1994
Financial Reports
INDIANAPOLIS POWER & LIGHT COMPANY
Balance Sheets and Statements of Capitalization as of December 31, 1994 and
1993, and Statements of Income, Retained Earnings and Cash Flows for the Years
Ended December 31, 1994, 1993 and 1992, and Independent Auditors' Report.
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of
INDIANAPOLIS POWER & LIGHT COMPANY:
We have audited the accompanying balance sheets and statements of
capitalization of Indianapolis Power & Light Company as of December 31,
1994 and 1993, and the related statements of income, retained earnings, and
cash flows for each of the three years in the period ended December 31,
1994. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Indianapolis Power &
Light Company as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Indianapolis, Indiana
January 27, 1995
-1-
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Income
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
--------------- --------------- ---------------
(In Thousands)
OPERATING REVENUES (Note 9):
Electric $ 649,767 $ 629,327 $ 599,203
Steam 36,309 34,976 34,000
--------------- --------------- ---------------
Total operating revenues 686,076 664,303 633,203
--------------- --------------- ---------------
OPERATING EXPENSES:
Operation:
Fuel 169,756 158,390 155,072
Other 104,273 100,890 100,447
Power purchased 19,060 19,407 7,804
Purchased steam 7,653 8,051 7,612
Maintenance 68,562 67,326 62,446
Depreciation and amortization 87,028 78,372 78,615
Taxes other than income taxes 30,891 29,627 31,348
Income taxes - net (Note 8) 55,543 59,872 55,619
--------------- --------------- ---------------
Total operating expenses 542,766 521,935 498,963
--------------- --------------- ---------------
OPERATING INCOME 143,310 142,368 134,240
--------------- --------------- ---------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 4,672 2,010 1,985
Other - net (1,527) (1,237) (2,872)
Income taxes - net (Note 8) 823 599 1,143
--------------- --------------- ---------------
Total other income - net 3,968 1,372 256
--------------- --------------- ---------------
INCOME BEFORE INTEREST CHARGES 147,278 143,740 134,496
--------------- --------------- ---------------
INTEREST CHARGES:
Interest on long-term debt 45,566 41,399 42,663
Allowance for borrowed funds used during construction (4,709) (3,517) (3,096)
Other interest 1,497 2,305 1,251
Amortization of redemption premiums and expenses on
debt and preferred stock - net 1,101 787 620
--------------- --------------- ---------------
Total interest charges 43,455 40,974 41,438
--------------- --------------- ---------------
NET INCOME 103,823 102,766 93,058
PREFERRED DIVIDEND REQUIREMENTS 3,182 3,182 3,182
--------------- --------------- ---------------
INCOME APPLICABLE TO COMMON STOCK $ 100,641 $ 99,584 $ 89,876
=============== =============== ===============
See notes to financial statements.
-2-
INDIANAPOLIS POWER & LIGHT COMPANY
Balance Sheets
December 31, 1994 and 1993
ASSETS 1994 1993
- ----------------------------------- ---------------- ----------------
(In Thousands)
UTILITY PLANT:
Utility plant in service (Note 2) $ 2,415,531 $ 2,300,682
Less accumulated depreciation 916,943 876,054
---------------- ----------------
Utility plant in service - net 1,498,588 1,424,628
Construction work in progress 191,010 168,480
Property held for future use 22,174 15,763
---------------- ----------------
Utility plant - net 1,711,772 1,608,871
---------------- ----------------
OTHER PROPERTY -
At cost, less accumulated depreciation 2,898 1,873
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 7,835 8,349
Accounts receivable (less allowance for doubtful
accounts - 1994, $743,000 and 1993, $626,000) 46,097 47,365
Receivable from parent 1,881 5,482
Fuel - at average cost 37,161 35,213
Materials and supplies - at average cost 55,642 54,847
Prepayments and other current assets 8,176 3,240
---------------- ----------------
Total current assets 156,792 154,496
---------------- ----------------
DEFERRED DEBITS:
Unamortized Petersburg Unit 4 carrying charges 32,521 30,587
Unamortized redemption premiums and expenses on debt and
preferred stock (Note 6) 27,577 25,453
Other regulatory assets (Note 4) 53,661 32,954
Miscellaneous 6,876 16,072
---------------- ----------------
Total deferred debits 120,635 105,066
---------------- ----------------
TOTAL $ 1,992,097 $ 1,870,306
================ ================
See notes to financial statements.
