FORM 10-Q
SECURlTlES AND EXCHANGE COMMlSSlON
WASHINGTON, D. C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended
September 30, 1997 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
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding At September 30, 1997
----- ---------------------------------
Common (Without Par Value) 44,605,417 Shares
<PAGE>1
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
-----------------------------------------
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Statements of Consolidated Income - Three Months Ended and
Nine Months Ended September 30, 1997 and 1996 2
Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996 3
Statements of Consolidated Cash Flows -
Nine Months Ended September 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II. OTHER INFORMATION 14-16
- -------- -----------------
<PAGE>2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Income
(In Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
UTILITY OPERATING REVENUES:
Electric $ 202,916 $ 198,579 $ 561,528 $ 551,680
Steam 7,639 7,093 28,029 28,059
--------------- ---------------- ---------------- ---------------
Total operating revenues 210,555 205,672 589,557 579,739
--------------- ---------------- ---------------- ---------------
UTILITY OPERATING EXPENSES:
Operation:
Fuel 44,475 40,962 123,597 125,745
Other 36,269 34,667 104,524 100,978
Power purchased 1,365 4,868 6,655 13,883
Purchased steam 1,223 1,497 5,126 5,148
Maintenance 14,765 15,743 48,076 45,669
Depreciation and amortization 25,733 25,178 77,977 72,857
Taxes other than income taxes 8,274 8,210 25,273 25,544
Income taxes - net 25,533 23,384 61,830 57,786
--------------- ---------------- ---------------- ---------------
Total operating expenses 157,637 154,509 453,058 447,610
--------------- ---------------- ---------------- ---------------
UTILITY OPERATING INCOME 52,918 51,163 136,499 132,129
--------------- ---------------- ---------------- ---------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 893 976 3,174 4,596
Other - net (1,411) (2,673) (4,185) (4,532)
Income taxes - net 3,434 1,167 7,353 2,039
--------------- ---------------- ---------------- ---------------
Total other income and (deductions) - net 2,916 (530) 6,342 2,103
--------------- ---------------- ---------------- ---------------
INCOME BEFORE INTEREST AND OTHER CHARGES 55,834 50,633 142,841 134,232
--------------- ---------------- ---------------- ---------------
INTEREST AND OTHER CHARGES:
Interest 17,753 12,685 46,449 37,996
Allowance for borrowed funds used during construction (227) (15) (699) (3,325)
Preferred dividend requirements of subsidiary 795 795 2,386 2,386
--------------- ---------------- ---------------- ---------------
Total interest and other charges - net 18,321 13,465 48,136 37,057
--------------- ---------------- ---------------- ---------------
NET INCOME $ 37,513 $ 37,168 $ 94,705 $ 97,175
=============== ================ ================ ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 44,582 56,930 49,042 56,900
=============== ================ ================ ===============
(Note 2)
EARNINGS PER SHARE OF COMMON STOCK $ 0.84 $ 0.65 $ 1.93 $ 1.71
=============== ================ ================ ===============
(Note 2)
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.25 $ 0.37 $ 0.75 $ 1.11
=============== ================ ================ ===============
(Note 2)
See notes to consolidated financial statements.
