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
March 31, 2000 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 March 31, 2000
----- -----------------------------
Common (Without Par Value) 85,706,469 Shares
<PAGE>
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
-----------------------------------------
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Statements of Consolidated Income -
Three Months Ended March 31, 2000 and 1999 2
Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999 3
Statements of Consolidated Cash Flows -
Three Months Ended March 31, 2000 and 1999 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 14-15
- -------- -----------------
<PAGE>
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
March 31
2000 1999
------------- -------------
UTILITY OPERATING REVENUES:
<S> <C> <C>
Electric $ 200,528 $ 189,612
Steam 10,561 11,219
------------- -------------
Total operating revenues 211,089 200,831
------------- -------------
UTILITY OPERATING EXPENSES:
Operation:
Fuel 47,577 45,914
Other 35,839 30,758
Power purchased 502 661
Purchased steam 1,674 1,695
Maintenance 17,262 22,980
Depreciation and amortization 27,555 26,579
Taxes other than income taxes 9,300 8,936
Income taxes - net 23,210 20,057
------------- -------------
Total operating expenses 162,919 157,580
------------- -------------
UTILITY OPERATING INCOME 48,170 43,251
------------- -------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 681 351
Other - net 98,186 (128)
Income taxes - net (39,216) 2,056
------------- -------------
Total other income - net 59,651 2,279
------------- -------------
INCOME BEFORE INTEREST AND OTHER CHARGES 107,821 45,530
------------- -------------
INTEREST AND OTHER CHARGES:
Interest 15,024 15,351
Allowance for borrowed funds used during construction (333) (221)
Preferred stock transactions 803 803
------------- -------------
Total interest and other charges - net 15,494 15,933
------------- -------------
NET INCOME $ 92,327 $ 29,597
============= =============
BASIC EARNINGS PER SHARE $ 1.08 $ 0.34
============= =============
DILUTED EARNINGS PER SHARE $ 1.07 $ 0.34
============= =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
March 31 December 31
ASSETS 2000 1999
------
-------------- -------------
UTILITY PLANT:
<S> <C> <C>
Utility plant in service $ 2,928,666 $ 2,922,338
Less accumulated depreciation 1,322,562 1,299,122
-------------- -------------
Utility plant in service - net 1,606,104 1,623,216
Construction work in progress 127,702 116,478
Property held for future use 10,718 10,718
-------------- -------------
Utility plant - net 1,744,524 1,750,412
-------------- -------------
OTHER ASSETS:
Nonutility property - at cost, less accumulated depreciation 68,348 69,056
Available-for-sale securities 2,764 175,202
Other investments 15,497 13,970
-------------- -------------
Other assets - net 86,609 258,228
-------------- -------------
CURRENT ASSETS:
Cash and cash equivalents 44,408 23,935
Accounts receivable and unbilled revenue
(less allowance for doubtful accounts
2000, $1,761 and 1999, $1,360) 43,355 51,357
Fuel - at average cost 44,440 52,016
Materials and supplies - at average cost 49,367 48,694
Tax refund receivable - 770
Prepayments and other current assets 7,149 9,465
-------------- -------------
Total current assets 188,719 186,237
-------------- -------------
DEFERRED DEBITS:
Regulatory assets 105,011 107,948
Miscellaneous 10,920 13,012
-------------- -------------
Total deferred debits 115,931 120,960
-------------- -------------
TOTAL $ 2,135,783 $ 2,315,837
============== =============
CAPITALIZATION AND LIABILITIES
------------------------------
CAPITALIZATION:
Common shareholders' equity:
Common stock $ 438,574 $ 439,066
Unearned compensation - restricted stock awards (2,384) (1,979)
Premium on 4% cumulative preferred stock 649 649
Retained earnings 768,855 690,455
Accumulated other comprehensive income 1,673 106,733
Treasury stock, at cost (556,755) (557,178)
-------------- -------------
Total common shareholders' equity 650,612 677,746
Cumulative preferred stock of subsidiary 59,135 59,135
Long-term debt (less current maturities and
sinking fund requirements) 789,865 870,050
-------------- -------------
Total capitalization 1,499,612 1,606,931
-------------- -------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper 8,557 57,578
Current maturities and sinking fund requirements 30,882 52,477
Accounts payable and accrued expenses 51,881 56,798
Dividends payable 14,924 13,859
Taxes accrued 100,148 22,237
Interest accrued 10,323 13,767
Other current liabilities 12,105 13,356
-------------- -------------
Total current liabilities 228,820 230,072
