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, 1996
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,
shares outstanding at August 1, 1996 13,509,876
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value,
shares outstanding and privately
held by CILCORP Inc. at August 1, 1996 13,563,871
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1: Financial Statements
CILCORP INC.
Consolidated Balance Sheets 3-4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6-7
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets 8-9
Consolidated Statements of Income 10
Consolidated Statements of Cash Flows 11-12
Notes to Consolidated Financial Statements
CILCORP Inc. and Central Illinois Light Company 13-15
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
CILCORP Inc. and Central Illinois Light Company 16-27
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 28
Item 5: Other Information 28-31
Item 6: Exhibits and Reports on Form 8-K 31
Signatures 32-33
<PAGE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 3,324 $ 17,100
Receivables, less reserves of $2,205 and $2,223 55,960 68,479
Accrued unbilled revenue 29,911 42,842
Fuel, at average cost 6,425 11,596
Materials and supplies, at average cost 14,257 16,963
Gas in underground storage, at average cost 10,718 13,592
Prepayments and other 9,491 14,921
---------- ----------
Total current assets 130,086 185,493
---------- ----------
Investments and other property:
Investment in leveraged leases 130,128 127,141
Cash surrender value of company-owned life
insurance, net of related policy loans of
$36,489 and $33,211 1,689 1,924
Other investments 5,233 5,392
---------- ----------
Total investments and other property 137,050 134,457
---------- ----------
Property, plant and equipment:
Utility plant, at original cost
Electric 1,175,170 1,142,945
Gas 383,433 379,985
---------- ----------
1,558,603 1,522,930
Less - accumulated provision for depreciation 705,577 682,574
---------- ----------
853,026 840,356
Construction work in progress 23,815 44,749
Plant acquisition adjustments, being amortized
to 1999 2,286 2,642
Other, net of depreciation 21,503 22,774
---------- ----------
Total property, plant and equipment 900,630 910,521
---------- ----------
Other assets:
Prepaid pension expense 536 536
Cost in excess of net assets of acquired
businesses, net of accumulated amortization of
$4,645 and $4,293 23,493 23,845
Other 20,113 21,219
---------- ----------
Total other assets 44,142 45,600
---------- ----------
Total assets $1,211,908 $1,276,071
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these Balance Sheets.
</TABLE>
<PAGE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 23,044 $ 19,052
Notes payable 6,870 47,100
Accounts payable 39,327 44,550
Accrued taxes 1,695 5,035
Accrued interest 8,586 10,059
Purchased gas adjustment over-recoveries 3,640 1,987
Other 11,747 15,259
---------- ----------
Total current liabilities 94,909 143,042
---------- ----------
Long-term debt 324,158 344,113
---------- ----------
Deferred credits and other liabilities:
Deferred income taxes 242,676 241,603
Net regulatory liability of regulated subsidiary 59,634 59,482
Deferred investment tax credit 23,643 24,485
Other 35,471 35,248
---------- ----------
Total deferred credits 361,424 360,818
---------- ----------
Preferred stock of subsidiary 66,120 66,120
---------- ----------
Stockholders' equity:
Common stock, no par value; authorized
50,000,000 shares - outstanding 13,497,381 and
13,335,606 shares 186,195 179,330
Retained earnings 179,102 182,648
---------- ----------
Total stockholders' equity 365,297 361,978
---------- ----------
Total liabilities and stockholders' equity $1,211,908 $1,276,071
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these Balance Sheets.