</TABLE>
<PAGE>3
<TABLE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
September 30 December 31
ASSETS 1997 1996
------
----------------- ----------------
<S> <C> <C>
UTILITY PLANT:
Utility plant in service $ 2,800,741 $ 2,763,305
Less accumulated depreciation 1,107,851 1,048,492
----------------- ----------------
Utility plant in service - net 1,692,890 1,714,813
Construction work in progress 61,934 63,243
Property held for future use 10,224 9,913
----------------- ----------------
Utility plant - net 1,765,048 1,787,969
----------------- ----------------
OTHER ASSETS:
Nonutility property - at cost, less accumulated depreciation 105,982 108,290
Other investments 6,762 5,371
----------------- ----------------
Other assets - net 112,744 113,661
----------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 27,213 19,317
Accounts receivable (less allowance for doubtful
accounts - 1997, $1,466 and 1996, $1,159) 8,459 11,099
Fuel - at average cost 28,527 30,625
Materials and supplies - at average cost 49,917 52,727
Prepayments and other current assets 5,526 9,931
----------------- ----------------
Total current assets 119,642 123,699
----------------- ----------------
DEFERRED DEBITS:
Regulatory assets 129,036 137,974
Miscellaneous 28,815 19,766
----------------- ----------------
Total deferred debits 157,851 157,740
----------------- ----------------
TOTAL $ 2,155,285 $ 2,183,069
================= ================
CAPITALIZATION AND LIABILITIES
------------------------------
CAPITALIZATION:
Common shareholders' equity:
Common stock $ 393,604 $ 389,966
Premium on 4% cumulative preferred stock 1,363 1,363
Retained earnings 524,552 466,397
Treasury Stock (401,262) -
----------------- ----------------
Total common shareholders' equity 518,257 857,726
Cumulative preferred stock of subsidiary 51,898 51,898
Long-term debt (less current maturities and
sinking fund requirements) 1,033,134 662,591
----------------- ----------------
Total capitalization 1,603,289 1,572,215
----------------- ----------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper 10,000 46,000
Current maturities and sinking fund requirements 12,794 11,250
Accounts payable and accrued expenses 53,067 62,222
Dividends payable 12,250 22,212
Taxes accrued 20,507 23,159
Interest accrued 11,644 13,354
Other current liabilities 13,968 14,519
----------------- ----------------
Total current liabilities 134,230 192,716
----------------- ----------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net 309,738 303,473
Unamortized investment tax credit 45,513 47,722
Accrued postretirement benefits 18,760 23,635
Accrued pension benefits 40,316 37,283
Miscellaneous 3,439 6,025
----------------- ----------------
Total deferred credits and other long-term liabilities 417,766 418,138
----------------- ----------------
COMMITMENTS AND CONTINGENCIES
TOTAL $ 2,155,285 $ 2,183,069
================= ================
See notes to consolidated financial statements.
</TABLE>
<PAGE>4
<TABLE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income before preferred dividend requirements of subsidiary $ 97,091 $ 99,561
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 77,640 72,526
Amortization of regulatory assets 12,800 12,149
Deferred income taxes and investment tax credit adjustments - net (262) 245
Allowance for funds used during construction (3,873) (7,921)
Change in certain assets and liabilities:
Accounts receivable 2,640 (1,316)
Fuel, materials and supplies 4,908 (925)
Accounts payable (9,155) (24,629)
Taxes accrued (2,652) 1,562
Accrued pension benefits 3,033 3,951
Other - net (2,457) (6,371)
--------------- ---------------
Net cash provided by operating activities 179,713 148,832
--------------- ---------------
CASH FLOWS FROM INVESTING:
Proceeds from maturities of marketable securities - 3,810
Construction expenditures - utility (47,801) (61,920)
Construction expenditures - nonutility (1,260) (3,588)
Other (10,838) (8,993)
--------------- ---------------
Net cash used in investing activities (59,899) (70,691)
--------------- ---------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 451,300 1,600
Retirement of long-term debt (79,250) (18,700)
Short-term debt - net (36,000) 8,611
Dividends paid (48,900) (64,945)
Issuance of common stock related to incentive compensation plans 2,919 2,750
Reacquired common stock (401,262) -
Other (725) 154
--------------- ---------------
Net cash used in financing activities (111,918) (70,530)
--------------- ---------------
Net increase in cash and cash equivalents 7,896 7,611
Cash and cash equivalents at beginning of period 19,317 11,554
--------------- ---------------
Cash and cash equivalents at end of period $ 27,213 $ 19,165
=============== ===============
- ------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 46,567 $ 37,037
=============== ===============
Income taxes $ 49,353 $ 49,898
=============== ===============
See notes to consolidated financial statements.
</TABLE>
<PAGE>5
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. 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 utility subsidiary, Indianapolis Power & Light Company (IPL) and
its unregulated subsidiary, Mid-America Capital Resources, Inc.
(Mid-America). Mid-America is the parent company of nonutility
energy-related businesses.
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.
In the opinion of management these statements reflect all adjustments,
consisting of only normal recurring accruals, including elimination of
all significant intercompany balances and transactions, which are
necessary to a fair statement of the results for the interim periods
covered by such statements. Due to the seasonal nature of the electric
utility business, the annual results are not generated evenly by quarter
during the year. Certain amounts from prior year financial statements
have been reclassified to conform to the current year presentation.
These financial statements and notes should be read in conjunction with
the audited financial statements included in Enterprises' 1996 Annual
Report on Form 10-K.