-3-
CAPITALIZATION AND LIABILITIES 1994 1993
- ---------------------------------------------------- ---------------- ----------------
(In Thousands)
CAPITALIZATION (See Statements of Capitalization):
Common shareholder's equity $ 725,762 $ 705,149
Cumulative preferred stock 51,898 51,898
Long-term debt 654,121 532,260
---------------- ----------------
Total capitalization 1,431,781 1,289,307
---------------- ----------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper (Note 7) 26,400 90,000
Current maturities and sinking fund requirements 350 8,729
Accounts payable and accrued expenses 95,957 74,187
Dividends payable 20,834 20,024
Payrolls accrued 4,475 4,505
Taxes accrued 16,787 21,377
Interest accrued 14,859 11,150
Other current liabilities 8,823 5,316
---------------- ----------------
Total current liabilities 188,485 235,288
---------------- ----------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net (Note 8) 282,062 270,182
Unamortized investment tax credit 53,762 57,029
Accrued postretirement benefits (Note 10) 34,517 17,668
Miscellaneous 1,490 832
---------------- ----------------
Total deferred credits 371,831 345,711
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 11)
TOTAL $ 1,992,097 $ 1,870,306
================ ================
See notes to financial statements.
-4-
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Cash Flows
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
--------------- ---------------- ----------------
(In Thousands)
CASH FLOWS FROM OPERATIONS:
Net income $ 103,823 $ 102,766 $ 93,058
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 88,371 79,412 79,297
Deferred income taxes and investment tax
credit adjustments, net 2,650 (430) 216
Allowance for funds used during construction (9,381) (5,476) (5,081)
Decrease (increase) in certain assets:
Accounts receivable 4,869 (3,462) (5,659)
Fuel, materials and supplies (2,743) 10,633 (7,992)
Other current assets (4,936) (1,080) (110)
Increase (decrease) in certain liabilities:
Accounts payable 21,770 7,229 14,470
Taxes accrued (4,590) (2,195) 1,054
Other current liabilities 7,865 (2,458) 2,801
--------------- ---------------- ----------------
Net cash provided by operating activities 207,698 184,939 172,054
--------------- ---------------- ----------------
CASH FLOWS FROM INVESTING:
Construction expenditures (178,295) (145,765) (112,037)
Other 5,847 (8,447) (13,676)
--------------- ---------------- ----------------
Net cash used in investing activities (172,448) (154,212) (125,713)
--------------- ---------------- ----------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 200,000 96,500 80,000
Retirement of long-term debt - including premiums (87,291) (98,978) (79,958)
Short-term debt - net (63,600) 50,000 37,000
Dividends paid (82,421) (79,253) (76,072)
Other (2,452) (1,228) (1,142)
--------------- ---------------- ----------------
Net cash used in financing activities (35,764) (32,959) (40,172)
--------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (514) (2,232) 6,169
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,349 10,581 4,412
--------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,835 $ 8,349 $ 10,581
=============== ================ ================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 40,747 $ 42,489 $ 41,649
=============== ================ ================
Income taxes $ 59,129 $ 61,806 $ 56,136
=============== ================ ================
See notes to financial statements.
-5-
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Capitalization
December 31, 1994 and 1993
1994 1993
----------------- -----------------
(In Thousands)
COMMON SHAREHOLDER'S EQUITY:
Common stock, no par, authorized - 20,000,000 shares,
issued and outstanding - 17,206,630 shares (Note 5) $ 324,537 $ 324,537
Premium on 4% cumulative preferred stock 1,363 1,363
Retained earnings 399,862 379,249
----------------- -----------------
Total common shareholder's equity $ 725,762 $ 705,149
================= =================
CUMULATIVE PREFERRED STOCK (Note 5):
Non-redeemable - $100 par value, authorized
2,000,000 shares Call Price at
December 31, 1994
-----------------
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:
Par value undetermined, authorized
3,000,000 shares, none issued
LONG-TERM DEBT (Notes 2 and 6):
First mortgage bonds:
4 1/2% Series, due August 1994 $ - $ 7,500
5 1/8% Series, due April 1996 15,200 15,400
5 5/8% Series, due May 1997 11,550 11,629
7 1/8% Series, due May 1998 - 19,750
7.40% Series, due March 2002 - 33,200
7.65% Series, due March 2003 - 25,200
6.05% Series, due February 2004 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 40,000 40,000
10 5/8% Series, due December 2014 40,000 40,000
6.10% Series, due January 2016 41,850 41,850
5.40% Series, due August 2017 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 30,000 30,000
7.05% Series, due February 2024 100,000 -
Unamortized discount - net (1,079) (490)
----------------- -----------------
Total first mortgage bonds 594,471 500,989
Long-term note, variable rate, Series 1991, due August 2021 40,000 40,000
Long-term note, variable rate, Series 1994A, due December 2024 20,000 -
Current maturities and sinking fund requirements (350) (8,729)
----------------- -----------------
Total long-term debt $ 654,121 $ 532,260
================= =================
TOTAL CAPITALIZATION $ 1,431,781 $ 1,289,307
================= =================
See notes to financial statements.