</TABLE>
<PAGE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)*
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue:
Electric $ 73,938 $ 75,897 $150,629 $150,242
Gas 32,269 24,615 110,309 83,497
Environmental and engineering
services 21,380 30,199 41,855 64,873
Other businesses 2,121 1,779 4,900 4,465
--------- --------- --------- ---------
Total 129,708 132,490 307,693 303,077
--------- --------- --------- ---------
Operating expenses:
Fuel for generation and
purchased power 22,534 24,875 50,728 52,419
Gas purchased for resale 16,254 9,640 61,843 38,747
Other operations and maintenance 53,591 56,200 104,062 116,118
Depreciation and amortization 16,563 15,813 33,178 31,629
Taxes, other than income taxes 8,655 8,659 20,292 19,777
--------- --------- --------- ---------
Total 117,597 115,187 270,103 258,690
--------- --------- --------- ---------
Fixed charges and other:
Interest expense 8,128 7,452 14,901 14,908
Preferred stock dividends
of subsidiary 786 832 1,601 1,667
Allowance for funds used during
construction (35) (66) (70) (297)
Other (535) 195 409 385
--------- --------- --------- ---------
Total 8,344 8,413 16,841 16,663
--------- --------- --------- ---------
Income before income taxes 3,767 8,890 20,749 27,724
Income taxes 1,240 3,213 7,829 10,573
--------- --------- --------- ---------
Net income available for
common stockholders $ 2,527 $ 5,677 $ 12,920 $ 17,151
========= ========= ========= =========
Average common shares outstanding 13,455 13,096 13,404 13,067
Net income per common share $ .19 $ .43 $ .96 $ 1.31
Dividends per common share $ .615 $ .615 $ 1.23 $ 1.23
<FN>
*Except per share amounts
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $14,521 $18,818
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash lease income and investment income (2,987) (3,466)
Depreciation and amortization 33,178 31,629
Deferred income taxes, investment tax credit and
regulatory liability of subsidiary, net 383 (1,653)
Changes in operating assets and liabilities:
Decrease in accounts receivable and accrued
unbilled revenue 25,450 9,049
Decrease in inventories 10,751 10,159
Decrease in accounts payable (5,223) (18,995)
(Decrease) increase in accrued taxes (3,340) 1,004
Decrease in other assets 6,888 1,181
(Decrease) increase in other liabilities (3,109) 4,262
-------- --------
Total adjustments 61,991 33,170
-------- --------
Net cash provided by operating activities 76,512 51,988
-------- --------
Cash flows from investing activities:
Additions to plant (21,940) (38,110)
Proceeds from sale of long-term investments -- 872
Other (953) (3,457)
-------- --------
Net cash used in investing activities (22,893) (40,695)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in short-term debt (40,230) 2,800
Increase in long-term debt -- 19,816
Repayment of long-term debt (15,963) (17,824)
Common dividends paid (16,466) (16,056)
Preferred dividends paid (1,601) (1,667)
Proceeds from issuance of stock 6,865 3,877
-------- --------
Net cash used in financing activities (67,395) (9,054)
-------- --------
Net (decrease) increase in cash and temporary cash
investments (13,776) 2,239
Cash and temporary cash investments at beginning
of year 17,100 1,604
-------- --------
Cash and temporary cash investments at June 30 $ 3,324 $ 3,843
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $15,071 $13,721
Income Taxes $ 7,832 $ 8,671
<FN>
The accompanying Notes to the Consolidated 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,
ASSETS 1996 1995
(Unaudited)
<S> <C> <C>
Utility plant, at original cost:
Electric $1,175,170 $1,142,945
Gas 383,433 379,985
---------- ----------
1,558,603 1,522,930
Less - accumulated provision for depreciation 705,577 682,574
---------- ----------
853,026 840,356
Construction work in progress 23,815 44,749
Plant acquisition adjustments, net of
amortization 2,286 2,642
---------- ----------
Total utility plant 879,127 887,747
---------- ----------
Other property and investments:
Cash surrender value of company-owned life
insurance, net of related policy loans of
$36,489 and $33,211 1,689 1,924
Other 1,616 1,623
---------- ----------
Total other property and investments 3,305 3,547
---------- ----------
Current assets:
Cash and temporary cash investments 1,269 16,556