<TABLE>
2. COMMON STOCK
<CAPTION>
Shares Amount
---------- ------------
<S> <C> <C>
Balance at December 31, 1996 57,034,912 $389,966,251
Restricted stock issued (1st Quarter) 1,628 44,363
Exercise of stock options (1st Quarter) 2,500 55,986
Adjustment for restricted stock (1st Quarter) - 300,784
Exercise of stock options (2nd Quarter) 65,304 1,738,332
Adjustment for restricted stock (2nd Quarter) - 84,220
Exercise of stock options (3rd Quarter) 40,501 1,125,323
Adjustment for restricted stock (3rd Quarter) - 288,753
------------
Balance at September 30, 1997 $393,604,012
============
Less shares reacquired by Treasury (2nd Quarter) (12,539,428)
----------
Shares issued and outstanding at September 30, 1997 44,605,417
==========
</TABLE>
On February 25, 1997, the Board of Directors authorized the repurchase
of up to 12 million shares of IPALCO's common stock through a "Dutch
auction" self-tender offer. On March 27, the Dutch Auction ended with
12,539,428 shares of common stock having been tendered to the Company
and not withdrawn at or below $32 dollars per share. The Board of
Directors subsequently elected to purchase all shares tendered at or
below $32 per share for $32 per share. The shares were purchased on
April 8, 1997, through the issuance of long term debt in the amount of
$401 million (see Note 3, Long-term debt). All 12,539,428 shares remain
in Treasury stock.
<PAGE>6
3. LONG-TERM DEBT
On April 4, 1997 IPALCO Enterprises, Inc. entered into a $401 million
Revolving Credit Facility (the "Revolver") with Bank One, Indiana,
National Association, National City Bank of Indiana, and The First
National Bank of Chicago with a maturity of March 31, 2002. The proceeds
of this Revolver were used to purchase, through a self-tender offer,
shares of IPALCO's outstanding common capital stock. Interest is payable
monthly and is based on a spread over LIBOR. In conjunction with the
issuance of the Revolver, IPALCO entered into an interest rate swap
agreement which fixed the interest rate on $300 million of the Revolver.
Pursuant to the swap agreement which matures April 1, 2001, IPALCO will
pay interest at a fixed rate of 6.3575% to a swap counter party and will
receive a variable rate of interest in return based on one month LIBOR.
The result is to effectively establish a 6.6825% fixed rate of interest
on $300 million of the Revolver. The remaining balance on the original
$401 million Revolver was $333 million at September 30, 1997.
On May 1, 1997, IPL retired First Mortgage Bonds, 5 5/8% Series, due May
1, 1997, in the amount of $11,250,000.
On June 13, 1997, Mid-America Energy Resources, a subsidiary of
Mid-America Capital Resources, issued $50 million in long-term notes
payable at a fixed rate of 8.03% with the first principal payment due
September 1, 1998. The average life of the debt is 10 years with a final
maturity on June 13, 2012, and with an initial required escrow balance
of $6.95 million. A substantial portion of the proceeds from these notes
was used to pay back intercompany debt and return capital to Mid-America
Capital Resources.
4. NEW ACCOUNTING STANDARDS
Effective December, 1997, Statement of Financial Accounting Standards
(SFAS) No. 128, relating to the computation and presentation of earnings
per share, becomes effective. SFAS 128 replaces the presentation of
primary EPS with a presentation of basic EPS, requires dual presentation
of basic and diluted EPS for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997;
earlier adoption is not permitted. Management has determined that the
adoption of SFAS 128 will not have a material effect on the accompanying
consolidated financial statements.
In June, 1997, SFAS No. 130, "Comprehensive Income," was issued and
becomes effective in 1998 and requires reclassification of earlier
financial statements for comparative purposes. SFAS No. 130 requires
that changes in the amounts of certain items, including foreign currency
translation adjustments and gains and losses on certain securities be
shown in the financial statements. SFAS No. 130 does not require a
specific format for the financial statement in which comprehensive
income is reported, but does require that an amount representing total
comprehensive income be reported in that statement. Management has not
yet determined the effect, if any, of SFAS 130 on the consolidated
financial statements.
Also in June, 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued. The Statement will
change the way public companies report information about segments of
their business in their annual financial statements and requires them to
report selected segment information in their quarterly reports issued to
shareholders. It also requires entity-wide disclosures about the
products and services an entity provides, the material countries in
which it holds assets and reports revenues, and its major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15,
1997. Management has not yet determined the effect, if any, of SFAS No.
131 on the consolidated financial statements.