-6-
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Retained Earnings
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
--------------- ---------------- ----------------
(In Thousands)
RETAINED EARNINGS AT BEGINNING OF YEAR $ 379,249 $ 356,513 $ 340,323
NET INCOME 103,823 102,766 93,058
--------------- ---------------- ----------------
Total 483,072 459,279 433,381
DEDUCT:
Cash dividends declared:
Cumulative preferred stock - at prescribed
rate of each series (See Statements of
Capitalization) 3,182 3,182 3,182
Common stock 80,028 76,848 73,686
--------------- ---------------- ----------------
Total 83,210 80,030 76,868
--------------- ---------------- ----------------
RETAINED EARNINGS AT END OF YEAR $ 399,862 $ 379,249 $ 356,513
=============== ================ ================
See notes to financial statements.
-7-
INDIANAPOLIS POWER & LIGHT COMPANY
Notes to Financial Statements
For the Years Ended December 31, 1994, 1993 and 1992
--------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
All the outstanding common stock of Indianapolis Power & Light Company
(IPL) is owned by IPALCO Enterprises, Inc. At December 31, 1994 and 1993,
IPL had a receivable, which is due on demand, for advances made to IPALCO.
System of Accounts--The accounts of IPL are maintained in accordance
with the system of accounts prescribed by the Indiana Utility Regulatory
Commission (IURC), which system substantially conforms to that prescribed
by the Federal Energy Regulatory Commission.
Revenues--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 fuel costs
above or below the levels included in such rate schedules.
Under current IURC practice, future fuel adjustment revenues may be
temporarily reduced should actual operating expenses be less than or income
levels be above amounts authorized by the IURC.
Authorized Annual Operating Income--In an IURC order dated May 6,
1992, IPL's maximum authorized annual electric operating income, for
purposes of quarterly earnings tests, was established at approximately $147
million through July 31, 1992, declining ratably to approximately $144
million at July 31, 1993. This level will be maintained until IPL's next
general electric rate order. 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.
As provided in an order dated December 21, 1992, 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.
Deferred Fuel Expense--Fuel costs recoverable in subsequent periods
under the fuel adjustment charge provision are deferred.
Allowance For Funds Used During Construction (AFUDC)--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 pre-tax composite rates of 9.5%, 8.0% and 9.5%
during 1994, 1993 and 1992, 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 was computed by the straight-line method based
on the functional rates and averaged 3.5% during 1994 and 3.4% during 1993
and 1992. Depreciation expense for 1994 includes an adjustment to property
held for future use of approximately $3.9 million.
Statements of Cash Flows - Cash Equivalents--IPL considers all highly
liquid investments purchased with original maturities of 90 days or less to
be cash equivalents.
Unamortized Petersburg Unit 4 Carrying Charges--IPL has deferred
certain post in-service date carrying charges of its investment in
Petersburg Unit 4 (Unit 4). These carrying charges include both AFUDC on
and depreciation of Unit 4 costs from the April 28, 1986 in-service date
through the August 6, 1986 IURC rate order date in which IPL's investment
in Unit 4 was included in rate base. Subsequent to August 6, 1986, IPL has
capitalized interest on the AFUDC portion of these deferred carrying
charges. In addition, IPL has capitalized $8.1 million of additional
allowance for earnings on shareholders' investment for rate-making purposes
but not for financial reporting purposes. As provided in the rate order,
the deferred carrying charges are included in IPL's currently pending
electric rate case.
