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
June 30, 1996 Commission File Number 1-3132-2
INDIANAPOLIS POWER & LIGHT COMPANY
(Exact name of Registrant as specified in its charter)
Indiana 35-0413620
(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
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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 June 30, 1996
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Common (Without Par Value) 17,206,630 Shares
1
INDIANAPOLIS POWER & LIGHT COMPANY
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INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
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Statements of Income - Three Months Ended and
Six Months Ended June 30, 1996 and 1995 2
Balance Sheets - June 30, 1996 and
December 31, 1995 3
Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 4
Notes to Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-8
PART II. OTHER INFORMATION 9-11
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2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Income
(In Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
-------------- -------------- -------------- --------------
OPERATING REVENUES:
Electric $ 169,163 $ 151,814 $ 353,101 $ 316,161
Steam 8,458 7,838 20,966 19,009
-------------- -------------- -------------- --------------
Total operating revenues 177,621 159,652 374,067 335,170
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Operation:
Fuel 40,360 39,174 84,783 82,841
Other 33,354 27,813 66,311 55,228
Power purchased 4,285 5,033 9,015 8,912
Purchased steam 1,499 1,434 3,651 3,418
Maintenance 16,112 16,257 29,926 30,948
Depreciation and amortization 23,973 21,510 47,679 42,891
Taxes other than income taxes 8,373 7,450 17,334 16,085
Income taxes - net 13,543 10,576 34,402 26,164
-------------- -------------- -------------- --------------
Total operating expenses 141,499 129,247 293,101 266,487
-------------- -------------- -------------- --------------
OPERATING INCOME 36,122 30,405 80,966 68,683
-------------- -------------- -------------- --------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 1,769 1,298 3,620 2,349
Other - net (629) (675) (1,143) (1,054)
Income taxes - net 221 269 407 454
-------------- -------------- -------------- --------------
Total other income - net 1,361 892 2,884 1,749
-------------- -------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 37,483 31,297 83,850 70,432
-------------- -------------- -------------- --------------
INTEREST CHARGES:
Interest 12,088 12,568 24,300 25,391
Allowance for borrowed funds used during construction (1,585) (1,382) (3,310) (2,682)
-------------- -------------- -------------- --------------
Total interest charges 10,503 11,186 20,990 22,709
-------------- -------------- -------------- --------------
NET INCOME 26,980 20,111 62,860 47,723
PREFERRED DIVIDEND REQUIREMENTS 796 796 1,591 1,591
-------------- -------------- -------------- --------------
INCOME APPLICABLE TO COMMON STOCK $ 26,184 $ 19,315 $ 61,269 $ 46,132
============== ============== ============== ==============
See notes to financial statements.
3
INDIANAPOLIS POWER & LIGHT COMPANY
Balance Sheets
(In Thousands)
(Unaudited)
June 30 December 31
1996 1995
---------------- ----------------
ASSETS
------
UTILITY PLANT:
Utility plant in service $ 2,711,049 $ 2,517,790
Less accumulated depreciation 1,007,899 984,910
---------------- ----------------
Utility plant in service - net 1,703,150 1,532,880
Construction work in progress 87,549 249,249
Property held for future use 9,878 9,878
---------------- ----------------
Utility plant - net 1,800,577 1,792,007
---------------- ----------------
OTHER PROPERTY -
At cost, less accumulated depreciation 4,447 4,454
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 8,888 9,985
Accounts receivable (less allowance for doubtful
accounts 1996, $325 and 1995, $786) 52,678 57,152
Fuel - at average cost 30,989 29,894
Materials and supplies - at average cost 58,368 56,547
Prepayments and other current assets 3,995 4,095
---------------- ----------------
Total current assets 154,918 157,673
---------------- ----------------
DEFERRED DEBITS:
Regulatory assets 143,004 142,711
Miscellaneous 11,936 11,971
---------------- ----------------
Total deferred debits 154,940 154,682
---------------- ----------------