Receivables, less reserves of $477 and $650 37,007 42,312
Accrued unbilled revenue 19,009 28,891
Fuel, at average cost 6,425 11,596
Materials and supplies, at average cost 14,257 16,541
Gas in underground storage, at average cost 10,718 13,592
Prepaid Taxes -- 7,978
Other 4,214 10,300
---------- ----------
Total current assets 92,899 147,766
---------- ----------
Deferred debits:
Unamortized loss on reacquired debt 5,801 6,029
Unamortized debt expense 2,290 2,374
Prepaid pension cost 536 536
Other 9,601 11,992
---------- ----------
Total deferred debits 18,228 20,931
---------- ----------
Total assets $993,559 $1,059,991
========== ==========
<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,
CAPITALIZATION AND LIABILITIES 1996 1995
(Unaudited)
<S> <C> <C>
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 129,979 140,814
-------- ----------
Total common shareholder's equity 315,640 326,475
Preferred stock without mandatory redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt 278,418 298,397
-------- ----------
Total capitalization 660,178 690,992
-------- ----------
Current liabilities:
Current maturities of long-term debt 20,000 16,000
Notes payable -- 24,600
Accounts payable 32,288 40,483
Accrued taxes 3,638 5,917
Accrued interest 8,422 8,508
Purchased gas adjustment over-recoveries 3,640 1,987
Other 4,097 8,288
-------- ----------
Total current liabilities 72,085 105,783
-------- ----------
Deferred liabilities and credits:
Accumulated deferred income taxes 142,764 144,378
Regulatory liability, net 59,634 59,482
Investment tax credits 23,643 24,485
Capital lease obligation 2,827 3,025
Other 32,428 31,846
-------- ----------
Total deferred liabilities and credits 261,296 263,216
-------- ----------
Total capitalization and liabilities $993,559 $1,059,991
======== ==========
<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
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating revenues:
Electric $ 73,938 $ 75,897 $150,629 $150,242
Gas 32,269 24,615 110,309 83,497
--------- --------- --------- ---------
Total operating revenues 106,207 100,512 260,938 233,739
--------- --------- --------- ---------
Operating expenses:
Cost of fuel 20,424 22,356 46,356 47,116
Cost of gas 16,254 9,640 61,843 38,747
Purchased power 2,110 2,519 4,372 5,303
Other operation and maintenance 29,030 27,239 55,732 54,554
Depreciation and amortization 15,011 14,171 30,065 28,317
Income taxes 3,528 4,105 12,142 11,620
Other taxes 7,662 7,463 18,048 17,180
--------- --------- --------- ---------
Total operating expenses 94,019 87,493 228,558 202,837
--------- --------- --------- ---------
Operating income 12,188 13,019 32,380 30,902
--------- --------- --------- ---------
Other income and deductions:
Cost of equity funds capitalized 19 -- 38 --
Company-owned life insurance, net (203) (194) (409) (385)
Other, net 72 116 12 100
--------- --------- --------- ---------
Total other income and
(deductions) (112) (78) (359) (285)
--------- --------- --------- ---------
Income before interest expenses 12,076 12,941 32,021 30,617
--------- --------- --------- ---------
Interest expenses:
Interest on long-term debt 5,223 4,942 10,527 9,750
Cost of borrowed funds capitalized (16) (66) (32) (297)
Other 559 991 1,298 2,008
--------- --------- --------- ---------
Total interest expenses 5,766 5,867 11,793 11,461
--------- --------- --------- ---------
Net income 6,310 7,074 20,228 19,156
--------- --------- --------- ---------
Dividends on preferred stock 786 832 1,601 1,667
--------- --------- --------- ---------
Net income available for common stock $ 5,524 $ 6,242 $ 18,627 $ 17,489
========= ========= ========= =========
<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
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 20,228 $ 19,156
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 30,420 28,673
Deferred taxes, investment tax credits and
regulatory liability, net (2,303) (3,078)
Changes in operating assets and liabilities:
Decrease in accounts receivable 5,305 4,062
Decrease in fuel, materials and supplies, and gas
in underground storage 10,330 11,147
Decrease in unbilled revenue 9,882 4,128
Decrease in accounts payable (8,195) (18,298)
(Decrease) increase in accrued taxes and interest (2,365) 183
Capital lease payments 322 267