-------------- -------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net 333,080 400,588
Unamortized investment tax credit 38,534 39,226
Accrued postretirement benefits 2,680 4,338
Accrued pension benefits 27,825 29,018
Miscellaneous 5,232 5,664
-------------- -------------
Total deferred credits and other long-term liabilities 407,351 478,834
-------------- -------------
COMMITMENTS AND CONTINGENCIES
TOTAL $ 2,135,783 $ 2,315,837
============== =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Statements of Consolidated Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Net income $ 92,327 $ 29,597
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 28,329 27,189
Amortization of regulatory assets 3,875 3,430
Gain from sale of available for sale securities (111,948) -
Deferred income taxes and investment tax credit adjustments - net (2,785) 1,070
Allowance for funds used during construction (1,014) (572)
Change in certain assets and liabilities:
Accounts receivable 8,002 1,031
Fuel, materials and supplies 6,903 1,457
Accounts payable and accrued expenses (4,917) (7,383)
Taxes accrued 77,911 25,892
Accrued pension benefits (1,193) (686)
Other - net (3,608) (4,270)
-------------- --------------
Net cash provided by operating activities 91,882 76,755
-------------- --------------
CASH FLOWS FROM INVESTING:
Construction expenditures - utility (20,180) (15,319)
Construction expenditures - nonutility (66) (32)
Proceeds from sale of available for sale securities 113,113 -
Other (127) (2,506)
-------------- --------------
Net cash used in investing activities 92,740 (17,857)
-------------- --------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 7,600 90,600
Retirement of long-term debt (109,395) (39,000)
Short-term debt - net (49,021) (13,516)
Common dividends paid (12,859) (12,346)
Issuance of common stock related to incentive compensation plans 89 8,531
Reacquired common stock 423 (88,482)
Other (986) (1,449)
-------------- --------------
Net cash used in financing activities (164,149) (55,662)
-------------- --------------
Net increase in cash and cash equivalents 20,473 3,236
Cash and cash equivalents at beginning of period 23,935 9,075
-------------- --------------
Cash and cash equivalents at end of period $ 44,408 $ 12,311
============== ==============
- ----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ 17,657 $ 18,435
============== ==============
Income taxes $ (4,328) $ (4,896)
============== ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. GENERAL
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 present 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 consolidated financial statements included
in Enterprises' 1999 Annual Report on Form 10-K.
2. CAPITAL STOCK
Common Stock
Shares Amount
------ ------
Balance at December 31, 1999 85,727,614 $439,066,102
Exercise of stock options 6,000 88,880
Restricted stock issues / adjustments 25,433 604,838
Restricted stock repurchased (52,578) (1,185,646)
-------- -----------
Balance at March 31, 2000 85,706,469 $438,574,174
========== ============
The following is a reconciliation of the weighted average common shares
for the basic and diluted earnings per share computations:
For the Quarter Ended March 31,
-------------------------------
2000 1999
---- ----
(In thousands)
Weighted average common shares 85,702 87,218
Dilutive effect of stock options 558 897
-------- --------
Weighted average common
and incremental shares 86,260 88,115
======== ========
3. STOCK-BASED COMPENSATION
<TABLE>
A summary of options issued under IPALCO's stock option plans is as
follows:
<CAPTION>
Weighted Average Range of Option Number of
Price per Share Price per Share Shares
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1999................ $15.17 $8.416 - $23.38 2,349,980
Issued..................................... 16.41 16.41 1,955,000
Exercised.................................. 12.67 12.67 (6,000)
---------
Outstanding, March 31, 2000................... 15.74 8.416 - 23.38 4,298,980
=========
</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 stock option plans because the option price was
equal to fair value at the grant dates. 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," Enterprises' net income for
the three months ended March 31, 2000, would have decreased from $92.3
million ($1.07 per share) to the pro forma amount of $88.5 million
($1.03 per share). Enterprises' net income and earnings per share for
the similar period in 1999 would not have changed. Enterprises estimated
the SFAS No. 123 fair value by utilizing the binomial options pricing
model with the following assumptions: dividend yields of 2.5% to 4.0%,
risk-free rates of 5.2% to 6.7%, volatility of 13% to 19% and expected
lives of 5 years.