TOTAL $ 2,114,882 $ 2,108,816
================ ================
3 continued
CAPITALIZATION AND LIABILITIES
------------------------------
CAPITALIZATION:
Common shareholder's equity:
Common stock $ 324,537 $ 324,537
Premium on 4% cumulative preferred stock 1,363 1,363
Retained earnings 440,384 421,229
---------------- ----------------
Total common shareholder's equity 766,284 747,129
Cumulative preferred stock 51,898 51,898
Long-term debt (less current maturities
and sinking fund requirements) 657,769 669,000
---------------- ----------------
Total capitalization 1,475,951 1,468,027
---------------- ----------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper 65,000 65,022
Current maturities and sinking fund requirements 11,250 15,150
Accounts payable and accrued expenses 62,577 73,053
Dividends payable 21,868 21,263
Taxes accrued 22,971 19,023
Interest accrued 13,720 14,324
Other current liabilities 17,229 16,092
---------------- ----------------
Total current liabilities 214,615 223,927
---------------- ----------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net 299,904 293,748
Unamortized investment tax credit 49,170 50,636
Accrued postretirement benefits 31,801 30,517
Accrued pension benefits 34,468 31,834
Miscellaneous 8,973 10,127
---------------- ----------------
Total deferred credits and other long-term liabilities 424,316 416,862
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
TOTAL $ 2,114,882 $ 2,108,816
================ ================
See notes to financial statements.
4
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended
June 30
1996 1995
-------------- --------------
CASH FLOWS FROM OPERATIONS:
Net income $ 62,860 $ 47,723
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 44,965 43,468
Amortization of regulatory assets 8,104 -
Deferred income taxes and investment tax credit adjustments - net (1,311) 2,272
Allowance for funds used during construction (6,930) (5,031)
Premiums on redemptions of debt - (800)
Change in certain assets and liabilities:
Accounts receivable 4,474 (250)
Fuel, materials and supplies (2,916) (6,211)
Accounts payable (10,476) (3,881)
Taxes accrued 3,948 2,236
Accrued pension benefits 2,634 3,158
Other - net 2,831 9,337
-------------- --------------
Net cash provided by operating activities 108,183 92,021
-------------- --------------
CASH FLOWS FROM INVESTING:
Construction expenditures (45,441) (86,602)
Other (5,431) (10,975)
-------------- --------------
Net cash used in investing activities (50,872) (97,577)
-------------- --------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt - 40,000
Retirement of long-term debt (15,150) (40,350)
Short-term debt - net (22) 47,300
Dividends paid (43,095) (42,021)
Other (141) (606)
-------------- --------------
Net cash provided by (used in) financing activities (58,408) 4,323
-------------- --------------
Net decrease in cash and cash equivalents (1,097) (1,233)
Cash and cash equivalents at beginning of period 9,985 7,835
-------------- --------------
Cash and cash equivalents at end of period $ 8,888 $ 6,602
============== ==============
4 continued
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 21,254 $ 22,942
============== ==============
Income taxes $ 31,806 $ 17,467
============== ==============
See notes to financial statements.
5
INDIANAPOLIS POWER & LIGHT COMPANY
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. Indianapolis Power & Light Company is a subsidiary of IPALCO
Enterprises, Inc.
2. In the opinion of management these statements reflect all adjustments,
consisting of only normal recurring accruals, 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 IPL's 1995 Annual Report on
Form 10-K.
3. LONG-TERM DEBT
On April 1, 1996, IPL retired First Mortgage Bonds, 5 1/8% Series, due
April 1, 1996, in the principal amount of $15.0 million.
4. RATE MATTERS
The Indiana Utility Regulatory Commission approved a two-step rate
increase for IPL customers in September 1995. The initial step
increase was effective September 1, 1995, and the second step increase
became effective July 1, 1996. The final step was conditioned upon
IPL's two new state-of-the-art scrubbers at the Petersburg plant being
placed in service. These facilities began operations in June 1996.
The second step increase is designed to produce additional annual
revenues of $25 million.
