<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 March 31, 1999
[ ] 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 1-2967.
UNION ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Missouri 43-0559760
(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 April
30, 1999: Common Stock, $5 par value, held by Ameren Corporation (parent
company of Registrant) - 102,123,834
<PAGE>
Union Electric Company
Index
Page No.
Part I Financial Information (Unaudited)
Management's Discussion and Analysis 2
Quantitative and Qualitative Disclosures
About Market Risk 6
Balance Sheet
- March 31, 1999 and December 31, 1998 8
Statement of Income
- Three months and 12 months ended
March 31, 1999 and 1998 9
Statement of Cash Flows
- Three months ended March 31, 1999 and 1998 10
Notes to Financial Statements 11
Part II Other Information 13
<PAGE>
PART I. FINANCIAL INFORMATION (UNAUDITED)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Union Electric Company (AmerenUE or the Registrant) is a subsidiary of Ameren
Corporation (Ameren), a holding company which is registered under the Public
Utility Holding Company Act of 1935 (PUHCA). In December 1997, 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).
The following discussion and analysis should be read in conjunction with the
Notes to Financial Statements beginning on page 11, and the Management's
Discussion and Analysis of Financial Condition and Results of Operations (MD&A),
the Audited Financial Statements and the Notes to Financial Statements appearing
in the Registrant's 1998 Form 10-K.
RESULTS OF OPERATIONS
Earnings
First quarter 1999 earnings of $42 million increased $13 million compared to
1998 first quarter earnings. Earnings for the twelve months ended March 31,
1999, were $325 million, a $33 million increase from 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 March 31, 1998, were $318 million.
Earnings fluctuated due to many conditions, primarily: weather variations,
credits to electric customers, sales growth, fluctuating operating costs
(including Callaway Nuclear Plant refueling outages), merger-related expenses,
changes in interest expense, changes in income and property taxes, a charge for
a targeted employee separation plan and an extraordinary charge, as noted above.
The significant items affecting revenues, costs and earnings during the
three-month and 12-month periods ended March 31, 1999, and 1998 are detailed
below.
Electric Operations
Electric Operating Revenues Variations for periods ended March 31, 1999
from comparable prior-year periods
- --------------------------------------------------------------------------------
(Millions of Dollars) Three Months Twelve Months
- --------------------------------------------------------------------------------
Credit to customers $ (10) $ (36)
Rate variations (5) (13)
Effect of abnormal weather 4 62
Growth and other 16 48
Interchange sales 20 70
- --------------------------------------------------------------------------------
$ 25 $ 131
- --------------------------------------------------------------------------------
The $25 million increase in first quarter electric revenues compared to the
year-ago quarter was primarily driven by increased interchange sales due to
strong marketing efforts and greater interchange opportunities, as well as
higher sales to retail customers within the Registrant's service territory as a
result of economic growth in the service area and favorable weather.
Weather-sensitive residential and commercial sales increased 3 percent and 2
percent, respectively, while industrial sales decreased 1 percent. Interchange
sales increased 21 percent for the first quarter of 1999, compared to the
year-ago quarter. These increases were partially offset by rate decreases in
both Missouri and Illinois, as well as credits to Missouri electric customers
(see Note 5 under Notes to Financial Statements for further information).
Electric revenues for the 12 months ended March 31, 1999 increased $131 million
compared to the prior 12-month period. The increase in revenues was primarily
driven by warm summer weather, a strong regional economy and
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increased interchange sales due to increased interchange opportunities.
Weather-sensitive residential and commercial sales increased 7 percent and 4
percent, respectively, while industrial sales remained flat. Interchange sales
increased 17 percent for the twelve months ended March 31, 1999, compared to the
year-ago period. These increases were partially offset by rate decreases in both
Missouri and Illinois, as well as credits to Missouri electric customers (see
Note 5 under Notes to Financial Statements for further information).
Fuel and Purchased Power Variations for periods ended March 31, 1999
from comparable prior-year periods
- --------------------------------------------------------------------------------
(Millions of Dollars) Three Months Twelve Months
- --------------------------------------------------------------------------------
Fuel:
Variation in generation $ 5 $ 26
Price (5) (16)
Generation efficiencies and other 2 6
Purchased power variation 7 28
- --------------------------------------------------------------------------------
$ 9 $ 44
- --------------------------------------------------------------------------------
The increase in fuel and purchased power costs for the three and twelve months
ended March 31, 1999, versus the comparable prior year periods was primarily due
to increased sales volumes and higher purchased power costs, partially offset by
lower fuel prices.