IPALCO has a Long-Term Performance and Restricted Stock Incentive Plan.
On January 3 and January 21, 2000, an additional 2,933 and 22,500
shares, respectively, were issued to reflect the addition of new
participants. On January 3, 2000, 2,066 shares of restricted stock were
redeemed as a result of a reduction in participants. During the first
quarter of 2000, 50,512 shares of restricted stock were redeemed in
order to pay taxes on behalf of participants or as a result of a
participant electing to receive cash in lieu of stock.
4. SEGMENT REPORTING
Operating segments are components of an enterprise for which separate
financial information is available and is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and
in assessing performance. Enterprises' reportable business segments are
electric and "all other." Steam operations of IPL and all subsidiaries
other than IPL are combined in the "all other" category. The accounting
policies of the identified segments are consistent with those policies
and procedures described in the summary of significant accounting
policies (see Note 1). Intersegment sales are generally based on prices
that reflect the current market conditions. The following tables provide
information about Enterprises' business segments:
<TABLE>
<CAPTION>
March 2000 March 1999
---------- ----------
Electric All Other Total Electric All Other Total
-------- --------- ----- -------- --------- -----
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $201 $ 19 $220 $190 $ 20 $210
Depreciation and
Amortization 26 2 28 25 2 27
Pre-tax Operating Income 69 1 70 61 2 63
Income Taxes 22 40 62 19 (1) 18
Capital Expenditures 21 - 21 15 1 16
</TABLE>
Property - net of Depreciation is $1.813 billion and $1.819 billion in
total for the periods ending March, 2000 and December, 1999,
respectively. Within Property - net of Depreciation, the Electric
segment is $1.669 billion and $1.674 billion for 2000 and 1999,
respectively. The All Other segment is $144 million and $145 million for
2000 and 1999, respectively. Included within Property - net of
Depreciation for the All Other segment is IPL steam plant of $76 million
for each of the periods ending March, 2000 and December, 1999.
Included within Depreciation and Amortization for the All Other segment
is IPL steam depreciation of $1 million for each of the years 2000 and
1999. Included within Pre-tax Operating Income for the All Other segment
is IPL steam pre-tax operating income of $2.0 million and $2.5 million
for 2000 and 1999, respectively. Included within Income Taxes for the
All Other segment is IPL steam income taxes of $.6 million and $.8
million for 2000 and 1999, respectively.
5. INVESTMENTS
During 1998 and 1999, Enterprises, through its subsidiary Mid-America,
invested $1.2 million in Internet Capital Group, Inc. (Nasdaq:ICGE), an
internet holding company, which went public in August 1999. At December
31, 1999, Mid-America held 1,030,600 shares of ICGE. During February
2000, Mid-America sold 1 million shares of ICGE resulting in a realized
gain of $111.95 million. The realized gain is offset by related
compensation of $9.0 million and is included in Other Income and
Deductions. The after-tax proceeds from this sale were applied primarily
to the reduction of IPALCO's outstanding unsecured debt. The remaining
unrealized gain is classified as other comprehensive income, a separate
component of shareholders' equity. The balance in other comprehensive
income, net of taxes, at March 31, 2000 was $1.7 million.
6. NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities," was
issued in June 1998 and was to be effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. The effective date for
this standard was delayed one year by SFAS 137. The standard is now
effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in
the statement of financial condition and measures those instruments at
fair value. If certain conditions are met, a derivative may be
specifically designated as a fair value hedge, a cash flow hedge, or a
hedge of a foreign currency exposure. The accounting for changes in the
fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. Management
has not yet quantified the effect of the new standard on the
consolidated financial statements.
