SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): March 27, 2001
THE AES CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 0-19281 54-1163725
(State of Incorporation) (Commission File No.) (IRS Employer Identification No.)
1001 North 19th Street
Arlington, Virginia 22209
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:
(703) 522-1315
NOT APPLICABLE
(Former Name or Former Address, if changed since last report)
This Amendment No. 1 to the Current Report of The AES Corporation (the
"Company") on Form 8-K dated April 10, 2001 relates to the Company's
acquisition of IPALCO Enterprises, Inc. ("IPALCO") in a pooling of interests
transaction. The purpose of this Amendment is to amend Item 7(A) to provide
the financial statements of IPALCO and Item 7(B) to provide the required pro
forma financial information relating to the business combination of the
Company and IPALCO on March 27, 2001 which were impracticable to provide at
the time of the initial filing of the Current Report on Form 8-K.
ITEM 7-FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of IPALCO ENTERPRISES, INC.:
We have audited the accompanying consolidated balance sheets of IPALCO
Enterprises, Inc. and its subsidiaries as of December 31, 2000 and 1999, and the
related statements of consolidated income, common shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of IPALCO Enterprises, Inc. and its
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Indianapolis, Indiana
January 25, 2001
(March 27, 2001 as to footnote 1)
1
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
UTILITY OPERATING REVENUES:
Electric $ 830,955 $ 800,337 $ 785,835
Steam 27,580 34,315 35,421
------------- ----------- ----------
Total operating revenues 858,535 834,652 821,256
------------- ----------- ----------
UTILITY OPERATING EXPENSES:
Operation:
Fuel 190,703 173,872 181,036
Other 154,476 137,348 155,610
Power purchased 13,206 29,769 7,170
Purchased steam 5,259 6,391 5,968
Maintenance 79,437 77,637 73,501
Voluntary early retirement program benefit costs 62,007 - -
Depreciation and amortization 111,045 107,469 103,223
Taxes other than income taxes 37,348 34,190 35,047
Income taxes - net 68,831 84,475 80,190
--------------------------------------
Total operating expenses 722,312 651,151 641,745
--------------------------------------
UTILITY OPERATING INCOME 136,223 183,501 179,511
--------------------------------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 2,073 1,372 1,389
Other - net (11,198) 3,454 (3,006)
Gain on termination of agreement - - 12,500
Gain on sale of thermal assets 30,583 - -
Gain on sale of available for sale securities, net of expenses 102,267 - -
Income taxes - net (44,823) 5,688 5,231
------------- ----------- ----------
Total other income and (deductions) - net 78,902 10,514 16,114
------------- ----------- ----------
INCOME BEFORE INTEREST AND OTHER CHARGES 215,125 194,015 195,625
------------- ----------- ----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 50,173 58,584 60,489
Other interest 1,717 1,545 1,060
Allowance for borrowed funds used during construction (961) (829) (911)
Amortization of redemption premiums and expenses on debt-net 2,141 2,555 2,062
Preferred stock transactions 3,213 3,213 2,806
------------- ----------- ----------
Total interest and other charges - net 56,283 65,068 65,506
------------- ----------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 158,842 128,947 130,119
EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT - NET OF TAXES (4,259) - -
NET INCOME $ 154,583 $ 128,947 $ 130,119
============= =========== ==========
BASIC EARNINGS PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $ 1.84 $ 1.50 $ 1.45
EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT (0.05) - -
------------- ----------- ----------
NET INCOME $ 1.79 $ 1.50 $ 1.45
============= =========== ==========
DILUTED EARNINGS PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $ 1.82 $ 1.49 $ 1.43
EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT (0.05) - -
------------- ----------- ----------
NET INCOME $ 1.77 $ 1.49 $ 1.43
============= =========== ==========
See notes to consolidated financial statements
2
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
-----------------------------------------------------------------------------------------------------------
ASSETS 2000 1999
-----------------------------------------------------------------------------------------------------------
(In Thousands)
UTILITY PLANT:
Utility plant in service $ 2,897,399 $ 2,922,338
Less accumulated depreciation 1,344,403 1,299,122
----------------- --------------
Utility plant in service - net 1,552,996 1,623,216
Construction work in progress 84,146 116,478
Property held for future use 10,692 10,718
----------------- --------------
Utility plant - net 1,647,834 1,750,412
----------------- --------------
OTHER ASSETS:
Nonutility property 15,229 84,937
Less accumulated depreciation 2,851 15,881
----------------- --------------
Nonutility property - net 12,378 69,056
Available for sale securities 17 175,202
Other investments 9,360 13,970
----------------- --------------
Other assets - net 21,755 258,228
----------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 68,652 23,935
Accounts receivable and unbilled revenue (less allowance for doubtful
accounts - 2000, $1,794,000 and 1999, $1,360,000) 66,565 51,357
Fuel - at average cost 23,648 52,016
Materials and supplies - at average cost 48,791 48,694
Prepayments and other current assets 1,985 10,235
----------------- --------------
Total current assets 209,641 186,237
----------------- --------------
DEFERRED DEBITS:
Regulatory assets 92,826 107,948
Miscellaneous 11,220 13,012
----------------- --------------
Total deferred debits 104,046 120,960
----------------- --------------
TOTAL $ 1,983,276 $ 2,315,837
================= ==============
See notes to consolidated financial statements.
3
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000, 1999
(CONTINUED)
-----------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 2000 1999
-----------------------------------------------------------------------------------------------------------------------
(In Thousands)
CAPITALIZATION:
Common shareholders' equity:
Common stock, no par, authorized - 290,000,000 shares, 116,773,825 issued
and 88,863,423 outstanding in 2000,
116,806,470 issued and 85,727,614 outstanding in 1999 $ 449,987 $ 439,066
Unearned compensation - restricted stock - (1,979)
Premium on 4% cumulative preferred stock 649 649
Retained earnings 788,441 690,455
Accumulated other comprehensive income (1,813) 106,733
Treasury stock, at cost - 27,910,402 shares in 2000,
31,078,856 shares in 1999 (507,116) (557,178)
------------------ -----------------
Total common shareholders' equity 730,148 677,746
Cumulative preferred stock of subsidiary 59,135 59,135
Long-term debt 621,863 870,050
------------------ -----------------
Total capitalization 1,411,146 1,606,931
------------------ -----------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper - 57,578
Current maturities and sinking fund requirements 6,450 52,477
Accounts payable and accrued expenses 58,179 56,798
Dividends payable 15,364 13,859
Taxes accrued 49,477 22,237
Interest accrued 13,051 13,767
Other current liabilities 14,444 13,356
------------------ -----------------
Total current liabilities 156,965 230,072
------------------ -----------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Deferred income taxes - net 275,171 400,588
Unamortized investment tax credit 36,458 39,226
Accrued postretirement benefits 5,237 4,338
Accrued pension benefits 91,191 29,018
Miscellaneous 7,108 5,664
------------------ -----------------
Total deferred credits and other long-term liabilities 415,165 478,834
------------------ -----------------
COMMITMENTS AND CONTINGENCIES - -
TOTAL $ 1,983,276 $ 2,315,837
================== =================
See notes to consolidated financial statements.
4
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
---------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------
(In Thousands)
CASH FLOWS FROM OPERATIONS:
Net income $ 154,583 $ 128,947 $ 130,119
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 114,582 110,297 102,977
Amortization of regulatory assets 11,633 14,470 14,246
Gain from sale of available for sale securities (112,638) - -
Gain from sale of thermal assets (30,583) - -
Extraordinary loss on early retirement of debt 4,259 - -
Deferred income taxes and investment tax credit adjustments - net (56,929) 9,622 (2,056)
Allowance for funds used during construction (3,034) (2,201) (2,300)
Provision for impairment of nonutility property 1,847 - -
Change in certain assets and liabilities:
Accounts receivable (15,208) (11,655) 7,331
Fuel, materials and supplies 23,106 (12,939) (4,098)
Accounts payable and accrued expenses 1,381 (15,037) 5,730
Taxes accrued 25,299 1,514 (1,403)
Accrued pension benefits 5,402 (10,935) 132
Provision for early retirement program benefit costs 62,007 - -
Other - net 1,198 1,705 (15,271)
------------- ------------ --------------
Net cash provided by operating activities 186,905 213,788 235,407
------------- ------------ --------------
CASH FLOWS FROM INVESTING:
Construction expenditures - utility (75,712) (103,452) (79,458)
Construction expenditures - nonutility (438) (295) (975)
Proceeds from sale of available for sale securities 113,833 - -
Proceeds from sale of thermal assets 161,700 - -
Other 5,863 (8,594) 1,193
------------- ------------ --------------
Net cash provided by (used in) investing activities 205,246 (112,341) (79,240)
------------- ------------ --------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 29,650 140,900 271,500
Issuance of preferred stock - - 50,000
Retirement of long-term debt (323,926) (127,830) (398,094)
(Reacquired) and reissued common stock 50,062 (88,482) (65,595)
Short-term debt - net (57,578) 32,378 (8,500)
Common dividends paid (54,965) (50,920) (48,235)
Issuance of common stock related to incentive compensation plans 9,026 9,014 30,488
Other 297 (1,647) 4,051
------------- ------------ --------------
Net cash used in financing activities (347,434) (86,587) (164,385)
------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 44,717 14,860 (8,218)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 23,935 9,075 17,293
------------- ------------ --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 68,652 $ 23,935 $ 9,075
============= ============ ==============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 54,073 $ 60,454 $ 62,381
============= ============ ==============
Income taxes $ 144,052 $ 66,577 $ 82,067
============= ============ ==============
See notes to consolidated financial statements.