Unamortized Redemption Premiums and Expenses on Debt and Preferred
Stock--In accordance with regulatory treatment, IPL defers non-sinking fund
debt redemption premiums and expenses, and amortizes such costs over the
life of the original debt, or, in the case of preferred stock redemption
premiums, over twenty years.
Income Taxes--Deferred taxes are provided for all significant
temporary differences between book and taxable income. 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.
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.
Effective January 1, 1993, IPL adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," on a
prospective basis. This statement requires the current recognition of
income tax expense for (a) the amount of income taxes payable or refundable
for the current year, and (b) for deferred tax liabilities and assets for
the future tax consequences of events that have been recognized in IPL's
financial statements or income tax returns. The effects of income taxes
are measured based on enacted laws and rates. The adjustments required by
SFAS 109 were recorded to deferred tax balance sheet accounts, with
substantially all of the offsetting adjustments to regulatory assets and
liabilities. The adoption of this standard did not have a material impact
on IPL's cash flows or due to the effect of rate regulation on the results
of operations.
Employee Benefit Plans--Substantially all employees of IPL are covered
by a non-contributory, defined benefit pension plan (the Plan) which is
funded through two trusts. Additionally, a select group of management
employees of IPL 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.
IPL also sponsors the Employees' Thrift Plan of Indianapolis Power &
Light Company (Thrift Plan), a defined contribution plan covering
substantially all employees of IPL. 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 four percent of the employee's annual base compensation.
Reclassification--Certain amounts from prior years' financial
statements have been reclassified to conform to the current year
presentation.
2. UTILITY PLANT IN SERVICE:
The original cost of utility plant in service at December 31,
segregated by functional classifications, follows:
1994 1993
- --------------------------------------------------------------------
(In Thousands)
Production $1,434,041 $1,387,239
Transmission 227,988 218,369
Distribution:
Electric 600,288 551,217
Steam 44,492 42,205
General 108,722 101,652
---------- ----------
Total utility plant in service $2,415,531 $2,300,682
========== ==========
Substantially all of IPL's property is subject to the lien of the
indentures securing IPL's First Mortgage Bonds.
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments". The estimated
fair value amounts have been determined by IPL, 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 IPL 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 and notes payable--The carrying amount
approximates fair value due to the short maturity of these instruments.
Long-term debt, including current maturities and sinking fund
requirements--Interest rates that are currently available to IPL for
issuance of debt with similar terms and remaining maturities are used to
estimate fair value. At December 31, 1994 and 1993 the carrying amount of
IPL's long-term debt, including current maturities and sinking fund
requirements, and the approximate fair value are as follows:
1994 1993
--------------------------------------------
(In Thousands)
Carrying amount $654,471 $540,989
Approximate fair value $612,274 $576,621
4. OTHER REGULATORY ASSETS
At December 31, 1994 and 1993, IPL has deferred certain costs and
expenses which will be included in cost of service in future rate
proceedings as follows:
1994 1993
- -------------------------------------------------------------------
(In Thousands)
Postretirement benefit costs in excess of
cash payments and amounts capitalized $25,182 $12,893
SFAS 109 21,054 15,091
Demand Side Management Costs 4,504 1,814
Other 2,921 3,156
------- -------
Total $53,661 $32,954
======= =======
5. CAPITAL STOCK:
Common Stock:
There were no changes in IPL common stock during 1994, 1993 and 1992.
Restrictions on the payment of cash dividends or other distributions
on common stock and on the purchase or redemption of such shares are
contained in the indenture securing IPL's First Mortgage Bonds. All of the
retained earnings at December 31, 1994, were free of such restrictions.
Cumulative Preferred Stock:
Preferred stock shareholders are entitled to two votes per share, and
if four full quarterly dividends are in default, they are entitled to elect
the smallest number of Directors to constitute a majority.
6. LONG-TERM DEBT:
The 9 5/8% Series due 2012, 10 5/8% Series due 2014, 6.10% Series due
2016, 5.40% Series due 2017, and 5.50% Series due 2023 were each issued to
the City of Petersburg, Indiana (City) by IPL to secure the loan of
proceeds received from a like amount of tax-exempt Pollution Control
Revenue Bonds issued by the City for the purpose of financing pollution
control facilities at IPL's Petersburg Generating Station.