Decrease in other current assets 14,067 4,330
Decrease in other current liabilities (2,539) (1,619)
Decrease (increase) in other non-current
assets 3,729 (1,346)
(Decrease) increase in other non-current
liabilities (23) 1,804
--------- ---------
Net cash provided by operating activities 78,858 49,409
--------- ---------
Cash flows from investing activities:
Capital expenditures (20,798) (34,881)
Cost of equity funds capitalized (38) --
Other (1,322) (3,540)
--------- ---------
Net cash used in investing activities (22,158) (38,421)
--------- ---------
Cash flows from financing activities:
Common dividends paid (29,464) (16,056)
Preferred dividends paid (1,601) (1,667)
Long-term debt issued -- 19,816
Long-term debt retired (16,000) --
Payments on capital lease obligation (322) (267)
Decrease in short-term borrowing (24,600) (12,200)
--------- ---------
Net cash used in financing activities (71,987) (10,374)
--------- ---------
Net (decrease) increase in cash and temporary cash (15,287) 614
investments
Cash and temporary cash investments at beginning of
year 16,556 629
--------- ---------
Cash and temporary cash investments at June 30 $ 1,269 $ 1,243
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of cost of borrowed funds
capitalized) $ 12,177 $ 11,085
Income taxes 7,261 9,276
<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), QST Enterprises Inc.
(QST) and CILCORP's other subsidiaries after elimination of significant
intercompany transactions. CILCORP owns 100% of the common stock of
CILCO. All of the other first-tier subsidiaries are wholly-owned by
CILCORP. The consolidated financial statements of CILCO include the
accounts of CILCO and its subsidiaries, CILCO Exploration and
Development Company and CILCO Energy Corporation.
The accompanying unaudited consolidated financial statements have been
prepared according to the rules and regulations of the Securities and
Exchange Commission (SEC). Although CILCORP believes the disclosures
are adequate to make the information presented not misleading, these
consolidated financial statements should be read with the consolidated
financial statements and related notes forming a part of the Company's
1995 Annual Report on Form 10-K.
In the Company's opinion, the consolidated 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. Gas Pipeline Supplier Transition Costs
CILCO's natural gas suppliers are subject to various Federal Energy
Regulatory Commission (FERC) orders and settlements related to the
transition to a more competitive natural gas industry. FERC Order
No. 636 unbundled the sale, transportation and storage functions of
interstate gas pipelines, and also allows the pipelines to recover
prudently incurred transition costs from gas distribution companies.
On July 16, 1996 the United States Court of Appeals affirmed Order
No. 636 "in its broad contours and in most of its specifics," but
remanded parts of Order No. 636 for further explanation including the
FERC's failure to allocate any part of transition costs to the
pipelines. FERC Order No. 500 and Order No. 528 allow interstate gas
pipelines to bill gas distribution companies for take-or-pay and
other charges related to the transition to a more competitive gas
industry. During the six months ended June 30, 1996, CILCO paid $.8
million to interstate gas pipelines for transition costs. These
costs have been, or will be, recovered from CILCO's customers through
its purchased gas adjustment clause (PGA). Since these costs are
recoverable from CILCO's customers, management does not expect gas
pipeline supplier transition costs to materially impact CILCO's
financial position or results of operations.
For these transition costs, CILCO has recorded a regulatory asset and
<PAGE>
a corresponding liability of $2.3 million on its Balance Sheets as of
June 30, 1996, of which $.8 million will be due in one year. The
remaining $1.5 million represents the minimum amount of the estimated
range of such future direct billings from pipelines which CILCO
expects to receive related to take-or-pay and other transition costs.
NOTE 3. Contingencies
Neither CILCORP, CILCO, nor any of their subsidiaries has been
identified as a potentially responsible party (PRP) under federal or
state environmental laws.