5. COMMITMENTS AND CONTINGENCIES (See Item 1. Legal Proceedings of Part II
-- Other Information)
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Overview
- --------
The Board of Directors of Indianapolis Power & Light Company (IPL) on
May 28, 1996, declared a quarterly dividend on common stock of $21,061,202.
The dividend was paid by IPL to IPALCO Enterprises, Inc. in July, 1996.
IPL's capital requirements are primarily related to construction
expenditures needed to meet customers' needs for electricity and steam, as
well as expenditures for compliance with the federal Clean Air Act.
Construction expenditures (excluding allowance for funds used during
construction) totaled $22.4 million during the second quarter ended June
30, 1996, representing a $19.8 million decrease from the comparable period
in 1995. This decrease is mostly related to reduced construction spending
in the second quarter of 1996 compared to 1995 for the scrubbers at IPL's
Petersburg Generating Station as the construction project was completed in
June 1996. Internally generated cash provided by IPL's operations was used
for construction expenditures during the second quarter of 1996.
Construction expenditures (excluding allowance for funds used during
construction) totaled $45.4 million during the six months ended June 30,
1996, representing a $41.2 million decrease from the comparable period in
1995. This difference is mostly related to reduced construction spending
in 1996 compared to 1995 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 construction expenditures during
the first six months of 1996. 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 IPL's 1995 Form 10-K report. (See "Cost of
Construction Program" in Item 7 of Management's Discussion and Analysis of
Financial Condition and Results of Operations in IPL's 1995 Form 10-K
report for further discussion).
On April 1, 1996, IPL retired First Mortgage Bonds, 5 1/8% Series, due
April 1, 1996, in the principal amount of $15.0 million.
Rate Relief
- -----------
The Indiana Utility Regulatory Commission approved a two-step rate
increase for IPL customers in September 1995. The initial step increase
was effective September 1, 1995, and the second step increase became
effective July 1, 1996. The final step was conditioned upon IPL's two new
state-of-the-art scrubbers at the Petersburg plant being placed in service.
These facilities began operations in June 1996. The second step increase
is designed to produce additional annual revenues of $25 million.
RESULTS OF OPERATIONS
Comparison of Second Quarter and Six Months Ended June 30, 1996
---------------------------------------------------------------
with Second Quarter and Six Months Ended June 30, 1995
------------------------------------------------------
Income applicable to common stock during the second quarter and six
months ended of 1996 increased from the comparable 1995 periods by $6.9
million and $15.1 million, respectively. The following discussion
highlights the factors contributing to these increases.
7
Operating Revenues
- ------------------
Operating revenues during the second quarter and six months ended of
1996 increased from the comparable 1995 periods by $18.0 million and $38.9
million, respectively. The increases in revenues resulted from the
following:
Increase (Decrease) from Comparable Period
------------------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
(Millions of Dollars)
Increase in base electric rates $ 9.1 $ 19.4
Additional Kilowatt-hour (KWH) sales - net of fuel 7.9 17.9
Fuel revenues (2.2) (4.4)
Steam revenues 0.6 1.9
Sales for resale 2.4 3.6
Other revenues 0.2 0.5
------ ------
Total change in operating revenues $ 18.0 $ 38.9
====== ======
The increases in base rate electric revenues are the result of new
tariffs, effective September 1, 1995, designed to produce $35-million
additional annual revenues. The increases in retail KWH sales during the
second quarter and six months ended of 1996, as compared to the same
periods in 1995, reflect customer growth and increased sales resulting
primarily from colder weather in the first and second quarters of 1996.
Heating degree days in the Indianapolis area increased 16 percent for the
six months ended 1996, over the same period in 1995. The changes in fuel
revenues in 1996 from the prior year reflect changes in total fuel costs
billed customers. The increased wholesale sales during the second quarter
and six months ended of 1996, as compared to the same periods in 1995,
reflect energy requirements of other utilities.