<PAGE>7
5. SALE OF ACCOUNTS RECEIVABLE
In December, 1996, IPL entered into an agreement to sell, on a revolving
basis, undivided percentage interests in certain of its accounts
receivable, including accounts receivable for KWH delivered but not
billed, up to an aggregate maximum at any one time of $50 million.
Accounts receivable on the Consolidated Balance Sheets are net of the
$50 million interest sold under the IPL agreement. The gross amount of
receivables sold was $55.6 million, of which $5.6 million was replaced
with a receivable from the purchasing party.
6. STOCK-BASED COMPENSATION
On May 21, 1997, the IPALCO Enterprises, Inc. 1997 Stock Option Plan for
officers and other key employees was approved by the shareholders of
IPALCO. Two million shares of common stock were reserved for issuance
under the 1997 Plan. As of September 30, 1997, grants representing
1,067,250 shares have been made from this plan. The maximum period for
exercising an option may not exceed 10 years and one day after the
grant, provided however, that the incentive stock options shall have
terms not in excess of 10 years.
A summary of options issued under IPALCO's stock option plans is as
follows:
<TABLE>
<CAPTION>
Weighted Average Range of Option Number of
Price per Share Price per Share Shares
---------------- ------------------- ----------
<S> <C> <C> <C>
Outstanding, December 31, 1996................ 24.12 16.8317 - 25.3725 1,023,570
Granted..................................... 31.38 31.375 1,132,500
Granted..................................... 30.50 30.50 42,000
Exercised................................... 24.52 16.8317 - 31.375 (108,305)
---------
Outstanding, September 30, 1997............... 28.16 16.8317 - 31.375 2,089,765
=========
</TABLE>
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for the
stock based plan have been applied by IPALCO. No compensation cost has
been recognized for the plans because the stock options price is equal
to fair value at the grant date. Had compensation cost for the plans
been determined based on the fair value at the grant dates for awards
under the plans consistent with the method of SFAS No. 123, "Accounting
for Stock-Based Compensation," IPALCO's net income for the nine months
ended September 30, 1997, would have decreased from $ 94.7 million
($1.93 per share) to the pro forma amount of $91.1 million ($1.86 per
share). IPALCO's net income and earnings per share for the similar
period in 1996 would not change. IPALCO estimated the SFAS No. 123 fair
value by utilizing the binomial options pricing model with the following
assumptions: dividend yields of 3.19% to 6.88%, risk-free rates of 6.38%
to 6.88%, volatility of 12% to 13% and expected lives of 5 years.
<PAGE>8
7. SUBSEQUENT EVENTS
On October 9, 1997, an amendment to the Articles of Incorporation of
Indianapolis Power & Light Company was adopted at a special meeting of
shareholders. The amendment removed a provision of the articles that
limited IPL's ability to issue unsecured debt, including short-term
debt.
IPALCO purchased shares of IPL's preferred stock on October 17, 1997,
pursuant to the terms of a tender offer concluded October 8, 1997. This
purchase was accomplished using proceeds obtained with the use of a $22
million increase to IPALCO's Revolving Credit Facility originally
obtained in April, 1997. The following table shows the number of shares
purchased for each class of preferred stock.
Class Shares Rate Amount
------------------------------------------------------------
4% Series............. 52,389 $71.38 $ 3,739,527
4.2% Series........... 19,669 77.72 1,528,675
4.6% Series........... 27,519 85.12 2,342,417
4.8% Series........... 28,070 88.82 2,493,177
6% Series............. 59,200 103.00 6,097,600
8.2% Series........... 65,828 102.00 6,714,456
------ -----------
Total shares purchased 252,675 $22,915,852
======= ===========
After IPALCO's purchase, the stock was subsequently purchased from IPALCO
by IPL at IPALCO's cost and canceled. As a result, the stock is no
longer deemed issued and outstanding on the books of IPL. Following IPL's
subsequent purchase, preferred stock consisted of the following:
<TABLE>
<CAPTION>
October 31, 1997
---------------------------
Oct. 31 Dec. 31
Shares Call ----------------------
Outstanding Price 1997 1996
----------- -------- -------- --------
(Thousands of Dollars)
Cumulative $100 Par Value,
authorized 2,000,000 shares
<S> <C> <C> <C> <C>
4% Series.......................................... 47,611 $ 118.00 $ 4,761 $ 10,000
4.2% Series........................................ 19,331 103.00 1,933 3,900
4.6% Series........................................ 2,481 103.00 248 3,000
4.8% Series........................................ 21,930 101.00 2,193 5,000
6% Series.......................................... 40,800 102.00 4,080 10,000
8.2% Series........................................ 134,157 101.00 13,416 19,998
------- -------- --------
Total cumulative preferred stock 266,310 $26,631 $51,898
======= ======== ========
</TABLE>
On October 28, 1997, Indianapolis Power & Light Company's Board of
Directors resolved to call for redemption all shares of IPL's 6.0% and
8.2% Cumulative Preferred Stock issued and outstanding on December 15,
1997, at a price per share, payable to shareholders of record of $102
and $101, respectively, together with dividends accrued through the date
of redemption.
