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 June 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 July 31, 1994
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value, 13,563,871
shares outstanding and privately
held by CILCORP Inc. at July 31, 1994
<PAGE>
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED JUNE 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 10-12
Consolidated Statements of Income 13-14
Consolidated Statements of Cash Flows 15-16
Notes to Consolidated Financial Statements
CILCORP Inc. and Central Illinois Light Company 17-19
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
CILCORP Inc. and Central Illinois Light Company 20-31
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 31-32
Item 5: Other Information 32-34
Item 6: Exhibits and Reports on Form 8-K 34
Signatures 35-36
Exhibit 12: Central Illinois Light Company, Computation
of Ratio of Earnings to Fixed Charges 37
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and Temporary Cash Investments $ 2,536 $ 1,440
Receivables, Less Reserves of $2,499 and $2,255 56,184 58,350
Accrued Unbilled Revenue 33,843 38,179
Fuel, at Average Cost 14,113 8,323
Materials and Supplies, at Average Cost 16,647 16,674
Gas in Underground Storage, at Average Cost 12,174 24,548
Prepayments and Other 11,812 9,441
--------- --------
Total Current Assets 147,309 156,955
--------- --------
Investments and Other Property:
Investment in Leveraged Leases 117,647 114,803
Cash Surrender Value of Company-Owned
Life Insurance, net of related policy
loans of $27,571 and $24,923 1,419 1,263
Other 6,458 6,190
--------- ----------
Total Investments and Other Property 125,524 122,256
--------- ----------
Property, Plant and Equipment:
Utility Plant, at Original Cost
Electric 1,082,905 1,068,818
Gas 354,059 348,541
---------- ----------
1,436,964 1,417,359
Less - Accumulated Provision for Depreciation 639,939 618,912
---------- ----------
797,025 798,447
Construction Work in Progress 42,769 31,896
Plant Acquisition Adjustments, being Amortized
to 1999 3,711 4,068
Other, Net of Depreciation 23,676 24,173
---------- ----------
Total Property, Plant and Equipment 867,181 858,584
---------- ----------
Other Assets:
Prepaid Pension Cost 13,666 13,953
Cost in Excess of Net Assets of Acquired Businesses,
Net of Accumulated Amortization of $3,829 and $3,479 24,900 25,251
Other 19,435 21,441
---------- ----------
Total Other Assets 58,001 60,645
---------- ----------
Total Assets $1,198,015 $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>
June 30, December 31,
1994 1993
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current Portion of Long-Term Borrowings $ 18,136 $ 193
Notes Payable 25,300 31,200
Accounts Payable 39,796 47,668
Accrued Taxes 8,448 5,666
Accrued Interest 9,106 9,632
Purchased Gas Adjustment Over-Recoveries and
Refunds Due Customers 6,034 3,268
Other 12,647 12,080
---------- ----------
Total Current Liabilities 119,467 109,707
---------- ----------
Long-Term Borrowings 307,646 325,711
---------- ----------
Deferred Credits:
Deferred Income Taxes 234,618 229,897
Net Regulatory Liability of Regulated Subsidiary 69,341 69,477
Deferred Investment Tax Credit 27,024 27,871
Customers' Advances for Construction and Other 28,992 27,781
---------- ----------
Total Deferred Credits 359,975 355,026
---------- ----------
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 176,820 176,214
---------- ----------
Total Stockholders' Equity 344,807 341,876
---------- ----------
Total Liabilities and Stockholders' Equity $1,198,015 $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 Six Months Ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Electric $ 78,034 $ 72,128 $151,741 $139,236
Gas 23,471 22,056 95,150 88,182
Environmental and Engineering Services 33,832 29,532 63,216 59,297
Other 1,809 1,979 4,475 3,904
-------- -------- -------- --------
Total 137,146 125,695 314,582 290,619
-------- -------- -------- --------
Operating Expenses:
Fuel for Generation and Purchased Power 26,362 23,192 54,274 47,334
Gas Purchased for Resale 11,413 9,692 54,359 47,913
Other Operation and Maintenance 57,013 55,428 114,066 108,463
Depreciation and Amortization 15,584 14,925 31,056 29,926
Taxes, Other than Income Taxes 8,279 7,936 19,498 18,755
-------- -------- -------- --------
Total 118,651 111,173 273,253 252,391
-------- -------- -------- --------
Operating Income 18,495 14,522 41,329 38,228
-------- -------- -------- --------
Fixed Charges and Other:
Interest Expense 6,234 6,471 12,750 13,677
Preferred Stock Dividends of Subsidiary 726 1,111 1,429 2,221
Allowance for Funds Used During Construction (79) (74) (169) (104)
Other 145 49 272 68
-------- -------- -------- --------
Total 7,026 7,557 14,282 15,862
-------- -------- -------- --------
Income Before Income Taxes 11,469 6,965 27,047 22,366
Income Taxes 4,529 2,905 10,405 8,921