On April 13, 1993, IPL issued a First Mortgage Bond, 6.10% Series, due
2016, in the principal amount of $41.85 million, in connection with the
issuance of the same amount of Pollution Control Refunding Revenue Bonds by
the City of Petersburg, Indiana. The net proceeds, along with other IPL
funds were used to redeem on June 1, 1993, IPL's $19.65 million First
Mortgage Bonds, 6.90% Series, due 2006, and IPL's $22.2 million First
Mortgage Bonds, 6.60% Series, due 2008, at the prices of $100 and $101,
respectively, plus accrued interest.
On October 14, 1993, IPL issued a First Mortgage Bond, 5.40% Series,
due 2017, in the principal amount of $24.65 million, in connection with the
issuance of the same amount of Pollution Control Refunding Revenue Bonds by
the City of Petersburg, Indiana. The net proceeds, along with other IPL
funds, were used to redeem on November 15, 1993, IPL's $24.65 million First
Mortgage Bonds, 5.80% Series, due 2007, at the price of $100 plus accrued
interest.
Also, on October 14, 1993, IPL issued a First Mortgage Bond, 5.50%
Series, due 2023, in the principal amount of $30.0 million, in connection
with the issuance of the same amount of Pollution Control Refunding Revenue
Bonds by the City of Petersburg, Indiana. The net proceeds, along with
other IPL funds, were used to redeem on November 15, 1993, IPL's
$30.0 million First Mortgage Bonds, 10 1/4% Series, due 2013, at the price
of $103 plus accrued interest.
On February 3, 1994, IPL issued First Mortgage Bonds, 6.05% Series,
due 2004, in the principal amount of $80 million. The net proceeds and
other funds were used to redeem on March 1, 1994, IPL's $33.2 million First
Mortgage Bonds, 7.40% Series, due 2002, at a redemption price of 101.79%,
and to redeem on March 15, 1994, IPL's $19.75 million First Mortgage Bonds,
7 1/8% Series, due 1998, at a redemption price of 101.20% and IPL's $25.2
million First Mortgage Bonds, 7.65% Series, due 2003, at a redemption price
of 102.11%. Accrued interest was also paid at the time of redemption.
Also, on February 3, 1994, IPL issued First Mortgage Bonds, 7.05%
Series, due 2024, in the principal amount of $100 million. The net
proceeds were used in part to repay outstanding unsecured promissory notes
and for construction costs.
On August 1, 1994, IPL retired First Mortgage Bond, 4.50% Series, due
August 1, 1994, in the principal amount of $7.5 million.
On December 29, 1994, IPL issued a 30-year unsecured promissory note
which was issued to the City of Petersburg, Indiana, in connection with the
issuance of $20 million of Solid Waste Disposal Revenue Bonds, due 2024, by
the City of Petersburg. This note and the related bonds provide for a
floating interest rate that will bear interest at a weekly rate. The net
proceeds from this issue will provide funds to pay costs of certain
facilities and equipment to be used for solid waste disposal purposes. At
the option of IPL, the bonds can be converted to First Mortgage Bonds which
would bear interest at a fixed rate.
IPL has a 30-year unsecured promissory note which was issued to the
City of Petersburg, Indiana, in connection with the issuance of $40 million
of Pollution Control Refunding Revenue Bonds, due 2021, by the City of
Petersburg. This note and the related bonds provide for a floating
interest rate that approximates tax-exempt Commercial Paper Rates. The
average interest rate on this note was 2.98% for 1994 and 2.40% for 1993.
The interest rate at the end of the year was 3.85% for 1994 and 2.39% for
1993. At the option of IPL, the bonds can be converted to First Mortgage
Bonds which would bear interest at a fixed rate.
IPL has a $60 million long term revolving credit facility which
provides liquidity, if necessary, for the two 30-year unsecured promissory
notes. The revolving credit was unused at December 31, 1994.