CILCO continues to investigate and/or monitor four former gas
manufacturing plant sites located within CILCO's present gas service
territory. The purpose of these studies is to determine if waste
materials, principally coal tar, are present, whether such waste
materials constitute an environmental or health risk and if CILCO is
responsible for the remediation of any remaining waste materials at
those sites. During the six months ended June 30, 1996, CILCO paid
approximately $288,000 to outside parties to investigate and/or test
two former gas manufacturing plant sites. In 1994, CILCO completed
remediation at one of those two sites. CILCO plans to begin
remediation work at the other site in 1997. CILCO has not determined
the ultimate extent of any CILCO liability or the cost of any
remediation of the remaining two sites. However, as described in
Part II. Item 1: Legal Proceedings, a suit against CILCO in
connection with one of the sites was recently dismissed.
CILCO expects to spend approximately $143,000 for site monitoring,
legal fees and feasibility studies during the remainder of 1996. A
$3.9 million liability and a corresponding regulatory asset are
recorded on the Balance Sheets representing the minimum amount of
coal tar investigation and remediation costs CILCO expects to incur.
Coal tar remediation costs incurred through June 1996 have been
deferred on the Balance Sheets, net of amounts recovered from
customers.
Through June 30, 1996, CILCO has recovered approximately $4.9 million
in coal tar remediation costs from its customers through a gas rate
rider approved by the Illinois Commerce Commission (ICC). Currently,
that rider allows recovery of prudently incurred coal tar costs in
the year they are incurred. Under these circumstances, management
believes that the cost of coal tar remediation will not have a
material adverse effect on CILCO's financial position or results of
operations.
NOTE 4. Commitments
In August 1990, CILCO entered into a firm, wholesale power purchase
agreement with Central Illinois Public Service Company (CIPS). This
agreement provides for a minimum contract delivery rate of 80 megawatts
(MW) of capacity through May 1997, then increasing to 90 MW until the
contract expires in May 1998.
In March 1995, CILCO and CIPS renegotiated a November 1992 limited-term
power agreement. This renegotiated agreement, which expires in May
2009, provides for CILCO to purchase 150 MW of CIPS' capacity from June
1998 through May 2002, and 50 MW from June 2002 through May 2009. This
renegotiated agreement was subject to the ICC's final approval of
CILCO's 1995 electric least cost energy plan, which had been revised to
include the terms of this agreement. ICC approval was granted on May 8,
1996.
NOTE 5. Open Access Electric Transmission
On April 24, 1996 the FERC issued Order No. 888, Order No. 889, and a
Notice of Proposed Rulemaking (NOPR). Order No. 888 requires all public
utilities that own, operate or control interstate electric transmission
facilities to file tariffs which will offer others the same transmission
services that they provide themselves and finalizes the conditions under
which a utility may seek recovery of stranded costs from wholesale
jurisdictional customers. Order No. 889 requires public utilities to
implement standards of conduct and an OASIS (Open Access Transmission
Same-time Information System). The NOPR requests comments regarding the
potential replacement of the single tariff contained in Order No. 888
with a capacity reservation tariff. CILCO filed an open access tariff
under rulemaking provisions prior to the issuance of Order No. 888.
This tariff was revised to comply with the final rule in Order No. 888.
CILCO is continuing to evaluate the requirements of Order No. 889.
Modifications to CILCO's Standards of Conduct are being evaluated along
with the appropriate location within the corporate structure for the
Company's wholesale electric merchant function. CILCO is currently
working with the Mid-America Interconnected Network (MAIN) and intends
to rely on MAIN to calculate ATC (Available Transfer Capability) and
provide an OASIS as required by Order No. 889.
Forward-Looking Information
Forward-looking information is included in Part I. Item 2: Management's
Discussion and Analysis of Financial Condition and Results of Operations
and Part II. Item 5: Other Information. Certain material contingencies
are also described in Note 3 to the Consolidated Financial Statements.
Some important factors could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements.