-------- -------- -------- --------
Net Income Including Minority Interest 6,940 4,060 16,642 13,445
Minority Interest 0 52 0 103
-------- -------- -------- --------
Net Income Available for Common Shareholders $ 6,940 $ 4,008 16,642 $ 13,342
======== ======== ======== ========
Average Common Shares Outstanding (000) 13,036 12,909 13,017 12,909
Earnings Per Average Common Share $ .53 $ .31 $ 1.28 $ 1.03
Dividends Per Common Share $ .615 $ .615 $ 1.23 $ 1.23
<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 Six Months Ended
June 30,
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income before dividends on subsidiary preferred stock $18,071 $15,563
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Non-Cash Lease Income & Investment Income (3,550) (1,892)
Depreciation and Amortization 31,056 29,926
Deferred Income Tax, Investment Tax Credit and
Regulatory Liability of Regulated Subsidiary, Net 3,738 959
Changes in Operating Assets and Liabilities:
Decrease in Accounts Receivable and Accrued
Unbilled Revenue 6,502 20,694
Decrease in Inventories 6,611 3,167
Decrease in Accounts Payable (7,872) (9,492)
Increase (Decrease) in Accrued Taxes 2,782 (3,947)
Increase (Decrease) in Purchased Gas Adjustment
Over-Recoveries and Refunds Due Customers 2,766 (4,456)
Changes in Other Assets and Liabilities, Net 1,535 (1,912)
------- -------
Total Adjustments 43,568 33,047
------- -------
Net Cash Provided by Operating Activities 61,639 48,610
------- -------
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment (37,327) (41,895)
Proceeds from Sale of Long-Term Investments - 2,678
Other (2,054) (5,523)
------- -------
Net Cash Used in Investing Activities (39,381) (44,740)
------- -------
Cash Flows from Financing Activities:
Decrease in Short-Term Debt (5,900) (17,351)
Proceeds from Issuance of Long-Term Debt - 80,900
Retirement of Long-Term Debt (122) (79,622)
Change in Minority Interest & Other - 103
Issuance of Preferred Stock by Wholly-Owned Subsidiary - 21,787
Common Dividends Paid (16,036) (15,878)
Preferred Dividends Paid (1,429) (2,221)
Proceeds from Issuance of Stock 2,325 -
------- -------
Net Cash Used in Financing Activities (21,162) (12,282)
------- -------
Net Increase (Decrease) in Cash and Temporary
Cash Investments 1,096 (8,412)
Cash and Temporary Cash Investments at Beginning of Year 1,440 24,401
------- -------
Cash and Temporary Cash Investments at June 30 $ 2,536 $15,989
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 12,971 $13,056
Income Taxes 4,351 12,958
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
Utility plant, at original cost:
Electric $1,082,905 $1,068,818
Gas 354,059 348,541
---------- ----------
1,436,964 1,417,359
Less - accumulated provision for depreciation 639,939 618,912
---------- ----------
797,025 798,447
Construction work in progress 42,769 31,896
Plant acquisition adjustments, net of amortization 3,711 4,068
---------- ----------
Total Utility Plant 843,505 834,411
---------- ----------
Other Property and Investments
Cash surrender value of Company-owned life
insurance (net of related policy loans of $27,571
and $24,923) 1,419 1,263
Other 1,058 1,056
---------- ----------
Total Other Property and Investments 2,477 2,319
---------- ----------
Current Assets:
Cash and temporary cash investments 2,109 594
Receivables, less reserves of $575 and $585 31,296 34,197
Accrued unbilled revenue 18,218 25,111
Fuel, at average cost 14,113 8,323
Materials and supplies, at average cost 16,647 16,674
Gas in underground storage, at average cost 12,174 24,548
Prepaid taxes 182 856
Other 8,995 6,945
---------- ----------
Total Current Assets 103,734 117,248
---------- ----------
Deferred Debits:
Unamortized loss on reacquired debt 6,715 6,950
Unamortized debt expense 2,121 2,185
Prepaid pension cost 13,666 13,953
Other 9,706 11,259
---------- ----------
Total Deferred Debits 32,208 34,347
---------- ----------
Total Assets $ 981,924 $ 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
(In thousands)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
<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 116,878 108,645
---------- ----------
Total common shareholder's equity 302,539 294,306
Preferred stock without mandatory redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt, net 278,340 278,321
---------- ----------
Total Capitalization 646,999 638,747
---------- ----------
Current Liabilities:
Notes payable 4,600 12,400
Accounts payable 35,565 40,971
Accrued taxes 5,046 6,083
Accrued interest 8,220 8,616
Dividends payable 726 -
PGA over-recoveries and refunds due customers 6,034 3,268
Level payment plan 649 2,944
Other 4,649 5,106
---------- ----------
Total Current Liabilities 65,489 79,388
---------- ----------
Deferred Liabilities and Credits:
Accumulated deferred income taxes 144,087 144,969
Net regulatory liability 69,341 69,477
Investment tax credits 27,024 27,871
