1995.
IPL has an uncommitted line of credit with a bank in the amount of $25
million. At December 31, 1995, $16 million was unused.
Mid-America also has a line of credit of $30 million, of which $26
million was unused at December 31, 1995.
The weighted average interest rate on notes payable and commercial
paper outstanding was 5.82% and 6.30% at December 31, 1995 and 1994,
respectively.
8. INCOME TAXES
Federal and state income taxes charged to income are as follows:
1995 1994 1993
- -----------------------------------------------------------------------------
(In Thousands)
Utility Operating Expenses:
Current income taxes:
Federal $50,869 $45,919 $52,321
State 7,670 6,919 7,761
------- ------- -------
Total current taxes 58,539 52,838 60,082
------- ------- -------
Total deferred taxes (1,439) 5,973 3,058
------- ------- -------
Net amortization of investment credit (3,125) (3,268) (3,268)
------- ------- -------
Total charge to utility operating expenses 53,975 55,543 59,872
Net credit to other income and deductions (2,573) (4,536) (17,502)
------- ------- -------
Total federal and state income tax provisions $51,402 $51,007 $42,370
======= ======= =======
The provision for federal income taxes (including net investment tax
credit adjustments) is less than the amount computed by applying the
statutory tax rate to pretax income. The reasons for the difference,
stated as a percentage of pretax income, are as follows:
1995 1994 1993
- ----------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
Effect of state income taxes (1.8) (1.9) (1.5)
Amortization of investment tax credits (2.0) (2.2) (2.8)
Removal cost adjustments (1.8) (0.8) 0.0
Preferred dividends of subsidiary 0.7 0.8 0.9
Other - net (1.8) (1.6) 0.2
---- ---- ----
Effective tax rate 28.3% 29.3% 31.8%
==== ==== ====
The significant items comprising Enterprises' net deferred tax
liability recognized in the consolidated balance sheets as of December 31,
1995 and 1994, are as follows:
1995 1994
- ---------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities:
Relating to utility property $366,801 $349,461
Early retirement of bonds 8,028 7,697
Other 8,307 5,497
-------- --------
Total deferred tax liabilities 383,136 362,655
-------- --------
Deferred tax assets:
Unbilled revenue 11,157 9,538
Pension 12,059 10,865
Investment tax credit 30,936 32,846
Other 36,567 28,722
-------- --------
Total deferred tax assets 90,719 81,971
-------- --------
Net deferred tax liability $292,417 $280,684
======== ========
9. RATE MATTERS
Electric Rate Settlement Agreement: On August 24, 1995, the IURC
issued an order approving without amendment a Stipulation and Settlement
Agreement (Settlement Agreement) resolving all issues in IPL's pending
electric general rate proceeding. The Settlement Agreement was entered
into by IPL and all parties to the proceeding, including the Office of
Utility Consumer Counselor, the IPL Industrial Group, the Citizens Action
Coalition of Indiana, Inc. and the city of Indianapolis.
The Settlement Agreement authorized IPL to increase its basic rates and
charges for retail electric service in two steps, as follows:
Step 1 - $35,000,000 on September 1, 1995
Step 2 - $25,000,000 on or after June 30, 1996, conditioned only
upon the filing of a "Certificate of In-service Date" showing
completion and operation of IPL's Petersburg Units 1 and 2 sulfur
dioxide removal facilities (scrubbers).
IPL anticipates the in-service date of these scrubbers to occur on or
before June 30, 1996.
The Settlement Agreement provides for the inclusion in rate base of
$42.8 million of the scrubber construction costs during Step 1 and an
additional $160.9 million during Step 2. IPL also is authorized to begin
amortization of its regulatory assets including amounts deferred for
electric service postretirement benefits expenses and relating to its
Petersburg Unit 4 carrying charges. Additionally, IPL's existing
depreciation rates were reapproved.
Under terms of the agreement, IPL will not seek another general
increase in its basic rates and charges until after July 1, 1997, except
in the event of an emergency. IPL also has agreed not to file a request
to build any large, base-load generating capacity before January 1, 2000.
This provision can be waived in extreme circumstances. In addition, the
parties agreed to, and subsequently resolved, pending litigation involving
IPL's Clean Air Act compliance plan.