Gas Operations
Gas revenues for the quarter ended March 31, 1999, increased $3 million compared
to the year-ago quarter primarily due to an annual $12 million Missouri gas rate
increase effective February 1998. This rate increase was partially offset by a
decrease in retail sales.
Gas costs for the quarter ended March 31, 1999, increased $2 million due to an
increase in gas prices. Gas costs for the 12 months ended March 31, 1999
decreased $5 million compared to the year-ago period primarily due to lower
retail sales.
Other Operating Expenses
Other operating expense variations reflected recurring factors such as growth,
inflation, labor and benefit increases.
Other operations expenses decreased $2 million in the first quarter of 1999
versus the comparable prior-year quarter primarily due to decreased information
system-related costs. Other operations expenses increased $50 million for the
12-month period ended March 31, 1999 compared to the same year-ago period
primarily due to the charge for the targeted separation plan and increases in
injuries and damages expense and information system-related costs.
Maintenance expenses for the quarter ended March 31, 1999, increased $3 million
compared to the year-ago period primarily due to increased scheduled power plant
maintenance. The $8 million increase in maintenance expenses for the 12-month
period ended March 31, 1999, compared to the prior 12-month period was primarily
due to the scheduled spring refueling outage at the Callaway Nuclear Plant in
1998.
Taxes
Income taxes increased $7 million and $28 million for the three and 12 months
ended March 31, 1999, respectively, due to higher pretax income.
Other Income and Deductions
Miscellaneous, net increased $5 million for the 12-month period ended March 31,
1999, compared to the year-ago period due to increased interest income and gains
on the sale of property.
Balance Sheet
The $20 million increase in other deferred credits and liabilities was primarily
due to the $20 million estimated credit to Missouri electric customers recorded
in the first quarter of 1999 under the three-year experimental alternative
regulation plan. See Note 5 under Notes to Financial Statements for further
information.
Changes in accounts and wages payable, other taxes accrued, and other current
liabilities result from the timing of various payments to taxing authorities and
suppliers.
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LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $110 million for the quarter ended
March 31, 1999, compared to $62 million during the same 1998 period.
Cash flows used in investing activities totaled $47 million and $45 million for
the three months ended March 31, 1999 and 1998, respectively. Construction
expenditures for the three months ended March 31, 1999 for constructing new or
improving existing facilities were $49 million. In addition, the Registrant
expended $2 million for the acquisition of nuclear fuel. Capital requirements
for the remainder of 1999 are expected to be principally for construction
expenditures and the acquisition of nuclear fuel.
Cash flows used in financing activities were $64 million for the three months
ended March 31, 1999, compared to $11 million during the same 1998 period. The
Registrant's principal financing activity for the quarter was the payment of
dividends.
The Registrant plans to continue utilizing short-term debt to support normal
operations and other temporary requirements. The Registrant is authorized by the
Securities and Exchange Commission under PUHCA to have up to $1 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 March 31,
1999, the Registrant had committed bank lines of credit aggregating $137 million
(all of which were unused 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. At March 31, 1999, the Registrant had no outstanding
short-term borrowings.
The Registrant also 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 March 31, 1999. Also, Ameren has a bank credit agreement due
2003, which permits the borrowing of up to $200 million on a long-term basis.
This credit agreement is available to Ameren and its subsidiaries, including the
Registrant. As of March 31, 1999, $180 million was available for the
Registrant's use.
Additionally, the Registrant has a lease agreement that provides for the
financing of nuclear fuel. At March 31, 1999, the maximum amount that could be
financed under the agreement was $120 million. Cash used in financing activities
for the first three months of 1999 included redemptions under the lease for
nuclear fuel of $4 million, offset by $4 million of issuances. At March 31,
1999, $67 million was financed under the lease.
RATE MATTERS
In March 1999, the Registrant filed delivery service tariffs with the Illinois
Commerce Commission (ICC) to comply with the requirements of the Electric
Service Customer Choice and Rate Relief Law of 1997. These tariffs would be used
by electric customers who choose to purchase their power from an alternative
supplier. The ICC has until September 1, 1999 to render a decision.