5
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
---------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------
COMMON STOCK
Balance at beginning of the year $ 439,066 $ 435,300 $ 395,851
Exercise of stock options 9,026 9,014 29,869
Restricted stock issues / adjustments 3,081 (3,205) 11,605
Restricted stock repurchased (1,186) (2,043) (2,025)
-----------------------------------------------------------------------------------------------------------------
Balance at end of the year 449,987 439,066 435,300
-----------------------------------------------------------------------------------------------------------------
UNEARNED COMPENSATION
Balance at beginning of the year (1,979) (6,003) (1,583)
Amortization of restricted stock 5,060 819 7,185
Restricted stock issues / adjustments (3,081) 3,205 (11,605)
-----------------------------------------------------------------------------------------------------------------
Balance at end of the year - (1,979) (6,003)
-----------------------------------------------------------------------------------------------------------------
PREMIUM ON 4% CUMULATIVE PREFERRED STOCK
Balance at end of the year 649 649 649
-----------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of the year 690,455 612,941 532,730
Net income 154,583 128,947 130,119
Cash dividends declared (2000 - $.65 per share;
1999 - $.60 per share; 1998 - $.55 per share) (56,540) (51,433) (49,418)
Subsidiary capital stock expense (57) - (490)
-----------------------------------------------------------------------------------------------------------------
Balance at end of the year 788,441 690,455 612,941
-----------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME
Balance at beginning of the year 106,733 - -
Minimum pension liability adjustment (1,820) - -
Realized gains on securities (69,101) - -
Unrealized gains/(losses) on securities (37,625) 106,733 -
-----------------------------------------------------------------------------------------------------------------
Balance at end of the year (1,813) 106,733 -
-----------------------------------------------------------------------------------------------------------------
TREASURY STOCK
Balance at beginning of the year (557,178) (468,696) (403,101)
Reissued stock (3,168,464 shares) 50,062 - -
Reacquired stock (1999-3,529,356 shares;
1998-2,470,644 shares) - (88,482) (65,595)
-----------------------------------------------------------------------------------------------------------------
Balance at end of the year (507,116) (557,178) (468,696)
-----------------------------------------------------------------------------------------------------------------
Total shareholders' equity at end of the year $ 730,148 $ 677,746 $ 574,191
=================================================================================================================
See notes to consolidated financial statements.
6
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
1. EXCHANGE AGREEMENT AND ASSET SALES
AES ACQUISITION: On July 15, 2000, IPALCO Enterprises, Inc. (IPALCO) and
The AES Corporation, a Delaware corporation (AES), entered into an Agreement and
Plan of Share Exchange (the Share Exchange Agreement) whereby AES will acquire
IPALCO for $25.00 per share (subject to adjustment as described at the end of
the next paragraph) in a stock-for-stock transaction valued at approximately
$2.15 billion plus the assumption of outstanding debt and preferred stock.
Under the terms of the agreement, the final exchange ratio
will be determined five business days prior to closing, based on the average
daily closing prices of AES common stock for the preceding twenty trading days.
Upon closing, each share of IPALCO common stock will be exchanged for AES shares
with a market value of $25.00, so long as the average price of AES common stock
(determined as described above) is not below $31.50. If the average price of AES
common stock is below $31.50 per share, IPALCO shareholders will receive a fixed
ratio of .794 shares of AES common stock per share of IPALCO common stock. If
the average price of AES common stock is below $26.45 (an effective price to
IPALCO shareholders of $21.00 per share of IPALCO common stock), IPALCO has the
right to terminate the transaction. The transaction is expected to be tax free
to IPALCO shareholders. Upon closing, IPALCO will become a wholly-owned
subsidiary of AES with its headquarters remaining in Indianapolis.
On October 20, 2000, IPALCO shareholders approved the Agreement and Plan
of Share Exchange with AES at a Special Meeting of Shareholders. On March 23,
2001, final regulatory approval of the acquisition was received. The parties
anticipate closing the transaction within five business days of final regulatory
approval.
The Share Exchange Agreement prohibits IPALCO from paying dividends on
its common stock other than regular quarterly cash dividends of not more than
$0.1625 with usual declaration, record and payment dates in accordance with its
past dividend policy. The transaction is to be closed on the fifth business day
following receipt of the last required governmental approval.
IPALCO has expensed $5.8 million of merger related costs which are
included in OTHER INCOME AND (DEDUCTIONS) - Other - net.
On March 27, 2001, AES completed its acquisition of IPALCO through a
share exchange transaction in accordance with the Agreement and Plan of Share
Exchange dated as of July 15, 2000, among AES and IPALCO.
SALE OF THE ASSETS OF THE STEAM OPERATIONS, MID-AMERICA ENERGY RESOURCES
AND INDIANAPOLIS CAMPUS ENERGY: On November 20, 2000, IPALCO sold certain assets
(the Thermal Assets) to Citizens Gas & Coke Utility. The Thermal Assets included
the Perry K Steam Plant and downtown steam distribution system (Steam) operated
by Indianapolis Power & Light Company (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 selling
price of the Thermal Assets was $161.7 million. The selling price allocated to
Steam, MAER and ICE was $54.7 million, $88.1 million and $18.9 million,
respectively. The transaction resulted in a gain to IPALCO, on a consolidated
basis, of $30.6 million ($18.7 million after tax). Of the net proceeds, $87.8
million was used to retire debt specifically assignable to the Thermal Assets.
SALE OF CLEVELAND ENERGY RESOURCES: On November 2, 2000, IPALCO signed an
agreement with Dominion Cleveland Thermal, Inc., a subsidiary of Dominion
Energy, Inc., to sell the assets of Cleveland Energy Resources (CER). CER
includes two subsidiaries of Mid-America Capital Resources, Inc. (Mid-America),
Cleveland Thermal Energy Corporation (Cleveland Thermal) and Cleveland District
Cooling Corporation (Cleveland Cooling). Cleveland Thermal
7
owns and operates two steam plants in Cleveland, Ohio. Cleveland Cooling owns
and operates a district cooling facility located near downtown Cleveland, which
distributes chilled water to subscribers located downtown for their air
conditioning needs. The anticipated selling price for the assets is $14.6
million. In the fourth quarter of 2000, IPALCO recorded, in OTHER INCOME AND
(DEDUCTIONS) - Other - net, an impairment provision of $1.8 million ($1.2
million after tax) on the carrying amounts of the CER assets. The sale is
subject to certain approvals and is expected to be completed in early 2001
without significant effect to the financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: IPALCO owns all of the outstanding common
stock of its subsidiaries (collectively referred to as Enterprises). The
consolidated financial statements include the accounts of IPALCO, its regulated
utility subsidiary, IPL, and its unregulated subsidiary, Mid-America.
Mid-America conducts its businesses through various wholly owned subsidiaries,
including MAER, ICE, Cleveland Thermal and Cleveland Cooling. All significant
intercompany items have been eliminated in consolidation.
The operating components of all subsidiaries other than IPL are included
under the captions OTHER INCOME AND (DEDUCTIONS), "Other-net" and "Income
taxes-net" and INTEREST AND OTHER CHARGES, "Interest on long-term debt," "Other
Interest" and "Amortization of redemption premiums and expenses on debt-net" in
the Statements of Consolidated Income.
NATURE OF OPERATIONS: IPL is engaged principally in providing electric
and steam service (through November 20, 2000 - see Note 1) to the Indianapolis
metropolitan area. Mid-America operates energy-related businesses in Cleveland,
Ohio and maintained operations in Indianapolis, Indiana through November 20,
2000 (see Note 1).
CONCENTRATIONS OF RISK: Substantially all of Enterprises' business
activity is with customers located within the Indianapolis area. In addition,
approximately 65% of Enterprises' employees are covered by collective bargaining
agreements.
REGULATION: The retail utility operations of IPL are subject to the
jurisdiction of the Indiana Utility Regulatory Commission (IURC). IPL's
wholesale power transactions are subject to the jurisdiction of the Federal
Energy Regulatory Commission. These agencies regulate IPL's utility business
operations, tariffs, accounting, depreciation allowances, services, security
issues and the sale and acquisition of utility properties. The financial
statements of IPL are based on generally accepted accounting principles,
including the provisions of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation," which gives
recognition to the ratemaking and accounting practices of these agencies.
REVENUES: Revenues are recognized as services are provided including
those unbilled at the end of each month.
A fuel adjustment charge provision, which is established after public
hearing, is applicable to most of the rate schedules of IPL and permits the
billing or crediting of estimated fuel costs above or below the levels included
in such rate schedules. Actual fuel costs in excess of or under estimated fuel
costs billed are deferred or accrued, respectively.
IPL is allowed to recover purchased power costs based on a benchmark. If
the cost per Mwh of power purchases is not greater than the benchmark, then the
purchased power costs should be considered net energy costs that are presumed
fuel costs included in purchased power. If the average cost per Mwh of power
purchases is greater than the benchmark, then the costs are recoverable only
through demonstration of the reasonableness of those purchases to the IURC.