<PAGE>9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Material changes in the consolidated financial condition and results of
operations of IPALCO Enterprises, Inc. (Enterprises), except where noted, are
attributed to the operations of Indianapolis Power & Light Company (IPL).
Consequently, the following discussion is centered on IPL.
LIQUIDITY AND CAPITAL RESOURCES
Overview
- --------
The Board of Directors of Enterprises on August 26, 1997, declared a
quarterly dividend on common stock of 25 cents per share compared to 37 cents
per share declared in the third quarter of 1996. The dividend was paid October
15, 1997, to shareholders of record September 19, 1997.
IPL's capital requirements are primarily related to construction
expenditures needed to meet customers' needs for electricity and steam, as well
as expenditures for environmental compliance. Enterprises' construction
expenditures (excluding allowance for funds used during construction) totaled
$17.3 million during the third quarter ended September 30, 1997, representing a
$0.8 million increase from the comparable period in 1996. Internally generated
cash provided by IPL's operations was used for IPL construction expenditures
during the third quarter of 1997. Enterprises' construction expenditures
(excluding allowance for funds used during construction) totaled $49.1 million
during the nine months ended September 30, 1997, representing a $16.4 million
decrease from the comparable period in 1996. This difference is mostly related
to reduced construction spending in 1997 compared to 1996 for the scrubbers at
IPL's Petersburg Generating Station that went into service in June 1996.
Internally generated cash provided by IPL's operations was used for IPL
construction expenditures during the first nine months of 1997. As a result of
IPL's new basic electric rates and charges and reduced capital spending, IPL
anticipates continued improving liquidity.
The five-year construction program has not changed from that previously
reported in IPALCO's 1996 Form 10-K report. (See "Future Performance" in Item 7
of Management's Discussion and Analysis of Financial Condition and Results of
Operations in IPALCO's 1996 Form 10-K report for further discussion).
On April 4, 1997 IPALCO Enterprises, Inc. entered into a $401 million
Revolving Credit Facility (the "Revolver") with Bank One, Indiana, National
Association, National City Bank of Indiana, and The First National Bank of
Chicago with a maturity of March 31, 2002. The proceeds of this Revolver were
used to purchase, through a self-tender offer, shares of IPALCO's outstanding
common capital stock. Interest is payable monthly and is based on a spread over
LIBOR. In conjunction with the issuance of the Revolver, IPALCO entered into an
interest rate swap agreement which fixed the interest rate on $300 million of
the Revolver. Pursuant to the swap agreement which matures April 1, 2001, IPALCO
will pay interest at a fixed rate of 6.3575% to a swap counter party and will
receive a variable rate of interest in return based on one month LIBOR. The
result is to effectively establish a 6.6825% fixed rate of interest on $300
million of the Revolver. The remaining balance on the original $401 million
Revolver was $333 million at September 30, 1997.
On May 1, 1997, IPL retired First Mortgage Bonds, 5 5/8% Series, due
May 1, 1997, in the amount of $11,250,000.
On June 13, 1997, Mid-America Energy Resources issued $50 million in
long-term notes payable at a fixed rate of 8.03% with the first principal
payment due September 1, 1998. The average life of the debt is 10 years with the
final maturity on June 13, 2012, and with an initial required escrow balance of
$6.95 million. A substantial portion of the proceeds from these notes was used
to pay back intercompany debt and return capital to Mid-America Capital
Resources.
<PAGE>10
Rate Relief
- -----------
The Indiana Utility Regulatory Commission approved a two-step rate
increase for IPL electric retail customers in August 1995. The initial step
increase was effective September 1, 1995, and the second step increase became
effective July 1, 1996.