Capital lease obligation 2,812 2,954
Other 26,172 24,919
---------- ----------
Total Deferred Liabilities and Credits 269,436 270,190
---------- ----------
Total Capitalization and Liabilities $ 981,924 $ 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 Six Months Ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Operating Revenues:
Electric $ 78,034 $72,128 $151,741 $139,236
Gas 23,471 22,056 95,150 88,182
-------- ------- -------- --------
Total Operating Revenue 101,505 94,184 246,891 227,418
-------- ------- -------- --------
Operating Expenses:
Cost of fuel 24,517 20,768 50,569 43,014
Cost of gas 11,413 9,692 54,359 47,913
Purchased power 1,845 2,424 3,705 4,320
Other operation and maintenance 26,265 27,231 54,996 52,054
Depreciation and amortization 13,902 13,273 27,654 26,553
Income taxes 4,245 2,735 10,420 9,035
Other taxes 7,114 6,703 16,977 16,193
-------- ------- -------- --------
Total Operating Expense 89,301 82,826 218,680 199,082
-------- ------- -------- --------
Operating Income 12,204 11,358 28,211 28,336
Other Income and Deductions:
Cost of equity funds capitalized - - 23 -
Company-owned life insurance, net (145) (49) (272) (68)
Other, net (2) (137) (42) 155
-------- ------- -------- --------
Total Other Income (147) (186) (291) 87
-------- ------- -------- --------
Interest Expenses:
Interest on long-term debt 4,808 4,712 9,604 9,786
Cost of borrowed funds capitalized (79) (74) (146) (104)
Other 271 672 790 1,576
-------- ------- -------- --------
Total Interest Expense 5,000 5,310 10,248 11,258
-------- ------- -------- --------
Net Income 7,057 5,862 17,672 17,165
-------- ------- -------- --------
Dividends on Preferred Stock 726 1,111 1,429 2,221
-------- ------- -------- --------
Net Income Available for Common Stock $ 6,331 $ 4,751 $ 16,243 $ 14,944
======== ======= ======== ========
<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>
Six Months Ended
June 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income including preferred dividends $ 17,672 $ 17,165
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 28,011 26,910
Deferred taxes, investment tax credits
and regulatory liability, net (1,865) (1,924)
Decrease in accounts receivable 2,901 6,836
Decrease in fuel, materials and supplies,
and gas in underground storage 6,611 3,167
Decrease in unbilled revenue 6,893 8,528
Decrease in accounts payable (5,406) (8,891)
Decrease in accrued taxes and interest (1,433) (490)
Changes in other assets and
liabilities, net 3,805 (8,346)
-------- --------
Net cash provided by operating activities 57,189 42,955
-------- --------
Cash flows from investing activities:
Capital expenditures (35,406) (38,012)
Cost of equity funds capitalized (23) -
Other (2,767) (3,161)
-------- --------
Net cash used in investing activities (38,196) (41,173)
-------- --------
Cash flows from financing activities:
Common dividends paid (8,010) (15,878)
Preferred dividends paid (1,429) (2,221)
Issuance of long-term debt - 75,494
Issuance of preferred stock - 21,787
Retirement of long-term debt - (65,696)
Payments on capital lease obligation (239) -
Decrease in short-term borrowing (7,800) (16,100)
-------- --------
Net cash used in financing activities (17,478) (2,614)
-------- --------
Net increase (decrease) in cash and temporary
cash investments 1,515 (832)
Cash and temporary cash investments at beginning
of year 594 1,776
-------- --------
Cash and temporary cash investments at June 30 $ 2,109 $ 944
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of cost of borrowed funds
capitalized) $ 10,623 $ 10,058
Income taxes 12,062 10,775
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
<PAGE>
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
accrued a pre-tax liability of approximately $1 million, which represents the
cumulative effect of applying SFAS 112, of which approximately $250,000 will
be capitalized during the year. The effect of benefits ESE provides to former
or inactive employees is not significant.
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 are
continuing to transport gas to local gas distribution companies such as CILCO,
but this service is administered independently of the pipelines' sales of gas.
Interstate 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 demands 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 to directly bill
CILCO, subject to refund, for approximately $1.4 million of transition costs,
including interest, as of June 30, 1994. CILCO has been billed approximately
$1.1 million through June 30, 1994. CILCO estimates that it could ultimately
be billed up to $3 million, excluding interest. CILCO has recorded a
liability of approximately $334,000 and a corresponding regulatory asset on
its balance sheet, representing the minimum amount of the estimated range of
such future transition costs which CILCO expects to incur.