AUTHORIZED ANNUAL OPERATING INCOME: Indiana law requires electric
utilities under the jurisdiction of the IURC to meet operating expense and
income requirements as a condition for approval of requested changes in fuel
adjustment charges. Additionally, customer refunds may result if the utilities'
rolling 12-month operating income, determined at quarterly measurement dates,
exceeds the utilities' authorized annual operating income and cannot be offset
by applicable cumulative net operating income deficiencies. In such a
circumstance, the required customer refund for the quarterly measurement period
is calculated to be one-fourth of the excess annual operating income grossed up
for federal and state taxes as required under I. C. 8-1-2-42.5.
8
IPL's authorized annual jurisdictional electric net operating income, for
purposes of quarterly operating income tests, is $163 million. This level will
be maintained until changed by an IURC order. During 2000, the Commission found
that IPL's rolling annual jurisdictional retail electric operating income was
less than the authorized annual operating income at each of the quarterly
measurement dates (January, April, July and October). At October 31, 2000, IPL's
most recent quarterly measurement date, IPL had a cumulative net operating
deficiency of $240.4 million. The operating deficiency is calculated by summing
the quarterly measurement period annual results from the date of the last rate
order. As a consequence, IPL could, for a period of time, earn above $163
million of electric jurisdictional retail net operating income without being
required to make a customer refund.
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, based on changes in the cost of fuel, irrespective
of its level of earnings.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION: In accordance with the
prescribed uniform system of accounts, IPL capitalizes an allowance for the net
cost of funds (interest on borrowed funds and a reasonable rate on equity funds)
used for construction purposes during the period of construction with a
corresponding credit to income. IPL capitalized amounts using pretax composite
rates of 9.2%, 9.4% and 9.7% during 2000, 1999 and 1998, 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 that are charged to maintenance, are charged to plant accounts. Units of
property replaced or abandoned in the ordinary course of business are retired
from the plant accounts at cost; such amounts plus removal costs, less salvage,
are charged to accumulated depreciation. Depreciation is computed by the
straight-line method based on functional rates approved by the IURC and averaged
3.6% during 2000, and 3.5% during 1999 and 1998.
Nonutility property is recorded at cost, and depreciation is calculated
using the straight-line method over the estimated service lives of the related
property (see Note 3). Nonutility depreciation expense was $3.0 million, $3.3
million and $2.7 million for 2000, 1999 and 1998, respectively.
SALE OF ACCOUNTS RECEIVABLE: IPL has sold, on a revolving basis, an
undivided percentage interest in $50 million of its accounts receivable.
REGULATORY ASSETS: Regulatory assets represent deferred costs that have
been included as allowable costs for ratemaking purposes. IPL has recorded
regulatory assets relating to certain costs as authorized by the IURC. Specific
regulatory assets are disclosed in Note 5. As of December 31, 2000, all
regulatory assets have been included as allowable costs in orders of the IURC
(see Note 10). IPL is amortizing such nontax-related regulatory assets to
expense over periods ranging from 1 to 30 years. Tax-related regulatory assets
represent the net income tax costs to be considered in future regulatory
proceedings generally as the tax-related amounts are paid.
In accordance with regulatory treatment, IPL deferred as a regulatory
asset certain post in-service date carrying charges and certain other costs
related to its investment in Petersburg Unit 4. As authorized in the 1995
Electric Rate Settlement, IPL, effective September 1, 1995, is amortizing this
deferral to expense over a life that generally approximates the useful life of
the related facility. Also in accordance with regulatory treatment, IPL defers
as regulatory assets non-sinking fund debt and preferred stock 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 20 years.
DERIVATIVES: Enterprises has only limited involvement with derivative
financial instruments and does not use them for trading purposes. Enterprises
entered into interest rate swap agreements as a means of managing the interest
rate exposure on certain of its debt facilities. These interest rate swaps are
accounted for under the accrual method. Under this method, the differential to
be paid or received on the interest rate swap agreement is recognized over the
life of the agreement in interest expense. Changes in market value of interest
swaps accounted for under the accrual method are not reflected in the
accompanying financial statements.
9
INCOME TAXES: Deferred taxes are provided for all significant temporary
differences between book and taxable income. The effects of income taxes are
measured based on enacted laws and rates. Such differences include the use of
accelerated depreciation methods for tax purposes, the use of different book and
tax depreciable lives, rates and in-service dates and the accelerated tax
amortization of pollution control facilities. Deferred tax assets and
liabilities are recognized for the expected future tax consequences of existing
differences between the financial reporting and tax reporting basis of assets
and liabilities. IPL has recorded as regulatory assets and net deferred tax
liabilities, income taxes payable and includable in allowable costs for
ratemaking purposes in future years. Investment tax credits that 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.
CASH AND CASH EQUIVALENTS: Enterprises considers all highly liquid
investments purchased with original maturities of 90 days or less to be cash
equivalents.
INVESTMENTS: Securities that Enterprises does not intend to hold until
maturity are classified as available-for-sale, and any unrealized gains or
losses are recorded as a separate component of stockholders' equity.
COMPREHENSIVE INCOME: Comprehensive income was $46.0 million, $235.7
million and $130.1 million for the years ended December 31, 2000, 1999 and 1998,
respectively, and was composed of net income, changes in unrealized gain in
securities available for sale and minimum pension liability adjustments.
EMPLOYEE BENEFIT PLANS: Substantially all employees of IPALCO and IPL are
covered by a defined benefit pension plan, defined contribution plans and a
group benefits plan.
The defined benefit pension plan is noncontributory and is funded through
two trusts. Benefits are based on each individual employee's years of service
and compensation. Enterprises' funding policy is to contribute annually not less
than the minimum required by applicable law, nor more than the maximum amount
that can be deducted for federal income tax purposes. Additionally, a select
group of management employees of IPALCO and IPL are covered under a funded
supplemental retirement plan. Funding of the supplemental plan is at the
discretion of IPALCO and IPL.
The Employees' Thrift Plan of Indianapolis Power & Light Company (Thrift
Plan) is a defined contribution plan sponsored by IPL. Employees elect to make
contributions to the Thrift Plan based on a percentage of their annual base
compensation. Each employee's contribution is matched in amounts up to, but not
exceeding, 4% of the employee's annual base compensation. Employer contributions
to the Thrift Plan were $3.5 million in each of the years 2000, 1999 and 1998.
The group benefits plan is sponsored by IPL and provides certain health
care and life insurance benefits to active employees and employees who retire
from active service on or after attaining age 55 and have rendered at least 10
years of service. The post-retirement benefit costs of this plan were funded
through a Voluntary Employee Beneficiary Association (VEBA) Trust. Effective
October 20, 2000, IPL curtailed and settled for $7.5 million the post-retirement
medical and life insurance benefit portion of its overall group benefits plan.
A defined contribution plan is sponsored by Enterprises as the
Mid-America Energy Resources Employee Retirement Plan. Employees elect to make
contributions to this plan based on a percentage of their annual base
compensation. Each employee's contribution is matched in amounts up to, but not
exceeding, 6% of the employee's annual base compensation.
NEW ACCOUNTING PRONOUNCEMENT: Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133), requires that an entity recognize all derivatives as either assets or
liabilities on the balance sheet and measure these instruments at fair value.
The Company adopted SFAS 133 on January 1, 2001. The Company designated an
interest rate swap as a cash flow hedge which is recorded as a liability on the
balance sheet and measured at fair value. The effect of adopting SFAS 133
resulted in a decrease to comprehensive
10
income of approximately $2.0 million. There was no income statement impact as
the hedge was determined by management to be highly effective in accordance with
SFAS 133.
USE OF MANAGEMENT ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. The reported amounts of
revenues and expenses during the reporting period may also be affected by the
estimates and assumptions management is required to make. Actual results may
differ from those estimates. During 1999, IPL changed its estimate for unbilled
revenue, which resulted in a $8.0 million increase to unbilled revenue.
EARNINGS PER SHARE: All references to earnings per share in the Notes
to the Consolidated Financial Statements represent diluted earnings per share.
RECLASSIFICATIONS: Certain amounts from prior years' consolidated
financial statements have been reclassified to conform to the current year
presentation.
3. PLANT IN SERVICE AND OTHER PROPERTY
UTILITY PLANT IN SERVICE
The original cost of utility plant in service at December 31,
segregated by functional classifications, follows:
2000 1999
---------------------------------------------------------------------------------------------------------------
(In Thousands)
Production............................................................. $1,722,363 $1,735,026
Transmission........................................................... 241,103 239,976
Distribution........................................................... 783,618 802,543
General .............................................................. 150,315 144,793
----------- ------------
Total utility plant in service................................ $2,897,399 $2,922,338
========== ==========
Substantially all of IPL's property is subject to the lien of the
indenture securing IPL's First Mortgage Bonds.
NONUTILITY PROPERTY
The original cost of nonutility property at December 31 follows:
2000 1999
---------------------------------------------------------------------------------------------------------------
(In Thousands)
District Cooling....................................................... $ 4,868 $ 76,821
District Heating....................................................... 7,288 5,470
General .............................................................. 3,073 2,646
---------- ----------
Total nonutility property..................................... $ 15,229 $ 84,937
======== ========
On November 20, 2000, Enterprises sold the assets of the IPL steam
operations, MAER and ICE to Citizens Gas & Coke Utility (see Note 1).
4. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
Enterprises using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that Enterprises
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have an effect on the estimated
fair value amounts.
11
CASH AND CASH EQUIVALENTS AND NOTES PAYABLE: The carrying amount
approximates fair value due to the short maturity of these instruments.