Maturities and sinking fund requirements on long-term debt for the
five years subsequent to December 31, 1994, are as follows:
Net Sinking Fund
Maturities Requirements Total
- -------------------------------------------------------------------
(In Thousands)
1995 $ -- $ 350 $ 350
1996 15,000 150 15,150
1997 11,250 -- 11,250
1998 -- -- --
1999 -- -- --
The Company has filed a Preliminary Official Statement with the
relevant regulatory authorities involving the sale of $40 million Pollution
Control Refunding Bonds by the city of Petersburg and the issuance by the
Company of its First Mortgage Bond in the like amount. It is anticipated
that this transaction will close in early February, 1995. The proceeds
will be used to refund the 10 5/8% Series, due December, 2014.
7. LINES OF CREDIT:
IPL has lines of credit with banks of $100 million at December 31,
1994, to provide loans for interim financing. These lines of credit, based
on separate formal and informal agreements, have expiration dates ranging
from January 31, 1995 to November 30, 1995 and require the payment of
commitment fees. At December 31, 1994, $95 million of these credit lines
were unused. Lines of credit supporting commercial paper were $21.4
million at December 31, 1994. The weighted average interest rates on notes
payable and commercial paper outstanding were 6.17% and 3.36% at December
31, 1994 and 1993, respectively.
8. INCOME TAXES:
Federal and State income taxes charged to income are as follows:
1994 1993 1992
- ----------------------------------------------------------------------------
(In Thousands)
Operating Expenses:
Current income taxes:
Federal $45,919 $52,321 $48,504
State 6,919 7,761 7,500
------- ------- -------
Total current taxes 52,838 60,082 56,004
------- ------- -------
Deferred income taxes, net--Federal and State:
Excess of tax depreciation over book
depreciation 6,615 7,109 5,254
Early retirement of bonds 271 592 1,965
Allowance for borrowed funds used during
construction (net of capitalized interest
for tax purposes) (1,187) (1,214) (1,050)
Amortization of deferred return - rate
phase-in plan (debt portion) - - (676)
Unbilled revenues 609 (1,768) 436
Accrued pension expense (1,651) (1,865) (1,965)
Miscellaneous 1,316 204 (890)
------- ------- -------
Total deferred taxes 5,973 3,058 3,074
------- ------- -------
Net amortization of investment credit (3,268) (3,268) (3,459)
------- ------- -------
Total charge to operating expenses 55,543 59,872 55,619
Net credit to other income and deductions (823) (599) (1,143)
------- ------- -------
Total Federal and State income tax provisions $54,720 $59,273 $54,476
======= ======= =======
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 pre-tax income. The reasons for the difference,
stated as a percentage of pre-tax income, are as follows:
1994 1993 1992
- -------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 34.0%
Effect of State income taxes (1.8) (1.8) (1.9)
Amortization of investment tax credits (2.1) (2.0) (2.3)
Other - net (1.6) 0.1 1.5
---- ---- ----
Effective tax rate 29.5% 31.3% 31.3%
==== ==== ====
The significant items comprising IPL's net deferred tax liability
recognized in the balance sheets as of December 31, 1994 and 1993 are as
follows:
1994 1993
- ---------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities:
Relating to utility property $349,461 $335,824
Early retirement of bonds 7,697 7,377
Other 4,414 1,626
-------- --------
Total deferred tax liabilities 361,572 344,827
-------- --------
Deferred tax assets:
Unbilled revenue 9,538 10,148
Pension 10,865 9,033
Investment tax credit 32,846 34,842
Other 26,261 20,622
-------- --------
Total deferred tax assets 79,510 74,645
-------- --------
Net deferred tax liability $282,062 $270,182
======== ========
9. RATE MATTERS
Electric Rate Case
In the retail electric rate case now pending before the IURC, a
prehearing conference was held on June 8, 1994, and an order was issued
July 20, 1994, establishing a test year ending June 30, 1994. IPL filed
its case in chief on October 11, 1994. The IURC has scheduled hearings on
IPL's request to begin on February 7, 1995.
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). The order provides for the deferral of net gains and losses
resulting from any sale of emission allowances for future amortization to
cost of service on a basis to be determined in a future general electric
rate proceeding.
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 implemented new steam tariffs designed to produce
estimated additional annual steam operating revenues as follows:
Additional Cumulative
Annual Annual
Year Revenues Revenues
---- ---------- ----------
January 13, 1993 $1,932,000 $1,932,000
January 13, 1994 2,051,000 3,983,000
January 13, 1995 1,552,000 5,535,000
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
On September 8, 1993, IPL obtained an Order from the IURC approving a
Stipulation of Settlement Agreement between IPL, the Office of Utility
Consumer Counsel, Citizens Action Coalition of Indiana, Inc., an industrial
group, the Trustees of Indiana University and the Indiana Alliance for Fair
Competition relating to the Company's Demand Side Management Program (DSM).