These factors include prevailing governmental policies and regulatory
actions (including those of the FERC, ICC and SEC) with respect to
rates, industry structure and recovery of various costs incurred by
CILCO in the course of its business; the extent and effect of
participation by CILCO's customers in its Power Quest program; and
increasing wholesale and retail competition in the electric and gas
business. The business and profitability of CILCORP and its
subsidiaries are also influenced by economic and geographic factors
including ongoing changes in environmental laws, regulations and
policies which affect demand for ESE's services; weather conditions; the
extent and pace of development of competition for retail and wholesale
customers, which may particularly affect the future performance of QST
Enterprises; pricing and transportation of commodities; market demand
for energy from plants or facilities and for environmental consulting
and analytical services; inflation; capital market conditions; and
environmental remediation and compliance costs. All such factors are
difficult to predict, contain uncertainties that may materially affect
actual results, and to a significant degree are beyond the control of
CILCORP and its subsidiaries.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CILCORP Inc. (CILCORP or the Company) is the parent of three core
operating businesses, Central Illinois Light Company (CILCO),
Environmental Science & Engineering, Inc. (ESE) and QST Enterprises Inc.
(QST). CILCORP also has two other first-tier subsidiaries, CILCORP
Investment Management Inc. (CIM), 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. CILCO's
financial condition and results of operations are currently the
principal factors affecting the Company's financial condition and
results of operations.
ESE is a national environmental consulting, engineering and analytical
services firm serving governmental, industrial and commercial customers.
ESE, through its subsidiaries, also acquires environmentally impaired
property for remediation and resale.
QST, formed in December 1995, provides energy and energy-related
services to a broad spectrum of retail customers. QST is also engaged
in the business of fiber optic communication through one of its wholly-
<PAGE>
owned subsidiaries.
CIM invests in a diversified portfolio of long-term financial
investments which currently includes leveraged leases, energy-related
projects and affordable residential housing.
CVI invests in ventures in environmental services, energy, biotechnology
and health care.
Capital Resources & Liquidity
Declaration of dividends by CILCORP is at the discretion of the Board of
Directors. CILCORP's ability to declare and pay dividends is currently
contingent upon its receipt of dividend payments from CILCO and is also
affected by business and economic conditions, capital requirements,
earnings and the overall 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, finance acquisitions, pay its financial obligations, meet
working capital needs and retire debt as it matures.
CILCORP
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 $50 million on a short-term basis. On
June 30, 1996, CILCORP had committed bank lines of credit of $50
million, of which $6.5 million was outstanding.
During the first and second quarters of 1996, CILCORP issued 84,289 and
77,486 shares, respectively, of common stock at average prices of $43.15
and $41.66 per share, respectively, through the CILCORP Inc. Automatic
Reinvestment and Stock Purchase Plan (DRIP) and the CILCO Employees'
Savings Plan (ESP). Depending on market conditions, CILCORP may issue
additional shares of common stock through the DRIP, the ESP or other
stock offerings. On July 26, 1996, the CILCORP Board of Directors
authorized management to develop a direct registration program to allow
investors to make initial purchases of CILCORP common stock directly
from the company without utilizing the services of a broker.
Implementation of such a program is not expected until late in the third
quarter of 1996, at the earliest. The new direct registration program
will likely incorporate the elements of the existing DRIP. The proceeds
from newly issued stock will be used to retire CILCORP debt, to meet
working capital and capital expenditure requirements at subsidiaries
other than CILCO and for other corporate purposes.
At June 30, 1996, CILCORP had $45 million of medium-term notes
outstanding. CILCORP may issue up to $75 million under its current
medium-term note program. CILCORP may issue additional notes in the
future under this program to retire maturing debt and to provide funds
for other corporate purposes.
CILCO
Capital expenditures totaled $20.8 million for the six months ended June 30,
1996. Capital expenditures are anticipated to be approximately $31.6 million
for the remainder of 1996. Capital expenditures for the years 1997 and 1998
are estimated to be $49.7 million and $49.5 million, respectively.
Currently, CILCO does not plan to issue long-term debt during 1996. CILCO
intends to finance its 1996 and 1997 capital expenditures with funds provided
by operations.