AVAILABLE-FOR-SALE SECURITIES: These securities are carried at fair value
based on the market price at the end of the reporting period.
LONG-TERM DEBT, INCLUDING CURRENT MATURITIES AND SINKING FUND
REQUIREMENTS: Interest rates that are currently available to Enterprises for
issuance of debt with similar terms and remaining maturities are used to
estimate fair value. The variable rate debt has been included at the face amount
for both carrying amount and fair value. The fair values of the interest rate
swap agreements of Enterprises have been estimated to be $(3.1) million and $.3
million at December 31, 2000 and 1999, respectively. These amounts represent
what Enterprises would either pay or receive to enter into equivalent agreements
with a swap counterparty. The fair value of the debt outstanding has been
determined on the basis of the specific securities issued and outstanding.
Accordingly, the purpose of this disclosure is not to approximate the value on
the basis of how the debt might be refinanced. At December 31, 2000, and 1999,
the consolidated carrying amount of Enterprises' long-term debt, including
current maturities and sinking fund requirements, and the approximate fair value
are as follows:
2000 1999
---------------------------------------------------------------------------
(In Thousands)
Carrying amount $628,313 $922,527
Approximate fair value 635,720 908,744
5. REGULATORY ASSETS
The amounts of regulatory assets at December 31 are as follows:
2000 1999
---------------------------------------------------------------------------------------------------------------
(In Thousands)
Related to deferred taxes (Note 2) $ 45,435 $ 49,398
Unamortized deferred post-retirement
benefit expense (Note 12) - 4,288
Unamortized reacquisition premium on debt (Note 2) 20,091 21,687
Unamortized Petersburg Unit 4 carrying charges
and certain other costs (Note 2) 27,065 28,119
Demand side management costs (Note 10) 235 4,456
-------- ---------
Total regulatory assets $ 92,826 $ 107,948
======== =========
6. CAPITAL STOCK
STOCK REPURCHASES: During 1998 and 1999, IPALCO repurchased 6 million
shares at a cost of $154 million.
STOCK SPLIT: On February 23, 1999, the IPALCO Board of Directors
authorized a two-for-one split of IPALCO's common stock, payable to stockholders
of record on March 5, 1999. All outstanding share, per share and stock option
data in all periods have been restated to reflect the split.
COMMON STOCK: IPALCO has a Rights Agreement, amended and restated as of
April 28, 1998, that is designed to protect IPALCO's shareholders against
unsolicited attempts to acquire control of IPALCO that do not offer what the
Board believes is a fair and adequate price to all shareholders. The Board
declared a dividend of one Right for each share of common stock to shareholders
of record on July 11, 1990. The Rights will expire at the time of redemption or
exchange, or on April 28, 2008, whichever occurs earliest. At this time, the
Rights are attached to and trade with the common stock. The Rights are not
taxable to shareholders or to IPALCO, and they do not affect reported earnings
per share. Under the Rights Agreement, IPALCO has authorized and reserved 120
million shares for issuance. The Board of
12
Directors amended the Rights Agreement effective July 14, 2000, to provide that
it is not triggered by the Share Exchange Agreement with AES (see Note 1).
The following is a reconciliation of the weighted average common shares
for the basic and diluted earnings per share computations:
For the Year Ended December 31,
-------------------------------
2000 1999 1998
----------------------------------------------------
(In Thousands)
Weighted average common shares 86,554 86,096 89,979
Dilutive effect of stock options 705 695 1,298
-------- -------- -------
Weighted average common
and incremental shares 87,259 86,791 91,277
====== ====== ======
IPALCO POWERINVEST, IPALCO's Dividend Reinvestment and Direct Stock
Purchase Plan, allowed participants to purchase shares of common stock and to
reinvest dividends. The plan provided that such shares could be purchased on the
open market or directly from IPALCO at the option of IPALCO. All purchases in
2000 were made on the open market. POWERINVEST was terminated following payment
of the quarterly dividend on January 15, 2001.
Under the Thrift Plan, shares may be purchased either on the open market
or, if available, as original issue shares directly from IPALCO. There were
approximately 2.2 million additional shares available for issue under the Thrift
Plan as of December 31, 2000. All purchases in 2000 were made on the open
market.
IPALCO has an existing stock option plan (1990 Plan) for key employees
under which options to acquire shares of common stock may be granted. Three
million shares of common stock were authorized for issuance under the 1990 Plan,
although no shares are available for future grants. The maximum period for
exercising an option may not exceed 10 years and one day after grant or 10 years
for incentive stock options.
The 1991 Directors' Stock Option Plan (1991 Plan) provides to the
non-employee Directors of IPALCO options to acquire shares of common stock.
These options are exercisable for the period beginning on the six-month
anniversary of, and ending on the 10-year anniversary of, the grant date. Under
the 1991 Plan, 750,000 shares of common stock were authorized for issuance and
30,000 are available for future grants.
The IPALCO Enterprises, Inc. 1997 Stock Option Plan (1997 Plan) for
officers and other key employees authorizes four million shares of common stock
for issuance. As of December 31, 2000, 720,500 shares were available for future
grants. The maximum period for exercising an option may not exceed 10 years and
one day after the grant provided, however, that the incentive stock options
shall have terms not in excess of 10 years.
The 1999 Stock Incentive Plan (1999 Plan) is for key employees and
consultants under which options and restricted stock awards may be granted.
Initial options were granted under this plan in the amount of 1,105,000 shares
on January 1, 2000. As of December 31, 2000, 377,500 shares were available for
future grants of options or restricted stock. The maximum period for exercising
an option may not exceed fifteen years.
13
A summary of options issued under all plans is as follows:
Weighted Average Range of Option Number of
Price per Share Price per Share Shares
----------------------------------------------------------------------------------------------------------------
Outstanding, January 1, 1998.................. $14.14 $8.416 - $15.688 4,090,676
Granted..................................... 21.03 21.03 150,000
Granted..................................... 20.35 20.345 30,000
Granted..................................... 21.67 21.67 72,000
Exercised................................... 14.16 8.416 - 15.688 (1,724,378)
------------
Outstanding, December 31, 1998................ 14.80 8.416 - 21.67 2,618,298
Granted..................................... 19.23 16.63 - 23.38 187,000
Exercised................................... 14.69 8.416 - 20.345 (455,318)
-------------
Outstanding, December 31, 1999................ 15.17 8.416 - 23.38 2,349,980
Granted..................................... 16.57 16.41 - 20.53 2,033,000
Canceled.................................... 21.03 21.03 - 21.03 (5,000)
Exercised................................... 15.74 8.416 - 23.38 (3,167,954)
-------------
Outstanding, December 31, 2000............... 16.01 10.46 - 23.38 1,210,026
=============
The number of shares exercisable at December 31, 2000, 1999 and 1998
were: 1,195,026, 2,309,980, and 2,558,298, respectively, with a weighted average
exercise price of $15.95, $15.06 and $14.65, respectively. The weighted average
remaining contractual life of the options outstanding at December 31, 2000, 1999
and 1998 was 8.1 years, 6.5 years and 7.0 years, respectively.
IPALCO has issued restricted common stock under various incentive
compensation plans. The 1999 Plan, the Long-term Performance and Restricted
Stock Incentive Plan (1998 Plan) and the Long-term Performance and Restricted
Stock Incentive Plan (1995 Plan) each provide for the issuance of restricted
shares of IPALCO common stock to plan participants. Generally, under each plan,
shares of restricted common stock with value equal to a stated percentage of
participants' base salary are initially awarded at the beginning of a three-year
performance period, subject to adjustment to reflect the participants' actual
base salary. The shares remain restricted and nontransferable throughout each
three-year performance period, vesting in one-third increments in each of the
three years following the end of the performance period. At the end of a
performance period, awards are subject to adjustment to reflect Enterprises'
performance compared to peer companies. Final awards under the plans can range
from zero up to 400% of the initial awards. Vested shares are no longer
restricted and may be held or sold by the participant.
A summary of restricted common stock issued under all plans is as
follows:
1999 Plan 1998 Plan 1995 Plan Total All Plans
------------------------------------------------------------
Outstanding, January 1, 1998 .............. - - 192,504 192,504
------------------------------------------------------------
Grants awarded ......................... - 225,382 227,456 452,838
Grants canceled ........................ - (19,826) (4,626) (24,452)
Vested ................................. - - (185,134) (185,134)
------------------------------------------------------------
Outstanding, December 31, 1998 ............ - 205,556 230,200 435,756
------------------------------------------------------------
Grants awarded ......................... - 15,572 - 15,572
Grants canceled ........................ - - - -
Vested ................................. - - (115,104) (115,104)
------------------------------------------------------------
Outstanding, December 31, 1999 ............ - 221,128 115,096 336,224
------------------------------------------------------------
Grants awarded ......................... 22,500 2,933 - 25,433
Grants canceled ........................ (5,000) (2,066) - (7,066)
Vested ................................. - - (115,096) (115,096)
------------------------------------------------------------
Outstanding, December 31, 2000 ............ 17,500 221,995 - 239,495
============================================================
As provided under the 1998 Plan, the final performance evaluation
performed on January 16, 2001, resulted in final awards of 258% of the initial
awards with one-third of the total vesting (217,422 shares).