7. SALE OF STEAM, MID-AMERICA ENERGY RESOURCES AND INDIANAPOLIS CAMPUS
ENERGY
During March, 2000, Enterprises announced an agreement for the sale of
certain assets (the "Assets") to Citizens Gas & Coke Utility. The Assets
include the Perry K Steam Plant and downtown steam distribution system
(Steam) operated by IPL; the central city chilled water cooling and
distribution system owned by Mid-America Energy Resources, Inc. (MAER),
and the chilled water cooling system owned by Indianapolis Campus
Energy, Inc. (ICE) that provides services to Eli Lilly & Company. The
anticipated selling price of the Assets is $161.7 million. Taxes payable
on the transaction are estimated to be $23.0 million. The amount of
selling price applicable to the separate entities has not been
determined. The 1999 EBITDA (earnings before interest, taxes,
depreciation and amortization) and net income of the combined entities
(Steam, MAER, ICE) was $18.7 million and $3.0 million, respectively.
Approximately $90 million of the net proceeds will be used to retire
debt specifically assignable to the Assets. The sale is subject to
certain government approvals and the satisfaction of certain conditions
precedent in the agreement and is expected to be completed during 2000.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Enterprises hereby files cautionary statements identifying important
factors that could cause Enterprises' actual results to differ materially from
those projected in forward-looking statements of Enterprises. This Form 10-Q,
and particularly Management's Discussion and Analysis, contains forward-looking
statements. Forward-looking statements express an expectation or belief and
contain a projection, plan or assumption with regard to, among other things,
future revenues, income, earnings per share or capital structure. Such
statements of future events or performance are not guarantees of future
performance and involve estimates, assumptions and uncertainties. The words
"anticipate," "believe," "estimate," "expect," "forecast," "project,"
"objective," and similar expressions are intended to identify forward-looking
statements.
Some important factors that could cause Enterprises' actual results or
outcomes to differ materially from those discussed in the forward-looking
statements include, but are not limited to, fluctuations in customer growth and
demand, weather, fuel costs, generating unit availability, purchased power costs
and availability, regulatory action, environmental matters, federal and state
legislation, interest rates, labor strikes, maintenance and capital expenditures
and local economic conditions. In addition, IPL's ability to have available an
appropriate amount of production capacity in a timely manner can significantly
affect IPL's financial performance. The timing of deregulation and competition,
product development and technology changes are also important potential factors.
Most of these factors affect Enterprises through its wholly owned subsidiary,
IPL.
All such factors are difficult to predict, contain uncertainties that may
materially affect actual results and are beyond the control of Enterprises.
LIQUIDITY AND CAPITAL RESOURCES
Material changes in the consolidated financial condition and results of
operations of Enterprises, except where noted, are attributed to the operations
of IPL. Consequently, the following discussion is centered on IPL.
Overview
- --------
The Board of Directors of Enterprises on February 29, 2000, declared a
quarterly dividend on common stock of 16.25 cents per share compared to 15.00
cents per share declared in the first quarter of 1999. The dividend was paid
April 15, 2000, to shareholders of record March 17, 2000.
IPL's capital requirements are primarily related to construction
expenditures needed to meet customers' needs for electricity and steam, for
environmental compliance and for the implementation of an integrated information
system. Enterprises' construction expenditures (excluding allowance for funds
used during construction) totaled $20.2 million during the quarter ended March
31, 2000, representing a $4.8 million increase from the comparable period in
1999. Internally generated cash provided by operations was used for construction
expenditures during the first quarter of 2000.
IPL's construction program for the three-year period 2000-2002 is estimated
to cost $294.0 million including AFUDC. The estimated cost of the program by
year (in millions) is $106.5 in 2000, $103.9 in 2001 and $83.6 in 2002. It
includes $152.2 million for additions, improvements and extensions to
transmission and distribution lines, substations, power factor and voltage
regulating equipment, distribution transformers and street lighting facilities.
