<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From to
Commission file number 1-14756.
AMEREN CORPORATION
(Exact name of registrant as specified in its charter)
Missouri 43-1723446
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Chouteau Avenue, St. Louis, Missouri 63103
(Address of principal executive offices and Zip Code)
Registrant's telephone number,
including area code: (314) 621-3222
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
------ ------
Shares outstanding of each of registrant's classes of common stock as of October
31, 1998: Common Stock, $ .01 par value - 137,215,462
<PAGE>
Ameren Corporation
Index
Page No.
Part I Consolidated Financial Information (Unaudited)
Management's Discussion and Analysis 2
Consolidated Balance Sheet
- September 30, 1998 and December 31, 1997 9
Consolidated Statement of Income
- Three months, nine months and 12 months ended
September 30, 1998 and 1997 10
Consolidated Statement of Cash Flows
- Nine months ended September 30, 1998 and 1997 11
Notes to Consolidated Financial Statements 12
Part II Other Information 14
<PAGE>
PART I. CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Ameren Corporation (Ameren or the Registrant) is a holding company, registered
under the Public Utility Holding Company Act of 1935 (PUHCA). In December 1997,
Union Electric Company (AmerenUE) and CIPSCO Incorporated (CIPSCO) combined to
form Ameren, with AmerenUE and CIPSCO's subsidiaries, Central Illinois Public
Service Company (AmerenCIPS) and CIPSCO Investment Company (CIC) becoming
wholly-owned subsidiaries of Ameren (the Merger). As a result of the Merger,
Ameren has a 60% ownership interest in Electric Energy, Inc. (EEI), which is
consolidated for financial reporting purposes. In addition, Ameren formed a new
energy marketing subsidiary, AmerenEnergy, Inc., which focuses on power
marketing transactions, serving as a power marketing agent for the operating
companies and providing a range of energy and risk management services to
targeted customers.
The Merger was accounted for as a pooling-of-interests; therefore the
consolidated financial statements are presented as if the Merger were
consummated as of the beginning of the earliest period presented. However, the
consolidated financial statements are not necessarily indicative of the results
of operations, financial position or cash flows that would have occurred had the
Merger been consummated for the periods for which it is given effect, nor is it
necessarily indicative of the future results of operations, financial position
or cash flows.
The following discussion and analysis should be read in conjunction with the
Notes to Consolidated Financial Statements beginning on page 10, and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A), the Audited Consolidated Financial Statements and the Notes
to Consolidated Financial Statements appearing in the Registrant's 1997 Annual
Report to stockholders.
References to the Registrant are to Ameren on a consolidated basis; however, in
certain circumstances, the subsidiaries are separately referred to in order to
distinguish between their different business activities.
RESULTS OF OPERATIONS
Earnings
Third quarter 1998 earnings of $237 million, or $1.73 per share, increased $21
million, or 16 cents per share, from 1997's third quarter earnings. Earnings for
the nine months ended September 30, 1998, totaled $360 million, or $2.63 per
share, compared to year-ago earnings of $340 million, or $2.48 per share.
Earnings for the 12 months ended September 30, 1998, were $355 million, or $2.59
per share, compared to $364 million, or $2.66 per share, for the preceding
12-month period. Excluding the extraordinary charge recorded in the fourth
quarter of 1997 to write off the generation-related regulatory assets and
liabilities of the Registrant's Illinois retail electric business, earnings for
the 12-month period ended September 30, 1998, were $407 million, or $2.97 per
share.
Earnings and earnings per share fluctuated due to many conditions, the primary
ones being: weather variations, credits to electric customers, sales growth,
fluctuating operating costs, the write-off of certain generation-related
regulatory assets and liabilities, merger-related costs and targeted separation
plan expense. The significant items affecting revenues, costs and earnings
during the three-month, nine-month and 12-month periods ended September 30, 1998
and 1997 are detailed below.
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<TABLE>
<CAPTION>
Electric Operations
Electric Operating Revenues Variations for periods ended September 30, 1998
from comparable prior-year periods
- --------------------------------------------- ------------------- ------------------ ----------------------
(Millions of Dollars) Three Months Nine Months Twelve Months
- --------------------------------------------- ------------------- ------------------ ----------------------
<S> <C> <C> <C>
Credit to customers $ - $(24) $(22)
Effect of abnormal weather 58 87 88
Growth and other (6) 48 77
Interchange sales 22 (14) (61)
EEI - (37) (34)
- --------------------------------------------- ------------------- ------------------ ----------------------
$ 74 $ 60 $ 48
- --------------------------------------------- ------------------- ------------------ ----------------------
</TABLE>
The $74 million increase in third quarter electric revenues compared to the
year-ago quarter was primarily driven by increased native sales due to warmer
summer weather and increased interchange sales. Weather-sensitive residential
and commercial sales increased 15 percent and 8 percent, respectively, while
industrial sales rose 3 percent.
Electric revenues for the first nine months of 1998 increased $60 million
compared to the prior-year period primarily due to higher native sales resulting
from warmer summer weather and growth in the service territory.