14
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for the stock-based plans have been
applied by Enterprises. No compensation cost has been recognized for any of the
option plans because the stock option exercise price is equal to the fair value
of the underlying common stock at the date of grant. Had compensation cost been
determined based on the fair value at the grant dates for awards under the plans
consistent with the method of SFAS 123, "Accounting for Stock-Based
Compensation," Enterprises' net income for the year ended December 31, 2000,
would have decreased from $154.6 million ($1.77 per share) to the pro forma
amount of $150.6 million ($1.73 per share). Enterprises' net income for the year
ended December 31, 1999, would have decreased from $128.9 million ($1.49 per
share) to the pro forma amount of $128.4 million ($1.48 per share). Enterprises'
net income and earnings per share for the similar period in 1998 would have
decreased from $130.1 million ($1.43 per share) to the pro forma amount of
$129.6 million ($1.42 per share). Enterprises estimated the SFAS 123 fair values
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 22% and expected lives of five years.
Compensation expense of $7.5 million, $1.2 million and $5.1 million for
2000, 1999 and 1998, respectively, as measured by the market value of the common
stock at the balance sheet date, has been recognized in accordance with the
vesting period for the 1995 and 1998 Plans.
Restrictions on the payment of cash dividends or other distributions of
IPL common stock held by IPALCO and on the purchase or redemption of such shares
by IPL are contained in the indenture securing IPL's First Mortgage Bonds. In
addition, pursuant to IPL's Articles of Incorporation, no dividends may be paid
or accrued and no other distribution may be made on IPL's common stock unless
dividends on all outstanding shares of IPL's preferred stock have been paid or
declared and set apart for payment. All of IPL's retained earnings at December
31, 2000, were free of such restrictions. There are no other restrictions on the
retained earnings of IPALCO.
CUMULATIVE PREFERRED STOCK OF SUBSIDIARY: Preferred stock shareholders
are entitled to two votes per share for IPL matters, and if four full quarterly
dividends are in default on all shares of the preferred stock then outstanding,
they are entitled to elect the smallest number of IPL Directors to constitute a
majority. Preferred stock is redeemable solely at the option of IPL and can be
redeemed in whole or in part at any time at specific call prices.
On January 13, 1998, IPL issued the 5.65% Preferred Series, which is
redeemable at par value, subject to certain restrictions, in whole or in part,
at any time on or after January 1, 2008, at the option of IPL.
At December 31, preferred stock consisted of the following:
December 31, 2000
--------------------------- December 31
Shares Call ----------------------
Outstanding Price 2000 1999
----------- ------------- -------- ---------
(In Thousands)
Cumulative $100 Par Value,
authorized 2,000,000 shares
4% Series.......................................... 47,611 $118.00 $ 4,761 $ 4,761
4.2% Series........................................ 19,331 103.00 1,933 1,933
4.6% Series........................................ 2,481 103.00 248 248
4.8% Series........................................ 21,930 101.00 2,193 2,193
5.65% Series....................................... 500,000 - 50,000 50,000
------- ------- -------
Total cumulative preferred stock........................ 591,353 $59,135 $59,135
======= ======= =======
During 2000, 1999 and 1998, preferred stock dividends were $3.2 million,
$3.2 million and $3.1 million, respectively.
15
7. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
-----------------------------
2000 1999
------------- --------------
Series Due (In Thousands)
--------- ---------
IPL First Mortgage Bonds:
6.05% February 2004............................................ $ 80,000 $ 80,000
8% October 2006............................................. 58,800 58,800
7 3/8% August 2007.............................................. 80,000 80,000
6.10% * January 2016............................................. 41,850 41,850
5.40% * August 2017.............................................. 24,650 24,650
5.50% * October 2023............................................. 30,000 30,000
7.05% February 2024............................................ 100,000 100,000
6 5/8% * December 2024............................................ 40,000 40,000
Unamortized discount - net..................................................... (787) (849)
---------- ---------
Total first mortgage bonds................................................. 454,513 454,451
---------- ---------
IPL Variable Series Notes
1991* August 2021.............................................. 40,000 40,000
1994A* December 2024............................................ 20,000 20,000
1995B* January 2023 ............................................ 40,000 40,000
1995C* December 2029 ........................................... 30,000 30,000
1996* November 2029 ........................................... 20,000 20,000
1999* August 2030 23,500 23,500
Current maturities............................................................. (6,150) -
---------- ---------
Total long-term debt - IPL..................................................... 621,863 627,951
---------- ---------
Long-Term Debt - Other:
MAER - 1999 Series variable note, due September 2030....................... - 18,800
ICE - 7.59% note, due February 2016 ....................................... - 16,000
IPALCO Enterprises, Inc. commercial paper.................................. - 211,195
MAER - 8.03% notes payable, due June 2012 ................................. - 48,281
SHAPE -7.50% notes payable, due upon request .............................. 300 300
Current maturities............................................................. (300) (52,477)
---------- ---------
Total long-term debt - other............................................... - 242,099
---------- ---------
Total long-term debt....................................................... $ 621,863 $ 870,050
========== =========
* Notes are issued to the city of Petersburg, Indiana, by IPL to secure the loan
of proceeds from various tax-exempt instruments issued by the city.
IPL redeemed the $23.5 million, 7.45% Series bond in October 1999 with
the proceeds from the $23.5 million variable rate note issued September 1999.
MAER refinanced its $9.5 million 7.25% Series note and its $9.3 million 1995
Series variable rate note with the proceeds of an $18.8 million variable rate
note issued May 1999.
In November 2000, Enterprises sold its Thermal Assets to Citizens Gas &
Coke Utility (see Note 1). Enterprises used a portion of the net proceeds to
retire debt specifically assignable to the assets. The 7.59% ICE note and the
8.03% MAER note were retired in November 2000. In connection with the retirement
of the 7.59% ICE note and the 8.03% MAER note, Mid-America incurred make-whole
payments and wrote off debt issuance costs of $4.3 million, which was recorded
as an extraordinary loss. The MAER - 1999 Series variable note was retired in
December 2000 and $6.15 million of IPL's 1999 Series note was retired in January
2001.
16
The IPL Series 1991 note provides for an interest rate that varies with
the tax-exempt commercial paper rate. The IPL 1994A, 1995B, 1995C and 1996 notes
provide for an interest rate that varies with the tax-exempt weekly rate.
Additionally, these notes can be converted into long-term fixed interest rate
instruments by the issuance of an IPL First Mortgage Bond. The notes are
classified as long-term liabilities because IPL maintains a $150 million
long-term credit facility supporting these agreements, which were unused at
December 31, 2000. The IPL Series 1999 note provides for an interest rate that
varies based on tax-exempt auction rates. IPL, at its option, can change the
interest rate mode for all of the variable series notes to be based on other
short-term rates.
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. The Revolver
currently has no outstanding balance but is available for future borrowings.
According to the credit agreement, IPALCO could borrow up to $80.2 million until
March 31, 2002.
The year-end interest rates for the variable rate notes are as follows:
Interest Rate at
December 31,
2000 1999
--------------------------------------------------------------
Series 1991 4.11% 3.14%
Series 1994A 4.20% 3.38%
Series 1995B 5.18% 5.21%
Series 1995C 4.29% 3.41%
Series 1996 4.29% 3.41%
Series 1999 4.39% 3.74%
MAER Series 1999 note - 3.75%
IPALCO commercial paper - 6.65%
In conjunction with the issuance of the 1995B note, IPL entered into an
interest rate swap agreement. Pursuant to the swap agreement, IPL will pay
interest at a fixed rate of 5.21% to a swap counterparty and will receive a
variable rate of interest in return, which is identical to the variable rate
payment made on the 1995B note. The result is to effectively establish a fixed
rate of interest on the 1995B note of 5.21%. The interest rate swap agreement is
accounted for on a settlement basis. IPL is exposed to credit loss in the event
of nonperformance by the counterparty for the net interest differential when
floating rates exceed the fixed maximum rate. However, IPL does not anticipate
nonperformance by the counterparty.
In conjunction with the issuance of the Revolver, IPALCO entered into an
interest rate swap agreement, which fixed the interest rate on $300 million of
the Revolver. Pursuant to the swap agreement, which matures April 1, 2001,
IPALCO will pay interest at a fixed rate of 6.3575% to a swap counterparty and
will receive a variable rate of interest in return based on one month LIBOR. Per
the swap agreement, in July 1998, the amount covered by the swap began
decreasing $25 million each quarter. The notional amount of the swap at December
31, 2000, was $50 million. IPALCO is exposed to credit loss in the event of
nonperformance by the counterparty for the net interest differential when
floating rates exceed the fixed maximum rate. However, IPALCO does not
anticipate nonperformance by the counterparty.
Maturities on long-term debt for the five years subsequent to December
31, 2000, are as follows:
Maturities
----------
Year Amount
---- ------
(In Thousands)
2001........................... $6,450
2002........................... -
2003........................... -
2004........................... 80,000
2005........................... -
17
8. LINES OF CREDIT
IPL has committed lines of credit with banks of $55 million used to
provide loans for interim financing. These lines require the payment of
commitment fees. At December 31, 2000, no lines of credit were used to support
commercial paper, the entire $55 million was unused. These lines of credit,
based on separate agreements, have expiration dates ranging from February 2001
to October 2001.
Mid-America has a $30 million line of credit that requires the payment of a
commitment fee. At December 31, 2000, the entire $30 million was unused. This
line of credit has an expiration date of May 2001.
The weighted average interest rate on notes payable and commercial paper
outstanding was not applicable at December 31, 2000 since the principal
outstanding was zero, and was 6.21% at December 31, 1999.