See Note 5 under Notes to Financial Statements for further discussion of Rate
Matters.
ELECTRIC INDUSTRY RESTRUCTURING
In December 1997, the Governor of Illinois signed the Electric Service Customer
Choice and Rate Relief Law of 1997 (the Law) providing for electric utility
restructuring in Illinois. This legislation introduces competition into the
supply of electric energy in Illinois.
One of the major provisions of the Law includes the phasing-in through 2002 of
retail direct access, which allows customers to choose their electric supplier.
The phase-in of retail direct access begins on October 1, 1999, with large
commercial and industrial customers principally comprising the initial group.
The customers in this group represent approximately 7 percent of the
Registrant's total sales. Retail direct access will be offered to the remaining
commercial and industrial customers on December 31, 2000, and to residential
customers on May 1, 2002.
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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 inability 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)
covering Ameren, including AmerenUE, and Ameren's Board of Directors has been
briefed about the Year 2000 Issue and how it may affect the Registrant.
Ameren'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, gas distribution,
etc. Ameren has also engaged certain outside consultants, technicians and other
external resources to aid in formulating and implementing the Plan.
Ameren has completed 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 rather than digital technology and thus are
unaffected by the two-digit date issue. In addition, Ameren has contacted
hundreds of vendors and suppliers to verify compliance.
Ameren has also completed its planning phase. Items that have been identified
for remediation have been prioritized into groups based on their significance to
Ameren's operations. The implementation/testing phase for all
components/applications is approximately 70 percent complete as of March 31,
1999. Ameren 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, Ameren has inventoried vendors and major suppliers and is
currently assessing their Year 2000 readiness through surveys, websites and
personal contact. Ameren plans to follow up with major suppliers and vendors and
verify Year 2000 compliance, where appropriate. Ameren has also queried its
health insurance providers. To date, Ameren is not aware of any problems that
would materially impact its financial condition, results of operations or
liquidity; however, neither Ameren nor the Registrant has the 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 Ameren
and the Registrant.
Ameren is also addressing the impact of electric power grid problems that may
occur outside of its own electric system. Ameren 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. As
of April 1, 1999 (the latest information available), MAIN was finished with its
assessment and planning phases and 74 percent complete with its implementation/
testing phase. In addition, Ameren 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. As of April 1, 1999 (the latest
information available), NERC was 99 percent complete with its assessment phase,
95 percent complete with its planning phase and 75 percent complete with its
implementation/testing phase. Ameren participated in a Year 2000 drill conducted
by NERC in April 1999. The drill focused on the testing of the backup systems of
voice and data communications needed to operate the electric power grids in the
event of a partial communication loss. The results of the drill at Ameren were
successful. Additional drills are planned. 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, Ameren will incur internal labor costs as
well as external consulting and other expenses related to infrastructure
enhancements necessary to prepare for the new century. Ameren estimates that its
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external costs (consulting fees and related costs) for addressing the Year 2000
Issue will range from $10 million to $15 million. As of March 31, 1999, Ameren
has expended approximately $5 million. Ameren'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.
Ameren 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 Ameren's efforts, or those of vendors and trading partners,
interconnection affiliates, NERC or EPRI to address the Year 2000 Issue will be
successful. Ameren 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 operating systems. The
first operational contingency plan addressing power grid issues was completed in
March 1999. Based on the findings of the Year 2000 drill, minor modifications to
the plan are being developed, with an expected completion date by the end of the
second quarter 1999. Contingency plans related to the business areas are also
expected to be completed by the end of the second quarter 1999. At this time,
the Registrant is unable to predict the ultimate impact, if any, of the Year
2000 Issue on the Registrant's financial condition, results of operations or
liquidity; however, the impact could be material.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates and
equity prices. The following discussion of Ameren's, including AmerenUE's, risk
management activities includes forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the "forward-looking" statements. Ameren handles market risks in accordance with
established policies, which may include entering into various derivative
transactions. In the normal course of business, Ameren also faces risks that are
either non-financial or non-quantifiable. Such risks principally include credit
risk and legal risk and are not represented in the following analysis.