Environmental Compliance Plan: On August 18, 1993, IPL obtained an
Order from the IURC approving its Environmental Compliance Plan, together
with the costs and expenses associated therewith, which provides for the
installation of sulfur dioxide and nitrogen oxide emissions abatement
equipment and the installation of continuous emission monitoring systems
to meet the requirements of both Phase I and Phase II of the Federal Clean
Air Act Amendments of 1990 (the Act).
Steam Rate Order: By an order dated January 13, 1993, the IURC
authorized IPL to increase its steam system rates and charges over a six-
year period. Accordingly, IPL will implement new steam tariffs designed
to produce estimated additional annual steam operating revenues as
follows:
Additional Cumulative
Annual Annual
Year Revenues Revenues
---- ------------ ------------
January 13, 1996 $ 1,625,000 $ 7,160,000
January 13, 1997 2,384,000 9,544,000
January 13, 1998 370,000 9,914,000
Demand Side Management Program: In compliance with an order dated
September 8, 1993, IPL is deferring certain approved DSM costs and
carrying charges. In the 1995 Electric Rate Settlement Agreement approved
by the IURC on August 24, 1995, IPL was authorized to amortize $5.3
million of such costs deferred prior to February 1995, over a four-year
period beginning September 1, 1995.
10. EMPLOYEE PENSION BENEFIT PLAN
Net pension cost is comprised of the following components:
1995 1994 1993
- ------------------------------------------------------------------------------
(In Thousands)
Service cost--benefits earned during the period $ 6,375 $ 7,832 $ 6,355
Interest cost on projected benefit obligation 15,348 15,358 14,192
Actual return on plan assets (29,529) 10,366 (40,045)
Net amortization and deferral 13,499 (27,297) 25,689
------- ------- -------
Net periodic pension cost $ 5,693 $ 6,259 $ 6,191
======= ======= =======
The accounting distribution of the net periodic pension costs for
1995, 1994 and 1993, follows:
1995 1994 1993
- --------------------------------------------------------------------------
(In Thousands)
Expense $ 4,494 $ 4,894 $ 4,862
Capitalized 1,199 1,365 1,329
------- ------- -------
Net periodic pension cost $ 5,693 $ 6,259 $ 6,191
======= ======= =======
A summary of the Plans' funding status at its October 31, 1995,
evaluation date and the amount recognized in the consolidated balance
sheets at December 31, 1995 and 1994, follows:
1995 1994
- ------------------------------------------------------------------------------
(In Thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation $(148,124) $(123,306)
Nonvested benefit obligation (27,883) (26,394)
--------- ---------
Accumulated benefit obligation $(176,007) $(149,700)
========= =========
Projected benefit obligation $(223,137) $(201,345)
Plan assets at fair value 220,978 199,522
--------- ---------
Funded status--plan assets less than projected
benefit obligation (2,159) (1,823)
Unrecognized net gain from past experience different
from that assumed (30,174) (31,058)
Unrecognized past service costs 14,495 21,188
Unrecognized net asset at January 1, 1987 being
amortized over an original life of 18.9 years (13,996) (15,410)
-------- --------
Net accrued pension benefits included in other long-term
liabilities at December 31 $(31,834) $(27,103)
======== ========
Approximately 30% of the Plans' assets were in equity securities, with
the remainder in fixed income securities.
Assumptions used in determining the information above were:
1995 1994 1993
- -----------------------------------------------------------------------
Discount rate 7.50% 8.00% 7.00%
Rate of increase in future compensation levels 5.10% 6.10% 6.10%
Expected long-term rate of return on assets 8.00% 8.00% 8.00%
11. EMPLOYEE POSTRETIREMENT BENEFIT PLAN
Net postretirement benefit cost is comprised of the following
components:
1995 1994 1993
- -------------------------------------------------------------------------------------------------
(In Thousands)
Service cost -- benefits earned during the period $ 3,941 $ 5,144 $ 4,859
Interest cost on accumulated postretirement benefit obligation 10,838 11,097 10,838
Actual return on plan assets (319) (435) (297)
Net amortization and deferral 4,665 5,767 5,759
------- ------- -------
Net periodic postretirement benefit cost $19,125 $21,573 $21,159
======= ======= =======
The accounting distribution of the net postretirement benefit costs
for 1995, 1994 and 1993, follows:
1995 1994 1993
- ---------------------------------------------------------------------------
(In Thousands)
Expense $ 8,256 $ 4,820 $ 4,540
Capitalized 3,891 4,464 3,726
Regulatory asset deferral 6,978 12,289 12,893
------- ------- -------
Net periodic postretirement benefit cost $19,125 $21,573 $21,159
======= ======= =======
During 1995, IPL expensed $2.1 million of postretirement regulatory
asset amortization.