9. INCOME TAXES
Federal and state income taxes charged to income are as follows:
2000 1999 1998
------------------------------------------------------------------------------------------
(In Thousands)
Utility Operating Expenses:
Current income taxes:
Federal ........................................ $ 102,171 $ 68,093 $ 72,094
State .......................................... 13,580 9,208 10,585
---------- ---------- ----------
Total current taxes .......................... 115,751 77,301 82,679
---------- ---------- ----------
Deferred federal income taxes ...................... (39,520) 8,117 (414)
Deferred state income taxes ........................ (4,632) 1,824 715
---------- ---------- ----------
Total deferred income taxes ................. (44,152) 9,941 301
---------- ---------- ----------
Net amortization of investment credit .............. (2,768) (2,767) (2,790
---------- ---------- ----------
Total charge to utility operating expenses ... 68,831 84,475 80,190
Net debit (credit) to other income and deductions... 44,823 (5,688) (5,231)
---------- ---------- ----------
113,654 78,787 74,959
Extraordinary loss on early retirement of debt ..... (2,602) - -
---------- ---------- ----------
Total federal and state income tax
provisions.................................. $ 111,052 $ 78,787 $ 74,959
========== ========== ==========
The provision for federal income taxes (including net investment tax
credit adjustments) is different than the amount computed by applying the
statutory tax rate to pretax income. The reasons for the difference, stated as a
percentage of pretax income, are as follows:
2000 1999 1998
---------------------------------------------------------------------------------------------------------------
Federal statutory tax rate............................................... 35.0% 35.0% 35.0%
Effect of state income taxes............................................. (1.9) (1.7) (1.8)
Amortization of investment tax credits................................... (1.0) (1.3) (1.3)
Preferred dividends of subsidiary........................................ 0.4 0.5 0.5
Nondeductible expenses................................................... 2.8 - -
Other - net.............................................................. 0.6 (0.1) (1.5)
------ ------ ------
Effective federal tax rate............................................. 35.9% 32.4% 30.9%
====== ====== ======
18
The significant items comprising Enterprises' net deferred tax
liability recognized in the consolidated balance sheets as of December 31, 2000,
and 1999, are as follows:
2000 1999
-------------------------------------------------------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities:
Relating to utility property.......................................... $ 405,152 $ 422,907
Unrealized gain on investment security................................ 4 67,297
Other................................................................. 11,717 19,264
---------- ----------
Total deferred tax liabilities.................................... 416,873 509,468
---------- ----------
Deferred tax assets:
Relating to utility property.......................................... 50,904 48,417
Investment tax credit................................................. 22,165 23,856
Employee benefit plans................................................ 53,691 22,463
Other................................................................. 14,580 12,836
---------- ----------
Total deferred tax assets......................................... 141,340 107,572
---------- ----------
Net deferred tax liability................................................. 275,533 401,896
Current deferred tax liability...................................... 362 1,308
---------- ----------
Deferred income taxes - net................................................ $275,171 $400,588
========== ==========
10. RATE MATTERS
DEMAND SIDE MANAGEMENT (DSM) PROGRAM: In compliance with certain orders,
IPL is deferring certain approved DSM costs and carrying charges. On July 30,
1997, IPL received an IURC order approving a settlement agreement authorizing
IPL to recognize in rates the existing regulatory asset (consisting of DSM costs
deferred after January 31, 1995), along with carrying charges, and also to
approve changes to IPL's DSM programs. On August 18, 1999, IPL received an IURC
order approving a settlement agreement authorizing IPL to extend its low-income
qualified residential DSM program through July 30, 2000. A subsequent order on
March 9, 2000 further extended this program through August 17, 2001.
ELECT PLAN: During 1998, the IURC approved a plan that allows IPL
customers with less than 2,000 kilowatts of demand, an opportunity to choose
optional service or payment plans. This includes a green power option, a fixed
rate per unit of consumption option and a fixed bill option. Customers not
choosing one of these options continue to receive electric service under
existing tariffs. The Elect Plan was extended by IURC order and now will expire
on December 31, 2003 unless a subsequent plan is approved by the IURC.
19
11. PENSION BENEFITS
Pension Benefits
----------------------------
(In Thousands) 2000 1999
---- ----
CHANGE IN BENEFIT OBLIGATION
------------------------------------------------------------
Benefit obligation at beginning of year $276,607 $276,638
Service cost 5,131 5,845
Interest cost 20,519 18,899
Actuarial (gain) loss (13,140) (11,765)
Amendments 2,810 764
Partial curtailment loss - supplemental plan 7,953 -
VERP benefit cost 56,771 -
Benefits paid (14,796) (13,774)
---------- --------
Benefit obligation at end of year 341,855 276,607
---------- --------
CHANGE IN PLAN ASSETS
------------------------------------------------------------
Fair value of plan assets at beginning of year 310,737 290,770
Actual return on plan assets 14,935 30,417
Employer contribution 642 3,324
Benefits paid (14,796) (13,774)
---------- --------
Fair value of plan assets at end of year 311,518 310,737
---------- --------
Funded status (30,337) 34,130
Unrecognized net gain (63,887) (70,048)
Unrecognized prior service cost 13,497 15,241
Unrecognized net transition (asset) obligation (6,928) (8,341)
Adjustment to recognize minimum liability (3,536) -
---------- --------
Accrued benefit cost $ (91,191) $(29,018)
========== ========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
-------------------------------------------------------
Discount rate 8.00% 7.50%
Pension Benefits
---------------------------------------------------
(In Thousands) 2000 1999 1998
---- ---- ----
COMPONENTS OF NET PERIODIC BENEFIT COST
------------------------------------------------------------------------
Service cost $ 6,138 $8,451 $10,617
Interest cost 20,519 18,899 18,021
Expected return on plan assets (27,181) (25,417) (20,426)
Amortization of transition (asset) obligation (1,414) (1,414) (1,414)
Amortization of prior service cost 1,580 1,394 1,124
Recognized actuarial gain (2,869) (2,051) (1,545)
---------- ---------- ----------
Net periodic benefit cost (3,227) (138) 6,377
Amount of curtailment (gain)/loss recognized 6,701 - -
Cost of special or contractual termination benefits recognized 56,771 - -
---------- ---------- ----------
Total pension cost 60,245 (138) 6,377
Less: amounts capitalized (586) (48) 339
---------- ---------- ----------
Amount charged to expense $ 60,831 $(90) $6,038
========== ========== ==========
20
The defined benefit pension plan had expected returns on plan assets of
9.0%, 9.0% and 8.0% for 2000, 1999 and 1998, respectively. The defined benefit
plan assumed compensation increases to be 5.10% during 1998. During 1999, the
defined benefit plan began using salary bands to determine future benefit costs
rather than rate of compensation increases. The supplemental retirement pension
plan used an expected return on plan assets of 8.0% for 2000, 1999 and 1998. The
supplemental plan assumed compensation increases to be 6.0% for 2000, 1999 and
1998.
On November 9, 2000, IPALCO implemented a one-time Voluntary Early
Retirement Program (VERP). This program offers enhanced retirement benefits upon
early retirement to eligible employees. The VERP was available to all employees,
except officers, whose combined age and years of service will total at least 75
on June 30, 2001. Participation was limited to, and subsequently accepted by 400
qualified employees. Participants elected actual retirement dates in 2001.
Additionally, IPALCO will provide post-retirement benefits to VERP retirees
until age 55 at which time they will be eligible to receive benefits from the
independent VEBA trustee. IPALCO recognized the $56.8 million pre-tax non-cash
pension and $5.2 million other post-retirement benefit costs of the VERP in
December 2000.
During 2000, IPL recognized a non-cash $6.7 million curtailment
loss for the supplemental retirement plan reflecting the expected near-term
retirement of certain plan participants. In conjunction with recording a minimum
pension liability of $3.5 million, IPALCO recorded an intangible asset of $1.7
million. The net difference of $1.8 million was recorded as comprehensive
income.
12. OTHER POST-RETIREMENT BENEFITS
Other Benefits
---------------------------------
(In Thousands) 2000 1999
---- ----
CHANGE IN BENEFIT OBLIGATION
---------------------------------------------------------
Benefit obligation at beginning of year $139,999 $149,761
Service cost 3,323 3,761
Interest cost 9,846 10,025
Actuarial (gain) loss 17,538 (16,401)
Plan amendments (19,289) -
Settlements (144,703) -
Benefits paid (6,714) (7,147)
------------ ------------
Benefit obligation at end of year - 139,999
------------ ------------
CHANGE IN PLAN ASSETS
---------------------------------------------------------
Fair value of plan assets at beginning of year 132,524 83,846
Actual return on plan assets 57 37,551
Employer contribution 18,836 18,274
Settlements (144,703) -
Benefits paid (6,714) (7,147)
------------ ------------
Fair value of plan assets at end of year - 132,524
------------ ------------
Funded status - (7,475)
Unrecognized net gain - (76,423)
Unrecognized net transition (asset) obligation - 79,560
------------ ------------
Accrued benefit cost - $ (4,338)
============ ============
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
-------------------------------------------------------
Discount rate 7.75% 7.50%
21
Other Benefits
---------------------------------------------------
(In Thousands) 2000 1999 1998
---- ---- ----
COMPONENTS OF NET PERIODIC BENEFIT COST
----------------------------------------------------------------------
Service cost $3,323 $3,761 $3,557
Interest cost 9,846 10,025 9,972
Expected return on plan assets (9,703) (6,505) (5,278)
Amortization of transition (asset) obligation 5,100 6,120 6,120
Recognized actuarial gain (2,642) (1,556) (1,656)
----------- ----------- ----------
Net periodic benefit cost 5,924 11,845 12,715
Curtailment charge (credit) 55,171 - -
Settlement charge (credit) (46,547) - -
Less: amounts capitalized 1,076 1,895 1,924
----------- ----------- ----------
Amount charged to expense $13,472 $9,950 $10,791
=========== =========== ==========
Other benefit estimates used expected rates of return on plan assets of
9.0% for 2000 and 8.0% for 1999 and 1998. For measurement purposes, a 5.9%
annual rate of increase in the per capita cost of covered health care benefits
was assumed for 2001.
