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 the Quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ........ to ........
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-8946 CILCORP Inc. 37-1169387
(An Illinois Corporation)
300 Hamilton Blvd, Suite 300
Peoria, Illinois 61602
(309) 675-8810
1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050
(An Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 675-8810
Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
CILCORP Inc. Common stock, no par value, 13,035,756
shares outstanding at October 31, 1994
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value, 13,563,871
shares outstanding and privately
held by CILCORP Inc. at October 31, 1994
<PAGE>
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1: Financial Statements
CILCORP INC.
Consolidated Balance Sheets 3-5
Consolidated Statements of Income 6-7
Consolidated Statements of Cash Flows 8-9
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets 10-11
Consolidated Statements of Income 12
Consolidated Statements of Cash Flows 13-14
Notes to Consolidated Financial Statements
CILCORP Inc. and Central Illinois Light Company 15-17
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
CILCORP Inc. and Central Illinois Light Company 17-29
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 29-30
Item 5: Other Information 31-32
Item 6: Exhibits and Reports on Form 8-K 33
Signatures 34-35
Exhibit 12: Central Illinois Light Company, Computation
of Ratio of Earnings to Fixed Charges 36
Exhibit 27a: CILCORP Financial Data Schedule 37
Exhibit 27b: CILCO Financial Data Schedule 38
<TABLE>
CILCORP INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and Temporary Cash Investments $ 2,966 $ 1,440
Receivables, Less Reserves of $2,553 and $2,255 58,023 58,350
Accrued Unbilled Revenue 31,819 38,179
Fuel, at Average Cost 13,991 8,323
Materials and Supplies, at Average Cost 16,968 16,674
Gas in Underground Storage, at Average Cost 22,063 24,548
Prepayments and Other 10,643 9,441
---------- ---------
Total Current Assets 156,473 156,955
---------- ---------
Investments and Other Property:
Investment in Leveraged Leases 119,328 114,803
Cash Surrender Value of Company-Owned
Life Insurance, net of related policy
loans of $28,355 and $24,923 1,784 1,263
Other 3,673 6,190
---------- ----------
Total Investments and Other Property 124,785 122,256
---------- ----------
Property, Plant and Equipment:
Utility Plant, at Original Cost
Electric 1,089,731 1,068,818
Gas 353,745 348,541
---------- ----------
1,443,476 1,417,359
Less - Accumulated Provision for Depreciation 652,237 618,912
---------- ----------
791,239 798,447
Construction Work in Progress 55,983 31,896
Plant Acquisition Adjustments, being Amortized
to 1999 3,533 4,068
Other, Net of Depreciation 23,512 24,173
---------- ----------
Total Property, Plant and Equipment 874,267 858,584
---------- ----------
Other Assets:
Prepaid Pension Cost 14,185 13,953
Cost in Excess of Net Assets of Acquired Businesses,
Net of Accumulated Amortization of $4,006 and $3,479 24,724 25,251
Other 19,427 21,441
---------- ----------
Total Other Assets 58,336 60,645
---------- ----------
Total Assets $1,213,861 $1,198,440
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral part of
these balance sheets.
</TABLE>
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current Portion of Long-Term Borrowings $ 18,043 $ 193
Notes Payable 39,300 31,200
Accounts Payable 47,131 47,668
Accrued Taxes 7,038 5,666
Accrued Interest 4,004 9,632
Purchased Gas Adjustment Over-Recoveries and
Refunds Due Customers 4,212 3,268
Other 13,577 12,080
---------- ----------
Total Current Liabilities 133,305 109,707
---------- ----------
Long-Term Borrowings 307,704 325,711
---------- ----------
Deferred Credits:
Deferred Income Taxes 234,968 229,897
Net Regulatory Liability of Regulated Subsidiary 69,070 69,477
Deferred Investment Tax Credit 26,601 27,871
Customers' Advances for Construction and Other 29,733 27,781
---------- ----------
Total Deferred Credits 360,372 355,026
---------- ----------
Preferred Stock of Subsidiary 66,120 66,120
---------- ----------
Stockholders' Equity:
Common Stock, no par value; Authorized
50,000,000 shares - Outstanding
13,035,756 and 12,971,501 167,987 165,662
Retained Earnings 178,373 176,214
---------- ----------
Total Stockholders' Equity 346,360 341,876
---------- ----------
Total Liabilities and Stockholders' Equity $1,213,861 $1,198,440
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral part of
these balance sheets.
</TABLE>
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARY COMPANIES
Consolidated Statements Of Income
(Unaudited)
(In thousands)*
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Electric $92,749 $ 94,424 $244,490 $233,660
Gas 15,393 15,376 110,543 103,558
Environmental and Engineering Services 35,204 30,631 98,420 89,929
Other 2,508 1,309 6,983 5,213
------- -------- -------- --------
Total 145,854 141,740 460,436 432,360
Operating Expenses:
Fuel for Generation and Purchased Power 27,565 27,588 81,839 74,922
Gas Purchased for Resale 5,712 5,462 60,071 53,375
Other Operation and Maintenance 60,619 55,591 174,685 164,054
Disallowed plant cost of
regulated subsidiary 4,636 0 4,636 0
Depreciation and Amortization 15,558 15,091 46,614 45,017
Taxes, Other than Income Taxes 8,890 8,530 28,388 27,286
------- -------- -------- --------
Total 122,980 112,262 396,233 364,654
------- -------- -------- --------
Operating Income 22,874 29,478 64,203 67,706
------- -------- -------- --------
Fixed Charges and Other:
Interest Expense 6,889 6,924 19,639 20,602
Preferred Stock Dividends of Subsidiary 761 1,121 2,190 3,342
Allowance for Funds Used During Construction (154) (73) (323) (177)
Other 220 236 492 303
------- -------- -------- --------
Total 7,716 8,208 21,998 24,070
------- -------- -------- --------
Income Before Income Taxes 15,158 21,270 42,205 43,636
Income Taxes 5,588 8,565 15,993 17,486
------- -------- -------- --------
Net Income Including Minority Interest 9,570 12,705 26,212 26,150
Minority Interest 0 60 0 163
------- -------- -------- --------
Net Income Available for Common Shareholders $ 9,570 $ 12,645 $ 26,212 $ 25,987
======= ======== ======== ========
Average Common Shares Outstanding (000) 13,036 12,909 13,023 12,909
Earnings Per Average Common Share $ .73 $ .98 $ 2.01 $ 2.01
Dividends Per Common Share $ .615 $ .615 $ 1.845 $ 1.845
<FN>
*Except Per Share Amounts
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARY COMPANIES
Consolidated Statements Of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
For Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income before dividends on subsidiary preferred stock $28,403 $29,329
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Non-Cash Lease Income & Investment Income (4,911) (4,655)
Disallowed Plant Cost of Regulated Subsidiary 4,636 0
Depreciation and Amortization 46,614 45,017
Deferred Income Tax, Investment Tax Credit and
Regulatory Liability of Regulated Subsidiary, Net 3,394 2,939
Changes in Operating Assets and Liabilities:
Decrease in Accounts Receivable and Accrued
Unbilled Revenue 6,687 254
Increase in Inventories (3,477) (4,104)
Decrease in Accounts Payable (537) (337)
Increase (Decrease) in Accrued Taxes 1,372 (2,771)
Increase (Decrease) in Purchased Gas Adjustment
Over-Recoveries and Refunds Due Customers 944 (6,054)
Changes in Other Assets and Liabilities, Net (5,844) (8,118)
------- -------
Total Adjustments 48,878 22,171
------- -------
Net Cash Provided by Operating Activities 77,281 51,500
------- -------
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment (63,557) (58,961)
Purchase of Long-Term Investments 0 (3,805)
Proceeds from Sale of Long-Term Investments 575 2,823
Other 3,202 (3,354)
------- -------
Net Cash Used in Investing Activities (59,780) (63,297)