Weather-sensitive residential and commercial sales increased 10 percent and 5
percent, respectively, while industrial sales rose 3 percent. Partially
offsetting these increases, results for the nine months ended September 30,
1998, included a higher credit to Missouri electric customers (see Note 5 under
Notes to Consolidated Financial Statements for further information), decreased
interchange sales and lower sales to the Department of Energy by EEI.
Electric revenues for the 12 months ended September 30, 1998 increased $48
million compared to the prior 12-month period. The increase in revenues was
primarily driven by warm summer weather and a strong regional economy.
Weather-sensitive residential and commercial sales increased 8 percent and 4
percent, respectively, while industrial sales grew 3 percent. These increases
were partially offset by an increase in credits to Missouri electric customers
(see Note 5 under Notes to Consolidated Financial Statements for further
information), fewer interchange sales and lower sales to the Department of
Energy by EEI.
<TABLE>
<CAPTION>
Fuel and Purchased Power Variations for periods ended September 30, 1998
from comparable prior-year periods
- --------------------------------------------- ----------------- -------------- ------------------
(Millions of Dollars) Three Months Nine Months Twelve Months
- --------------------------------------------- ----------------- -------------- ------------------
<S> <C> <C> <C>
Fuel:
Variation in generation $ 16 $ (7) $ (9)
Price (8) 2 (5)
Generation efficiencies and other (1) 2 3
Purchased power variation 11 18 10
EEI variation (6) (33) (38)
- --------------------------------------------- ------------------- ------------ ------------------
$ 12 $(18) $(39)
- --------------------------------------------- ------------------- ------------ ------------------
</TABLE>
Fuel and purchased power costs for the third quarter 1998 versus the comparable
prior-year quarter increased $12 million primarily due to increased sales
volume, partially offset by lower fuel costs and a decrease in fuel and
purchased power at EEI due to reduced kilowatthour sales. The $18 million
decrease in fuel and purchased power for the nine months ended September 30,
1998, compared to the year-ago period was primarily due to a reduction in sales
to the Department of Energy at EEI, partially offset by increased power
purchases at higher costs. Power purchases increased due to higher sales to
native customers coupled with lower generation resulting from the scheduled
Callaway Nuclear Plant refueling outage. The $39 million decrease in fuel and
purchased power costs for the 12 months ended September 30, 1998 versus the
prior-year period was driven mainly by reduced generation primarily due to fewer
interchange sales and lower fuel and purchased power at EEI as a result of fewer
sales to the Department of Energy, offset in part by increased sales volume to
native customers.
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<PAGE>
While unprecedented prices for power purchases occurred in the marketplace
during the last week of June 1998, the Registrant was able to effectively manage
its power costs in the face of soaring wholesale electricity prices. Overall,
the abnormally high prices for power purchases in June had little impact on the
Registrant's financial results for the periods presented.
Gas Operations
Gas revenues for the nine months ended September 30, 1998, decreased $11 million
compared to the year-ago period primarily due to a decrease in sales volume due
to milder winter weather, as well as lower gas costs reflected in the purchased
gas adjustment clause, partially offset by an $11.5 million rate increase in
AmerenUE's Missouri jurisdiction, effective February 1998. Gas revenues for the
12-month period ended September 30, 1998, decreased $14 million compared to the
same year-ago period primarily due to a decline in sales to ultimate customers
and lower gas costs reflected in the purchased gas adjustment clause.
Gas costs for the nine and 12 months ended September 30, 1998, declined $19
million and $23 million, respectively, compared to the year-ago periods. The
decreases in gas costs for these periods were due to a decline in sales and
lower gas prices.
Other Operating Expenses
Other operating expense variations reflected recurring factors such as growth,
inflation, labor and benefit increases, as well as a one-time charge for a
targeted separation plan, as discussed below.
In March 1998, the Registrant announced plans to reduce its other operating
expenses, including plans to eliminate approximately 400 employee positions by
mid-1999 through a hiring freeze and a targeted separation plan (the TSP). In
July 1998, the Registrant offered separation packages to employees whose
positions were to be eliminated through the TSP. During the third quarter of
1998, a one-time, pretax charge of $25 million was recorded, which reduced
earnings $15 million, or 11 cents per share, representing costs incurred to
implement the TSP. The Registrant expects that the hiring freeze and TSP will
reduce its operating expenses by approximately $10 million to $15 million in
1998 and $20 million to $25 million annually thereafter.
Other operations expenses increased $35 million, $55 million and $63 million for
the three, nine and 12-month periods ended September 30, 1998, respectively,
compared to the same year-ago periods primarily due to the charge for the
TSP and increases in injuries and damages expense, information system-related
costs and professional services expenses.
Maintenance expenses for the nine months ended September 30, 1998, increased $5
million compared to the year-ago period primarily due to the costs of refueling
of the Callaway Nuclear Plant, partially offset by a reduction in scheduled
fossil power plant maintenance. The spring 1998 scheduled refueling was
completed in 31 days. The $9 million increase in maintenance expenses for the
12-month period ended September 30, 1998, compared to the prior 12-month period
was due to increased scheduled fossil power plant maintenance.
Taxes
Income taxes increased $16 million, $15 million and $7 million for the three,
nine and 12 months ended September 30, 1998, respectively, due to higher pretax
income.