Interest Rate Risk
The Registrant is exposed to market risk through changes in interest rates
through its issuance of both long-term and short-term variable-rate debt,
fixed-rate debt and commercial paper. The Registrant manages its interest rate
exposure by controlling the amount of these instruments it holds within its
total capitalization portfolio and by monitoring the effects of market changes
in interest rates.
If interest rates increase 1 percent in 2000 as compared to 1999, the
Registrant's interest expense would increase by approximately $5 million and net
income would decrease by approximately $3 million. This amount has been
determined using the assumptions that the Registrant's outstanding variable rate
debt as of March 31, 1999, continued to be outstanding throughout 2000, and that
the average interest rates for these instruments increased 1 percent over 1999.
The model does not consider the effects of the reduced level of overall economic
activity that would exist in such an environment. In the event of a significant
change in interest rates, management would likely take actions to further
mitigate its exposure to this market risk. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no change in the Registrant's financial structure.
Commodity Price Risk
The Registrant is exposed to changes in market prices for natural gas and fuel
and purchased power. With regard to its natural gas utility business, the
Registrant's exposure to changing market prices is in large part mitigated by
the fact that AmerenUE has a Purchased Gas Adjustment Clause (PGA) in place in
both its Missouri and Illinois jurisdictions. The PGA allows the Registrant to
pass on to its customers its prudently incurred costs of natural gas. With
approval of the Missouri Public Service Commission, the Registrant is
participating in an experimental program to control the volatility of gas prices
paid by its Missouri customers in the 1998-1999 winter months through the
purchase of financial instruments.
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Since the Registrant does not have a provision similar to the PGA for its
electric operations, the Registrant has entered into several long-term contracts
with various suppliers to purchase coal and nuclear fuel to manage its exposure
to fuel prices. With regard to the Registrant's exposure to commodity risk for
purchased power, Ameren has established a subsidiary, AmerenEnergy, Inc., whose
primary responsibility includes managing market risks associated with the
changing market prices for purchased power for the Registrant.
AmerenEnergy utilizes several techniques to mitigate its market risk for
purchased power, including utilizing derivative financial instruments. A
derivative is a contract whose value is dependent on or derived from the value
of some underlying asset. The derivative financial instruments that AmerenEnergy
is allowed to utilize (which include forward contracts and futures contracts)
are dictated by a risk management policy, which has been reviewed with the
Auditing Committee of Ameren's Board of Directors. Compliance with the risk
management policy is the responsibility of a risk management steering committee,
consisting of Ameren officers and an independent risk management officer at
AmerenEnergy.
As of March 31, 1999, the fair value of derivative financial instruments exposed
to commodity price risk was immaterial. The Registrant expects an increase in
the derivative financial instruments used to manage risk in 1999 due to expected
growth at AmerenEnergy.
Equity Price Risk
The Registrant maintains trust funds, as required by the Nuclear Regulatory
Commission and Missouri and Illinois state laws, to fund certain costs of
nuclear decommissioning. As of March 31, 1999, these funds were invested
primarily in domestic equity securities, fixed-rate, fixed-income securities,
and cash and cash equivalents. By maintaining a portfolio that includes
long-term equity investments, the Registrant is seeking to maximize the returns
to be utilized to fund nuclear decommissioning costs. However, the equity
securities included in the Registrant's portfolio are exposed to price
fluctuations in equity markets, and the fixed-rate, fixed-income securities are
exposed to changes in interest rates. The Registrant actively monitors its
portfolio by benchmarking the performance of its investments against certain
indices and by maintaining, and periodically reviewing, established target
allocation percentages of the assets of its trusts to various investment
options. The Registrant's exposure to equity price market risk is in large part
mitigated due to the fact that the Registrant is currently allowed to recover
its decommissioning costs in its rates.
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 the Year 2000 Issue. 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 fuel and purchased power, electricity, and natural gas, including the
use of financial instruments; average rates for electricity in the Midwest;
business and economic conditions; interest rates; weather conditions; fuel
prices and availability; generation plant performance; monetary and fiscal
policies; future wages and employee benefits costs; and legal and administrative
proceedings.