A summary of the retiree health care and life insurance plan's funding
status, and the amount recognized in the consolidated balance sheets at
December 31, 1995 and 1994, follows:
1995 1994
- -------------------------------------------------------------------------------------------------------
(In Thousands)
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees $ (60,442) $ (55,462)
Fully eligible active plan participants (20,802) (19,531)
Other active plan participants (62,134) (59,073)
--------- ---------
Total (143,378) (134,066)
Plan assets at fair value 30,269 10,570
--------- ---------
Funded status--accumulated postretirement benefit obligation in excess
of plan assets (113,109) (123,496)
Unrecognized net gain from past experience different from that assumed (21,447) (21,931)
Unrecognized net obligation at January 1, 1993 being amortized over
an original life of 20 years 104,039 110,573
--------- ---------
Net accrued postretirement benefit cost included in deferred liabilities at
December 31 $ (30,517) $ (34,854)
========= =========
Enterprises has expensed its nonconstruction related postretirement
benefits costs associated with its unregulated and regulated steam
businesses and, subsequent to August 1995, with its regulated electric
business. IPL's electric business postretirement benefits costs incurred
prior to September 1, 1995, net of amounts paid and capitalized for
construction, were deferred as a regulatory asset on the consolidated
balance sheets. The 1995 Settlement Agreement approved the amortization
to operating expense of this regulatory asset over five years beginning
September 1, 1995. The annual amortization is $6.4 million. The 1995
Settlement Agreement also approved IPL's plan to fund annual
postretirement benefits costs to an irrevocable Voluntary Employee
Beneficiary Association (VEBA) Trust. Annual funding is discretionary and
is based on the projected cost over time of benefits to be provided to
covered persons consistent with acceptable actuarial methods. The VEBA
Trust provides for full funding of Enterprises' accumulated postretirement
benefit obligation in the event of certain change of control transactions.
During 1995 Enterprises funded $19.0 million of these costs.
Plan assets consist of the cash surrender value of life insurance
policies on certain active and retired IPL employees.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation is 9.5% for 1996, gradually
declining to 4.5% in 2003. A 1% increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement
benefit obligation, as of December 31, 1995, by approximately $20.4
million and the combined service cost and interest cost for 1995 by
approximately $2.7 million.
Assumptions used in determining the information above were:
1995 1994 1993
- --------------------------------------------------------------------------
Discount rate 7.25% 8.00% 7.00%
Rate of increase in future compensation levels 5.10% 6.10% 6.10%
Expected long-term rate of return on assets 8.00% 8.00% 8.00%
12. OTHER EMPLOYEE BENEFIT PLANS
Enterprises' contributions to the Thrift Plan were $3.2 million, $3.3
million and $3.2 million in 1995, 1994 and 1993, respectively.
On December 14, 1994, Mid-America's Board of Directors approved a Long-
Term Incentive Plan (the Incentive Plan) that covers key executives of Mid-
America and certain officers of IPALCO effective January 1, 1995.
Pursuant to the Incentive Plan, whole or fractions of eight shares of an
award pool are available to be granted. The value of such shares is zero
at the inception of the Incentive Plan and can grow in value during the
performance period (January 1, 1995 - December 31, 1999). The reward pool
to be distributed to the holders of such shares on December 31, 1999, will
be determined based upon the increase in the valuation of the respective
Mid-America businesses during the performance period and can amount to
.85% up to 15% of the total increase during the performance period. A
minimum increase in value above $34 million is required before any reward
is payable.
Participation in the Incentive Plan will be reviewed on an annual basis
and during the performance period as necessary. The Compensation
Committee of IPALCO's Board of Directors may add or delete participants
from the Incentive Plan and may make modifications to the distribution of
shares during the performance period.