Operating Expenses
- ------------------
Other operation expenses in the second quarter and six months ended of
1996 increased from the same periods a year ago by $5.5 million and $11.1
million, respectively. The primary cause of these increases in both the
second quarter and the six month priod was the expensing of accrual based
electric postretirement costs as authorized by IPL's 1995 rate case
settlement. Increases in postretirement benefit expenses were $4.0 million
and $7.9 million in the second quarter and six month periods, respectively.
Such costs were deferred as regulatory assets prior to September 1995.
The increase in the second quarter was also due to an increase in other
administrative and general expenses of $0.6 million, an increase in
customer service and informational and sales expenses of $0.6 million, an
increase in miscellaneous steam power operating expenses at the Petersburg
plant of $0.4 million and an increase in customer accounts expense of $0.4
million. Also contributing to the six month increase was an increase in
customer service and informational sales expense of $1.2 million, an increase
in regulatory commission expense of $1.1 million, an increase in miscellaneous
steam power operating expenses at the Petersburg plant of $1.1 million, an
increase in overhead lines distribution expenses of $0.5 million, an
increase in salaries expense of $0.4 million and an increase in customer
accounts expense of $0.3 million, partially offset by a decrease in outside
services expenses of $0.9 million.
Power purchased decreased by $0.7 million and increased by $0.1
million from the comparable periods in 1995 during the second quarter and
six months ended of 1996, respectively. The decrease in the second quarter
was due to a decrease in energy purchases, while the increase for the six
months ended was attributable to an increase in purchases of firm-peaking
energy, partially offset by a decrease in purchases of non-displacement and
short term energy.
8
Purchased steam during the second quarter and six months ended of 1996
increased from the same periods in the prior year by $0.1 million and $0.2
million, respectively, due to an increase in therms purchased from an
independent resource recovery system located within the city of
Indianapolis.
Depreciation and amortization expense in the second quarter and six
months ended of 1996 increased from the same periods a year ago by $2.5
million and $4.8 million, respectively. These increases resulted from the
amortization of property-related regulatory deferrals effective with the
September 1, 1995 electric rate increase and increases in the depreciable
utility plant balances.
Taxes other than income taxes in the second quarter and six months
ended of 1996 increased from the comparable periods in 1995 by $0.9 million
and $1.2 million, respectively. These increases are attributable primarily
to increases in property taxes due to an increase in tax rates and the
property tax base, state gross income taxes due to more revenue recorded in
1996, and FICA taxes.
Income taxes - net for the second quarter and six months ended of 1996
increased from the same periods in 1995 by $3.0 million and $8.2 million,
respectively, primarily due to the increase in pretax utility operating
income.
As a result of the foregoing, utility operating income during the
second quarter of 1996 increased 18.8% from the comparable 1995 period, to
$36.1 million. Utility operating income during the six months ended of
1996 increased 17.9% from the comparable 1995 period, to $81.0 million.
Other Income and Deductions
- ---------------------------
Allowance for equity funds used during construction in the second
quarter and six months ended of 1996 increased from the same periods in
1995 by $0.5 million and $1.3 million, respectively, primarily due to
carrying charges on regulatory assets resulting from the electric rate case
settlement.
Interest Charges
- ----------------
Interest expense in the second quarter and six months ended of 1996
decreased from the same periods last year by $0.5 million and $1.1 million,
respectively. The decreases were primarily the result of refinancing
certain first mortgage bonds during 1995 with more favorable terms.
Allowance for borrowed funds used during construction for the second
quarter and six months ended of 1996 increased from the comparable periods
in 1995 by $0.2 million and $0.6 million, respectively, due to an increased
construction base, partially offset by decreased carrying charges on
regulatory assets.
9
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- --------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual Meeting of shareholders of Indianapolis Power & Light
Company was held on April 17, 1996. IPL did not solicit proxies with
respect to its Annual Meeting, and the Board of Directors, as previously
reported to the Commission, was re-elected in its entirety. Directors are
elected to terms of one year each which expire in April, 1997.
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 Indianapolis Power & Light Company, as
amended. (Form 10-Q for quarter ended 3-31-91.)