The construction program also includes $4.3 million of the remaining costs for
construction of a 100-megawatt combustion turbine expected to be in service by
June 2000. These projected amounts also include $20.7 million of costs during
the period associated with new environmental standards promulgated by the EPA
which are currently under appeal in the United States Court of Appeals (see "NOx
SIP Call" below).
IPALCO's Revolving Credit Facility (Revolver) was issued in April 1997
in the amount of $401 million. The proceeds were used to purchase, through a
self-tender offer, shares of IPALCO's outstanding common stock. During 1998,
IPALCO repaid the Revolver with a commercial paper facility. The Revolver
currently has no outstanding balance but is available for future borrowings.
According to the credit agreement, IPALCO could borrow up to $160.4 million
until March 31, 2001. The final step down provides for the available borrowings
to decrease to $80.2 million on March 31, 2001, and remain available until March
31, 2002. The balance of the commercial paper facility was $109.4 million and
$211.2 million on March 31, 2000 and December 31, 1999, respectively.
OTHER
Market Risk Sensitive Instruments and Positions
- -----------------------------------------------
The primary market risk to which Enterprises is exposed is interest
rate risk. Enterprises uses long-term debt as a primary source of capital in its
business. A portion of this debt has an interest component that resets on a
periodic basis to reflect current market conditions. The following table
presents the principal cash repayments and related weighted average interest
rates by maturity date for Enterprises' long-term fixed-rate debt and its other
types of long-term debt at March 31, 2000:
<TABLE>
<CAPTION>
Maturity Schedule
Period Ending March 31
Fair
(Dollars in Millions) 2001 2002 2003 2004 2005 Thereafter Total Value
- ---------------------------------------------------------------------------------------------------------------
Long-term debt
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $3.3 $3.4 $3.8 $84.1 $4.4 $419.2 $518.2 $510.3
Average rate 7.9% 7.9% 7.9% 6.1% 7.9% 7.0% 6.9%
Variable - - - - - $192.3 $192.3 $192.3
Average rate - - - - - 3.9% 3.9%
Recapitalization debt $29.2 $80.2 - - - - $109.4 $109.4
Average rate 6.7% 6.7% - - - - 6.7%
</TABLE>
To manage Enterprises' exposure to fluctuations in interest rates and to
lower funding costs, Enterprises constantly evaluates the use of, and has
entered into, interest rate swaps. Under these swaps, Enterprises or its
subsidiaries agree with counterparties to exchange, at specified intervals, the
difference between fixed-rate and floating-rate interest amounts calculated on
an agreed notional amount. This interest differential paid or received is
recognized in the consolidated statements of income as a component of interest
expense.
At March 31, 2000, IPALCO had an interest rate swap agreement outstanding
with a notional amount of $125 million, of which the notional amount decreases
$25 million each quarter. Enterprises has agreed to pay a fixed rate of 6.3575%
and receive a floating rate based on applicable LIBOR. The fair value of
IPALCO's swap agreement was $0.1 million at March 31, 2000.
At March 31, 2000, IPL had an interest rate swap agreement with a
notional amount of $40 million, which expires in January 2023. IPL agrees to pay
interest at a fixed rate of 5.21% to a swap counter party and receive a variable
rate based on the tax-exempt weekly rate. The fair value of IPL's swap agreement
was $(0.8) million at March 31, 2000.
National Ambient Air Quality Standards
- --------------------------------------
On July 16, 1997, the United States Environmental Protection Agency (EPA)
promulgated final rules tightening the National Ambient Air Quality Standards
for ozone and creating new fine particulate matter standards. On October 29,
1999, after conducting a rehearing of its initial decision of May 14, 1999, the
United States Court of Appeals for the District of Columbia Circuit determined
that the new ozone standards were not issued lawfully, but left open the
question of future remedy. The Court also determined that the standards for fine
particulate matter were legally deficient in certain respects. EPA has
petitioned the Supreme Court to review the Court of Appeals' decision.