The order provides for the deferral and subsequent recognition in cost of
service of certain approved DSM costs. The order also provides for the
recording of a return on deferred costs until recognized in cost of
service.
10. EMPLOYEE BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS:
IPL's contributions to the Thrift Plan, net of amounts allocated to
related parties were $3.3 million, $3.1 million and $3.1 million in 1994,
1993 and 1992, respectively.
Net pension cost for the Plan including amounts charged to
construction for 1994, 1993 and 1992 are comprised of the following
components:
1994 1993 1992
- -----------------------------------------------------------------------------
(In Thousands)
Service cost--benefits earned during the period $ 7,832 $ 6,355 $ 5,563
Interest cost on projected benefit obligation 15,358 14,192 13,739
Actual return on plan assets 10,366 (40,045) (18,865)
Net amortization and deferral (27,297) 25,689 5,366
------- ------- -------
Net periodic pension cost 6,259 6,191 5,803
Less amount allocated to related parties 79 87 71
------- ------- -------
IPL net periodic pension cost $ 6,180 $ 6,104 $ 5,732
======= ======= =======
A summary of the Plans' funding status, and the amount recognized in
the balance sheets at December 31, 1994 and 1993, follows:
1994 1993
- ----------------------------------------------------------------------------
(In Thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation $(123,306) $(128,449)
Non-vested benefit obligation (26,394) (28,532)
--------- ---------
Accumulated benefit obligation $(149,700) $(156,981)
========= =========
Projected benefit obligation $(201,345) $(224,037)
Plan assets at fair value 199,522 218,312
--------- ---------
Funded status--plan assets less than projected
benefit obligation (1,823) (5,725)
Unrecognized net gain from past experience different
from that assumed (31,058) (22,922)
Unrecognized past service costs 21,188 22,932
Unrecognized net asset at January 1, 1987 being
amortized over an original life of 18.9 years (15,410) (16,825)
--------- ---------
Net accrued pension costs included in current
liabilities at December 31 $ (27,103) $ (22,540)
========= =========
Approximately 19.5% of the Plans' assets were in equity securities,
with the remainder in fixed income securities.
IPL also provides certain postretirement health care and life
insurance benefits for employees who retire from active service on or after
attaining age 55 and have rendered at least 10 years of service. On
January 1, 1993, IPL adopted the provisions of SFAS No. 106 -- Employers'
Accounting for Postretirement Benefits Other than Pensions (SFAS 106).
Generally, SFAS 106 requires the use of an accrual basis accounting method
for determining annual costs of postretirement benefits. The January 1,
1993 transition obligation of $122.4 million is being amortized over a 20
year period. Prior to 1993, the cost of such benefits was recognized when
incurred and amounted to $3.5 million in 1992.
Net postretirement benefit cost, including amounts charged to
construction for 1994 and 1993 is comprised of the following components:
1994 1993
- -----------------------------------------------------------------------------
(In Thousands)
Service cost -- benefits earned during the period $ 5,051 $ 4,760
Interest cost on accumulated postretirement benefit obligation 11,052 10,792
Actual return on plan assets (435) (297)
Net amortization and deferral 5,740 5,732
------- -------
Net periodic postretirement benefit cost $21,408 $20,987
======= =======
A summary of the retiree health care and life insurance plan's funding
status, and the amount recognized in the balance sheets at December 31,
1994 and 1993 follows:
1994 1993
- ----------------------------------------------------------------------------------------------------
(In Thousands)
Actuarial present value of accumulated postretirement benefit obligation:
Retirees $ (55,462) $ (60,110)
Fully eligible active plan participants (19,531) (21,344)
Other active plan participants (58,573) (73,872)
--------- ---------
Total (133,566) (155,326)
Plan assets at fair value 10,570 10,135
--------- ---------
Funded status--accumulated postretirement benefit obligation in excess
of plan assets (122,996) (145,191)
Unrecognized net gain from past experience different from that assumed (21,606) 11,322
Unrecognized net obligation at January 1, 1993 being amortized over
an original life of 20 years 110,085 116,201
--------- ---------
Net accrued postretirement benefit cost included in deferred liabilities at
December 31 $ (34,517) $ (17,668)
========= =========
IPL is expensing its non-construction related SFAS 106 costs
associated with its steam business. The SFAS 106 costs, net of amounts
paid and capitalized for construction, associated with IPL's electric
business is being deferred as a regulatory asset on the balance sheets, as
authorized by an order of the IURC on December 30, 1992, which provided for
deferral of SFAS 106 costs in excess of such costs determined on a cash
basis. A request for cost of service recognition of these costs has been
included in IPL's pending general electric rate petition.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation is 11.7% for 1995, gradually
declining to 5.0% in 2003. A one-percentage point increase in the assumed
health care cost trend rate for each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994 by approximately
$20.4 million and the combined service cost and interest cost for 1994 by
approximately $2.9 million.