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 in its charges to
customers. Approximately $1.3 million has been recovered from customers
through June 30, 1994. On March 9, 1994, the Illinois Commerce Commission
(ICC) issued an order allowing Illinois gas utilities to recover 100% of
pipeline transition costs. In April 1994, two interveners, the Citizens
Utility Board (CUB) and the People of Cook County, requested a rehearing which
was granted by the ICC on May 6, 1994. While CILCO cannot at this time
determine the outcome of the rehearing, management believes that, based on
existing law and the ICC order, any transition charges or other billings by
the pipelines to CILCO as a result of Order 636 will be recoverable from
customers through CILCO's gas rates. Therefore, management does not expect
that the outcome of the rehearing will materially impact CILCO's financial
position or results of operations.
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. In 1993, CILCO completed remedial action, 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 reviewed and approved by the Illinois Environmental
Protection Agency. CILCO is formulating a risk assessment which will be used
to define a remediation plan for the second site where it formerly operated a
gas manufacturing plant. CILCO does not currently own the two sites at which
it did not operate a plant. (See Part II., Item 1: Legal Proceedings.)
CILCO expects to spend approximately $200,000 for site monitoring and
feasibility studies in 1994. Until more detailed site specific testing has
been completed, CILCO cannot determine the ultimate extent or cost of any
remediation for the one remaining site where it operated a plant. 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. Of the two sites at which CILCO
never operated a gas manufacturing plant, CILCO has no responsibility for
remediation at one and has not yet determined if it has responsibility for the
other.
CILCO is presently permitted 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 June 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 June 30, 1994, has
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. 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 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 did not have
a material effect on the Company's financial position or results of
operations.
<PAGE>
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 business 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 $.53 for the quarter ended
June 30, 1994, compared to $.31 per share earned during the same period in
1993. This increase was primarily caused by higher electric operating income
resulting from increased sales and from improved results at ESE. The
Company's earnings per share were $1.28 for the six months ended June 30,
1994, compared to $1.03 for the same period in 1993. This increase was
primarily caused by improved results at ESE, higher electric operating income,
lower interest expense and preferred dividends at CILCO and improved
operations at the other businesses.
The following table summarizes the components of net income for the three
months and six months ended June 30, 1994 and 1993 (see Results of Operations
for further discussion):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1994 1993 1994 1993
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
CILCO
Electric Operating Income $12,887 $11,376 $ 21,430 $20,005
Gas Operating Income (Loss) (683) (18) 6,781 8,331
------- ------- ------- -------
Utility Operating Income 12,204 11,358 28,211 28,336
Other Deductions and Interest
Expenses (5,147) (5,496) (10,539) (11,171)
CILCO Preferred Stock Dividends (726) (1,111) (1,429) (2,221)
------- ------- ------- -------
Total Utility Net Income 6,331 4,751 16,243 14,944
ESE
ESE Net Income (Loss) 826 (481) 477 (1,006)
------- ------- ------- -------
Core Businesses Income 7,157 4,270 16,720 13,938
Other Businesses Net Loss (217) (262) (78) (596)
------- ------- ------- -------
Consolidated Net Income
Available to Common Shareholders $ 6,940 $ 4,008 $16,642 $13,342
======= ======= ======= =======
</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. CILCORP's Board of Directors has authorized it to borrow
up to $40 million on a short-term basis. On June 30, 1994, CILCORP had
committed bank lines of credit of $40 million, of which $20.7 million was
outstanding.
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 will be
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 medium-term notes under its $75
million 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. On July 29, 1994, Standard & Poor's (S&P)
changed CILCORP's rating of senior unsecured debt to A+ from AA-.
CILCO
Capital expenditures totaled $35 million for the six-month period ended
June 30, 1994. Capital expenditures are anticipated to be approximately
$52 million for the remainder of 1994 including $7 million to replace CILCO's
Customer Information System (CIS). CILCO expects to complete the CIS project
in 1995 at a total cost of $13 million. CILCO expects to finance its 1994
capital requirements with funds provided by operating activities, issuance of
secured debt and capital provided by CILCORP. Capital expenditures for the
years 1995 and 1996 are estimated to be $69 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 early 1994, CDS, a
newly-formed, unregulated CILCORP subsidiary, began construction of steam
boilers and other equipment. On March 23, 1994, the Illinois Commerce
Commission (ICC) approved the cogeneration project as a least-cost method for
CILCO to meet its electric generation requirements and authorized CILCO to
complete the project. On May 17, 1994, CILCO paid CDS $2.8 million for the
assets purchased and constructed by CDS, including all expenditures incurred
for the project plus a return on CDS's investment. CILCO will complete
construction of the steam boilers and other equipment and also will install a
20 megawatt turbine generator and related equipment. As of July 22, 1994, all
three boilers were on site and the construction was on schedule. The
$16.9 million cost of the facility is included in CILCO's capital expenditures
discussed above. As of June 30, 1994, approximately $5.9 million had been
spent on the project. Steam heat service is scheduled to begin January 1,
1995; the plant is scheduled to begin generating electricity in mid-1995.