Other Income and Deductions
Miscellaneous, net for the three months and nine months ended September 30,
1998, increased $6 million and $10 million, respectively, versus the comparable
1997 periods, primarily due to reduced merger-related costs. Miscellaneous, net
increased $23 million for the 12-month period ended September 30, 1998, compared
to the year-ago period primarily due to the reversal of the Missouri portion of
merger-related costs which were recorded as a regulatory asset upon Merger close
under conditions of the Missouri Public Service Commission order approving the
Merger.
Balance Sheet
The $72 million increase in trade accounts receivable and unbilled revenues was
due primarily to higher revenues in August and September 1998 compared to
November and December 1997.
Changes in accounts and wages payable, taxes accrued, other accruals and other
current assets resulted from the timing of various payments to taxing
authorities and suppliers.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $609 million for the nine months
ended September 30, 1998, compared to $628 million during the same 1997 period.
Cash flows used in investing activities totaled $202 million and $293 million
for the nine months ended September 30, 1998 and 1997, respectively.
Construction expenditures for the nine months ended September 30, 1998 for
constructing new or improving existing facilities and complying with the Clean
Air Act were $215 million. In addition, the Registrant expended $8 million for
the acquisition of nuclear fuel. Capital requirements for the remainder of 1998
are expected to be principally for construction expenditures and the acquisition
of nuclear fuel.
Cash flows used in financing activities were $354 million for the nine months
ended September 30, 1998, compared to $288 million during the same 1997 period.
The Registrant's principal financing activities for the nine months ended
September 30, 1998, included the redemption of $59 million of debt and the
payment of dividends. On August 28, 1998, the Registrant's Board of Directors
declared a quarterly dividend of 63.5 cents per common share that was paid to
shareholders on September 30, 1998. Common stock dividends paid for the 12
months ended September 30, 1998, resulted in a payout rate of 96 percent of the
Registrant's earnings to common stockholders (84 percent excluding the
extraordinary charge). Dividends paid to the Registrant's common shareholders
relative to net cash provided by operating activities for the same period were
51 percent.
On September 4, 1998, AmerenUE issued $160 million in long-term debt due 2033.
The initial interest rates on the debt were determined by an auction procedure.
The method for determining the interest rate may be changed from an auction rate
to a daily rate, weekly rate, commercial paper rate or a long-term interest
rate. AmerenUE plans to use the proceeds to redeem existing long-term debt in
December 1998.
The Registrant plans to continue utilizing short-term debt to support normal
operations and other temporary requirements. The Registrant and its subsidiaries
are authorized by the Securities and Exchange Commission under PUHCA to have up
to an aggregate $1.7 billion of short-term unsecured debt instruments
outstanding at any one time. Short-term borrowings consist of bank loans
(maturities generally on an overnight basis) and commercial paper (maturities
generally within 10 to 45 days). At September 30, 1998, the Registrant had
committed bank lines of credit aggregating $234 million (all of which was unused
and $180 million was available at such date) which make available interim
financing at various rates of interest based on LIBOR, the bank certificate of
deposit rate or other options. The lines of credit are renewable annually at
various dates throughout the year. The Registrant also has a bank credit
agreement due 2003, which permits the borrowing of up to $200 million on a
short-term basis. This credit agreement is available for the Registrant's own
use and for the use of its subsidiaries. There was $16 million outstanding under
this agreement as of September 30, 1998. Furthermore, the Registrant had $72
million of short-term borrowings at September 30, 1998.
Additionally, AmerenUE has a bank credit agreement due 2000 which permits the
borrowing of up to $300 million on a long-term basis, all of which was unused
and available at September 30, 1998.
AmerenUE also has a lease agreement that provides for the financing of nuclear
fuel. At September 30, 1998, the maximum amount that could be financed under the
agreement was $120 million. Cash used in financing for the nine months ended
September 30, 1998, included redemptions under the lease for nuclear fuel of $54
million offset in part by $10 million of issuances. At September 30, 1998, $74
million was financed under the lease.
RATE MATTERS
As a result of the Electric Service Customer Choice and Rate Relief Law of 1997
(the Law) providing for electric utility restructuring in Illinois, AmerenUE and
AmerenCIPS filed proposals with the Illinois Commerce Commission (ICC) to
eliminate the electric fuel adjustment clause for Illinois retail customers,
thereby including a historical level of fuel costs in base rates. The ICC
approved AmerenCIPS' and AmerenUE's filings on March 25, 1998 and April 28,
1998, respectively.
In June 1998, AmerenUE and AmerenCIPS filed residential rate reduction tariffs
with the ICC to comply with the requirements of the Law. Under provisions of the
Law, a rate decrease of 5 percent became effective for Illinois
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<PAGE>
residential electric customers beginning August 1, 1998. This rate decrease is
expected to reduce electric revenues approximately $6 million in 1998 and $14
million annually thereafter, based on estimated sales levels and assuming normal
weather conditions.
Also in June 1998, AmerenUE and AmerenCIPS filed requests with the ICC to
increase rates $17 million annually for natural gas service in the Illinois
jurisdiction. In October 1998, the ICC staff filed testimony that recommended an
increase in natural gas service rates of $7 million. The ICC has until May 1999
to render a decision.