Plan assets consist of the cash surrender value of life insurance
policies on certain retired employees. The expected long-term rate of
return on plan assets is 8 percent.
Assumptions used in determining the information above were:
1994 1993 1992
- ---------------------------------------------------------------------------------
Discount rate - pension plans 8.0% 7.0% 7.5%
Discount rate - postretirement benefits 8.0% 7.0% -
Rate of increase in future compensation levels 6.1% 6.1% 6.1%
Expected long-term rate of return on assets - pension plans 8.0% 8.0% 8.0%
On September 27, IPALCO's Board of Directors adopted a Voluntary
Employee Beneficiary Association (VEBA) Trust Agreement for the funding of
postretirement health and life insurance benefits for retirees and their
eligible dependents and beneficiaries. 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. To the
extent these postretirement benefits are funded, the benefits will not be
shown as a liability on IPL's financial statements. The VEBA Trust
Agreement provides for full funding of IPL's accumulated postretirement
benefit obligation in the event of certain change of control transactions.
11. COMMITMENTS AND CONTINGENCIES:
In 1995, IPL anticipates the cost of its construction program to be
approximately $214 million.
IPL will comply with the provisions of the ACT through the
installation of SO2 scrubbers and NOx facilities. The cost of complying
with the ACT from 1995 through 1997, including AFUDC, is estimated to be
approximately $142 million, of which $125 million is anticipated in 1995.
During 1994, 1993, and 1992, expenditures for compliance with the Act were
$59.4 million, $13.7 million, and $20.0 million, respectively.
IPL has a five-year firm power purchase agreement with Indiana
Michigan Power Company (IMP) for 100 megawatts (MW) of capacity effective
April 1992, with the purchase of an additional 100 MW (for a total of 200
MW) beginning in April 1993. The agreement provides for monthly capacity
payments by IPL of $.6 million from April 1992 through March 1993,
increasing to a monthly amount of $1.2 million which began in April 1993
and continue through March 31, 1997. The agreement further provides that
IPL can elect to extend purchases through December 31, 1997, and
subsequently through November 30, 1999, with capacity payments of $1.2
million per month and $1.55 million per month, respectively. IPL can
terminate the agreement, should the ability to include future demand
charges in cost of service be disallowed. Capacity payments during 1994,
1993 and 1992 under this agreement totaled $14.4 million, $12.6 million and
$5.4 million, respectively.
IPL is involved in litigation and environmental claims 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 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, but if IPL's position is found to be erroneous, they could
be subject to fines.
12. QUARTERLY RESULTS (UNAUDITED):
Operating results for the years ended December 31, 1994 and 1993 by
quarter, are as follows (in thousands):
1994
- ---------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Operating revenues $181,178 $161,137 $183,666 $160,095
Operating income 41,520 29,440 42,832 29,518
Net income 31,563 19,202 32,640 20,418
1993
- ---------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Operating revenues $169,042 $153,127 $183,264 $158,870
Operating income 40,068 27,354 44,520 30,426
Net income 30,038 17,551 34,331 20,846
The quarterly figures reflect seasonal and weather-related
fluctuations which are normal to IPL's operations. Colder weather was
experienced in the first quarter of 1994 and warmer weather was experienced
in the second quarter of 1994, while weather conditions in 1993 reflected
near normal conditions. In addition, during the third quarter of 1994, IPL
expensed approximately $3.1 million of property held for future use.