Also, during 2000, 1999 and 1998, IPL expensed post-retirement regulatory
asset amortization of $4.3 million, $6.4 million, and $6.4 million,
respectively. The final period of amortization was August 2000.
On October 20, 2000, IPALCO curtailed and settled its existing
post-retirement medical and life insurance plans (Post-retirement Plans).
Post-retirement plan assets are held by an independent trustee and are
encompassed by a Voluntary Employee Beneficiary Association (VEBA). Existing
eligible retirees and active employees of IPL who ultimately retire as active
employees of IPL at age 55 or later are eligible to receive post-retirement
benefits from the independent trustee. In November 2000, IPALCO made a $7.5
million payment to the independent trustee as settlement of its obligations
relating to the Post-retirement Plans.
13. COMMITMENTS AND CONTINGENCIES
In 2001, Enterprises anticipates the cost of its construction programs to
be approximately $154 million.
Enterprises is involved in litigation arising in the normal course of
business. While the results of such litigation cannot be predicted with
certainty, management, based upon advice of counsel, believes that the final
outcome will not have a material adverse effect on the consolidated financial
statements.
With respect to environmental issues, Enterprises has ongoing discussions
with various regulatory authorities and continues to believe that Enterprises is
in compliance with its various permits.
14. GAIN ON TERMINATION OF AGREEMENT
During September 1998, a pretax gain of $12.5 million ($7.8 million
after-tax) resulted from the liquidation and termination of an agreement to
purchase up to 150 megawatts of power during the summer months through the year
2000.
15. INVESTMENTS
Enterprises has classified its investment in marketable equity
securities as available-for-sale, and any unrealized gains or losses are
recorded as a separate component of shareholders' equity. During 1999,
Enterprises recorded directly to shareholders' equity an unrealized after-tax
gain of $106.7 million resulting from its investment in Internet Capital Group,
Inc. (Nasdaq:ICGE), an internet holding company, which went public in August
1999. The gross unrealized gain on these available-for-sale securities was
$174.0 million and the related taxes would be $67.3 million. The cost basis and
the market value for the investment were $1.2 million and $175.2 million,
respectively, at December 31, 1999 (1,030,600 shares). In 2000, Mid-America sold
approximately one million shares of ICGE resulting in a realized gain of $112.6
million. The total realized gain is reduced by related compensation expenses and
gross receipts tax of
22
$10.3 million and income taxes of $42.2 million, which are included in OTHER
INCOME AND (DEDUCTIONS). The after-tax proceeds from these sales were applied
primarily to the reduction of IPALCO's outstanding unsecured debt. During 2000,
unrealized losses of $61.8 million ($37.6 million after-tax) were recorded to
reflect the decrease in market price for the unsold shares.
In 1999, Mid-America made a commitment to invest $15 million in
EnerTech Capital Partners II L.P., a venture capital fund. The fund invests in
service and technology companies providing innovative products and services that
take advantage of opportunities created by deregulation of the energy and
telecommunications industries. Through December 31, 2000, Mid-America has funded
$2.25 million of such commitment.
16. SEGMENT INFORMATION
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, existing from January 1 through November 20,
2000 (see Note 1), 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 2). Intersegment sales are generally
based on prices that reflect the current market conditions. The following tables
provide information about Enterprises' business segments:
2000 1999 1998
----------------------------- ------------------------------- ---------------------------
Electric All Other Total Electric All Other Total Electric All Other Total
-------- --------- ----- -------- --------- ----- -------- --------- -----
(In Millions)
Operating Revenues .......... $ 831 $ 59 $ 890 $ 800 $ 69 $ 869 $ 786 $ 69 $ 855
Depreciation and Amortization 108 6 114 104 7 111 100 6 106
Pre-tax Operating Income .... 204 (7) 197 263 10 273 255 7 262
Income Taxes ................ 69 54 123 83 3 86 79 4 83
Property - net
of Depreciation ........... 1,648 12 1,660 1,674 145 1,819 1,671 149 1,820
Capital Expenditures ........ 79 - 79 103 2 105 74 8 82
Included within Depreciation and Amortization for the All Other segment
is IPL steam depreciation of $3 million for each of the years 2000, 1999 and
1998. Included within Pre-tax Operating Income for the All Other segment is IPL
steam pre-tax operating income of $1 million, $5 million and $5 million for
2000, 1999 and 1998, respectively. Included within Income Taxes for the All
Other segment is IPL steam income taxes of $(.1) million, $1 million and $1
million for 2000, 1999 and 1998, respectively. Included within Property - net of
Depreciation for the All Other segment is IPL steam plant of $76 million and $77
million for 1999 and 1998, respectively. Included within Capital Expenditures
for the All Other segment is IPL steam plant of $2 million and $7 million for
1999 and 1998, respectively.
23
17. QUARTERLY RESULTS (UNAUDITED)
Operating results for the years ended December 31, 2000, and 1999, by
quarter, are as follows (in thousands except per share amounts):
2000
---------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Utility operating revenues................. $211,089 $204,700 $224,720 $218,026
Utility operating income................... 48,170 41,784 44,942 1,327
Income before extraordinary loss
on early retirement of debt .......... 92,327 28,980 30,045 7,490
Extraordinary loss on early
retirement of debt.................... (4,259)
Net income................................. 92,327 28,980 30,045 3,231
Weighted average shares.................... 85,702 85,713 86,353 88,447
Basic earnings per share before
extraordinary loss................... $ 1.08 $ .34 $ .35 $ .09
Extraordinary loss......................... - - - (.05)
-------- -------- -------- --------
Basic earnings per share................... $ 1.08 $ .34 $ .35 $ .04
Weighted average diluted shares............ 86,260 86,601 87,265 88,912
Diluted earnings per share before
extraordinary loss................... $ 1.07 $ .33 $ .34 $ .09
Extraordinary loss......................... - - - (.05)
-------- -------- -------- --------
Diluted earnings per share................. $ 1.07 $ .33 $ .34 $ .04
1999
-------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Utility operating revenues................. $200,831 $203,010 $228,515 $202,296
Utility operating income................... 43,251 49,434 48,414 42,402
Net income................................. 29,597 34,652 35,379 29,319
Weighted average shares.................... 87,218 85,718 85,720 85,728
Basic earnings per share................... $ .34 $ .40 $ .41 $ .34
Weighted average diluted shares............ 88,115 86,502 86,368 86,179
Diluted earnings per share................. $ .34 $ .40 $ .41 $ .34
The quarterly figures reflect seasonal and weather-related fluctuations
that are normal to IPL's operations.
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the total for the year.
The first quarter 2000 results reflect the sale of investment
securities (see Note 15). The fourth quarter 2000 results reflect the sale of
thermal assets (see Note 1) and the Voluntary Early Retirement Program (see Note
11).
24
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(In Thousands)
(Unaudited)
Three Months Ended
March 31
2001 2000
---------------------------
UTILITY OPERATING REVENUES:
Electric $ 209,052 $ 200,528
Steam - 10,561
------------- ------------
Total operating revenues 209,052 211,089
------------- ------------
UTILITY OPERATING EXPENSES:
Operation:
Fuel 46,283 47,577
Other 42,815 35,839
Power purchased 574 502
Purchased steam - 1,674
Maintenance 19,578 17,262
Termination benefit agreement costs 51,683 -
Depreciation and amortization 27,571 27,555
Taxes other than income taxes 9,583 9,300
Income taxes - net 645 23,210
------------- ------------
Total operating expenses 198,732 162,919
------------- ------------
UTILITY OPERATING INCOME 10,320 48,170
------------- ------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 110 681
Other - net (555) (3,591)
Gain on sale of available for sale securities, net of expenses - 101,634
Termination benefit agreement costs (4,747) -
Merger costs (6,283) (250)
Income taxes - net 2,293 (39,216)
------------- ------------
Total other income (deductions) - net (9,182) 59,258
------------- ------------
INCOME BEFORE INTEREST AND OTHER CHARGES 1,138 107,428
------------- ------------
INTEREST AND OTHER CHARGES:
Interest 10,030 14,631
Allowance for borrowed funds used during construction (55) (333)
Preferred stock transactions 803 803
------------- ------------
Total interest and other charges - net 10,778 15,101
------------- ------------
NET INCOME (LOSS) $ (9,640) $ 92,327
============= ============
See notes to consolidated financial statements.