On June 30, 1994, CILCO filed a petition with the ICC for authority to issue
not more than $65 million of secured medium-term notes and not more than
$25 million of pollution control bonds. CILCO expects to obtain ICC approval
during the third quarter of 1994, after which CILCO will file a shelf
registration statement with the Securities and Exchange Commission for the
$65 million of secured medium-term notes. CILCO plans to sell approximately
$29 million of medium-term notes to finance its construction activities,
including the Midwest Grain Project, CIS project, the cast iron main
replacement project 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 between August 1995 and August 1996
to finance the construction of new solid waste disposal facilities at CILCO's
Duck Creek generating station. The timing and use for the remaining $7
million of pollution control bonds have not yet been determined.
CILCO currently has outstanding $25 million of Flexible Auction Rate Class A
preferred stock, without par value. The annualized dividend rate of the stock
when issued on July 28, 1993 was 2.45%. The current annualized dividend rate
is 3.55%. Quarterly dividend rates will continue to vary based upon the
ninety-day commercial paper interest rate.
On July 29, 1994, S&P changed CILCO's rating of senior secured debt to AA-
from AA and preferred stock to A+ from AA-. S&P affirmed CILCO's A-1+
commercial paper rating. S&P cited strict Illinois regulation and an
industrialized service area, heavily dependent upon Caterpillar Inc.
(Caterpillar), as the major factors for the rating decreases. The S&P outlook
for CILCO is stable, indicating no further rating actions are anticipated in
the near future. According to S&P, CILCO's rating stability is supported by
competitive rates and low production costs, efficient operations, lack of
nuclear challenges, and minimal acid rain exposure.
At June 30, 1994, CILCO had bank lines of credit, aggregating $30.1 million,
which are used to support CILCO's issuance of commercial paper. CILCO had
$4.6 million of commercial paper outstanding at June 30, 1994 and expects to
issue commercial paper periodically throughout the remainder of 1994.
ESE
ESE's capital additions and improvements during the second quarter were
approximately $2 million. Capital expenditures for the remainder of 1994 are
expected to be approximately $3 million. Working capital increased
approximately $1.7 million during the six months ended June 30, 1994.
At June 30, 1994, ESE had borrowed $21.3 million from the Holding Company, an
increase of $.4 million from December 31, 1993. ESE had an unused $1 million
bank line of credit to provide for working capital needs and had a $5 million
bank line of credit, of which $3.2 million was used at June 30, 1994, to
collateralize performance bonds issued to companies in connection with ESE
projects. ESE expects to finance its capital expenditures and working capital
needs during 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 six months ended June 30, 1994 compared to the three months and six
months ended June 30, 1993 are discussed below.
CILCO Electric Operations
The following table summarizes the components of CILCO electric operating
income for the three months and six months ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
Components of CILCO Electric Three Months Ended Six Months Ended
Operating Income June 30, June 30,
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Electric retail $75,090 $71,450 $145,095 $137,909
Sales for resale 2,944 678 6,646 1,327
------- ------- -------- --------
Total revenue 78,034 72,128 151,741 139,236
------- ------- -------- --------
Cost of Sales:
Cost of fuel 24,517 20,768 50,569 43,014
Purchased power 1,845 2,424 3,705 4,320
Revenue taxes 2,913 2,663 5,974 5,723
------- ------- ------- -------
Total cost of sales 29,275 25,855 60,248 53,057
------- ------- ------- -------
Gross margin 48,759 46,273 91,493 86,179
------- ------- ------- -------
Operating Expenses:
Other operation and maintenance 18,249 19,040 37,934 36,407
Depreciation and amortization 9,887 9,622 19,775 19,248
Income and other taxes 7,736 6,235 12,354 10,519
------- ------- -------- --------
Total operating expenses 35,872 34,897 70,063 66,174
------- ------- -------- --------
Electric operating income $12,887 $11,376 $ 21,430 $ 20,005
======= ======= ======== ========
</TABLE>
Electric gross margin increased 5% and 6% for the quarter and six months ended
June 30, 1994, respectively, compared to the same periods in 1993. These
increases were due to increases in retail kilowatt hour (Kwh) sales of 6% and
5% for these periods compared to the same periods in 1993 and increases in
sales for resale. Residential and commercial sales each increased 7% for the
quarter and 6% for the six months ended June 30, 1994, compared to the same
periods in 1993. The increases in residential and commercial sales were
primarily due to warmer weather. Cooling degree days were 33% higher for both
the quarter and six months ended June 30, 1994, compared to the same periods
in 1993.
Industrial sales increased 5% and 4% for the quarter and six months ended
June 30, 1994, respectively. These increases were primarily due to increased
demand by several of CILCO's large industrial 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 electric sales in the
near term. CILCO's electric sales may be affected in the long-term by
increased competition in the electric utility industry. (See Part II. Item 5
Electric Competition).