------- -------
Cash Flows from Financing Activities:
Increase in Short-Term Debt 8,100 9,749
Proceeds from Issuance of Long-Term Debt 0 107,805
Repayment of Long-Term Debt (157) (88,925)
Change in Minority Interest & Other 0 163
Issuance of Preferred Stock by Wholly-Owned Subsidiary 0 46,134
Preferred Stock Retired 0 (46,051)
Common Dividends Paid (24,053) (23,818)
Preferred Dividends Paid (2,190) (3,339)
Proceeds from Issuance of Stock 2,325 0
------- -------
Net Cash Used in Financing Activities (15,975) 1,718
------- -------
Net Increase (Decrease) in Cash and Temporary
Cash Investments 1,526 (10,079)
Cash and Temporary Cash Investments at Beginning of Year 1,440 24,401
------- -------
Cash and Temporary Cash Investments at September 30, $ 2,966 $14,322
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $24,852 $23,623
Income Taxes 12,172 13,749
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(Unaudited)
(In thousands)
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Utility plant, at original cost:
Electric $1,089,731 $1,068,818
Gas 353,745 348,541
---------- ----------
1,443,476 1,417,359
Less - accumulated provision for depreciation 652,237 618,912
---------- ----------
791,239 798,447
Construction work in progress 55,983 31,896
Plant acquisition adjustments, net of amortization 3,533 4,068
---------- ----------
Total Utility Plant 850,755 834,411
---------- ----------
Other Property and Investments
Cash surrender value of Company-owned life
insurance (net of related policy loans of $28,355
and $24,923) 1,784 1,263
Other 1,055 1,056
---------- ----------
Total Other Property and Investments 2,839 2,319
---------- ----------
Current Assets:
Cash and temporary cash investments 814 594
Receivables, less reserves of $506 and $585 32,960 34,197
Accrued unbilled revenue 14,133 25,111
Fuel, at average cost 13,991 8,323
Materials and supplies, at average cost 16,968 16,674
Gas in underground storage, at average cost 22,063 24,548
Prepaid taxes 2,390 856
Other 8,198 6,945
---------- ----------
Total Current Assets 111,517 117,248
---------- ----------
Deferred Debits:
Unamortized loss on reacquired debt 6,600 6,950
Unamortized debt expense 2,092 2,185
Prepaid pension cost 14,185 13,953
Other 9,465 11,259
---------- ----------
Total Deferred Debits 32,342 34,347
---------- ----------
Total Assets $ 997,453 $ 988,325
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(Unaudited)
(In thousands)
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's equity
Common stock, no par value, authorized 20,000,000
shares, outstanding 13,563,871 shares $ 185,661 $ 185,661
Retained earnings 125,103 108,645
---------- ----------
Total common shareholder's equity 310,764 294,306
Preferred stock without mandatory redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt, net 278,350 278,321
---------- ----------
Total Capitalization 655,234 638,747
---------- ----------
Current Liabilities:
Notes payable 11,200 12,400
Accounts payable 41,978 40,971
Accrued taxes 6,074 6,083
Accrued interest 4,232 8,616
PGA over-recoveries and refunds due customers 4,212 3,268
Level payment plan 1,712 2,944
Other 4,614 5,106
---------- ----------
Total Current Liabilities 74,022 79,388
---------- ----------
Deferred Liabilities and Credits:
Accumulated deferred income taxes 142,653 144,969
Net regulatory liability 69,070 69,477
Investment tax credits 26,601 27,871
Capital lease obligation 2,739 2,954
Other 27,134 24,919
---------- ----------
Total Deferred Liabilities and Credits 268,197 270,190
---------- ----------
Total Capitalization and Liabilities $ 997,453 $ 988,325
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Income
(Unaudited)
(In thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Operating Revenues:
Electric $ 92,749 $ 94,424 $244,490 $233,660
Gas 15,393 15,376 110,543 103,558
-------- -------- -------- --------
Total Operating Revenue 108,142 109,800 355,033 337,218
-------- -------- -------- --------
Operating Expenses:
Cost of fuel 25,071 25,184 75,640 68,198
Cost of gas 5,712 5,462 60,071 53,375
Purchased power 2,494 2,404 6,199 6,724
Other operation and maintenance 27,270 27,279 82,266 79,333
Depreciation and amortization 13,852 13,257 41,506 39,810
Income taxes 7,709 9,044 18,129 18,079
Other taxes 7,807 7,315 24,784 23,508
-------- -------- -------- --------
Total Operating Expense 89,915 89,945 308,595 289,027
-------- -------- -------- --------
Operating Income 18,227 19,855 46,438 48,191
Other Income and Deductions:
Cost of equity funds capitalized - - 23 -
Company-owned life insurance, net (220) (236) (492) (303)
Disallowed plant cost (4,636) - (4,636) -
Income tax reduction for disallowed
plant cost 1,840 - 1,840 -
Other, net (981) 197 (1,023) 351
-------- -------- -------- --------
Total Other Income (Deductions) (3,997) (39) (4,288) 48
-------- -------- -------- --------
Interest Expenses:
Interest on long-term debt 4,809 5,149 14,413 14,935
Cost of borrowed funds capitalized (154) (73) (300) (177)
Other 589 688 1,379 2,264
-------- -------- -------- --------
Total Interest Expense 5,244 5,764 15,492 17,022
-------- -------- -------- --------
Net Income 8,986 14,052 26,658 31,217
-------- -------- -------- --------
Dividends on Preferred Stock 761 1,121 2,190 3,342
-------- -------- -------- --------
Net Income Available for Common Stock $ 8,225 $ 12,931 $ 24,468 $ 27,875
======== ======== ======== ========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 26,658 $ 31,217
Adjustments to reconcile net income to net
cash provided by operating activities:
Disallowed plant costs 4,636 -
Income tax reduction for disallowed plant costs (1,840) -
Depreciation and amortization 42,040 40,344
Deferred taxes, investment tax credits
and regulatory liability, net (2,796) (2,768)
Decrease (increase) in accounts receivable 1,237 (17,238)
Increase in fuel, materials and
supplies, and gas in underground storage (3,477) (4,104)
Decrease in unbilled revenue 10,978 10,933
Increase (decrease) in accounts payable 1,007 (416)
Decrease in accrued taxes and interest (3,750) (1,026)
Decrease (increase) in other assets and
liabilities, net 1,967 (7,076)
--------- --------
Net cash provided by operating activities 76,660 49,866
--------- --------
Cash flows from investing activities:
Capital expenditures (60,468) (55,884)
Cost of equity funds capitalized (23) -
Other (4,190) (3,934)
--------- --------
Net cash used in investing activities (64,681) (59,818)
--------- --------
Cash flows from financing activities:
Common dividends paid (8,010) (15,878)
Preferred dividends paid (2,190) (3,339)
Long-term debt issued - 107,355
Preferred stock issued - 46,134
Long-term debt retired - (77,756)
Preferred stock retired - (46,051)
Payments on capital lease obligation (359) -
(Decrease) increase in short-term borrowing (1,200) 1,600
--------- ---------
Net cash provided (used) in
financing activities (11,759) 12,065
--------- ---------
Net increase in cash and temporary cash
investments 220 2,113
<PAGE>
Cash and temporary cash investments at beginning
of year 594 1,776
--------- ---------
Cash and temporary cash investments at
September 30 $ 814 $ 3,889
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of cost of borrowed funds
capitalized) $ 20,354 $ 19,162
Income taxes 21,261 11,891
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. INTRODUCTION
The consolidated financial statements include the accounts of CILCORP Inc.
(CILCORP or Company), Central Illinois Light Company (CILCO), Environmental
Science & Engineering, Inc. (ESE) and CILCORP's other subsidiaries after
elimination of significant intercompany transactions. The consolidated
financial statements of CILCO, a wholly-owned CILCORP subsidiary, include the
accounts of CILCO and its subsidiaries, CILCO Exploration and Development
Company and CILCO Energy Corporation.