13. COMMITMENTS AND CONTINGENCIES
In 1996, Enterprises anticipates the cost of its subsidiaries'
construction programs to be approximately $112 million.
IPL will comply with the provisions of the Federal Clean Air Act
Amendments of 1990 (the Act) through the installation of SO2 scrubbers and
NOx facilities. The cost of complying with the Act in 1996, including
AFUDC, is estimated to be approximately $35 million. During 1995, 1994
and 1993, expenditures for compliance with the Act were $101.9 million,
$59.4 million and $13.7 million, respectively.
IPL has a five-year firm power purchase agreement with Indiana Michigan
Power Company (IMP) for 100 megawatts (MW) of capacity which was effective
April 1992, with the purchase of an additional 100 MW (for a total of 200
MW) which began in April 1993. IPL is committed to providing monthly
capacity payments of $1.2 million through March 31, 1997. Capacity
payments during 1995, 1994 and 1993 under this agreement totaled $14.4
million, $14.4 million and $12.6 million, respectively.
Enterprises is involved in litigation arising in the normal course of
business. While the results of such litigation cannot be predicted with
certainty, management, based upon advice of counsel, believes that the
final outcome will not have a material adverse effect on the consolidated
financial position and results of operations. With respect to
environmental issues, IPL has ongoing discussions with various regulatory
authorities and continues to believe that IPL is in compliance with its
various permits.
14. WITHDRAWN TENDER OFFER
During the third quarter of 1993, IPALCO incurred a one-time charge
against earnings of $33.9 million before taxes ($21.1 million net of
applicable income taxes), for legal, financial and administrative costs
pertaining to IPALCO's effort to acquire PSI Resources, Inc. The charge
resulted in a decrease in earnings per share of 37 cents.
15. SUBSEQUENT EVENT
On February 27, 1996, the IPALCO Board of Directors authorized a three-for-
two stock split of IPALCO's common stock issuable to shareholders of record at
the close of business on March 7, 1996. All references to share amounts of
common stock and per share information have been restated to reflect the stock
split. The payment of cash in lieu of fractional shares will be reflected in
the first quarter of 1996.
16. QUARTERLY RESULTS (UNAUDITED)
Operating results for the years ended December 31, 1995 and 1994, by
quarter, are as follows (in thousands except per share amounts):
1995
----------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Utility operating revenues $175,518 $159,652 $199,873 $174,163
Utility operating income 38,278 30,598 50,706 28,530
Net income 25,903 17,884 39,543 15,448
Weighted average common shares 56,721 56,728 56,745 56,784
Earnings per share of common stock $ .46 $ .32 $ .70 $ .27
1994
----------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Utility operating revenues $181,178 $161,137 $183,666 $160,095
Utility operating income 41,520 29,440 42,832 29,518
Net income 30,365 16,138 28,900 17,591
Weighted average common shares 56,554 56,622 56,634 56,634
Earnings per share of common stock $ .54 $ .29 $ .51 $ .31
The quarterly figures reflect seasonal and weather-related fluctuations
which are normal to IPL's operations. Milder weather was experienced in
the first quarter of 1995 while warmer weather was experienced in the
third quarter of 1995. In addition, during the fourth quarter of 1995 and
the third quarter of 1994, IPL expensed approximately $12.3 million and
$3.1 million, respectively, of property held for future use. See Note 9
regarding rate increases.
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not
equal the total for the year.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the registrant, set
forth in the Proxy Statement of IPALCO Enterprises, Inc.
dated March 8, 1996 (the registrant's Proxy Statement), under
"Election of Six Directors" at pages 4-7 is incorporated
herein by reference. Information relating to the
registrant's executive officers is set forth at pages I-10 -
I-11 of this Form 10-K under "Executive Officers of the
Registrant at February 27, 1996."