CILCO's largest customer is Caterpillar. On June 20, 1994, Caterpillar
employees represented by the United Auto Workers began a strike at several of
Caterpillar's 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 a significant 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.
Energy sales to other utilities increased during the quarter and six months
ended June 30, 1994, due to 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 increased 18% for the three months and six months ended June 30,
1994, compared to the same periods in 1993. These changes were 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 decreased for the three months and six months ended June 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
and when required during maintenance outages at CILCO plants. Costs and
savings realized from the purchase of power are passed on to CILCO' 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
June 30, 1994, compared to the same period in 1993. The decrease for the
second quarter was primarily due to decreases in employee benefit costs, power
plant maintenance, and overhead line expenses. The decrease in employee
benefit costs during the second quarter resulted from revised actuarial
assumptions related to other postemployment benefits (OPEB). These decreases
were partially offset by increased power plant operating expenses.
Other operation and maintenance expenses increased 4% for the six months ended
June 30, 1994, compared to 1993. The increases for the six months ended June
30, 1994, 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), injury
and damage claims, and power plant operating expenses. These increases were
partially offset by reduced OPEB costs resulting from revised actuarial
assumptions and decreased overhead line expenses.
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 tax expense increased due to higher pre-tax operating income
and higher corporate income tax rates in 1994 compared to 1993.
Gas Operations
The following table summarizes the components of CILCO gas operating income
for the three months and six months ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
Components of CILCO Gas Three Months Ended Six Months Ended
Operating Income June 30, June 30,
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Sale of gas $21,439 $20,106 $89,848 $83,210
Transportation services 2,032 1,950 5,302 4,972
------- ------- ------- -------
Total revenue 23,471 22,056 95,150 88,182
------- ------- ------- -------
Cost of Sales:
Cost of gas 11,413 9,692 54,359 47,913
Revenue taxes 1,303 1,234 4,998 4,722
------- ------- ------- -------
Total cost of sales 12,716 10,926 59,357 52,635
------- ------- ------- -------
Gross margin 10,755 11,130 35,793 35,547
------- ------- ------- -------
Operating Expenses:
Other operation and maintenance 8,016 8,191 17,062 15,647
Depreciation and amortization 4,015 3,651 7,879 7,305
Income and other taxes (593) (694) 4,071 4,264
------- ------- ------- -------
Total operating expenses 11,438 11,148 29,012 27,216
------- ------- ------- -------
Gas operating income (loss) $ (683) $ (18) $ 6,781 $ 8,331
======= ======= ======= =======
</TABLE>
Gas gross margin decreased 3% and increased 1% for the quarter and six months
ended June 30, 1994, respectively, compared to the same periods in 1993.
These changes in gross margin were due to changes in retail sales for these
periods, compared to the same periods in 1993. Retail sales increased 1% and
2% for the quarter and six months ended June 30, 1994, respectively, compared
to 1993.
Revenue from retail sales increased 7% and 8% for the quarter and six months
ended June 30, 1994, respectively, compared to 1993. The changes in revenue
were not proportional to the changes 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.
Residential sales remained relatively constant for the quarter and six months
ended June 30, 1994. Commercial sales increased 7% and 6% for the quarter and
six months ended June 30, 1994, respectively, compared to 1993. The increased
sales were mainly from classes of customers that have lower profit margins.
As a result, the changes in gross margin were not proportional to changes in
sales volumes. 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 4% and 7%, while
transportation volumes increased 7% and 8% for the quarter and six months
ended June 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 of gas.
The cost of gas increased 18% and 14% for the quarter and six months ended
June 30, 1994, respectively. The increase for the quarter was primarily due
to increased sales and higher PGA factors, partially offset by lower natural
gas prices. The increase for the six months ended June 30, 1994, was due to
increased sales, higher PGA factors and higher natural gas prices.
Other operation and maintenance expenses decreased 2% and increased 9% for the
quarter and six months ended June 30, 1994, respectively, compared to the same
periods in 1993. The decrease for the quarter was primarily due to decreased
injury and damage claims, OPEB costs (see CILCO Electric Operations), and gas
maintenance expenses. The increase for the six months ended June 30, 1994 was
primarily due to increased 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 partially offset the
increases. (See Part II. Item 1: Legal Proceedings).
Depreciation and amortization expense increased 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 decreased for the quarter and six months ended
June 30, 1994, due to lower pre-tax operating income.