The accompanying unaudited financial statements have been prepared according
to the rules and regulations of the Securities and Exchange Commission.
Although CILCORP believes the disclosures are adequate to make the information
presented not misleading, these financial statements should be read with the
financial statements and related notes presented in the Company's 1993 Annual
Report on Form 10-K.
In the Company's opinion, the financial statements furnished reflect all
normal and recurring adjustments necessary for a fair presentation of the
results of operations for the periods presented. Operating results for
interim periods are not necessarily indicative of operating results to be
expected for the year or of the Company's future financial condition.
NOTE 2. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE
In January 1994, CILCO adopted Financial Accounting Standards Board (FASB)
Statement No. 112, "Employer's Accounting for Postemployment Benefits"
(SFAS 112). This standard requires accrual of benefits other than pensions or
health care provided to former or inactive employees. In January 1994, CILCO
recorded a pre-tax expense of approximately $750,000, which represented the
cumulative effect of applying SFAS 112. During the third quarter of 1994,
CILCO received revised actuarial assumptions related to its SFAS 112 benefits
which will increase the total December 31, 1994, pre-tax expense approximately
$300,000. The additional expense is being recorded in the third and fourth
quarters of 1994. The financial effect of benefits ESE provides to former or
inactive employees is not material.
NOTE 3. FEDERAL ENERGY REGULATORY COMMISSION ORDER 636
In 1992, the Federal Energy Regulatory Commission (FERC) issued Orders 636,
636A, and 636B (collectively Order 636). The orders have been appealed to the
United States Court of Appeals by various parties. As a result of Order 636
and subsequent regulatory filings by interstate pipelines, the pipelines
serving CILCO have generally ceased sales of gas and have become transporters
only. CILCO currently arranges for the purchase of gas from a variety of
suppliers and has contracted for additional gas storage capacity to meet
customer demand for gas. CILCO believes it is well-positioned to ensure the
continued acquisition of adequate and reliable gas supplies despite the
regulatory changes.
Order 636 also permits pipelines to file new tariffs to provide for the
recovery from their customers, including CILCO, of prudently incurred costs
resulting from the transition to services under Order 636 ("transition
costs"). CILCO's pipeline suppliers have filed with the FERC and directly
billed CILCO, subject to refund, for approximately $1.4 million of transition
costs, including interest, as of September 30, 1994. Transition costs are
being recovered from CILCO's customers through the Purchased Gas Adjustment
Clause (PGA). The PGA allows CILCO to immediately reflect increases or
decreases in the cost of natural gas, including transition costs, in its
charges to customers. All directly-billed transition costs have been
collected from customers and remitted to suppliers. Pipeline suppliers have
also incorporated indirect charges in their base service rates. CILCO
estimates that it could ultimately be billed up to $3 million of direct and
indirect transition costs, excluding interest.
In orders entered on March 9, 1994, and September 21, 1994, the Illinois
Commerce Commission (ICC) confirmed the right of Illinois gas utilities to
recover 100% of pipeline transition costs.
NOTE 4. CONTINGENCIES
CILCO continues to investigate former gas manufacturing plant sites to
determine if it is responsible for the remediation of any remaining waste
materials (coal tar) at those sites. The sites of five former gas
manufacturing plants are located within CILCO's present gas service territory.
CILCO previously operated three of the five plants, and of the three sites, it
currently owns two. CILCO completed remedial action in 1993, at a cost of
$3.3 million, at one of the two owned sites at which it operated a plant.
CILCO completed an investigation plan in 1992 to define the extent of
contamination for the other owned site at which it formerly operated a plant.
The plan has been approved by the Illinois Environmental Protection Agency and
CILCO is formulating a risk assessment which will be used to define a
remediation plan for the second owned site. Until more detailed site specific
testing has been completed, CILCO cannot determine the ultimate extent or cost
of any remediation for the third site where it operated a plant. CILCO does
not currently own the two sites at which it did not operate a plant. (See
Part II., Item 1: Legal Proceedings.) Of these two sites, CILCO has no
responsibility for remediation at one and has not yet determined if it has
responsibility for the other.
CILCO expects to spend approximately $200,000 for site monitoring and
feasibility studies in 1994. CILCO has recorded a $4.4 million liability and
a corresponding regulatory asset on its balance sheet for coal tar
investigation and remediation costs. The $4.4 million represents the minimum
amount of the estimated range of such future costs which CILCO expects to
incur.
CILCO is presently allowed to recover prudently incurred coal tar remediation
costs paid to outside parties pursuant to a rate rider which authorizes
recovery over a five-year period. The rate rider does not allow recovery of
carrying costs on the unrecovered balance. Coal tar remediation costs
incurred through September 1994 have been deferred on the balance sheets, net
of amounts recovered from customers. CILCO began recovering remediation costs
under its coal tar rider on October 1, 1991, and through September 30, 1994,
had recovered approximately $3.9 million. The recoverability of coal tar
remediation costs and the method of recovery are presently issues in a case
pending before the Illinois Supreme Court in which CILCO and other utilities
are parties. Although CILCO cannot predict the outcome of that case, it
believes that under existing law and regulatory practices most, or all, of its
future coal tar remediation costs will continue to be recoverable from
customers and no refunds of previously collected amounts in respect to
remediation costs should be required. Therefore, although the total cost to
CILCO of any action with respect to the unremediated sites and the possibility
of recovering that cost from insurance carriers or any potentially responsible
parties cannot now be determined, management believes that such cost will not
have a material adverse effect on CILCO's financial position or results of
operations.
NOTE 5. ACCOUNTING FOR CERTAIN INVESTMENTS IN MARKETABLE SECURITIES
On January 1, 1994, the Company and CILCO adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," (SFAS 115). SFAS 115 requires an enterprise to classify
debt and equity securities into one of three categories based on its intended
use for those securities. It also requires the enterprise to adjust the
carrying value of certain owned securities to market value. The statement has
not had a material effect on the Company's, or CILCO's, financial position or
results of operations.
NOTE 6. RATE MATTERS
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations CILCO - Other Income and Deductions for a
discussion of disallowed plant costs, a civil fine and other costs related to
CILCO's Springfield, Illinois, gas operations.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CILCORP Inc. (the Company) is the parent of two core operating businesses,
Central Illinois Light Company (CILCO) and Environmental Science &
Engineering, Inc. (ESE). The Company also has three other first-tier
subsidiaries, CILCORP Investment Management Inc. (CIM), CILCORP Development
Services Inc. (CDS) and CILCORP Ventures Inc. (CVI), whose operations,
combined with those of the holding company (Holding Company) itself, are
collectively referred to herein as Other Businesses.
CILCO, the primary subsidiary, is an electric and gas utility serving
customers in central and east central Illinois. ESE is a national
environmental consulting and engineering firm serving governmental,
industrial, and commercial customers. CIM invests in a diversified portfolio
of long-term financial investments which currently include leveraged leases
and energy related interests. CDS is presently inactive. CVI is a venture
capital company which pursues investment opportunities in new ventures and the
expansion of existing ventures in energy services, biotechnology and health
care.
CILCO's financial condition and results of operations are currently the
principal factors affecting the Company's financial condition and results of
operations.
Overview
--------
The Company's earnings per share were $.73 for the quarter ended September
30, 1994, compared to $.98 per share earned during the same period in 1993.
This decrease was primarily caused by one-time charges at CILCO to reflect the
settlement of legal and regulatory actions related to CILCO's Springfield,
Illinois, gas operations (See Part II. Item 1: Legal Proceedings) partially
offset by higher net income at ESE & CIM. The Company's earnings per share
were $2.01 for the nine months ended September 30, 1994, and 1993. Higher
earnings by ESE and Other Businesses, lower interest expense and lower
preferred dividends helped offset the one-time charges at CILCO during the
nine months ended September 30, 1994.