<PAGE>11
RESULTS OF OPERATIONS
Comparison of Third Quarter and Nine Months Ended September 30, 1997
--------------------------------------------------------------------
with Third Quarter and Nine Months Ended September 30, 1996
-----------------------------------------------------------
Net income during the third quarter of 1997 was $37.5 million ($0.84
per share), or $0.3 million above net income for the comparable 1996 period. Net
income during the nine months ended September 30, 1997, was $94.7 million ($1.93
per share), or $2.5 million below net income for the comparable 1996 period. The
following discussion highlights the factors contributing to the third quarter
and nine months ended results.
Operating Revenues
- ------------------
Operating revenues during the third quarter and nine months ended of 1997
increased from the comparable 1996 periods by $4.9 million and $9.8 million,
respectively. The increases in revenues resulted from the following:
<TABLE>
<CAPTION>
Increase (Decrease) from Comparable Period
------------------------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
(Millions of Dollars)
<S> <C> <C>
Increase in base electric rates $ - $ 12.7
Change in Kilowatt-hour (KWH) sales - net of fuel 0.9 (7.1)
Fuel revenues 0.3 (4.7)
Steam revenues 0.6 -
Sales for resale 2.8 7.0
Other revenues 0.3 1.9
------- -------
Total change in operating revenues $ 4.9 $ 9.8
======= =======
</TABLE>
The increase in base rate electric revenues for the nine month ended
period is the result of new tariffs, effective July 1, 1996, designed to produce
$25 million additional annual revenues. The decrease in retail KWH sales for the
nine months ended period was due to milder weather partially offset by customer
growth. Heating degree days and cooling degree days for the nine months ended
September 30, 1997, decreased by 6.6% and 16.9%, respectively, from the same
period in 1996. The changes in fuel revenues in 1997 from the prior year reflect
changes in total fuel costs billed customers. The increased wholesale sales
during the third quarter and nine months ended of 1997, as compared to the same
periods in 1996, reflect energy requirements of other utilities and increased
wholesale marketing efforts.
Operating Expenses
- ------------------
Fuel expenses in the third quarter of 1997 increased $3.5 million from
the same period a year earlier while decreasing $2.1 million for the nine months
of 1997, compared to the previous year. The increase in the third quarter was
due to increases in fuel consumption of $2.3 million, deferred fuel cost of $1.0
million as well as increased unit costs of coal and oil of $0.2 million. The
nine-month variance from 1996 was due to decreases in deferred fuel costs of
$3.8 million and unit costs of coal and oil of $1.9 million partially offset by
an increase in fuel consumption of $3.6 million.
Power purchased decreased by $3.5 million and $7.2 million from the
comparable periods in 1996 during the third quarter and first nine months of
1997, respectively. The decrease in the third quarter was due to a decrease in
demand charges of $3.3 million and to energy purchases of $0.2 million. The
nine-month variance was due to decreased demand charges of $6.7 million as well
as decreased energy purchases of $0.5 million. The decreased demand charges in
both periods resulted from a new power purchase contract taking effect in May of
1997.
<PAGE>12
Maintenance expense decreased by $1.0 million in the third quarter of
1997 while increasing $2.4 million for the first nine months of 1997, compared
to the same periods the previous year. The third quarter decrease was related to
the overhaul of a production unit at the Pritchard Plant during the third
quarter of 1996. The nine-month increase resulted from a $2.0 million increase
for expenses at the Stout Plant primarily related to the repair of a production
unit. Increased maintenance expenses of $0.7 million for station equipment in
transmission also contributed to the nine-month variance.
Depreciation and amortization expense in the third quarter and nine
months ended September 30, 1997, increased from the same periods a year earlier
by $0.6 million and $5.1 million, respectively. These increases primarily
resulted from increased depreciable plant balances.
Income taxes - net for the third quarter and nine months ended
September 30, 1997, increased from the same periods in 1996 by $2.1 million and
$4.0 million, respectively. These increases were primarily due to increased
pretax operating income.
As a result of the foregoing, utility operating income during the third
quarter of 1997 increased 3.4% from the comparable 1996 period, to $52.9
million. Utility operating income during the nine months ended September 30,
1997, increased 3.3% from the comparable 1996 period, to $136.4 million.