CILCO Other Income and Deductions
The following table summarizes other income and deductions for the three
months and six months ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
Components of Other Income and Three Months Ended Six Months Ended
Deductions and Interest Expense June 30, June 30,
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Income:
Interest income $ 67 $ 43 $ 314 $ 238
------- ------- -------- --------
Expenses:
Non-operating 282 449 669 828
Amortization 178 178 357 356
Interest 5,079 5,384 10,394 11,362
AFUDC (79) (74) (169) (104)
Company-owned life insurance 145 49 272 68
Income taxes (391) (447) (670) (1,101)
------- ------- -------- --------
Total expenses 5,214 5,539 10,853 11,409
------- ------- -------- --------
Other Income (deductions) $(5,147) $(5,496) $(10,539) $(11,171)
======= ======= ======== ========
</TABLE>
Interest expense decreased due to lower interest rates on bonds refinanced in
1993.
ESE Operations
The following table summarizes the components of the environmental and
engineering services results for the three months and six months ended June
30, 1994 and 1993:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of ESE Income June 30, June 30,
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Environmental and engineering
services revenue $33,832 $29,532 $63,216 $59,297
Direct Non-Labor Costs 13,305 9,735 23,718 19,602
------- ------- ------- -------
Net Revenues 20,527 19,797 39,498 39,695
Expenses:
Direct salaries and
other operating costs 9,928 9,962 19,392 20,161
General & administrative 7,276 8,596 15,335 17,069
Depreciation & Amortization 1,455 1,429 2,949 2,928
------- ------- ------- -------
18,659 19,987 37,676 40,158
------- ------- ------- --------
Interest expense 397 426 802 841
------- ------- -------- --------
Income (loss) before income taxes 1,471 (616) 1,020 (1,304)
Income taxes 645 (135) 543 (298)
------- ------- -------- --------
ESE net income (loss) $ 826 $ (481) $ 477 $(1,006)
======= ======= ======== =======
</TABLE>
Net revenues increased by 4% for the second quarter and were virtually
unchanged for the six months ended June 30, 1994, when compared to the same
periods in 1993. The net revenue increase resulted from higher demand for
laboratory services during the second quarter. Direct non-labor costs as a
percentage of gross revenue fluctuate primarily due to subcontract usage.
Direct salaries and other operating expenses changed slightly for the quarter
ended June 30, 1994, and decreased by 4% for the six months ended June 30,
1994, when compared to the same periods in 1993. The decrease is primarily
due to a reduction in work force associated with the overall decline in
business volume that occurred in the last half of 1993. Due to the
labor-intensive nature of ESE's business, ESE can reallocate employees and
adjust staffing levels to appropriately recognize changing business
conditions. ESE had 1,239 full-time-equivalent employees at June 30, 1994,
compared to 1,316 at June 30, 1993.
General and administrative expenses decreased by 15% and 10% for the second
quarter and the six months ended June 30, 1994, when compared to the same
periods in 1993. The decreases resulted from lower general and administrative
salaries, medical costs, and relocation costs. As a result of lower general
and administrative expenses and an increase in net revenue, net income
increased by $1.3 million for the three months ended June 30, 1994, compared
to the same period in 1993. Net income increased by $1.5 million for the six
months ended June 30, 1994, compared to the same period in 1993 as a result of
lower direct salaries and other operating costs, and lower general and
administrative expenses.
Other Businesses' Operations
The following table summarizes the components of Other Businesses' (loss) for
the three months and six months ended June 30, 1994 and 1993.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of Other Businesses' June 30, June 30,
Net Income 1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Other revenue $1,742 $1,936 $4,161 $3,666
Expenses:
Operating expenses 1,038 632 2,347 1,301
Depreciation and amortization 49 45 96 89
Interest expense 758 661 1,553 1,474
Income and other taxes 114 808 243 1,295
Minority interest 0 52 0 103
------ ------ ------- ------
Total expenses 1,959 2,198 4,239 4,262
------ ------ ------- ------
Other Businesses' net
(loss) $ (217) $ (262) $ (78) $ (596)
====== ====== ======= ======
</TABLE>
Other revenue decreased during the second quarter of 1994 as compared to the
same period in 1993 due primarily to the sale of Tucson Electric Power Company
(TEP) stock in the second quarter of 1993. The decrease in revenues was
largely offset by an increase in revenues from new leveraged lease investments
made by CIM subsidiaries in late 1993.
Other revenue increased during the six months ended June 30, 1994, compared to
the same period in 1993 due primarily to the new leveraged lease investments
made by CIM subsidiaries in late 1993, and a $500,000 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 CILCORP's 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 (see Part II, Item 1: Legal
Proceedings).
Income and other taxes declined in 1994 because 1993 taxes included amounts
related to CIM's sale of TEP stock in the first and second quarters and 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. The Springerville tax dispute was favorably settled
during the fourth quarter of 1993.
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.
CILCO and ESE are subject to certain claims and lawsuits in connection with
work performed in the ordinary course of their businesses. In the opinion of
management, all 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.
After a significant number of leaks were 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 and the U.S. Department of Justice began conducting
investigations which management believes to be focused principally on CILCO's
Springfield gas operations. These reviews could potentially lead to criminal
charges, regulatory actions, and/or certain sanctions and civil penalties.