The following table summarizes the components of net income for the three
months and nine months ended September 30, 1994 and 1993 (see Results of
Operations for further discussion):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(in thousands)
<S> <C> <C> <C> <C>
CILCO
Electric Operating Income $20,131 $20,677 $ 41,561 $40,682
Gas Operating Income (Loss) (1,904) (822) 4,877 7,509
------- ------- -------- -------
Utility Operating Income 18,227 19,855 46,438 48,191
Other Deductions and Interest
Expense (9,241) (5,803) (19,780) (16,974)
CILCO Preferred Stock Dividends (761) (1,121) (2,190) (3,342)
------- ------- -------- -------
Total Utility Net Income $ 8,225 $12,931 $ 24,468 $27,875
ESE Net Income (Loss) 967 (184) 1,444 (1,190)
------- ------- -------- -------
Core Businesses' Income 9,192 12,747 25,912 26,685
Other Businesses' Net
Income (Loss) 378 (102) 300 (698)
------- ------- -------- -------
Consolidated Net Income
Available to Common Shareholders$ 9,570 $12,645 $26,212 $25,987
======= ======= ======= =======
</TABLE>
Capital Resources & Liquidity
Declaration of dividends is at the discretion of the Board of Directors. The
Company's ability to declare and pay dividends is contingent upon its receipt
of dividend payments from its subsidiaries, business conditions, earnings, and
the financial condition of the Company. The Company believes that internal
and external sources of capital which are, or are expected to be, available to
the Holding Company and its subsidiaries will be adequate to meet the
Company's capital expenditures program, pay interest and dividends, meet
working capital needs and retire debt as it matures.
The Company
Short-term borrowing capability is available to the Company for additional
cash requirements. On September 30, 1994, CILCORP had committed bank lines of
credit of $40 million, of which $28.1 million was outstanding. During
October 1994, CILCORP's Board of Directors authorized an increase in CILCORP's
short-term borrowing limit from $40 million to $50 million. CILCORP is in the
process of increasing its committed bank lines of credit to $50 million.
Depending on market conditions, the Company may choose to issue new shares of
common stock through the CILCO Employees' Savings Plan (ESP) and the CILCORP
Automatic Reinvestment and Stock purchase Plan (DRIP) or to have the plans
purchase CILCORP stock on the open market. However, the Company may not
change its strategy more frequently than every three months. From December
1993 through March 1994, CILCORP issued to the plans 126,475 shares of common
stock for $4.7 million. In March, the Company suspended issuance of common
stock to the ESP and DRIP. The requirements of the plans are now being met
through open market purchases. The proceeds from newly issued stock were used
to retire CILCORP short-term debt, to meet working capital and capital
expenditure requirements at CILCO, and for other corporate purposes.
To date, the Company has issued $26 million of unsecured medium-term notes
under its $75 million private medium-term note program. The Company may issue
additional notes during 1994-1997 under this program to retire maturing debt
of CILCORP Lease Management Inc. (CLM), a wholly-owned subsidiary of CIM, and
to provide funds for other corporate purposes. Moody's Investors Service
lowered its rating on CILCORP's medium-term notes to A1 from Aa3 on September
19, 1994.
CILCO
Capital expenditures totaled $60 million for the nine-month period ended
September 30, 1994. Capital expenditures are anticipated to be approximately
$27 million for the remainder of 1994, including $870,000 to retire and
replace portions of CILCO's gas cast iron main system and $6 million to
replace CILCO's Customer Information System (CIS). CILCO expects to replace
the remaining cast iron main in its gas system by 2001 at an estimated total
cost of $48 million. CILCO expects to complete the CIS project in 1995 at a
total cost of $13 million. CILCO will finance its 1994 capital requirements
with funds provided by operating activities and issuance of secured debt.
Capital expenditures for the years 1995 and 1996 are estimated to be
$70 million and $78 million, respectively.
On December 17, 1993, CILCORP announced an agreement with Midwest Grain
Products, Inc. (MWG), one of CILCO's largest customers, to develop a gas-fired
cogeneration plant. The plant will provide steam heat service to MWG's Pekin,
Illinois, facility and also will generate electricity. In May 1994, after the
Illinois Commerce Commission (ICC) approved the facility as a least-cost
generation alternative, CILCO paid CILCORP Development Services Inc. (CDS)
$2.8 million for all expenditures incurred for the project plus a return on
CDS's investment. CILCO will complete construction of the steam boilers and
other equipment in 1994. In early 1995, a 20 megawatt turbine generator and
related equipment will be installed; the plant will begin generating
electricity by mid-1995. The project is on schedule, but its cost
has increased by approximately $900,000 due to the relocation of the building
site, higher turbine/generator costs, and the inability to reuse components of
the existing MWG water treatment system. The revised $17.8 million cost of
the facility is included in CILCO's capital expenditures discussed above. As
of September 30, 1994, approximately $9.6 million had been spent on the
project.
On October 5, 1994, CILCO obtained ICC approval to issue not more than
$65 million of secured medium-term notes and not more than $25 million of
pollution control bonds. CILCO filed a shelf registration statement
with the Securities and Exchange Commission for the $65 million of secured
medium-term notes on November 3, 1994. CILCO plans to sell approximately
$29 million of medium-term notes to finance its construction activities,
including the MWG project, CIS project, gas cast iron main replacement
program, and for other corporate needs. CILCO intends to issue the remaining
$36 million of secured medium-term notes to retire outstanding long-term debt
as it matures in 1996 and 1997. CILCO expects to issue $18 million of
pollution control bonds in 1996 to finance the construction of new solid waste
disposal facilities at CILCO's Duck Creek generating station. The timing and
use of the remaining $7 million of pollution control bonds has not yet been
determined.
CILCO currently has outstanding $25 million of Flexible Auction Rate Class A
preferred stock, without par value. The current annualized dividend rate is
4.00%. Quarterly dividend rates will vary based upon the results of auctions
held each quarter.
At September 30, 1994, CILCO had bank lines of credit, aggregating $30.4
million, which are used to support CILCO's issuance of commercial paper.
CILCO had $11.2 million of commercial paper outstanding at September 30, 1994,
and expects to issue commercial paper periodically throughout the remainder of
1994.
ESE
For the nine months ended September 30, 1994, ESE's expenditures for capital
additions and improvements were approximately $3.1 million. Capital
expenditures for the remainder of 1994 are expected to be approximately $1.9
million. ESE's working capital increased approximately $2.8 million during
the nine months ended September 30, 1994.
At September 30, 1994, ESE had borrowed $24.6 million from the Holding
Company, an increase of $3.7 million from December 31, 1993. On September 7,
1994, ESE added $2 million to its line of credit used to collateralize its
performance bonds, increasing this line of credit to $7 million. At September
30, 1994, $4.1 million of this line had been used. In addition, ESE
eliminated a $1 million working capital line of credit. ESE expects to
finance its capital expenditures and working capital needs during the
remainder of 1994 with a combination of funds generated internally and
periodic short-term borrowings from the Holding Company.
Results of Operations
The results of operations of CILCO, ESE, and Other Businesses for the three
months and nine months ended September 30, 1994, compared to the three months
and nine months ended September 30, 1993, are discussed below.