See Notes 5 and 6 under Notes to Consolidated Financial Statements for further
discussion of Rate Matters.
ENVIRONMENTAL ISSUES
In July 1997, the United States Environmental Protection Agency (EPA) issued
final regulations revising the National Ambient Air Quality Standards for ozone
and particulate matter. At that time, specific emission control requirements
were still being developed. In September 1998, the EPA issued a final rule
pertaining to nitrogen oxide emissions, which will require significant
additional reductions in emissions from coal-fired boilers. Both Missouri and
Illinois (where all of the Registrant's coal-fired power plant boilers are
located) are included in the area targeted for nitrogen oxide emissions
reductions as part of the EPA's regional control program. Reduction requirements
in nitrogen oxide emissions from the Registrant's coal-fired boilers will exceed
75 percent from 1990 levels by the year 2003. Because of the magnitude of these
additional reductions, the Registrant will be required to incur significantly
higher capital costs to meet future compliance obligations for its coal-fired
boilers or to purchase power from other sources, either of which could have
significantly higher operating expenses associated with compliance. The
significant nitrogen oxide emissions reductions already achieved on several of
the Registrant's coal-fired power plants will help to reduce the costs of
compliance with this regulation.
It is not yet possible to determine the exact magnitude of the nitrogen oxide
emission reductions required on the Registrant's power plants because each State
has up to one year to develop a plan to comply with the EPA rule. However,
preliminary analysis of the regulations indicate that selective catalytic
reduction technology will be required for some of the Registrant's units, as
well as other additional controls.
The full details of these requirements are under study by the Registrant.
Currently, the Registrant estimates that its additional capital expenditures to
comply with these regulations could range from $250 million to $350 million over
the period from 1999 to 2002. Associated operations and maintenance expenditures
could increase $10 million to $15 million annually, beginning in 2003. The
Registrant will explore alternatives to comply with these new regulations in
order to minimize, to the extent possible, its capital costs and operating
expenses. At this time, the Registrant is unable to predict the ultimate impact
of these revised air quality standards on its future financial condition,
results of operations or liquidity.
YEAR 2000 ISSUE
The Year 2000 Issue relates to how dates are stored and used in computer
systems, applications, and embedded systems. As the century date change occurs,
certain date-sensitive systems need to be able to recognize the year as 2000 and
not as 1900. This inability to recognize or properly treat the year as 2000 may
cause these systems to process critical financial and operational information
incorrectly. The Registrant's primary concern is the potential for any
interruption in providing electric and gas service to customers, as well as the
potential to be unable to process critical financial and operational information
on a timely basis, including billing its customers, if appropriate steps are not
taken to address this issue.
Management has developed a Year 2000 plan (Plan)and Ameren's Board of Directors
has been briefed about the Year 2000 Issue and how it may affect the Registrant.
The Registrant's Plan to resolve the Year 2000 Issue involves three phases:
assessment, planning, and implementation/testing. Implementation of the Plan is
directly supervised by each area's responsible Vice President. A Year 2000
Project Director coordinates the implementation of the Plan among functional
teams who are addressing issues specific to a particular area, such as nuclear
and non-nuclear generation facilities, energy management systems, etc. Ameren
has also engaged certain outside consultants, technicians and other external
resources to aid in formulating and implementing the Plan.
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<PAGE>
The Registrant is approximately 95 percent complete with its assessment phase,
which included analyzing date-sensitive electronic hardware, software
applications and embedded systems and has developed a compliance plan to address
issues that were identified. Many of the major corporate computer systems at
Ameren are relatively new and therefore are either Year 2000 compliant or only
require minor modifications. Also, several of the operating hardware and
embedded systems (i.e. microprocessor chips) use analog technology instead of
digital and thus are unaffected by the two-digit date issue. In addition, the
Registrant has contacted hundreds of vendors and suppliers to verify compliance.
The assessment phase is expected to be completed by the end of the first quarter
1999.
The Registrant is also approximately 95 percent complete with its planning
phase. Items which have been identified for remediation have been prioritized
into groups based on their significance to company operations. The
implementation/testing phase for all components/applications is approximately 40
percent complete as of September 30, 1998. The Registrant expects to complete
remediation of its significant components/applications by the end of the third
quarter 1999.
With respect to third parties, for areas that interface directly with
significant vendors, the Registrant has inventoried vendors and major suppliers
and is currently assessing their Year 2000 readiness through surveys, websites
and personal contact. The Registrant plans to follow up with major suppliers and
verify Year 2000 compliance where appropriate. The Registrant has queried its
important suppliers and health insurance providers. To date, the Registrant is
not aware of any problems that would materially impact financial condition,
results of operations or liquidity. The Registrant has no means of ensuring that
these parties will be Year 2000 compliant. The inability of those parties to
complete their Year 2000 resolution process could materially impact the
Registrant.
The Registrant is also addressing the impact of electric power grid problems
that may occur outside of its own electric system. The Registrant has started
year 2000 electric power grid impact planning through the system's various
electric interconnection affiliations, and is working with the Mid-American
Interchange Network (MAIN) to begin planning year 2000 operational preparedness
and restoration scenarios. In addition, the Registrant provides monthly status
reports to the North American Electric Reliability Council (NERC) to assist them
in assessing year 2000 readiness of the regional electric grid. Through the
Electric Power Research Institute (EPRI), an industry-wide effort has been
established to deal with year 2000 problems affecting digital systems and
equipment used by the nation's electric power companies. Under this effort,
participating utilities are working together to assess specific vendors' system
problems and test plans. The assessment will be shared by the industry as a
whole to facilitate year 2000 problem solving.