NOx SIP Call
- ------------
On October 27, 1998, EPA issued a final rule calling for Indiana, along
with 22 other jurisdictions in the eastern third of the United States, to impose
more stringent limits on nitrogen oxides (NOx) from fossil-fuel fired steam
electric generators, such as those operated by IPL. This rule (the NOx SIP Call)
was based in part on the new ozone standards that were later held unlawful in
the Court of Appeals' decision discussed above. In a separate decision on May
25, 1999, the Court of Appeals stayed the compliance deadlines in the NOx SIP
Call. On March 3, 2000, the Court of Appeals issued a decision largely upholding
the NOx SIP Call. Litigants challenging the NOx SIP Call, including IPL,
currently seek rehearing in the Court of Appeals.
Because power plants emit nitrogen oxides, as well as fine particulate
matter, existing IPL sources may be required to be retrofitted with additional
air pollution controls in the future, either as a result of the EPA regulations
discussed above or future regulatory actions.
EPA's NOx SIP Call would require operators of coal-fired electric utility
boilers in the affected states to limit NOx emissions to 0.15 pounds per million
BTUs of heat input as a system-wide average. That limit calls for a reduction of
about 85% from 1990 average emissions from coal-fired electric utility boilers,
and a reduction of about 57% from IPL's current emissions.
It is not possible to predict whether EPA's NOx SIP Call will ultimately
survive judicial review. Nor is it possible at this time to predict accurately
the costs of compliance. Enterprises' preliminary estimates are that the NOx SIP
Call would necessitate capital expenditures of about $160 million.
As to timing, if the requirements of the NOx SIP Call became effective,
they would likely do so during the 2000-2001 period and would probably
necessitate deployment of capital during the period between 2002 and 2005. There
can be no certainty about these estimates.
Enterprises expects to refine the above estimates as engineering studies
progress and when, as, and if such rules become effective.
Sale of Steam, Mid-America Energy Resources and Indianapolis Campus Energy
- --------------------------------------------------------------------------
See Note 7 in the Notes to Consolidated Financial Statements.
<PAGE>
RESULTS OF OPERATIONS
Comparison of Quarters Ended March 31, 2000 and March 31, 1999
--------------------------------------------------------------
Diluted earnings per share during the first quarter of 2000 was $1.07,
or $.73 above the $.34 attained in the comparable 1999 period. Weighted average,
diluted shares for the first quarter of 2000 were 86.3 million compared to 88.1
million for the same period in 1999 due to IPALCO's repurchase of 6 million
common shares between December 1998 and March 1999. The following discussion
highlights the factors contributing to the first quarter results.
Operating Revenues
- ------------------
Operating revenues increased $10.3 million during the first quarter
ended March 2000 compared to the similar period last year. These results were
due to the following:
Increase (Decrease)
from Comparable Period
Three Months Ended March 31
---------------------------
(Millions of Dollars)
Electric:
Change in retail KWH sales - net of fuel $ 5.8
Fuel revenue 0.2
Wholesale revenue 4.6
DSM Tracker revenue 0.4
Steam revenue (0.7)
---------
Total change in operating revenues $ 10.3
=========
The first quarter increase in retail KWH sales compared to the similar
period in 1999 resulted from economic growth in Indianapolis and a higher
realization per kilowatt-hour sold. The changes in fuel revenues in 2000 from
the prior year reflect changes in total fuel costs billed to customers.
Wholesale revenue increased during the first quarter of 2000 due to favorable
wholesale market conditions and generating unit availability.
Operating Expenses
- ------------------
Fuel costs increased by $1.7 million in the first quarter of 2000
compared to the same period last year. The first quarter increase was primarily
due to increased kilowatt-hour sales.
Other operating expenses increased $5.1 million in the first quarter of
2000 compared to the same period in 1999. The first quarter increase was
primarily due to decreased sales of emission allowances of $3.0 million, which
increased operating expenses. Also contributing to the variance were increased
distribution expenses and customer service and informational expenses.
Maintenance expense decreased $5.7 million during the first quarter of
2000 compared to the same period last year. The decrease in expense was due
primarily to reduced costs associated with the overhaul of plant generating
units.
Income taxes-net increased $3.2 million in the first quarter of 2000
compared to the same period in 1999 due to an increase in pretax operating
income.
As a result of the foregoing, utility operating income increased 11.4%
during the first quarter of 2000 from the comparable 1999 period, to $48.2
million.