25
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
March 31 December 31
ASSETS 2001 2000
----------------------------------------------------------------------------- --------------- ---------------
UTILITY PLANT:
Utility plant in service $ 2,905,775 $ 2,897,399
Less accumulated depreciation 1,367,514 1,344,403
--------------- ---------------
Utility plant in service - net 1,538,261 1,552,996
Construction work in progress 91,751 84,146
Property held for future use 10,731 10,692
--------------- ---------------
Utility plant - net 1,640,743 1,647,834
--------------- ---------------
OTHER ASSETS:
Nonutility property - at cost, less accumulated depreciation 12,254 12,378
Available-for-sale securities 11 17
Other investments 8,240 9,360
--------------- ---------------
Other assets - net 20,505 21,755
--------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents 46,207 68,652
Accounts receivable and unbilled revenue
(less allowance for doubtful accounts
2001, $2,010 and 2000, $1,794) 47,954 66,565
Fuel - at average cost 21,149 23,648
Materials and supplies - at average cost 48,094 48,791
Prepayments and other current assets 1,954 1,985
--------------- ---------------
Total current assets 165,358 209,641
--------------- ---------------
DEFERRED DEBITS:
Regulatory assets 96,995 92,826
Miscellaneous 10,724 11,220
--------------- ---------------
Total deferred debits 107,719 104,046
--------------- ---------------
TOTAL $ 1,934,325 $ 1,983,276
=============== ===============
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock $ - $ 449,987
Unearned compensation - restricted stock awards - -
Premium on 4% cumulative preferred stock 649 649
Retained earnings 723,461 788,441
Accumulated other comprehensive income (3,994) (1,813)
Treasury stock, at cost - (507,116)
--------------- ---------------
Total common shareholders' equity 720,116 730,148
Cumulative preferred stock of subsidiary 59,135 59,135
Long-term debt (less current maturities and
sinking fund requirements) 621,880 621,863
--------------- ---------------
Total capitalization 1,401,131 1,411,146
--------------- ---------------
CURRENT LIABILITIES:
Current maturities and sinking fund requirements 300 6,450
Accounts payable and accrued expenses 52,406 58,179
Dividends payable 15,516 15,364
Taxes accrued 21,430 49,477
Interest accrued 9,665 13,051
Other current liabilities 16,572 14,444
--------------- ---------------
Total current liabilities 115,889 156,965
--------------- ---------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net 284,095 275,171
Unamortized investment tax credit 35,766 36,458
Accrued postretirement benefits 5,323 5,237
Accrued pension benefits 88,657 91,191
Miscellaneous 3,464 7,108
--------------- ---------------
Total deferred credits and other long-term liabilities 417,305 415,165
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
TOTAL $ 1,934,325 $ 1,983,276
=============== ===============
See notes to consolidated financial statements.
26
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
March 31
2001 2000
------------------------------
CASH FLOWS FROM OPERATIONS:
Net income (Loss) $ (9,640) $ 92,327
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 27,501 28,329
Amortization of regulatory assets 736 3,875
Gain from sale of available for sale securities - (111,948)
Deferred income taxes and investment tax credit adjustments - net 3,850 (2,785)
Allowance for funds used during construction (165) (1,014)
Change in certain assets and liabilities:
Accounts receivable 18,611 8,002
Fuel, materials and supplies 3,196 6,903
Accounts payable and accrued expenses (5,773) (4,917)
Taxes accrued (28,047) 77,911
Accrued pension benefits (2,534) (1,193)
Other - net (545) (3,608)
-------------- --------------
Net cash provided by operating activities 7,190 91,882
-------------- --------------
CASH FLOWS FROM INVESTING:
Construction expenditures - utility (21,756) (20,180)
Construction expenditures - nonutility - (66)
Proceeds from sale of available for sale securities - 113,113
Other 2,053 (127)
-------------- --------------
Net cash provided by (used in) investing activities (19,703) 92,740
-------------- --------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt - 7,600
Retirement of long-term debt (6,150) (109,395)
Short-term debt - net - (49,021)
Common dividends paid (14,434) (12,859)
Issuance of common stock related to incentive compensation plans 1,764 89
Reacquired common stock 6,564 423
Other 2,324 (986)
-------------- --------------
Net cash used in financing activities (9,932) (164,149)
-------------- --------------
Net increase (decrease) in cash and cash equivalents (22,445) 20,473
Cash and cash equivalents at beginning of period 68,652 23,935
-------------- --------------
Cash and cash equivalents at end of period $ 46,207 $ 44,408
============== ==============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest (net of amount capitalized) $ 13,639 $ 17,657
============== ==============
Income taxes $ 26,964 $ (4,328)
============== ==============
See notes to consolidated financial statements.
27
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001
--------------------------------------------------------------------------------
1. AES ACQUISITION
On March 27, 2001, The AES Corporation (AES) completed its acquisition
of IPALCO Enterprises, Inc. (IPALCO) through a share exchange transaction in
accordance with the Agreement and Plan of Share Exchange dated as of July 15,
2000, among AES and IPALCO (the Share Exchange Agreement). Pursuant to the Share
Exchange Agreement, IPALCO became a wholly-owned subsidiary of AES.
At the effective time of the share exchange, each of the outstanding
89,685,177 shares of IPALCO common stock was converted into the right to receive
0.463 of a share of AES common stock, for an aggregate purchase price of $2.15
billion and $890 million in assumed debt and preferred stock. Following the
share exchange, AES owns all of the outstanding capital stock of IPALCO.
Treasury stock of $500.6 million was cancelled as a result of the
acquisition. Accordingly, the common stock balance was reduced by
$459.8 million and the remaining $40.8 million was applied against retained
earnings. The transaction was subject to certain conditions, including receipt
of regulatory approvals, including that of the Federal Energy Regulatory
Commission and the Securities and Exchange Commission.
During the first quarter of 2001, IPALCO expensed $6.3 million of merger
related costs which are included in OTHER INCOME AND (DEDUCTIONS) - Other - net.
Total merger related costs were $12.1 million.
As a result of the acquisition by AES, in the first quarter 2001,
IPALCO recorded $71.8 million ($44.8 million after tax) of one time costs
related to the termination of certain management employees. The pretax expenses
included $56.4 million in costs associated with termination benefit agreements,
$9.2 million in supplemental retirement costs, and $6.2 million in restricted
stock expense. Substantially all of the termination benefit agreement costs,
supplemental retirement costs, and restricted stock costs were paid out by
March 31, 2001.
2. GENERAL
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 2000 audited consolidated financial statements and
notes.
3. SALE OF CLEVELAND ENERGY RESOURCES
On May 21, 2001, IPALCO sold the assets of Cleveland Energy Resources
(CER) to Dominion Cleveland Thermal, Inc., a subsidiary of Dominion Energy, Inc.
CER includes two subsidiaries of Mid-America Capital Resources, Inc.
(Mid-America), Cleveland Thermal Energy Corporation (Cleveland Thermal) and
Cleveland District Cooling Corporation
28
(Cleveland Cooling). Cleveland Thermal owns and operates two steam plants in
Cleveland, Ohio. Cleveland Cooling owns and operates a district cooling facility
located near downtown Cleveland, which distributes chilled water to subscribers
located downtown for their air conditioning needs. The selling price for the
assets was $14.1 million. The completion of the transaction had no significant
income statement impact.
4. VOLUNTARY EARLY RETIREMENT PROGRAM
On November 9, 2000, IPALCO implemented a Voluntary Early Retirement
Program (VERP). This program offered enhanced retirement benefits upon early
retirement to eligible employees. The VERP was available to all employees,
except officers, whose combined age and years of service will total at least 75
on June 30, 2001. Participation was limited to, and subsequently accepted by 400
qualified employees. Participants elected actual retirement dates in 2001.
Additionally, IPALCO will provide post-retirement benefits to VERP retirees
until age 55 at which time they will be eligible to receive benefits from the
independent VEBA trustee. IPALCO recognized the $56.8 million pre-tax non-cash
pension and $5.2 million other post-retirement benefit costs of the VERP in
December 2000.
On June 1, 2001, IPALCO offered a second Voluntary Early Retirement
Program (VERP II). This program offers enhanced retirement benefits upon early
retirement to all employees, except officers, whose combined age and years of
service will total at least 75 on June 30, 2001. Participants may elect
retirement dates between August 1, 2001 and August 1, 2004 contingent upon
company approval. IPALCO expects the VERP II to be completed, including the
expiration of all revocation periods, by July 24, 2001.
5. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), requires that an
entity recognize all derivatives as either assets or liabilities on the balance
sheet and measure these instruments at fair value. The Company adopted SFAS 133
on January 1, 2001. The Company designated an interest rate swap as a cash flow
hedge which is recorded as a liability on the balance sheet and measured at fair
value. The effect of adopting SFAS 133 resulted in a decrease to comprehensive
income of $2.1 million. There was no income statement impact as the hedge was
determined by management to be highly effective in accordance with SFAS 133.
29
(B) PRO FORMA FINANCIAL INFORMATION.
Pro forma financial statements have been omitted since
historical financial statements, which include the combined results of AES and
IPLACO for December 31, 2000 and March 31, 2001 have been previously filed. For
December 31, 2001 financial statements refer to the Form 8-K filed by the
Company on June 5, 2001, which is hereby incorporated by reference. For March
31, 2001 financial statements refer to the Form 10-Q filed by the Company on May
15, 2001, which is hereby incorporated by reference.
30
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 hereunto duly authorized.
THE AES CORPORATION
Date: June 8, 2001 By /s/ William R. Luraschi
-----------------------------
William R. Luraschi
Vice President and Secretary
31