Other Income and Deductions
- ---------------------------
Allowance for equity funds used during construction in the third
quarter and nine months ended September 30, 1997, decreased from the same
periods in 1996 by $0.1 million and $1.4 million, respectively. The third
quarter decrease was due to amortization ending in August of 1997, of certain
deferred Petersburg Plant assets. This decrease was partially offset in the
third quarter by an increased equity rate. The nine- month variance resulted
from a decreased construction base and the ending of amortization of certain
deferred assets.
Other - net, which includes the pretax operating and investment income
from operations other than IPL as well as non-operating income from IPL
increased by $1.3 and $0.3 million in the third quarter and nine months ended
periods of 1997, respectively, compared to the same periods in 1996. The
increase for the third quarter of 1997 was due to increased revenues and
decreased operating costs at Mid-America of $1.0 million as well as increased
net revenues from contract work at IPL of $0.2 million. The nine-month increase
was primarily due to increased miscellaneous income at IPL of $0.8 million
resulting from contract work as well as decreased operating costs at Mid-America
partially offset by a gain on the sale of investment securities realized during
1996.
Income taxes - net, which includes taxes on operations other than IPL,
in the third quarter and nine months ended September 30, 1997, decreased from
the same periods in 1996 by $2.3 million and $5.3 million, respectively,
primarily due to increased interest expense at IPALCO. The nine-month decrease
also reflects the sale of investment securities in 1996.
Interest and Other Charges
- --------------------------
Interest expense in the third quarter and nine months ended September
30, 1997, increased from the same periods in 1996 by $5.1 million and $8.5
million, respectively. Interest expense of $5.8 million and $11.7 million at
IPALCO for the Revolving Credit Facility issued in April of 1997 contributed to
the third quarter and nine-month variances, respectively. Other factors
contributing to the third quarter increase include an increase of $1.2 million
at Mid-America for long-term debt issued during 1997 and a decrease in interest
expense at IPL of $1.9 million due to the retirement of long-term debt in 1996
and 1997 as well as decreased short-term debt. Other factors contributing to the
September 30, 1997, year-to-date variance include increased expense at
Mid-America of $1.8 million and decreased expense at IPL of $5.0 million. IPL's
decrease was due to the redemption of $15 million and $50 million debt issues
during 1996 and $11.3 million in 1997 as well as decreased short-term debt.
<PAGE>13
Allowance for borrowed funds used during construction for the third
quarter increased $0.2 million while decreasing for the nine months ended
September 30, 1997, by $2.6 million, from the comparable periods in 1996. The
third quarter change resulted from an increase in the construction base and an
increase in the borrowed funds rate. A decreased average construction base for
the nine months ended September 30, 1997, resulted in the $2.6 million decrease
compared to 1996.
<PAGE>14
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- ------- -----------------
On August 18, 1997, Region V of the U. S. Environmental Protection
Agency issued to IPL a Notice of Violation (NOV) under the Clean Air Act. The
NOV alleged that particulate matter emissions from IPL's Perry K Units 11 and 12
exceeded applicable limits on three dates in 1995, that particulate matter
emissions from Perry K Units 15 and 16 exceeded applicable limits on a single
date in each of 1994 and 1995, and that sulfur dioxide emissions exceeded the
applicable limit on four days in the first quarter of 1997. IPL disagrees with
the Agency's interpretations of the applicable rules and believes that the Perry
K Plant has been in compliance with applicable limits. Representatives of IPL
met with the Agency on September 24, 1997, in an attempt to resolve the matter
and have subsequently provided the Agency with additional information on the
operation of the Plant. If IPL were adjudged to have violated applicable
emission limits, it could be subject to maximum penalties of $25,000 per day of
violation.
Item 5. Other Information
- ------- -----------------
On July 16, 1997, the United States Environmental Protection Agency
promulgated final regulations which amended the National Ambient Air Quality
Standards by introducing standards for fine particulate matter and creating new
ozone standards. Existing sources that cause or contribute to nonattainment
regions will likely be subject to additional regulatory requirements, including
possible emission reductions. New sources wanting to build facilities in
nonattainment areas may also be subject to additional control requirements and
may be required to offset their emissions. Because power plants emit certain air
pollutants that could contribute to the formation of ambient ozone and fine
particulate matter, there is a possibility that existing Company sources will be
required to be retrofitted with additional air pollution controls in the future.
Congressional intervention and/or litigation regarding the standards are
probable. Due to these uncertainties, it is not presently possible to predict
the potential impacts associated with implementation of these standards on the
Company's facilities.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits. 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.