Item 11. EXECUTIVE COMPENSATION
Information relating to executive compensation, set forth in
the registrant's Proxy Statement under "Compensation of
Executive Officers" at pages 8-11, "Compensation of Directors
- Standard Arrangements" at page 11, "Compensation Committee
Interlocks and Insider Participation" at page 14, "Pensions
Plans" at pages 16-17, and "Employment Contracts and
Termination of Employment and Change in Control Arrangements"
at pages 17-18, is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information relating to ownership of the registrant's common
stock by persons known by the registrant to be the beneficial
owners of more than 5% of the outstanding shares of common
stock and by management, set forth in the registrant's Proxy
Statement under "Voting Securities and Beneficial Owners" at
pages 2-3 is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related
transactions, set forth in the registrant's Proxy Statement
under "Compensation of Directors - Certain Business
Relationships" at pages 11-12, is incorporated herein by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The Consolidated Financial Statements and Supplemental
Schedule under this Item 14 (a) 1 and 2 filed in this
Form 10-K are those of IPALCO Enterprises, Inc. and
subsidiaries.
1. Consolidated Financial Statements
Included in Part II of this report:
Independent Auditors' Report
Statements of Consolidated Cash Flows
for the Years Ended December 31, 1995,
1994 and 1993
Statements of Consolidated Income for the Years
Ended December 31, 1995, 1994 and 1993
Consolidated Balance Sheets, December 31, 1995
and 1994
Statements of Consolidated Preferred Stock and
Long-Term Debt, December 31, 1995 and 1994
Statements of Consolidated Common Shareholders'
Equity for the Years Ended December 31, 1995, 1994
and 1993
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules
Included in Part IV of this report:
For each of the years ended December 31, 1995,
1994 and 1993
Schedule II - Valuation and Qualifying Accounts
Exhibit 11.1 - Computation of Per Share Earnings
3. Exhibits
The Exhibit Index beginning on page IV-8 of this
Annual Report on Form 10-K lists the exhibits that are
filed as part of this report.
(b) Reports on Form 8-K
None
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of IPALCO Enterprises, Inc.:
We have audited the financial statements of IPALCO Enterprises, Inc. as
of December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995, and have issued our report thereon
dated January 26, 1996 (February 27, 1996 as to Note 15); such financial
statements and report are included elsewhere in this Form 10-K. Our
audits also included the financial statement schedules of IPALCO
Enterprises, Inc., listed in Item 14(a)2. These financial statement
schedules are the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Indianapolis, Indiana
January 26, 1996
(February 27, 1996 as to Note 15)
IPALCO ENTERPRISES, INC. SCHEDULE II
Valuation and Qualifying Accounts
For the Years Ended December 31, 1995, 1994 and 1993
(In Thousands)
- --------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS DEDUCTIONS
------------------------ FOR PURPOSES
CHARGED TO CHARGED FOR WHICH
BALANCE AT COSTS AND TO OTHER RESERVES BALANCE AT
DESCRIPTION JANUARY 1 EXPENSES ACCOUNTS WERE CREATED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995:
RESERVES DEDUCTED IN CONSOLIDATED BALANCE
SHEET FROM ASSETS TO WHICH THEY APPLY:
Reserve for depreciation of utility property $ 916,943 $ 99,075 $ 0 $ 31,108 $ 984,910
Reserve for depreciation of nonutility property $ 5,809 $ 3,111 $ 0 $ 36 $ 8,884
Reserve for receivables $ 855 $ 1,968 $ 9 $ 1,981 $ 851
YEAR ENDED DECEMBER 31, 1994:
RESERVES DEDUCTED IN CONSOLIDATED BALANCE
SHEET FROM ASSETS TO WHICH THEY APPLY:
Reserve for depreciation of utility property $ 876,054 $ 87,028 $ 0 $ 46,139 $ 916,943
Reserve for depreciation of nonutility property $ 3,482 $ 2,338 $ 0 $ 11 $ 5,809
Reserve for receivables $ 672 $ 1,894 $ 21 $ 1,732 $ 855
YEAR ENDED DECEMBER 31, 1993:
RESERVES DEDUCTED IN CONSOLIDATED BALANCE
SHEET FROM ASSETS TO WHICH THEY APPLY:
Reserve for depreciation of utility property $ 818,319 $ 78,372 $ 0 $ 20,637 $ 876,054
Reserve for depreciation of nonutility property $ 1,810 $ 1,665 $ 7 $ 0 $ 3,482
Reserve for receivables $ 688 $ 1,994 $ (11) $ 1,999 $ 672