In addressing the Year 2000 Issue, the Registrant will incur internal labor
costs as well as external consulting and other expenses related to
infrastructure enhancements necessary to prepare for the new century. The
Registrant estimates that its external costs (consulting fees and related costs)
for addressing the Year 2000 Issue will range from $10 million to $15 million.
As of September 30, 1998, the Registrant has expended approximately $2 million.
The Registrant's plans to complete Year 2000 modifications are based on
management's best estimates, which are derived utilizing numerous assumptions of
future events including the continued availability of certain resources, and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
The Registrant believes that, with appropriate modifications to existing
computer systems/components, updates by vendors and trading partners, and
conversion to new software and hardware in the ordinary course of business, the
Year 2000 Issue will not pose significant operational problems for the
Registrant. However, if such conversions are not completed in a proper and
timely manner by all affected parties, the Year 2000 Issue could result in
material adverse operational and financial consequences to the Registrant, and
there can be no assurance that the Registrant's efforts, or those of vendors and
trading partners, interconnection affiliates, NERC or EPRI to address the Year
2000 Issue will be successful. The Registrant is in the process of developing
contingency plans to address potential risks, including risks of vendor/trading
partners noncompliance, as well as noncompliance of any of the Registrant's
material operations. The first operational contingency plan is expected to be
completed by year-end. At this time, the Registrant is unable to predict the
ultimate impact of the Year 2000 Issue on the Registrant's financial condition,
results of operations or liquidity; however, the impact could be material.
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ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires recognition of all derivatives on the balance sheet measured at fair
value. SFAS 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. Earlier application is encouraged, but permitted
only as of the beginning of any fiscal quarter that begins after issuance of the
standard. At this time, the Registrant is unable to determine the impact of SFAS
133 on its financial position or results of operations upon adoption.
In February 1998, the Financial Accounting Standards Board issued SFAS 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS
132 revises employers' disclosures about pension and other postretirement
benefit plans. SFAS 132 is effective for fiscal years beginning after December
15, 1998, although earlier application is encouraged. SFAS 132 is not expected
to have a material impact on the Registrant's financial position or results of
operations upon adoption.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance on accounting for the costs of
computer software developed or obtained for internal use. Under SOP 98-1,
certain costs, which are currently expensed by the Registrant, may be
capitalized and amortized over some future period. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998, although earlier application is
encouraged. SOP 98-1 is not expected to have a material impact on the
Registrant's financial position or results of operations upon adoption.
SAFE HARBOR STATEMENT
Statements made in this Form 10-Q which are not based on historical facts, are
forward-looking and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
forward-looking statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions,
financial performance and "Year 2000" issues. In connection with the "Safe
Harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Registrant is providing this cautionary statement to identify important factors
that could cause actual results to differ materially from those anticipated.
Factors include, but are not limited to, the effects of regulatory actions;
changes in laws and other governmental actions; competition; future market
prices for electricity; average rates for electricity in the Midwest; business
and economic conditions; weather conditions; fuel prices and availability;
generation plant performance; monetary and fiscal policies; and legal and
administrative proceedings.
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<TABLE>
<CAPTION>
AMEREN CORPORATION
CONSOLIDATED BALANCE SHEET
UNAUDITED
(Thousands of Dollars, Except Shares)
September 30, December 31,
ASSETS 1998 1997
- ------ -------------- -------------
<S> <C> <C>
Property and plant, at original cost:
Electric $11,679,744 $11,522,730
Gas 463,107 447,458
Other 81,420 36,023
----------- -----------
12,224,271 12,006,211
Less accumulated depreciation and amortization 5,527,721 5,285,434
----------- -----------
6,696,550 6,720,777
Construction work in progress:
Nuclear fuel in process 95,330 134,804
Other 132,529 131,504
----------- -----------
Total property and plant, net 6,924,409 6,987,085
----------- -----------
Investments and other assets:
Investments 85,800 97,188
Nuclear decommissioning trust fund 141,084 122,438
Other 71,797 64,915
----------- -----------
Total investments and other assets 298,681 284,541
----------- -----------
Current assets:
Cash and cash equivalents 62,315 9,696
Accounts receivable - trade (less allowance for doubtful
accounts of $7,860 and $4,845, respectively) 355,574 266,306
Unbilled revenue 113,286 102,864