3.1* Articles of Incorporation of IPALCO Enterprises, Inc., as amended.
(Exhibit 3.1 to the Form 10-Q dated 6-30-97.)
3.2* Bylaws of IPALCO Enterprises, Inc., as amended. (Exhibit 3.2 to the
Form 10-Q dated 3-31-97.)
4.1* IPALCO Enterprises, Inc. IPALCO PowerInvest Dividend Reinvestment and
Direct Stock Purchase Plan.(Exhibit 4.1 to the Form 10-Q dated 9-30-96)
4.2* IPALCO Enterprises, Inc. and First Chicago Trust Company of New York
(Rights Agreement).(Exhibit 4.2 to the Form 10-K for the year
ended 12-31-94.)
11.1 Computation of Per Share Earnings.
21.1* Subsidiaries of the Registrant. (Exhibit 21.1 to the Form 10-K
dated 12-31-96.)
27.1 Financial Data Schedule.
<PAGE>15
(b) Reports on Form 8-K.
None.
<PAGE>16
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IPALCO ENTERPRISES, INC.
(Registrant)
Date: November 13, 1997 /s/ John R. Brehm
----------------------------- ---------------------------
John R. Brehm
Vice President and Treasurer
Date: November 13, 1997 /s/ Stephen J. Plunkett
----------------------------- ---------------------------
Stephen J. Plunkett
Controller
<TABLE>
IPALCO ENTERPRISES, INC. EXHIBIT 11.1
Exhibit 11.1 - Computation of Per Share Earnings
<CAPTION>
For the Quarter Ended September 30, 1997
QUARTER ENDED SEPTEMBER 30, 1997: Earnings Per Fully
Common Share Primary Diluted
------------ ---------- ----------
<S> <C> <C> <C>
Weighted Average Number of Shares
Average Common Shares Outstanding at 9/30/97 44,581,968 44,581,968 44,581,968
Dilutive Effect for Stock Options at 9/30/97 - 284,266 371,773
----------- ---------- ----------
Weighted Average Shares at 9/30/97 44,581,968 44,866,234 44,953,741
=========== ========== ==========
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $37,513 $37,513 $37,513
=========== ========== ==========
Earnings Per Average Common Share $0.84 $0.84 (a) $0.83 (a)
=========== ========== ==========
For the Nine Months Ended September 30, 1997
NINE MONTHS ENDED SEPTEMBER 30, 1997: Earnings Per Fully
Common Share Primary Diluted
------------ ---------- ----------
Weighted Average Number of Shares
Average Common Shares Outstanding at 9/30/97 49,042,133 49,042,133 49,042,133
Dilutive Effect for Stock Options at 9/30/97 - 175,607 371,773
----------- ---------- ----------
Weighted Average Shares at 9/30/97 49,042,133 49,217,740 49,413,906
=========== ========== ==========
Net Income To Be Used To Compute Fully
Diluted Earnings Per Average Common Share (Dollars in thousands)
Net Income $94,705 $94,705 $94,705
=========== ========== ==========
Earnings Per Average Common Share $1.93 $1.92 (a) $1.92 (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%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000728391
<NAME> IPALCO ENTERPRISES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,765,048
<OTHER-PROPERTY-AND-INVEST> 112,744
<TOTAL-CURRENT-ASSETS> 119,642
<TOTAL-DEFERRED-CHARGES> 157,851
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,155,285
<COMMON> 393,604
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 524,552
<TOTAL-COMMON-STOCKHOLDERS-EQ> 518,257
0
51,898
<LONG-TERM-DEBT-NET> 1,033,134
<SHORT-TERM-NOTES> 10,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 12,794
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 529,202
<TOT-CAPITALIZATION-AND-LIAB> 2,155,285
<GROSS-OPERATING-REVENUE> 589,557
<INCOME-TAX-EXPENSE> 61,830
<OTHER-OPERATING-EXPENSES> 391,228
<TOTAL-OPERATING-EXPENSES> 453,058
<OPERATING-INCOME-LOSS> 136,499
<OTHER-INCOME-NET> 6,342
<INCOME-BEFORE-INTEREST-EXPEN> 142,841
<TOTAL-INTEREST-EXPENSE> 48,136
<NET-INCOME> 94,705
2,386
<EARNINGS-AVAILABLE-FOR-COMM> 94,705
<COMMON-STOCK-DIVIDENDS> 46,514
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 179,713
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.92
</TABLE>