CILCO Electric Operations
The following table summarizes the components of CILCO electric operating
income for the three months and nine months ended September 30, 1994 and 1993:
<TABLE>
<CAPTION>
Components of CILCO Electric Three Months Ended Nine Months Ended
Operating Income September 30, September 30,
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Electric retail $91,704 $93,108 $236,799 $231,017
Sales for resale 1,045 1,316 7,691 2,643
------- ------- -------- --------
Total revenue 92,749 94,424 244,490 233,660
------- ------- -------- --------
Cost of Sales:
Cost of fuel 25,071 25,184 75,640 68,198
Purchased power 2,494 2,404 6,199 6,724
Revenue taxes 4,109 3,889 10,083 9,612
------- ------- -------- --------
Total cost of sales 31,674 31,477 91,922 84,534
------- ------- -------- --------
Gross margin 61,075 62,947 152,568 149,126
------- ------- -------- --------
Operating Expenses:
Other operation and maintenance 18,825 19,616 56,759 56,023
Depreciation and amortization 9,888 9,603 29,663 28,851
Income and other taxes 12,231 13,051 24,585 23,570
------- ------- -------- --------
Total operating expenses 40,944 42,270 111,007 108,444
------- ------- -------- --------
Electric operating income $20,131 $20,677 $ 41,561 $ 40,682
======= ======= ======== ========
</TABLE>
Electric gross margin decreased 3% for the quarter ended September 30, 1994,
compared to the same period in 1993. The decrease for the quarter was
primarily due to a 7% decrease in residential kilowatt hour (Kwh) sales. The
decrease in higher margin residential sales for the quarter was primarily due
to cooler weather. Cooling degree days for the quarter were 9% lower than
1993 and 5% lower than normal. A 4% increase in commercial and industrial
sales due to an increased number of commercial customers and higher demand by
several large industrial customers partially offset the decrease in
residential sales. Overall retail sales were unchanged for the quarter ended
September 30, 1994, compared to the corresponding 1993 period. CILCO set a
new all-time system peak demand of 1,137,000 Kwh on July 5, 1994.
Electric gross margin increased 2% for the nine months ended September 30,
1994, compared to the same period in 1993. The increase was primarily due to
an increase in retail sales of 3% for the nine months ended September 30,
1994, compared to the same period in 1993. Residential sales increased
slightly, while commercial and industrial sales increased 5% and 4%,
respectively, for
the nine months ended September 30, 1994, compared to 1993. The increase in
residential sales was primarily due to warmer weather. The increase in
commercial sales resulted from an increased number of commercial customers and
warmer weather. Cooling degree days were 3% higher for the nine months ended
September 30, 1994, compared to the same period in 1993 and 4% higher than
normal. Industrial sales increased due to higher demand from several large
industrial customers.
CILCO's largest customer is Caterpillar. On June 20, 1994, Caterpillar
employees represented by the United Auto Workers began a strike at Caterpillar
facilities in CILCO's service territory. Caterpillar management has publicly
stated that it will continue to operate its plants to meet the demand for its
products. To date, the strike has not had an adverse effect on CILCO's sales
to Caterpillar. CILCO management cannot predict what, if any, impact a
prolonged strike at Caterpillar will have on CILCO's future revenues or
earnings.
The overall level of business activity in CILCO's service territory and
weather conditions are expected to continue to be the primary factors
affecting electric sales in the near term. CILCO's electric sales may
ultimately be affected by increased competition in the electric utility
industry (see Part II. Item 5: Electric Competition).
Energy sales to other utilities decreased for the quarter and increased for
the nine months ended September 30, 1994, respectively. Sales decreased for
the quarter due to insufficient capacity to sell power and lower demand from
neighboring utilities. The increase in energy sales for the nine months ended
September 30, 1994 resulted from greater demand for electricity from
neighboring utilities. Sales for resale vary based on energy requirements of
neighboring utilities, CILCO's available capacity for bulk power sales and the
price of power available for sale. CILCO expects competition to continue to
increase in the sales for resale and purchased power market due to certain
provisions of the Energy Policy Act of 1992.
Substantially all of CILCO's electric generating capacity is coal-fired. The
cost of fuel remained relatively constant for the quarter and increased 11%
for the nine months ended September 30, 1994, compared to the same periods in
1993. The increase for the nine months ended September 30, 1994, was
primarily due to increased electric generation to meet greater demand for
electricity from other utilities (sales for resale) and from CILCO's retail
customers.
Purchased power increased for the quarter and decreased for the nine months
ended September 30, 1994, compared to the same periods in 1993. Purchased
power expense varies based on CILCO's need for energy and the price of power
available for purchase. CILCO makes use of purchased power when it is
economical to do so or when required to meet CILCO power requirements, such as
during maintenance outages at CILCO plants. Costs and savings realized from
the purchase of power are passed on to CILCO's customers via the fuel
adjustment clause (FAC). The FAC allows CILCO to pass increases and decreases
in the cost of fuel through to customers.
Other operation and maintenance expenses decreased 4% for the quarter ended
September 30, 1994, compared to the same period in 1993. The decrease for the
third quarter was primarily due to decreases in power plant operating and
maintenance expenses, overhead line expenses, injury and damage claims, and
decreased other post employment benefit (OPEB) costs resulting from revised
actuarial assumptions. The decrease for the quarter was offset by increased
employee benefit costs, including costs resulting from the implementation of
SFAS 112 (see Part I. Item 1: Note 2 Postemployment Benefits Other Than
Pensions and Health Care Costs) and expenses related to the development of the
new CIS system (see Capital Resources and Liquidity).
Other operation and maintenance expenses increased slightly for the nine
months ended September 30, 1994, compared to 1993. The increases were
primarily due to increased employee benefit costs, including costs resulting
from the implementation of SFAS 112 (see Part I. Item 1: Note 2 Postemployment
Benefits Other than Pensions and Health Care Costs), development costs of the
CIS system, and power plant operating expenses. These increases were
partially offset by reduced OPEB costs resulting from revised actuarial
assumptions, decreased expenses for overhead lines, and lower injury and
damage claims.
Depreciation and amortization expense increased slightly in 1994 compared to
1993, reflecting additions and replacements of utility plant at costs in
excess of the original cost of the property retired.
Income and other taxes expense changed for the quarter and nine months ended
September 30, 1994, due to changes in pre-tax operating income compared to
1993.
CILCO Gas Operations
The following table summarizes the components of CILCO gas operating income
for the three months and nine months ended September 30, 1994 and 1993:
<TABLE>
<CAPTION>
Components of Gas Three Months Ended Nine Months Ended
Operating Income September 30, September 30,
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Sale of gas $13,345 $13,467 $103,193 $ 96,677
Transportation services 2,048 1,909 7,350 6,881
------- ------- -------- --------
Total revenue 15,393 15,376 110,543 103,558
------- ------- -------- --------
Cost of Sales:
Cost of gas 5,712 5,462 60,071 53,375
Revenue taxes 699 547 5,697 5,268
------- ------- -------- --------
Total cost of sales 6,411 6,009 65,768 58,643
------- ------- -------- --------
Gross margin 8,982 9,367 44,775 44,915
------- ------- -------- --------
Operating Expenses:
Other operation and maintenance 8,445 7,663 25,507 23,310
Depreciation and amortization 3,964 3,654 11,843 10,959
Income and other taxes (1,523) (1,128) 2,548 3,137
------- ------- -------- --------
Total operating expenses 10,886 10,189 39,898 37,406
------- ------- -------- --------
Gas operating (loss) income $(1,904) $ (822) $ 4,877 $ 7,509
======= ======= ======== ========
</TABLE>
Gas gross margin decreased 4% for the quarter and decreased slightly for the
nine months ended September 30, 1994, compared to the same periods in 1993.
These changes in gross margin were primarily due to changes in residential
sales for these periods compared to the same periods in 1993. Residential
sales decreased 4% for the quarter and increased slightly for the nine months
ended September 30, 1994, compared to 1993. Heating degree days decreased 43%
for the quarter and remained relatively constant for the nine months ended
September 30, 1994, compared to the same periods in 1993. Commercial sales
increased 6% for both the quarter and nine months ended September 30, 1994,
compared to 1993 mainly due to an increase in the number of commercial
customers.