Other accounts and notes receivable 53,931 49,765
Materials and supplies, at average cost -
Fossil fuel 102,513 93,431
Other 135,942 134,152
Environmental bond redemption fund 160,000 --
Other 91,900 55,002
----------- -----------
Total current assets 1,075,461 711,216
----------- -----------
Regulatory assets:
Deferred income taxes 635,191 639,792
Other 188,401 204,913
----------- -----------
Total regulatory assets 823,592 844,705
----------- -----------
Total Assets $ 9,122,143 $ 8,827,547
=========== ===========
CAPITAL AND LIABILITIES
Capitalization:
Common stock, $.01 par value, authorized 400,000,000 shares -
outstanding 137,215,462 shares $ 1,372 $ 1,372
Other paid-in capital, principally premium on
common stock 1,582,720 1,582,938
Retained earnings 1,533,244 1,434,658
----------- -----------
Total common stockholders' equity 3,117,336 3,018,968
Preferred stock not subject to mandatory redemption 235,197 235,197
Long-term debt 2,391,619 2,506,068
----------- -----------
Total capitalization 5,744,152 5,760,233
----------- -----------
Minority interest in consolidated subsidiary 3,534 3,534
Current liabilities:
Current maturity of long-term debt 248,546 52,241
Short-term debt 72,403 86,266
Accounts and wages payable 203,216 293,391
Accumulated deferred income taxes 65,338 56,094
Taxes accrued 265,859 110,566
Other 222,211 168,727
----------- -----------
Total current liabilities 1,077,573 767,285
----------- -----------
Accumulated deferred income taxes 1,528,164 1,536,696
Accumulated deferred investment tax credits 181,401 190,260
Regulatory liability 203,730 224,225
Other deferred credits and liabilities 383,589 345,314
----------- -----------
Total Capital and Liabilities $ 9,122,143 $ 8,827,547
=========== ===========
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(Thousands of Dollars, Except Shares and Per Share Amounts)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
OPERATING REVENUES:
<S> <C> <C> <C> <C> <C> <C>
Electric $ 1,090,069 $ 1,015,945 $ 2,476,977 $ 2,416,951 $ 3,124,203 $ 3,076,296
Gas 25,718 24,005 157,333 167,899 239,249 252,754
Other 1,331 3,187 5,395 9,771 8,175 13,148
----------- ----------- ----------- ----------- ----------- -----------
Total operating revenues 1,117,118 1,043,137 2,639,705 2,594,621 3,371,627 3,342,198
OPERATING EXPENSES:
Operations
Fuel and purchased power 248,086 235,900 620,170 638,297 818,318 857,769
Gas 12,993 14,953 88,282 106,909 142,052 165,003
Other 187,453 152,219 489,344 434,067 640,491 577,543
----------- ----------- ----------- ----------- ----------- ----------
448,532 403,072 1,197,796 1,179,273 1,600,861 1,600,315
Maintenance 66,978 67,888 224,406 219,795 314,852 305,848
Depreciation and amortization 86,160 85,905 259,075 258,867 346,208 345,663
Income taxes 153,581 137,806 242,290 227,735 248,734 241,806
Other taxes 78,215 79,373 213,896 211,905 273,702 273,468
----------- ----------- ----------- ----------- ----------- ----------
Total operating expenses 833,466 774,044 2,137,463 2,097,575 2,784,357 2,767,100
OPERATING INCOME 283,652 269,093 502,242 497,046 587,270 575,098
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction 1,148 1,421 3,415 3,395 5,264 5,109
Miscellaneous, net (491) (6,122) (5,277) (15,141) (480) (23,847)
----------- ----------- ----------- ----------- ---------- ----------
Total other income and deductions 657 (4,701) (1,862) (11,746) 4,784 (18,738)
INCOME BEFORE INTEREST
CHARGES AND PREFERRED
DIVIDENDS 284,309 264,392 500,380 485,300 592,054 556,360
INTEREST CHARGES AND
PREFERRED DIVIDENDS:
Interest 46,071 47,841 136,298 141,262 180,404 185,604
Allowance for borrowed funds
used during construction (1,559) (2,016) (5,548) (5,443) (7,567) (7,014)
Preferred dividends of subsidiaries 3,140 3,144 9,414 9,395 12,551 13,635
----------- ----------- ----------- ----------- ----------- ----------
Net interest charges and preferred
dividends 47,652 48,969 140,164 145,214 185,388 192,225
INCOME BEFORE
EXTRAORDINARY CHARGE 236,657 215,423 360,216 340,086 406,666 364,135
----------- ----------- ----------- ----------- ----------- ----------
EXTRAORDINARY CHARGE
(NET OF INCOME TAXES) -- -- -- -- (51,820) --
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME $ 236,657 $ 215,423 $ 360,216 $ 340,086 $ 354,846 $ 364,135
=========== =========== =========== =========== =========== ===========
EARNINGS PER COMMON SHARE -
BASIC AND DILUTED (Based on
average shares outstanding)
Income before extraordinary charge $ 1.73 $ 1.57 $ 2.63 $ 2.48 $ 2.97 $ 2.66
Extraordinary charge -- -- -- -- (0.38) --
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 1.73 $ 1.57 $ 2.63 $ 2.48 $ 2.59 $ 2.66
=========== =========== =========== =========== =========== ===========
AVERAGE COMMON SHARES
OUTSTANDING 137,215,462 137,215,462 137,215,462 137,215,462 137,215,462 137,215,462
=========== =========== =========== =========== =========== ===========
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(Thousands of Dollars)
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating:
Net income $ 360,216 $ 340,086
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 251,609 254,630
Amortization of nuclear fuel 26,837 28,737
Allowance for funds used during construction (8,963) (8,838)
Deferred income taxes, net (15,203) (4,479)
Deferred investment tax credits, net (8,859) (7,128)
Changes in assets and liabilities:
Receivables, net (103,856) (28,057)
Materials and supplies (10,872) 14,124
Accounts and wages payable (90,175) (112,769)
Taxes accrued 155,293 184,577
Other, net 53,027 (32,918)
--------- ---------