At June 30, 1996, CILCO had committed bank lines of credit aggregating
$30 million, all of which were unused. CILCO expects these bank lines to
remain unused through 1996 other than to support CILCO's issuance of
commercial paper. CILCO had no commercial paper outstanding at June 30,
1996, but expects to issue commercial paper periodically throughout the
remainder of 1996.
ESE
For the quarter ended June 30, 1996, ESE's expenditures for capital
additions and improvements were approximately $900,000, which included
$700,000 to acquire land through its subsidiary, ESE Land Corporation,
for remediation and resale. Capital expenditures for the remainder of
1996 are expected to be $7.4 million, which includes $6.6 million to
acquire land for remediation and resale.
At June 30, 1996, ESE had borrowings of $20 million from CILCORP, and
advances to CILCORP of $5.1 million. ESE also has a $15 million line of
credit from CILCORP which was extended through May 1998. At June 30,
1996, this line of credit was not in use. ESE has a $10 million bank
line of credit, of which $4.4 million was outstanding at June 30, 1996,
to collateralize performance bonds issued in connection with ESE
projects.
QST
Capital expenditures totaled approximately $800,000 for the six months
ended June 30, 1996, and are anticipated to be approximately
$1.8 million for the remainder of 1996, primarily for construction of
fiber optic and other communications facilities. QST expects to finance
new investments and working capital needs during 1996 with funds
provided by CILCORP.
CIM
At June 30, 1996, CIM had outstanding debt of $24.7 million, consisting
of $21.3 million borrowed from CILCORP and $3.4 million borrowed from
external sources. CIM expects to finance new investments and working
capital needs during 1996 with a combination of funds generated
internally and periodic short-term borrowings from CILCORP.
Results Of Operations
The following table summarizes net income of CILCO, ESE, QST and Other
Businesses for the three months and six months ended June 30, 1996 and
1995.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Core businesses:
CILCO
Electric operating income $10,731 $11,860 $20,816 $20,925
Gas operating income 1,457 1,159 11,564 9,977
-------- -------- -------- --------
Total utility operating income 12,188 13,019 32,380 30,902
Utility other income and deductions (5,878) (5,945) (12,152) (11,746)
Preferred stock dividends of CILCO (786) (832) (1,601) (1,667)
-------- -------- -------- --------
Total utility net income 5,524 6,242 18,627 17,489
ESE
ESE net loss (1,191) (456) (3,163) (79)
QST
QST net loss (915) -- (1,361) --
-------- -------- -------- --------
Total core business income 3,418 5,786 14,103 17,410
Other businesses:
Other businesses net loss (891) (109) (1,183) (259)
-------- -------- -------- --------
Consolidated net income available
to common shareholders $ 2,527 $ 5,677 $12,920 $17,151
======== ======== ======== ========
</TABLE>
CILCO Electric Operations
The following table summarizes the components of CILCO electric operating
income for the three months and six months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of Electric June 30, June 30,
Operating Income 1996 1995 1996 1995
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Electric retail $71,090 $74,961 $144,346 $147,894
Sales for resale 2,848 936 6,283 2,348
-------- -------- --------- ---------
Total revenue 73,938 75,897 150,629 150,242
-------- -------- --------- ---------
Cost of sales:
Cost of fuel 20,424 22,356 46,356 47,116
Purchased power expense 2,110 2,519 4,372 5,303
Revenue taxes 3,247 3,049 6,892 6,478
-------- -------- --------- ---------
Total cost of sales 25,781 27,924 57,620 58,897
-------- -------- --------- ---------
Gross margin 48,157 47,973 93,009 91,345
-------- -------- --------- ---------
Operating expenses:
Other operation and maintenance 20,916 19,206 39,653 38,288
Depreciation and amortization 10,719 10,239 21,485 20,452
Income and other taxes 5,791 6,668 11,055 11,680
-------- -------- --------- ---------
Total operating expenses 37,426 36,113 72,193 70,420
-------- -------- --------- ---------
Electric operating income $10,731 $11,860 $20,816 $ 20,925
======== ======== ========= =========
</TABLE>
Electric gross margin remained constant for the quarter and increased 2%
for the six months ended June 30, 1996, compared to the same periods in
1995. Retail kilowatt hour (Kwh) sales for these same periods decreased
8% and 3%, respectively. The decreases in retail Kwh sales were due
mainly to industrial sales decreases of 25% for the quarter and 16% for
the six months ended June 30, 1996, compared to the same periods in
1995, offset by increases in residential and commercial sales.