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UNION ELECTRIC COMPANY
BALANCE SHEET
UNAUDITED
(Thousands of Dollars, Except Shares)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
- ------ ------------- ------------
<S> <C> <C>
Property and plant, at original cost:
Electric $9,027,828 $8,975,542
Gas 212,846 209,556
Other 35,968 35,994
---------- ----------
9,276,642 9,221,092
Less accumulated depreciation and amortization 4,174,696 4,110,250
---------- ----------
5,101,946 5,110,842
Construction work in progress:
Nuclear fuel in process 110,718 108,294
Other 113,805 127,168
---------- ----------
Total property and plant, net 5,326,469 5,346,304
---------- ----------
Investments and other assets:
Nuclear decommissioning trust fund 169,351 161,877
Other 44,506 45,688
---------- ----------
Total investments and other assets 213,857 207,565
---------- ----------
Current assets:
Cash and cash equivalents 45,917 47,337
Accounts receivable - trade (less allowance for doubtful
accounts of $6,892 and $6,678, respectively) 155,450 143,912
Unbilled revenue 72,710 97,361
Other accounts and notes receivable 72,996 55,502
Materials and supplies, at average cost -
Fossil fuel 53,009 53,036
Other 95,442 91,831
Other 10,254 13,529
---------- ----------
Total current assets 505,778 502,508
---------- ----------
Regulatory assets:
Deferred income taxes 607,501 608,353
Other 161,091 165,134
---------- ----------
Total regulatory assets 768,592 773,487
---------- ----------
Total Assets $6,814,696 $6,829,864
========== ==========
CAPITAL AND LIABILITIES
Capitalization:
Common stock, $5 par value, authorized 150,000,000 shares -
outstanding 102,123,834 shares $ 510,619 $ 510,619
Other paid-in capital, principally premium on
common stock 701,896 701,896
Retained earnings 1,191,568 1,211,610
---------- ----------
Total common stockholder's equity 2,404,083 2,424,125
Preferred stock not subject to mandatory redemption 155,197 155,197
Long-term debt 1,675,486 1,674,311
---------- ----------
Total capitalization 4,234,766 4,253,633
---------- ----------
Current liabilities:
Current maturity of long-term debt 116,194 117,269
Accounts and wages payable 138,777 242,522
Accumulated deferred income taxes 45,838 45,061
Taxes accrued 161,216 100,714
Other 186,502 151,385
---------- ----------
Total current liabilities 648,527 656,951
---------- ----------
Accumulated deferred income taxes 1,251,638 1,254,372
Accumulated deferred investment tax credits 142,789 144,175
Regulatory liability 155,915 159,317
Other deferred credits and liabilities 381,061 361,416
---------- ----------
Total Capital and Liabilities $6,814,696 $6,829,864
========== ==========
</TABLE>
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UNION ELECTRIC COMPANY
STATEMENT OF INCOME
UNAUDITED
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
-------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Electric $ 461,134 $ 436,317 $ 2,315,343 $ 2,183,921
Gas 44,917 42,094 93,998 94,243
Other 20 174 216 496
----------- ----------- ----------- -----------
Total operating revenues 506,071 478,585 2,409,557 2,278,660
OPERATING EXPENSES:
Operations
Fuel and purchased power 120,575 111,777 539,247 495,581
Gas 21,800 19,979 51,317 55,923
Other 97,924 100,109 459,802 409,588
----------- ----------- ----------- -----------
240,299 231,865 1,050,366 961,092
Maintenance 50,623 48,045 224,573 216,273
Depreciation and amortization 65,405 64,521 260,671 251,038
Income taxes 31,255 24,432 224,208 195,863
Other taxes 49,602 47,602 214,789 209,034
----------- ----------- ----------- -----------
Total operating expenses 437,184 416,465 1,974,607 1,833,300
OPERATING INCOME 68,887 62,120 434,950 445,360
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during
construction 2,669 1,017 6,637 4,601
Miscellaneous, net 1,328 (519) 12,751 7,896
----------- ----------- ----------- -----------
Total other income and deductions 3,997 498 19,388 12,497
INCOME BEFORE INTEREST CHARGES 72,884 62,618 454,338 457,857
INTEREST CHARGES:
Interest 30,923 34,160 126,710 137,656
Allowance for borrowed funds used during construction (1,782) (1,844) (5,883) (7,093)
----------- ----------- ----------- -----------
Net interest charges 29,141 32,316 120,827 130,563
INCOME BEFORE EXTRAORDINARY CHARGE 43,743 30,302 333,511 327,294
----------- ----------- ----------- -----------
EXTRAORDINARY CHARGE (NET OF
INCOME TAXES) -- -- -- (26,967)
----------- ----------- ----------- -----------