3.2* Bylaws of Indianapolis Power & Light Company dated January 25, 1994.
(Form 10-Q for quarter ended 3-31-94.)
4.1* Mortgage and Deed of Trust, dated as of May 1, 1940, between
Indianapolis Power & Light Company and American National Bank and
Trust Company of Chicago, Trustee, as supplemented and modified by 42
Supplemental Indentures.
Exhibits D in File No. 2-4396; B-1 in File No. 2-6210; 7-C File
No. 2-7944; 7-D in File No. 2-72944; 7-E in File No. 2-8106; 7-F in
File No. 2-8749; 7-G in File No. 2-8749; 4-Q in File No. 2-10052; 2-I
in File No. 2-12488; 2-J in File No. 2-13903; 2-K in File No. 2-22553;
2-L in File No. 2-24581; 2-M in File No. 2-26156; 4-D in File No. 2-
26884; 2-D in File No. 2-38332; Exhibit A to Form 8-K for October
1970; Exhibit 2-F in File No. 2-47162; 2-F in File No. 2-50260; 2-G in
File No. 2-50260; 2-F in File No. 2-53541; 2E in File No. 2-55154; 2E
in File No. 2-60819; 2F in File No. 2-60819; 2-G in File No. 2-60819;
Exhibit A to Form 10-Q for the quarter ended 9-30-78 File No. 1-3132;
13-4 in File No. 2-73213; Exhibit 4 in File No. 2-93092. Twenty-
eighth, Twenty-ninth and Thirtieth Supplemental Indentures. (Form 10-K
dated for the year ended December 31, 1985.)
4.2* Thirty-First Supplemental Indenture dated as of October 1, 1986.
(Form 10-K for year ended 12-31-86.)
4.3* Thirty-Second Supplemental Indenture dated as of June 1, 1989. (Form
10-K for year ended 12-31-89.)
4.4* Thirty-Third Supplemental Indenture dated as of August 1, 1989. (Form
10-K for year ended 12-31-89.)
4.5* Thirty-Fourth Supplemental Indenture dated as of October 15, 1991.
(Form 10-K for year ended 12-31-91.)
4.6* Thirty-Fifth Supplemental Indenture dated as of August 1, 1992. (Form
10-K for year ended 12-31-92.)
4.7* Thirty-Sixth Supplemental Indenture dated as of April 1, 1993. (Form
10-Q for quarter ended 9-30-93.)
4.8* Thirty-Seventh Supplemental Indenture dated as of October 1, 1993.
(Form 10-Q for quarter ended 9-30-93.)
4.9* Thirty-Eighth Supplemental Indenture dated as of October 1, 1993.
(Form 10-Q for quarter ended 9-30-93.)
4.10* Thirty-Ninth Supplemental Indenture dated as of February 1, 1994.
(Form 8-K, dated 1-25-94.)
4.11* Fortieth Supplemental Indenture dated as of February 1, 1994.
(Form 8-K, dated 1-25-94.)
4.12* Forty-First Supplemental Indenture dated as of January 15, 1995.
(Exhibit 4.12 to the Form 10-K dated 12-31-94.)
4.13* Forty-Second Supplemental Indenture dated as of October 1, 1995.
(Exhibit 4.12 to the Form 10-K dated 12-31-95.)
10.1 Form of Termination Benefits Agreement together with schedule of
parties to, and dates of, the Termination Benefits Agreements.
21.1* Subsidiaries of the Registrant. (Exhibit 21.1 to the Form 10-K
dated 12-31-95.)
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
11
Signatures
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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.
INDIANAPOLIS POWER & LIGHT COMPANY
------------------------------------
(Registrant)
Date: August 13, 1996 /s/ John R. Brehm
------------------------ ------------------------------------
John R. Brehm
Senior Vice President
Finance and Information Services
Date: August 13, 1996 /s/ Stephen J. Plunkett
------------------------ ------------------------------------
Stephen J. Plunkett
Controller