Management cannot currently determine the outcome of these reviews, or their
regulatory effect other than the disallowance from gas rate base accepted by
CILCO (see Part II. Item 5: Gas Rate Increase Request) but does not believe
they will have a materially adverse impact on CILCO's financial position or
results of operations.
On July 6, 1994 a lawsuit was filed against CILCO in a United States District
Court by a subsequent owner 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 materially adverse impact
on CILCO's financial position or results of operations.
At the request of the South Carolina Department of Health and Environmental
Control ("DHEC"), the U. S. Department of Justice has begun 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. The investigation could potentially lead to
civil/criminal penalties and certain sanctions, some of which could include
disqualification from certain contracts. Management cannot currently
determine the outcome of this investigation but does not believe it will have
a materially adverse impact on the Company's financial position or results of
operations.
On June 8, 1994, CILCORP, ESE and the lessor of a building in Shelton,
Connecticut, concluded settlement negotiations which released ESE from future
lease obligations and litigation related to that lease.
Other than these items, there are no material pending legal proceedings, or
proceedings known to be contemplated by governmental authorities, other than
ordinary routine litigation incidental to the business, to which the Company
is a party or of which any of the Company's property is the subject.
ITEM 5: OTHER INFORMATION
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 actively 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 long-term contracts, ranging from five to eight years,
with twelve of its industrial customers to exclusively supply them with their
electric power requirements. Based on CILCO's 1993 total retail Kwh sales,
these long-term contracts are projected to account for approximately 16% of
CILCO's 1994 total retail Kwh sales.
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 gas
revenues approximately $15 million, 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 has submitted testimony which, among other things, recommends
adjustments which would result in a net disallowance from CILCO's gas rate
base of approximately $4.5 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. The
amount of the proposed disallowance is included as utility plant in service on
CILCO's and CILCORP's balance sheet at June 30, 1994. CILCO plans to record a
one-time, after-tax charge against third quarter net income of approximately
$2.7 million to reflect the accepted portion of the rate base disallowance.
Overall, the ICC staff's proposed disallowance and adjustments would reduce
the $15 million rate increase originally requested by CILCO to approximately
$9.4 million. CILCO strongly disagrees with the ICC staff positions regarding
most of the other proposed adjustments and is aggressively pursuing those
issues. 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 Notice of Violation 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. Management cannot currently determine the
outcome of any actions related to the alleged violations, but does not believe
they will have a materially adverse impact on CILCO's financial position or
results of operations.
ESE OFFICER CHANGE
Effective April 1, 1994, Joseph F. Silvey was elected President and Chief
Operating Officer of ESE. Mr. Silvey had been Senior Vice President of ESE
since February 1993 and Chief Operating Officer of ESE since January 1994.
Ronald L. Rainson, ESE's former President and Chief Executive Officer,
continues as Chairman.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
(12) Central Illinois Light Company Computation of Ratios of Earnings to
Fixed Charges
(b) Reports on Form 8-K
None
<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.
CILCORP Inc.
(Registrant)
Date August 8, 1994 R. O. Viets
R. O. Viets
President and
Chief Executive Officer
Date August 8, 1994 T. D. Hutchinson
T. D. Hutchinson
Controller
<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 August 8, 1994 T. S. Romanowski
T. S. Romanowski
Vice President and Chief
Financial Officer
Date August 8, 1994 R. L. Beetschen
R. L. Beetschen
Controller and Manager
of Accounting
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Computation of Ratio of Earnings
to Fixed Charges
<CAPTION>
Twelve Months Ended
June 30, December 31,
1994 1993 1992 1991 1990 1989
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Earnings, as defined:
Net Income $38,184 $37,678 $35,636 $44,231 $40,966 $44,430
Income Taxes 22,183 20,368 17,723 22,329 20,500 22,179
Fixed Charges, as below 25,573 26,335 25,130 24,295 24,095 24,540
------- ------- ------- ------- ------- -------
Total Earnings, as defined $85,940 $84,381 $78,489 $90,855 $85,561 $91,149
------- ------- ------- ------- ------- -------
Fixed Charges, as defined:
Interest on COLI $ 1,730 $ 1,434 $ 930 $ 870 $ 868 $ 798
Interest on Short-Term Debt 342 592 180 0 0 0
Interest on Long-Term Debt 19,572 19,753 20,747 21,285 21,399 21,968
Amortization of Debt Discount
& Expense and Premium 676 624 410 96 97 107
Miscellaneous Interest Expense 898 1,485 2,448 1,591 1,320 1,205
Interest Portion of Rentals 2,355 2,447 415 453 411 462
------- ------- ------- ------- ------- -------
Total Fixed Charges,
as defined $25,573 $26,335 $25,130 $24,295 $24,095 $24,540
======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 3.36 3.20 3.12 3.74 3.55 3.71
==== ==== ==== ==== ==== ====
</TABLE>