NET INCOME 43,743 30,302 333,511 300,327
PREFERRED STOCK DIVIDENDS 2,204 2,204 8,817 8,817
----------- ----------- ----------- -----------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS $ 41,539 $ 28,098 $ 324,694 $ 291,510
=========== =========== =========== ===========
</TABLE>
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UNION ELECTRIC COMPANY
STATEMENT OF CASH FLOWS
UNAUDITED
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Cash Flows From Operating:
Net income $ 43,743 $ 30,302
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 63,071 62,242
Amortization of nuclear fuel 10,416 9,617
Allowance for funds used during construction (4,451) (2,861)
Deferred income taxes, net (4,507) (1,922)
Deferred investment tax credits, net (1,386) (1,375)
Changes in assets and liabilities:
Receivables, net (4,381) 25,977
Materials and supplies (3,584) 3,127
Accounts and wages payable (103,745) (92,832)
Taxes accrued 60,502 48,259
Other, net 54,108 (18,690)
--------- ---------
Net cash provided by operating activities 109,786 61,844
Cash Flows From Investing:
Construction expenditures (49,473) (43,186)
Allowance for funds used during construction 4,451 2,861
Nuclear fuel expenditures (2,381) (4,422)
--------- ---------
Net cash used in investing activities (47,403) (44,747)
Cash Flows From Financing:
Dividends on common stock (61,581) (61,581)
Dividends on preferred stock (2,204) (2,204)
Redemptions -
Nuclear fuel lease (3,635) (10,407)
Long-term debt -- (25,000)
Issuances -
Nuclear fuel lease 3,617 1,161
Short-term debt -- 21,700
Long-term debt -- 65,000
--------- ---------
Net cash used in financing activities (63,803) (11,331)
Net increase in cash and cash equivalents (1,420) 5,766
Cash and cash equivalents at beginning of year 47,337 3,232
--------- ---------
Cash and cash equivalents at end of period $ 45,917 $ 8,998
========= =========
Cash paid during the periods:
Interest (net of amount capitalized) $ 20,217 $ 19,210
Income taxes, net $ (2,633) $ (3,072)
</TABLE>
-10-
<PAGE>
UNION ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1999
Note 1 - Union Electric Company (AmerenUE or the Registrant) is a wholly-owned
subsidiary of Ameren Corporation (Ameren), which is the parent company of two
utility operating companies, the Registrant and Central Illinois Public Service
Company (AmerenCIPS). Ameren is a registered holding company under the Public
Utility Holding Company Act of 1935 (PUHCA) formed in December 1997 upon the
merger of AmerenUE and CIPSCO Incorporated (the Merger). Both Ameren and its
subsidiaries are subject to the regulatory provisions of the PUHCA. The
operating companies 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.
Contracts among the companies--dealing with jointly-owned generating facilities,
interconnecting transmission lines, and the exchange of electric power--are
regulated by the Federal Energy Regulatory Commission (FERC) or the Securities
and Exchange Commission (SEC). Administrative support services are provided to
the Registrant by a separate Ameren subsidiary, Ameren Services Company. The
Registrant serves 1.1 million electric and 124,000 gas customers in a 24,500
square-mile area of Missouri and Illinois, including Metropolitan St. Louis.
The Registrant also has a 40 percent interest in Electric Energy, Inc. (EEI),
which is accounted for under the equity method of accounting. EEI owns and
operates an electric generating and transmission facility in Illinois that
supplies electric power primarily to a uranium enrichment plant located in
Paducah, Kentucky.
Note 2 - Financial statement note disclosures, normally included in 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 Financial Statements included in the 1998
Form 10-K for information relevant to the 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. Registrant's 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 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 March 31, 1999 and 1998, are not necessarily indicative of trends for any
three-month or twelve-month period.
Note 5 - On July 21, 1995, the Missouri Public Service Commission (MoPSC)
approved an agreement involving the Registrant'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) will be shared equally between customers and shareholders and earnings
above 14 percent ROE will be credited to customers. The formula for computing
the credit uses twelve-month results ending June 30, rather than calendar year
earnings.