IPALCO ENTERPRISES, INC. EXHIBIT 11.1
Computation of Per Share Earnings
For the Years Ended December 31, 1995, 1994 and 1993
YEAR ENDED DECEMBER 31, 1995: Fully
Primary Diluted
Weighted Average Number of Shares ----------- -----------
Average Common Shares Outstanding at 12/31/95 56,744,699 56,744,699
Dilutive (Anti-Dilutive) Effect for Stock Options at 12/31/95 (12,762) 127,151
----------- -----------
Weighted Average Shares at 12/31/95 56,731,937 56,871,850
=========== ===========
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $98,778 $98,778
=========== ===========
Earnings Per Average Common Share $1.74 (a) $1.74 (a)
=========== ===========
YEAR ENDED DECEMBER 31, 1994: Fully
Primary Diluted
Weighted Average Number of Shares ----------- -----------
Average Common Shares Outstanding at 12/31/94 56,610,877 56,610,877
Anti-Dilutive Effect for Stock Options at 12/31/94 (13,206) (13,206)
----------- -----------
Weighted Average Shares at 12/31/94 56,597,671 56,597,671
=========== ===========
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $92,994 $92,994
=========== ===========
Earnings Per Average Common Share $1.64 (a) $1.64 (a)
=========== ===========
YEAR ENDED DECEMBER 31, 1993: Fully
Primary Diluted
Weighted Average Number of Shares ----------- -----------
Average Common Shares Outstanding at 12/31/93 56,502,104 56,502,104
Dilutive Effect for Stock Options at 12/31/93 147,946 147,946
----------- -----------
Weighted Average Shares at 12/31/93 56,650,050 56,650,050
=========== ===========
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $75,422 $75,422
=========== ===========
Earnings Per Average Common Share $1.33 (a) $1.33 (a)
=========== ===========
Note:
(a) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required
by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IPALCO ENTERPRISES, INC.
By /s/ John R. Hodowal
----------------------------------
(John R. Hodowal, Chairman of the
Board and President)
Date: February 27, 1996
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
(i) Principal Executive Officer:
/s/ John R. Hodowal Chairman of the Board February 27, 1996
---------------------- and President
(John R. Hodowal)
(ii) Principal Financial Officer:
/s/ John R. Brehm Vice President February 27, 1996
---------------------- and Treasurer
(John R. Brehm)
(iii) Principal Accounting Officer:
/s/ Stephen J. Plunkett Controller February 27, 1996
-----------------------
(Stephen J. Plunkett)
(iv) A majority of the Board of Directors of IPALCO Enterprises, Inc.:
/s/ Joseph D. Barnette, Jr. Director February 27, 1996
---------------------------
(Joseph D. Barnette, Jr.)
/s/ Robert A. Borns Director February 27, 1996
---------------------------
(Robert A. Borns)
/s/ Mitchell E. Daniels, Jr. Director February 27, 1996
----------------------------
(Mitchell E. Daniels, Jr.)
/s/ Rexford C. Early Director February 27, 1996
----------------------------
(Rexford C. Early)
/s/ Otto N. Frenzel III Director February 27, 1996
---------------------------
(Otto N. Frenzel III)
/s/ Max L. Gibson Director February 27, 1996
---------------------------
(Max L. Gibson)
/s/ Edwin J. Goss Director February 27, 1996
---------------------------
(Edwin J. Goss)
/s/ Dr. Earl B. Herr, Jr. Director February 27, 1996
---------------------------
(Dr. Earl B. Herr, Jr.)
/s/ John R. Hodowal Director February 27, 1996
---------------------------
(John R. Hodowal)
/s/ Ramon L. Humke Director February 27, 1996
---------------------------
(Ramon L. Humke)
/s/ Sam H. Jones Director February 27, 1996
---------------------------
(Sam H. Jones)
/s/ Andre B. Lacy Director February 27, 1996
---------------------------
(Andre B. Lacy)
/s/ L. Ben Lytle Director February 27, 1996
---------------------------
(L. Ben Lytle)
/s/ Thomas M. Miller Director February 27, 1996
---------------------------
(Thomas M. Miller)
/s/ Sallie W. Rowland Director February 27, 1996
---------------------------
(Sallie W. Rowland)
/s/ Thomas H. Sams Director February 27, 1996
---------------------------
(Thomas H. Sams)
EXHIBIT INDEX
-------------
Copies of documents listed below which are identified with an
asterisk (*) are incorporated herein by reference and made a part
hereof. The management contracts or compensatory plans are marked with
a double asterisk (**) after the description of the contract or plan.