Other Income and Deductions
- ---------------------------
Other - net, which includes the pretax operating and investment income
from operations other than IPL, as well as non-operating income from IPL,
increased $98 million during the first quarter 2000 (see Note 5 in the Notes to
Consolidated Financial Statements).
Interest and Other Charges
- --------------------------
Interest expense decreased $0.3 million for the three months ended
March 31, 2000, compared to the similar period last year primarily as a result
of the reduction of the principal amount on the recapitalization debt facility
of IPALCO.
New Accounting Pronouncement
- ----------------------------
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," that Enterprises will be required to adopt in 2001 (see
Note 6 in the Notes to Consolidated Financial Statements for further
discussion).
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- ------- -----------------
See "NOx SIP Call" under Item 2, Other.
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.
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 3-31-99.)
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 as amended and restated). (Exhibit B to the Form 8-K
dated 4-28-98.)
11.1 Computation of Per Share Earnings.
21.1* Subsidiaries of the Registrant. (Exhibit 21.1 to the Form 10-K dated
12-31-99.)
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
A Form 8-K was filed on February 3, 2000, reporting
item 5, Other Events, to report the sale of a portion
of Mid-America's interest in Internet Capital Group,
Inc.
A Form 8-K was filed on February 22, 2000, reporting
item 5, Other Events, to report the sale of a portion
of Mid-America's interest in Internet Capital Group,
Inc.
A Form 8-K was filed on March 23, 2000, reporting
item 5, Other Events, to report an agreement for the
sale of certain assets to Citizens Gas & Coke
Utility.
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IPALCO ENTERPRISES, INC.
-----------------------------
(Registrant)
Date: May 12, 2000 /s/ John R. Brehm
------------------------------- ------------------------------
John R. Brehm
Vice President and Treasurer
Date: May 12, 2000 /s/ Stephen J. Plunkett
------------------------------- ------------------------------
Stephen J. Plunkett
Controller
<TABLE>
IPALCO ENTERPRISES, INC.
Exhibit 11.1 - Computation of Per Share Earnings
For the Quarter Ended March 31, 2000
<CAPTION>
QUARTER ENDED MARCH 31, 2000:
Basic Diluted
-------------- -------------
Weighted average number of shares
<S> <C> <C>
Average common shares outstanding at March 31, 2000 85,702,319 85,702,319
Dilutive effect for stock options at March 31, 2000 - 557,511
-------------- -------------
Adjusted weighted average shares at March 31, 2000 85,702,319 86,259,830
============== =============
Net income to be used to compute
diluted earnings per share (Dollars in
thousands)
Net income $92,327 $92,327
============== =============
Earnings Per Share $1.08 $1.07
============== =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000728391
<NAME> IPALCO ENTERPRISES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,744,524
<OTHER-PROPERTY-AND-INVEST> 86,609
<TOTAL-CURRENT-ASSETS> 188,719
<TOTAL-DEFERRED-CHARGES> 115,931
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,135,783
<COMMON> 438,574
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 768,855
<TOTAL-COMMON-STOCKHOLDERS-EQ> 650,612
0
59,135
<LONG-TERM-DEBT-NET> 789,865
<SHORT-TERM-NOTES> 8,557
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30,882
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 596,732
<TOT-CAPITALIZATION-AND-LIAB> 2,135,783
<GROSS-OPERATING-REVENUE> 211,089
<INCOME-TAX-EXPENSE> 23,210
<OTHER-OPERATING-EXPENSES> 139,709
<TOTAL-OPERATING-EXPENSES> 162,919
<OPERATING-INCOME-LOSS> 48,170
<OTHER-INCOME-NET> 59,651
<INCOME-BEFORE-INTEREST-EXPEN> 107,821
<TOTAL-INTEREST-EXPENSE> 15,494
<NET-INCOME> 92,327
803
<EARNINGS-AVAILABLE-FOR-COMM> 92,327
<COMMON-STOCK-DIVIDENDS> 12,859
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 91,882
<EPS-BASIC> 1.08
<EPS-DILUTED> 1.07
</TABLE>