The MoPSC staff has proposed adjustments to the Registrant's estimated $43
million credit for the final year of the original experimental alternative
regulation plan, which if ultimately accepted, could increase the Registrant's
estimated credit up to $10 million. This credit is subject to regulatory
proceedings before the MoPSC which are scheduled to occur in June 1999.
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 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. As of March 31, 1999, the
Registrant has recorded an estimated $20 million credit for the first year of
the new plan, compared to a $10 million credit recorded in 1998 for the third
year of the original plan. This credit, which the Registrant expects to pay to
Missouri customers later this year, was reflected as a reduction in electric
revenues. The final amount of the credit will depend on several factors,
including the Registrant's earnings for 12 months ended June 30, 1999.
-11-
<PAGE>
The joint agreement approved by the MoPSC in its February 1997 order approving
the Merger also provided for a Missouri electric rate decrease, retroactive to
September 1, 1998, based on the weather-adjusted average annual credits to
customers under the original experimental alternative rate plan. The Registrant
estimates that its Missouri electric rate decrease should approximate $15
million to $20 million on an annualized basis. However, the MoPSC staff has
proposed adjustments to the Registrant's estimate based upon their methodology
of calculating the weather-adjusted credits. In addition, the results of the
regulatory proceedings associated with the final year of the original
experimental alternative regulation plan will impact the final Missouri electric
rate decrease as well. The regulatory proceedings are scheduled to occur in June
1999. The staff's proposed adjustments, if ultimately accepted, could increase
the Registrant's proposed Missouri electric rate decrease by $15 million to $20
million.
In conjunction with the Electric Service Customer Choice and Rate Relief Law of
1997, a 5 percent residential electric rate decrease for the Registrant's
Illinois electric customers was effective August 1, 1998. This rate decrease is
expected to decrease electric revenues $3 million annually, based on estimated
levels of sales and assuming normal weather conditions. The Registrant may be
subject to additional 5 percent residential electric rate decreases in each of
2000 and 2002, to the extent its rates exceed the Midwest utility average at
that time. The Registrant's rates are currently below the Midwest utility
average.
Note 6 - Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" became effective on January 1,
1999. 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,
may be capitalized and amortized over some future period. SOP 98-1 did not have
a material impact on the Registrant's financial position or results of
operations upon adoption.
The Emerging Issues Task Force of the Financial Accounting Standards Board
(EITF) Issue 98-10, "Accounting for Energy Trading and Risk Management
Activities" became effective on January 1, 1999. EITF 98-10 provides guidance on
the accounting for energy contracts entered into for the purchase or sale of
electricity, natural gas, capacity and transportation. The EITF reached a
consensus in EITF 98-10 that sales and purchase activities being performed need
to be classified as either trading or non-trading. Furthermore, transactions
that are determined to be trading activities would be recognized on the balance
sheet measured at fair value, with gains and losses included in earnings. EITF
98-10 includes factors or indicators to consider when determining if a
transaction is a trading or non-trading activity. Currently, AmerenEnergy Inc.,
an energy marketing subsidiary of Ameren, enters into contracts for the sale and
purchase of energy on behalf of the Registrant. These transactions are
considered non-trading activities and are accounted for using the accrual or
settlement method, which represents industry practice. Should any of
AmerenEnergy's future activities be considered trading activities based on the
indicators provided in EITF 98-10, a change in accounting practice would be
required. EITF 98-10 did not have a material impact on the Registrant's
financial position or results of operations upon adoption.
Note 7 - Certain reclassifications were made to prior-year financial statements
to conform to current-period presentation.
-12-
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders of the Registrant held on April
22, 1999, the following matter was presented to the meeting for a vote and the
results of such voting are as follows:
Item (1) Election of Directors.
Non-Voted
Name For Withheld Brokers
Paul A. Agathen............... 104,208,507 16,991 0
Warner L. Baxter.............. 104,206,922 18,499 0
Donald E. Brandt.............. 104,207,632 17,791 0
Charles W. Mueller............ 104,208,507 16,991 0
Gary L. Rainwater............. 104,207,257 18,091 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements, 12 Months Ended March
31, 1999.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. None.
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.