Revenue from retail sales decreased 2% while sales volumes increased 1% for
the third quarter of 1994 compared to 1993. The increased sales volumes were
mainly from classes of customers that have lower profit margins. As a result,
the change in gross margin was not proportional to the change in sales volume.
Retail sales revenue increased 6% and sales volumes increased 2% for the nine
months ended September 30, 1994, compared to the same period in 1993. The
change in revenue was not proportional to the change in volume due to higher
purchased gas adjustment (PGA) factors in 1994. The PGA is the mechanism used
to pass increases or decreases in the cost of natural gas through to
customers. The overall level of business activity in CILCO's service
territory and weather conditions are expected to continue to be the primary
factors affecting gas sales.
Revenue from gas transportation services increased 7% for the quarter and nine
months ended September 30, 1994, while transportation volumes increased 26%
and 13% for the quarter and nine months ended September 30, 1994,
respectively, when compared to the same periods in 1993. Revenue increased
primarily due to increased purchases of gas by industrial transportation
customers from suppliers other than CILCO. The increase in revenue was not
proportional to the increase in volume because certain large volume
transportation customers who can negotiate lower unit charges for service
accounted for most of the increase in transportation volumes.
The cost of gas increased 5% and 13% for the quarter and nine months ended
September 30, 1994, respectively. The increase for the quarter was primarily
due to higher PGA factors, partially offset by lower natural gas prices. The
increase for the nine months ended September 30, 1994, was due to increased
sales and higher PGA factors, partially offset by lower natural gas prices.
Other operation and maintenance expenses increased 10% for the quarter and
nine months ended September 30, 1994, compared to the same periods in 1993.
The increases were primarily due to increased regulatory costs associated with
CILCO's pending rate case and higher employee benefit costs. Implementation
of SFAS 112 (see Part I. Item 1: Note 2. Postemployment Benefits Other Than
Pensions and Health Care Costs) contributed to the increase in employee
benefit costs. Decreased gas maintenance expenses resulting from the
completion of repairs to the Springfield gas distribution system in 1993 (See
Part II. Item 1: Legal Proceedings) and decreased OPEB costs resulting from
revised actuarial assumptions partially offset the increases.
Depreciation and amortization expense increased, reflecting additions and
replacements of utility plant at costs in excess of the original cost of the
property retired.
Income and other taxes expense decreased for the quarter and nine months ended
September 30, 1994, due to lower pre-tax operating income.
CILCO Other Income and Deductions and Interest Expense
The following table summarizes other income and deductions for the three
months and nine months ended September 30, 1994 and 1993:
<TABLE>
<CAPTION>
Components of Other Income and Three Months Ended Nine Months Ended
Deductions and Interest Expense September 30, September 30,
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Net interest expense $(5,362) $(5,786) $(15,442) $(16,910)
Income taxes 496 680 1,166 1,780
Disallowed plant cost (4,636) - (4,636) -
Income tax reduction for
disallowed plant cost 1,840 - 1,840 -
Other (1,579) (697) (2,708) (1,844)
------- -------- -------- ---------
Other income (deductions) $(9,241) $(5,803) $(19,780) $(16,974)
======= ======== ======== =========
</TABLE>
Interest expense decreased for the quarter and nine months ended September 30,
1994, compared to the same periods in 1993 due to lower interest rates
resulting from bonds refinanced in 1993. Disallowed plant costs and related
income taxes resulting from CILCO's acceptance of the ICC staff adjustments in
CILCO's pending rate case significantly reduced CILCO's income. (See Part II.
Item 5. Gas Rate Increase Request.) The civil fine and other costs CILCO
agreed to pay as a result of the U. S. Department of Justice and U. S.
Department of Transportation investigations also contributed to the increase
in other deductions for the quarter and nine months ended September 30, 1994,
compared to the same periods in 1993. (See Part II. Item 1. Legal
Proceedings.)
ESE Operations
The following table summarizes the components of the environmental and
engineering services results for the three months and nine months ended
September 30, 1994 and 1993:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Components of ESE Income September 30, September 30,
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Environmental and engineering
services revenue $35,204 $30,631 $98,420 $89,928
Direct non-labor costs 14,496 10,601 38,214 30,203
------- ------- ------- -------
Net Revenues 20,708 20,030 60,206 59,725
------- ------- ------- -------
Expenses:
Direct salaries and
other operating costs 10,121 9,734 29,513 29,895
General & administrative 7,036 8,166 22,371 25,234
Depreciation & Amortization 1,472 1,613 4,421 4,541
------- ------- ------- -------
18,629 19,513 56,305 59,670
------- ------- ------- -------
Interest expense 594 441 1,396 1,282
------- ------- ------- -------
Income (loss) before income taxes 1,485 76 2,505 (1,227)
Income taxes 518 260 1,061 (37)
------- ------- ------- -------
ESE net income (loss) $ 967 $ (184) $ 1,444 $(1,190)
======= ======= ======= =======
</TABLE>
ESE's results have fluctuated from quarter to quarter since its acquisition in
1990. Factors influencing such variations include project delays, which may
be due to a variety of factors including delays in projects caused by
regulatory agency approvals or client considerations; the level of
subcontractor services; weather, which may limit the amount of time ESE
professionals have in the field; and the initial training of new
professionals. Accordingly, results for any one quarter are not necessarily
indicative of results for any other quarter or for the year.
Net revenues increased for the quarter and nine months ended September 30,
1994, when compared to the same periods in 1993. The net revenue increase in
the third quarter of 1994 resulted from higher demand for both laboratory and
consulting services. The net revenue increase for the nine months ended
September 30, 1994, was primarily due to increased demand for laboratory
services.
ESE incurs substantial direct project costs from the use of subcontractors on
projects. These costs are passed directly through to ESE's clients. As a
result, ESE measures its operating performance on the basis of net revenues,
which are determined by deducting such direct project costs from gross
revenues.
General and administrative expenses decreased by 14%, and 12%, for the quarter
and nine months ended September 30, 1994, respectively, when compared to the
same periods in 1993. The decrease was primarily due to lower salary expense
and lower medical costs. Depreciation and amortization decreased by 9%, and
3%, respectively, for the quarter and nine months ended September 30, 1994,
when compared to the same periods in 1993. This decrease principally resulted
from the termination of several capital leases in the third quarter of 1994.
Interest expense increased during the third quarter and the nine months ended
September 30, 1994, compared to the same periods in 1993. This was primarily
due to higher interest rates and increased short-term borrowing during 1994.
The increase in income tax expense is a result of higher taxable income.
Other Businesses' Operations
The following table summarizes the components of Other Businesses' income
(loss) for the three months and nine months ended September 30, 1994 and 1993.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Components of Other Businesses' September 30, September 30,
Net Income 1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Other revenue $2,508 $1,258 $6,983 $4,924
Expenses:
Operating expenses 1,131 543 3,792 1,843
Depreciation and amortization 58 43 154 132
Interest expense 1,198 646 2,751 2,121
Income and other taxes (257) 68 (14) 1,363
Minority interest 0 60 0 163
------ ------ ------ ------
Total expenses 2,130 1,360 6,683 5,622
------ ------ ------ ------
Other Businesses' net
income (loss) $ 378 $ (102) $ 300 $ (698)
====== ====== ====== ======
</TABLE>
Other revenue increased during the quarter and nine months ended September 30,
1994, as compared to the same periods in 1993 due primarily to the sale of
Tucson Electric Power Company (TEP) stock, additional revenues from new
leveraged lease investments made by CIM subsidiaries in late 1993, and
revenues generated by a new CVI subsidiary. (See Part II, Item 5, Other
Events). In addition, year-to-date revenue includes a fee paid by CILCO to
CDS related to the construction of the Midwest Grain cogeneration plant (See
Capital Resources and Liquidity, CILCO). CILCO will capitalize the fee as
part of its utility plant in service when the project is completed.