Net cash provided by operating activities 609,054 627,965
Cash Flows From Investing:
Construction expenditures (215,252) (286,952)
Allowance for funds used during construction 8,963 8,838
Nuclear fuel expenditures (7,523) (12,594)
Other 11,388 (2,698)
--------- ---------
Net cash used in investing activities (202,424) (293,406)
Cash Flows From Financing:
Dividends on common stock (261,395) (252,148)
Environmental bond redemption fund (160,000) --
Redemptions -
Nuclear fuel lease (53,670) (21,011)
Short-term debt (13,863) (25,710)
Long-term debt (45,000) (106,000)
Preferred stock -- (63,924)
Issuances -
Nuclear fuel lease 9,917 28,427
Long-term debt 170,000 152,000
--------- ---------
Net cash used in financing activities (354,011) (288,366)
Net increase in cash and cash equivalents 52,619 46,193
Cash and cash equivalents at beginning of year 9,696 11,899
--------- ---------
Cash and cash equivalents at end of period $ 62,315 $ 58,092
========= =========
Cash paid during the periods:
Interest (net of amount capitalized) $ 118,075 $ 108,910
Income taxes, net $ 164,556 $ 120,829
</TABLE>
-11-
<PAGE>
AMEREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1998
Note 1 - Effective December 31, 1997, following the receipt of all required
state and federal regulatory approvals, Union Electric Company (AmerenUE) and
CIPSCO Incorporated (CIPSCO) combined to form Ameren Corporation (Ameren)(the
Merger). The accompanying consolidated financial statements (the financial
statements) reflect the accounting for the Merger as a pooling of interests and
are presented as if the companies were combined as of the earliest period
presented. However, the financial information is not necessarily indicative of
the results of operations, financial position or cash flows that would have
occurred had the Merger been consummated for the periods for which it is given
effect, nor is it necessarily indicative of future results of operations,
financial position or cash flows. The outstanding preferred stock of AmerenUE
and Central Illinois Public Service Company (AmerenCIPS), a subsidiary of
CIPSCO, were not affected by the Merger.
The accompanying financial statements include the accounts of Ameren and its
consolidated subsidiaries (collectively the Registrant). All subsidiaries for
which the Registrant owns directly or indirectly more than 50% of the voting
stock are included as consolidated subsidiaries. Ameren's primary operating
companies, AmerenUE and AmerenCIPS, are engaged principally in the generation,
transmission, distribution and sale of electric energy and the purchase,
distribution, transportation and sale of natural gas in the states of Missouri
and Illinois. The Registrant also has a non-regulated investing subsidiary,
CIPSCO Investment Company (CIC), and a non-utility energy marketing subsidiary,
AmerenEnergy, Inc.. The Registrant has a 60% interest in Electric Energy, Inc.
(EEI). EEI owns and operates an electric generation and transmission facility in
Illinois that supplies electric power primarily to a uranium enrichment plant
located in Paducah, Kentucky.
All significant intercompany balances and transactions have been eliminated from
the consolidated financial statements.
Note 2 - Financial statement note disclosures, normally included in consolidated
financial statements prepared in conformity with generally accepted accounting
principles, have been omitted in this Form 10-Q pursuant to the Rules and
Regulations of the Securities and Exchange Commission. However, in the opinion
of the Registrant, the disclosures contained in this Form 10-Q are adequate to
make the information presented not misleading. See Notes to Consolidated
Financial Statements included in the 1997 Form 10-K for information relevant to
the consolidated financial statements contained in this Form 10-Q, including
information as to the significant accounting policies of the Registrant.
Note 3 - In the opinion of the Registrant, the interim financial statements
filed as part of this Form 10-Q reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the periods presented. The Registrant's consolidated financial statements were
prepared to permit the information required in the Financial Data Schedule
(FDS), Exhibit 27, to be directly extracted from the filed statements. The FDS
amounts correspond to or are calculable from the amounts reported in the
consolidated financial statements or notes thereto.
Note 4 - Due to the effect of weather on sales and other factors which are
characteristic of public utility operations, financial results for the periods
ended September 30, 1998 and 1997, are not necessarily indicative of trends for
any three-month, nine-month or twelve-month period.
Note 5 - On July 21, 1995, the Missouri Public Service Commission (MoPSC)
approved an agreement involving AmerenUE's Missouri electric rates. The
Agreement included a three-year experimental alternative regulation plan that
provides that earnings in excess of a 12.61 percent regulatory return on equity
(ROE) be shared equally between customers and shareholders and earnings above
14 percent ROE be credited to customers. The formula for computing the credit
uses twelve-month results ending June 30, rather than calendar year earnings.
During the nine months ended September 30, 1998, the Registrant recorded an
estimated $43 million credit for the final year of this plan, compared to a
$20 million credit recorded for the same 1997 period. This credit, which the
Registrant expects to pay to Missouri customers later this year, was reflected
as a reduction in electric revenues.