UNION ELECTRIC COMPANY
(Registrant)
By /s/ Donald E. Brandt
----------------------
Donald E. Brandt
Senior Vice President
Finance and Corporate Services
(Principal Financial Officer)
Date: May 14, 1999
-13-
UNION ELECTRIC COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
12 Months
Year Ended December 31, Ended
March 31,
1994 1995 1996 1997 1998 1999
Thousands of Dollars Except Ratios
<S> <C> <C> <C> <C> <C> <C>
Net Income $320,757 $314,107 $304,876 $301,655 $320,070 $333,511
Add- Extraordinary items net of tax -- -- -- 26,967 -- --
-------- -------- -------- -------- -------- --------
Net Income from continuing operations 320,757 314,107 304,876 328,622 320,070 333,511
-------- -------- -------- -------- -------- --------
Taxes based on income 203,827 207,734 196,210 199,763 212,554 220,110
-------- -------- -------- -------- -------- --------
Net income before income taxes 524,584 521,841 501,086 528,385 532,624 553,621
Add- fixed charges:
Interest on long term debt 117,838 121,738 120,547 125,705 124,766 122,272
Other interest 17,770 7,501 7,828 9,299 1,660 936
Rentals 1,299 3,330 3,458 3,727 3,416 3,416
Amortization of net debt premium, discount,
expenses and osses 5,504 5,502 4,269 3,672 3,522 3,503
-------- -------- -------- -------- -------- --------
Total fixed charges 142,411 138,071 136,102 142,403 133,364 130,127
-------- -------- -------- -------- -------- --------
Earnings available for fixed charges 666,995 659,912 637,188 670,788 665,988 683,748
=========== ========== ========== ========== ========== ===========
Ratio of earnings to fixed charges 4.68 4.78 4.68 4.71 4.99 5.25
=========== ========== ========== ========== ========== ===========
Earnings required for preferred dividends:
Preferred stock dividends 13,252 13,250 13,249 8,817 8,817 8,817
Adjustment to pre-tax basis 7,262 7,558 7,363 4,257 4,649 4,621
-------- -------- -------- -------- -------- --------
20,514 20,808 20,612 13,074 13,466 13,438
Fixed charges plus preferred stock dividend
requirements 162,925 158,879 156,714 155,477 146,830 143,565
=========== ========== ========== ========== ========== ===========
Ratio of earnings to fixed charges plus
preferred stock dividend requirements 4.09 4.15 4.06 4.31 4.53 4.76
=========== ========== ========== ========== ========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Exhibit 27
UNION ELECTRIC COMPANY
10-Q MARCH 31, 1999
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)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,326,469
<OTHER-PROPERTY-AND-INVEST> 169,351
<TOTAL-CURRENT-ASSETS> 505,778
<TOTAL-DEFERRED-CHARGES> 44,506
<OTHER-ASSETS> 768,592
<TOTAL-ASSETS> 6,814,696
<COMMON> 510,619
<CAPITAL-SURPLUS-PAID-IN> 701,896
<RETAINED-EARNINGS> 1,191,568
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,404,083
0
155,197
<LONG-TERM-DEBT-NET> 1,624,799
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 100,000
0
<CAPITAL-LEASE-OBLIGATIONS> 50,687
<LEASES-CURRENT> 16,194
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,463,736
<TOT-CAPITALIZATION-AND-LIAB> 6,814,696
<GROSS-OPERATING-REVENUE> 506,071
<INCOME-TAX-EXPENSE> 31,255
<OTHER-OPERATING-EXPENSES> 405,929
<TOTAL-OPERATING-EXPENSES> 437,184
<OPERATING-INCOME-LOSS> 68,887
<OTHER-INCOME-NET> 3,997
<INCOME-BEFORE-INTEREST-EXPEN> 72,884
<TOTAL-INTEREST-EXPENSE> 29,141
<NET-INCOME> 43,743
2,204
<EARNINGS-AVAILABLE-FOR-COMM> 41,539
<COMMON-STOCK-DIVIDENDS> 61,581
<TOTAL-INTEREST-ON-BONDS> 0 <F1>
<CASH-FLOW-OPERATIONS> 109,786
<EPS-PRIMARY> 0.00 <F2>
<EPS-DILUTED> 0.00 <F2>
<FN>
<F1> Required in fiscal year-end only.
<F2> Information not normally disclosed in financial statements and notes.
</FN>
</TABLE>