Operating expenses increased at the Holding Company due to several one-time
charges, including termination of a lease at an ESE facility that ESE no
longer plans to use. The lease was entered into during negotiations which led
to CILCORP's 1990 acquisition of ESE.
Interest expense increased for the quarter and nine months ended September 30,
1994, as compared to the same periods in 1993 due to higher short-term
borrowings at the Holding Company and increased interest rates.
Income and other taxes declined in 1994 because 1993 taxes included amounts
related to a reserve for potential income taxes if the Company's position
regarding the depreciable life of the Springerville Unit No. 1 generating
station had not been ultimately upheld by the Internal Revenue Service. The
Springerville tax dispute was favorably settled during the fourth quarter of
1993. Income tax expense also declined in the third quarter of 1994 due to
the settlement of several issues unrelated to Springerville Unit No. 1.
Minority interest in net income declined due to CILCORP's 1993 purchase of the
19% minority interest in CILCORP Lease Management Inc., a second-tier
subsidiary of CILCORP.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Reference is made to "Environmental Matters" under "Item 1. Business" in the
Company's 1993 Form 10-K, and "Note 4. Contingencies," herein, for certain
pending legal proceedings and proceedings known to be contemplated by
governmental authorities.
The Company and its subsidiaries are subject to certain claims and lawsuits in
connection with work performed in the ordinary course of their businesses.
Except as otherwise disclosed in this section, in the opinion of management,
all such claims currently pending either will not result in a material adverse
effect on the financial position of the Company or are adequately covered by
(i) insurance, (ii) contractual or statutory indemnification, or (iii)
reserves for potential losses.
CILCO
After a significant number of leaks was detected in the Springfield, Illinois,
cast iron gas distribution system in mid-1992, CILCO began a detailed
examination of its Springfield gas distribution system and related operating
practices and procedures. The objective of this examination was to detect and
repair gas main leaks and to identify and correct any operating deficiencies.
This project was substantially completed by September 30, 1993. (See Part I.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations).
In September 1992, the ICC staff began an informal review of CILCO's
Springfield gas operations and recordkeeping practices. Subsequently, at the
request of the ICC, the U.S. Department of Transportation (DOT) and the U.S.
Department of Justice (DOJ) conducted investigations focused principally on
CILCO's Springfield gas operations. On September 16, 1994, CILCO entered into
a federal court civil consent decree with the DOJ which concluded the
investigation of CILCO's Springfield gas operations by the DOJ and the DOT.
In the consent decree, CILCO agreed to pay an $844,000 civil fine to the
United States and agreed to reimburse the ICC, DOT and DOJ, $156,000 for the
cost of their investigations. CILCO also agreed to underwrite the reasonable
expense of an outside expert selected by the ICC to examine its gas operations
manuals and systems to ensure that they are in compliance with all applicable
statutes and regulations. CILCO will continue to cooperate with the DOJ in
its investigation and prosecution of any individuals who may be responsible
for willful violations of any applicable statutes or regulations.
In early August 1994, CILCO accepted adjustments recommended by the ICC staff
in CILCO's pending gas rate proceeding which resulted in a net disallowance
from CILCO's gas rate base of approximately $4.6 million of investment in
CILCO's Springfield cast iron renewal project. (See Part II. Item 5. Gas
Rate Increase Request.) CILCO's acceptance of the recommended disallowance
was part of the settlement with the DOJ. The disallowance, civil fine, and
reimbursement of investigation costs discussed above resulted in a
$3.7 million after-tax charge against CILCO's third quarter net income.
As a result of this settlement, the DOJ has agreed not to seek any additional
civil or criminal penalties from CILCO or CILCORP. The ICC staff has also
agreed not to seek any additional enforcement penalties from CILCO or CILCORP
arising from this investigation.
On July 6, 1994, a lawsuit was filed against CILCO in a United States District
Court by a subsequent owner, Vector-Springfield Properties, Ltd., seeking
damages related to a gas manufacturing plant which was never operated by
CILCO. (See Note 4. Contingencies.) The lawsuit seeks cost recovery of
more than $3 million related to coal tar investigation expenses, operating
losses, and diminution of market value. CILCO intends to vigorously defend
these claims. Management cannot currently determine the outcome of this
litigation, but does not believe it will have a material adverse impact on
CILCO's financial position or results of operations.
ESE
At the request of the South Carolina Department of Health and Environmental
Control ("DHEC"), the DOJ initiated an investigation into an alleged
record-keeping violation at an office operated by ESE in Greenville, South
Carolina. DHEC is also continuing its investigation. The office was closed
in May 1993. Although the investigation could potentially lead to
civil penalties and certain sanctions, some of which could include
disqualification from certain contracts, ESE has been informed that the DOJ
intends to transfer this matter to the Attorney General of South Carolina for
disposition as a civil matter. Management cannot currently determine the
outcome of this disposition but does not believe it will have a material
adverse impact on the Company's financial position or results of operations.
Item 5: Other Information
CILCO ELECTRIC COMPETITION
On April 20, 1994, the ICC adopted a "resolution recognizing the need for an
examination of changes in the structure of the electric energy industry." The
ICC has indicated a broad-based and open examination of the purposes behind
current utility laws and regulations in Illinois will be undertaken to
determine whether or not these laws and regulations should be modified in
light of the expanding presence of competitive market components within the
electric energy industry. CILCO is participating in these proceedings. The
work product resulting from these activities will be provided to the ICC and
the Illinois legislature for educational and planning purposes. The potential
outcome of these activities is unknown and highly speculative at this time.
With growing competition in the electric utility industry, CILCO's largest
customers may have increased opportunities to select their electric supplier.
CILCO has entered into contracts, ranging from five to eight years, with
various industrial customers to exclusively supply them with their electric
power requirements at prices consistent with current rates. Based on CILCO's
1993 total retail Kwh sales, these contracts are projected to account for
approximately 16% of CILCO's 1994 total retail Kwh sales.
CILCO GAS RATE INCREASE REQUEST
On January 14, 1994, CILCO filed a request with the ICC to increase gas base
rates to reflect both the current costs of providing gas service and its
additional investment in the gas system, including the replacement of certain
portions of the Springfield gas distribution system (see Part II. Item 1:
Legal Proceedings). The proposed rates are designed to increase annual base
rate gas revenues by approximately $14.2 million net of tax, or 8.9%, based
upon an adjusted test year ended December 31, 1995. The filing requested a
9.4% return on original cost rate base and a 12.0% return on common equity.
CILCO has filed additional testimony which supports a 9.6% return on original
cost rate base and a 12.5% return on common equity due to subsequent increases
in interest rates which result in an increase in capital costs.
The ICC staff submitted testimony which, among other things, recommended
adjustments resulting in a net disallowance from CILCO's gas rate base of
approximately $4.6 million of investment in the Springfield cast iron renewal
project. In early August 1994, CILCO accepted these adjustments. Statement
of Financial Accounting Standards No. 90, "Regulated Enterprises - Accounting
for Abandonments and Disallowances of Plant Costs," requires CILCO to
recognize an expense equal to the amount excluded from rate base in the year
the disallowance becomes probable, less applicable income taxes. CILCO
recorded a one-time, after-tax charge against third quarter 1994 net income of
approximately $2.8 million to reflect the accepted portion of the rate base
disallowance. (See Part II. Item 1. Legal Proceedings.)
On October 13, 1994, the ICC hearing examiners issued a proposed order in the
gas rate case which recommended an $11.2 million increase in base rate
revenues. The proposal reflected an 11.9% return on common equity and a 9.3%
return on rate base. The ICC staff and certain intervenors, including the
Citizens Utility Board and the City of Springfield, have requested adjustments
and disallowances in addition to those included in the proposed order. The
ICC has scheduled oral arguments for November 21, 1994, in Springfield.