A new three-year experimental alternative regulation plan was included in the
joint agreement approved by the MoPSC in its February 1997 order approving the
Merger. Like the original plan, the new plan requires that earnings over a 12.61
percent ROE up to a 14 percent ROE will be shared equally between customers and
stockholders. The
-12-
<PAGE>
new three-year plan will also return to customers 90 percent of all earnings
above a 14 percent ROE up to a 16 percent ROE. Earnings above a 16 percent ROE
will be credited entirely to customers. The joint agreement also provides for a
Missouri electric rate decrease, effective September 1, 1998, based on the
weather-adjusted average annual credits to customers under the original
experimental alternative regulation plan. The final rate reduction has not been
determined at this time pending the outcome of regulatory proceedings.
Note 6 - Effective August 1, 1998, AmerenUE's and AmerenCIPS' residential
electric customers received a five percent rate reduction provided by Illinois
electric utility industry restructuring legislation. This rate reduction is
expected to reduce electric revenues approximately $6 million in 1998 and $14
million annually thereafter, based on estimated sales levels and assuming normal
weather conditions.
Note 7 - In July 1998, the Registrant offered separation packages to employees
whose positions were eliminated through a targeted separation plan. During the
third quarter of 1998, a one-time, pretax charge of $25 million was recorded,
which reduced earnings $15 million, or 11 cents per share, representing costs
incurred to implement the targeted separation plan.
Note 8 - Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" became effective on January 1, 1998. SFAS 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in the financial statements with
the same prominence as other financial statement components. Adoption of SFAS
130 did not have a material effect on the financial position, results of
operations, liquidity or presentation of financial information of the
Registrant.
Note 9 - Certain reclassifications were made to prior-year financial statements
to conform to current-period presentation.
-13-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Reference is made to Note 10 - Commitments and Contingencies in the
Notes to Consolidated Financial Statements of the Registrant's 1997 Annual
Report incorporated by reference in the Registrant's Form 10-K for the year
ended December 31, 1997 for information regarding unfair labor practice charges
filed with the National Labor Relations Board (NLRB) by the International Union
of Operating Engineers Local 148 and the International Brotherhood of Electrical
Workers Local 702 relating to the lockout by AmerenCIPS of both unions during
1993. On August 27, 1998, a three member panel of the NLRB issued a decision
favorable to AmerenCIPS. It is anticipated that the unions will file motions for
reconsideration of the decision with the NLRB.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. The Registrant filed a report on Form 8-K
dated September 24, 1998 reporting on the impact of its employee separation plan
and on the effect of the final rule issued in September 1998 by the United
States Environmental Protection Agency pertaining to nitrogen oxide emissions.
Further, a report dated October 9, 1998 was filed reporting the adoption of a
shareholder rights plan and declaration of the associated dividend.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMEREN CORPORATION
(Registrant)
By /s/ Donald E. Brandt
----------------------
Donald E. Brandt
Senior Vice President, Finance
Date: November 13, 1998
-14-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Exhibit 27
AMEREN CORPORATION
10-Q SEPTEMBER 30, 1998
FINANCIAL DATA SCHEDULE UT
PUBLIC UTILITY COMPANIES AND PUBLIC UTILITY HOLDING COMPANIES
APPENDIX E TO ITEM 601 (C) OF REGULATION S-K
(Thousands of Dollars Except Per Share Amounts)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,924,409
<OTHER-PROPERTY-AND-INVEST> 226,884
<TOTAL-CURRENT-ASSETS> 1,075,461
<TOTAL-DEFERRED-CHARGES> 71,797
<OTHER-ASSETS> 823,592
<TOTAL-ASSETS> 9,122,143
<COMMON> 1,372
<CAPITAL-SURPLUS-PAID-IN> 1,582,720
<RETAINED-EARNINGS> 1,533,244
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,117,336
0
235,197
<LONG-TERM-DEBT-NET> 2,331,296
<SHORT-TERM-NOTES> 72,403
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 234,444
0
<CAPITAL-LEASE-OBLIGATIONS> 60,323
<LEASES-CURRENT> 14,102
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,057,042
<TOT-CAPITALIZATION-AND-LIAB> 9,122,143
<GROSS-OPERATING-REVENUE> 2,639,705
<INCOME-TAX-EXPENSE> 242,290
<OTHER-OPERATING-EXPENSES> 1,895,173
<TOTAL-OPERATING-EXPENSES> 2,137,463
<OPERATING-INCOME-LOSS> 502,242
<OTHER-INCOME-NET> (1,862)
<INCOME-BEFORE-INTEREST-EXPEN> 500,380
<TOTAL-INTEREST-EXPENSE> 130,750
<NET-INCOME> 360,216
9,414
<EARNINGS-AVAILABLE-FOR-COMM> 360,216
<COMMON-STOCK-DIVIDENDS> 261,395
<TOTAL-INTEREST-ON-BONDS> 0 <F1>
<CASH-FLOW-OPERATIONS> 609,054
<EPS-PRIMARY> 2.63
<EPS-DILUTED> 2.63
<FN>
<F1> Required on fiscal year-end only
</FN>
</TABLE>