Exhibit
No. Description
- ------- -----------------------------------------------------------------
3.1* Articles of Incorporation of IPALCO Enterprises, Inc., as
amended. (Form 10-K for year ended 12-31-90.)
3.2* Bylaws of IPALCO Enterprises, Inc. dated April 26, 1994.
(Form 10-Q for quarter ended 6-30-94.)
4.1* IPALCO Enterprises, Inc. Automatic Dividend Reinvestment and
Stock Purchase Plan. (Exhibit 4.1 to the Form 10-K dated 12-
31-94.)
4.2* IPALCO Enterprises, Inc. and First Chicago Trust Company of
New York (Rights Agent) - Rights Agreement. (Exhibit 4.2 to
the Form 10-K dated 12-31-94.)
10.1* IPALCO Enterprises, Inc. Unfunded Deferred Compensation Plan
for Directors dated December 27, 1983, as amended. (Exhibit
10.1 to the Form 10-K dated 12-31-94.) **
10.2* IPALCO Enterprises, Inc. Unfunded Deferred Compensation Plan
for Officers effective January 1, 1994. (Exhibit 10.2 to the
Form 10-K dated 12-31-94.) **
10.3 Directors' and Officers' Liability Insurance Policy No.
DO392B1A95 effective June 1, 1995 to June 1, 1996. **
10.4* IPALCO Enterprises, Inc. Benefit Protection Fund and Trust
Agreement effective November 1, 1988. (Form 10-K for year
ended 12-31-88.) **
10.5 Exhibit A to IPALCO Enterprises, Inc. Benefit Protection Fund
and Trust Agreement dated July 1, 1995. **
10.6* IPALCO Enterprises, Inc. Annual Incentive Plan and
Administrative Guidelines effective January 1, 1990. (Form
10-K for year ended 12-31-89.) **
10.7* IPALCO Enterprises, Inc. Long-Term Performance and Restricted
Stock Incentive Plan (as amended and restated effective
January 1, 1995). (Exhibit 10.7 to the Form 10-K dated 12-31-
94.) **
10.8* IPALCO Enterprises, Inc. 1990 Stock Option Plan. (Exhibit
10.8 to the Form 10-K dated 12-31-94.) **
10.9* IPALCO Enterprises, Inc. 1991 Directors' Stock Option Plan.
(Exhibit 10.9 to the Form 10-K dated 12-31-94.) **
10.10 Form of Termination Benefits Agreement together with schedule
of parties to, and dates of, the Termination Benefits
Agreements. **
10.11* Employment Agreement between IPALCO Enterprises, Inc.,
Indianapolis Power & Light Company and John R. Hodowal dated
July 29, 1986. (Exhibit 10.11 to the Form 10-K dated 12-31-
94.) **
10.12* Voluntary Employee Beneficiary Association (VEBA) Trust
Agreement. (Exhibit 10.12 to the Form 10-K dated 12-31-94.) **
10.13 Mid-America Capital Resources Long-Term Incentive Plan. **
11.1 Computation of Per Share Earnings.
20.1* Form 10-K of Indianapolis Power & Light Company for the year
ended December 31, 1995, and all exhibits thereto. (SEC File
No. 1-3132-2.)
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
99.1* Agreement dated as of October 27, 1993, by and among IPALCO
Enterprises, Inc., Indianapolis Power & Light Company, PSI
Resources, Inc., PSI Energy, Inc., The Cincinnati Gas &
Electric Company, CINergy Corp., James E. Rogers, John R.
Hodowal and Ramon L. Humke. (Form 10-Q for quarter ended 9-
30-93.)
99.2* Amendment to Agreement, dated October 27, 1994, by and among
IPALCO Enterprises, Inc., Indianapolis Power & Light Company,
PSI Resources, Inc., PSI Energy, Inc., The Cincinnati Gas &
Electric Company, CINergy Corp., James E. Rogers, John R.
Hodowal and Ramon L. Humke. (Exhibit 99.2 to the Form 10-K
dated 12-31-94.)