Management cannot predict the ultimate outcome of CILCO's rate filing. A
decision from the ICC is expected in early December 1994.
CILCO ELECTRIC PRODUCTION
On April 26, 1994, the United States Environmental Protection Agency (USEPA)
issued a Notice of Violation (NOV) to CILCO. The NOV states that opacity
emission limit violations occurred throughout 1993 at E. D. Edwards Station
for two coal-fired boilers. The NOV was issued pursuant to Section 113(a)(1)
of the Clean Air Act. On May 24, 1994, a conference was held with USEPA
representatives to discuss the NOV. CILCO has provided additional information
in support of its position that the emissions did not exceed acceptable
opacity limits. CILCO received a draft consent order from the USEPA on
November 3, 1994, and is currently reviewing that draft. Management cannot
currently determine the outcome of any actions related to the alleged
violations, but does not believe they will have a material adverse impact on
CILCO's financial position or results of operations.
CILCO SALE OF R. S. WALLACE STATION
On September 9, 1994, RDC Development Corporation entered into a contract to
purchase the R. S. Wallace Station, a retired electric generating plant, and
approximately 95 acres of adjoining land for $7 million. Various significant
terms and conditions, including ICC approval of the sale and the regulatory
treatment of the proceeds, must be satisfied in order for the sale to be
completed.
ESE NEW SUBSIDIARY
ESE formed a 100% wholly-owned subsidiary on September 26, 1994, to acquire
environmentally-impaired real estate, perform cleanup work and then sell the
real estate. ESE's initial equity investment in the subsidiary is $2.1
million.
CVI NEW SUBSIDIARY
On April 11, 1994, CVI formed a 100% wholly-owned subsidiary, CILCORP Energy
Services Inc. (CESI). Total equity invested as of September 30, 1994, was
$500,000. The entity was formed to provide energy related services and
consumer products. The revenues and expenses incurred are included in Other
Businesses' Results of Operations.
CIM TEP STOCK DISPOSITION
As part of the 1992 restructuring of the Springerville Unit No. 1 lease,
CLM received approximately 1.2 million shares of TEP common stock and warrants
to purchase approximately 895,000 additional shares. During 1993, CLM sold
one million shares. By September 30, 1994, CLM had sold all of its remaining
TEP stock. In October 1994, CLM sold all of its TEP warrants.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
(12) Central Illinois Light Company Computation of Ratios of Earnings to
Fixed Charges
In accordance with Item 601(c)(1) of Regulation S-K, the following
exhibits are included only in electronically filed copies of Form 10-Q
CILCO and CILCORP Inc.
(27a)CILCORP Financial Data Schedule
(27b)Central Illinois Light Company Financial Data Schedule
(b) Reports on Form 8-K
A combined form 8-K was filed on September 16, 1994, to disclose a
settlement with the DOJ that concluded the investigation of CILCO's
Springfield, Illinois, gas operations by the DOJ and the DOT.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the regis
trant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CILCORP Inc.
(Registrant)
Date November 2, 1994 R. O. Viets
R. O. Viets
President and
Chief Executive Officer
Date November 2, 1994 T. D. Hutchinson
T. D. Hutchinson
Controller
- 34 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the regis
trant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL ILLINOIS LIGHT COMPANY
(Registrant)
Date November 10, 1994 T. S. Romanowski
T. S. Romanowski
Vice President and Chief
Financial Officer
Date November 10, 1994 R. L. Beetschen
R. L. Beetschen
Controller and Manager
of Accounting
- 35 -
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Computation of Ratio of Earnings
to Fixed Charges
<CAPTION>
Twelve Months Ended
September 30, December 31,
1994 1993 1992 1991 1990 1989
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Earnings, as defined:
Net Income $33,118 $37,678 $35,636 $44,231 $40,966 $44,430
Income Taxes 19,193 20,368 17,723 22,329 20,500 22,179
Fixed Charges, as below 24,911 26,335 25,130 24,295 24,095 24,540
------- ------- ------- ------- ------- -------
Total Earnings, as defined $77,222 $84,381 $78,489 $90,855 $85,561 $91,149
------- ------- ------- ------- ------- -------
Fixed Charges, as defined:
Interest on COLI $ 1,861 $ 1,434 $ 930 $ 870 $ 868 $ 798
Interest on Short-Term Debt 269 592 180 0 0 0
Interest on Long-Term Debt 19,231 19,753 20,747 21,285 21,399 21,968
Amortization of Debt Discount
& Expense and Premium 682 624 410 96 97 107
Miscellaneous Interest Expense 865 1,485 2,448 1,591 1,320 1,205
Interest Portion of Rentals 2,003 2,447 415 453 411 462
------- ------- ------- ------- ------- -------
Total Fixed Charges,
as defined $24,911 $26,335 $25,130 $24,295 $24,095 $24,540
======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 3.10 3.20 3.12 3.74 3.55 3.71
==== ==== ==== ==== ==== ====
</TABLE>
- 36 -
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF
CASH FLOWS, BALANCE SHEET AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000762129
<NAME> CILCORP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 850,755
<OTHER-PROPERTY-AND-INVEST> 148,297
<TOTAL-CURRENT-ASSETS> 156,473
<TOTAL-DEFERRED-CHARGES> 58,336
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,213,861
<COMMON> 167,987
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 178,373
<TOTAL-COMMON-STOCKHOLDERS-EQ> 346,360
22,000
44,120
<LONG-TERM-DEBT-NET> 307,704
<SHORT-TERM-NOTES> 39,300
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 18,043
0
<CAPITAL-LEASE-OBLIGATIONS> 2,739
<LEASES-CURRENT> 283
<OTHER-ITEMS-CAPITAL-AND-LIAB> 433,312
<TOT-CAPITALIZATION-AND-LIAB> 1,213,861
<GROSS-OPERATING-REVENUE> 460,436
<INCOME-TAX-EXPENSE> 15,993
<OTHER-OPERATING-EXPENSES> 396,233
<TOTAL-OPERATING-EXPENSES> 396,233
<OPERATING-INCOME-LOSS> 64,203
<OTHER-INCOME-NET> (491)
<INCOME-BEFORE-INTEREST-EXPEN> 63,712
<TOTAL-INTEREST-EXPENSE> 19,316
<NET-INCOME> 28,403
2,190
<EARNINGS-AVAILABLE-FOR-COMM> 26,213
<COMMON-STOCK-DIVIDENDS> 24,053
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 77,281
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 2.01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF
CASH FLOWS, BALANCE SHEET AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000018651
<NAME> CENTRAL ILLINOIS LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 850,755
<OTHER-PROPERTY-AND-INVEST> 2,839
<TOTAL-CURRENT-ASSETS> 111,517
<TOTAL-DEFERRED-CHARGES> 32,342
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 997,453
<COMMON> 185,661
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 125,103
<TOTAL-COMMON-STOCKHOLDERS-EQ> 310,764
22,000
44,120
<LONG-TERM-DEBT-NET> 278,350
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 11,200
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 2,739
<LEASES-CURRENT> 283
<OTHER-ITEMS-CAPITAL-AND-LIAB> 327,997
<TOT-CAPITALIZATION-AND-LIAB> 997,453
<GROSS-OPERATING-REVENUE> 355,033
<INCOME-TAX-EXPENSE> 15,123
<OTHER-OPERATING-EXPENSES> 290,466
<TOTAL-OPERATING-EXPENSES> 308,595
<OPERATING-INCOME-LOSS> 46,438
<OTHER-INCOME-NET> (7,294)
<INCOME-BEFORE-INTEREST-EXPEN> 42,127
<TOTAL-INTEREST-EXPENSE> 15,469
<NET-INCOME> 26,658
2,190
<EARNINGS-AVAILABLE-FOR-COMM> 24,468
<COMMON-STOCK-DIVIDENDS> 8,010
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 76,660
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