Residential sales for the same periods increased 6% and 7%,
respectively, while commercial sales increased 8% and 7%, respectively.
Industrial sales decreases were due primarily to decreased demand by
several large customers and to customers switching to off-system
suppliers under CILCO's Power Quest program (see Part II. Item 5: Other
Information, Electric Competition). Residential and commercial sales
increases were primarily due to warmer weather. Cooling degree days
were 17% higher for both the quarter and six months ended June 30, 1996,
compared to the same periods in 1995. A write-off of excess materials
and supplies as part of an inventory reduction program contributed to
the reduction in electric retail revenue (see Part II. Item 5: Other
Information, Corporate Repositioning) during the quarter and six months
ended June 30, 1996, compared to the same periods in 1995.
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
also be affected in the near term by the Power Quest pilot programs and
in the long-term by deregulation and increased competition in the
electric utility industry (see Part II. Item 5: Other Information,
Electric Competition).
Sales for resale increased during the quarter and six months ended
June 30, 1996, due to higher demand for electricity from neighboring
utilities. Sales for resale vary based on the energy requirements of
neighboring utilities, CILCO's available capacity for bulk power sales
and the price of power available for sale. CILCO expects increased
competition in the market for sales for resale and purchased power.
Substantially all of CILCO's electric generating capacity is coal-fired.
The cost of fuel decreased 9% for the quarter and 2% for the six months
ended June 30, 1996, compared to the same periods in 1995. The
decreases were due to decreases in the cost of coal, partially offset by
increases in overall Kwh generated.
Purchased power decreased for the quarter and six months ended June 30,
1996, compared to the same period in 1995. 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 through
to CILCO's customers via the fuel adjustment clause (FAC). The FAC
allows CILCO to pass increases or decreases in the cost of fuel through
to customers.
Other operation and maintenance expenses increased 9% and 4%,
respectively, for the quarter and the six months ended June 30, 1996,
compared to the same periods in 1995. Increased outside service
expenses and power plant operations and maintenance expenses were
partially offset by decreases in employee salaries, pension expense,
injury and damage claims, and tree trimming expenses (see Part II.
Item 5: Other Information, Corporate Repositioning).
Depreciation and amortization expense increased 5%, reflecting additions
and replacements of utility plant at costs in excess of the original
cost of the property retired, and the increased amortization associated
with the addition of CILCO's new customer information system in October
1995.
Income and other tax expense decreased primarily due to lower pre-tax
operating income.
CILCO Gas Operations
The following table summarizes the components of CILCO gas operating
income for the three months and six months ended June 30, 1996 and
1995:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of Gas Operating June 30, June 30,
Income 1996 1995 1996 1995
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Sale of gas $30,578 $22,783 $105,868 $ 78,951
Transportation services 1,691 1,832 4,441 4,546
------- ------- -------- --------
Total revenue 32,269 24,615 110,309 83,497
------- ------- -------- --------
Cost of sales:
Cost of gas 16,254 9,640 61,843 38,747
Revenue taxes 1,375 1,206 5,053 4,320
------- ------- -------- --------
Total cost of sales 17,629 10,846 66,896 43,067
------- ------- -------- --------
Gross margin 14,640 13,769 43,413 40,430
------- ------- -------- --------
Operating expenses:
Other operation and maintenance 8,114 8,033 16,079 16,266
Depreciation and amortization 4,292 3,932 8,580 7,865
Income and other taxes 777 645 7,190 6,322
------- ------- -------- --------
Total operating expenses 13,183 12,610 31,849 30,453
------- ------- -------- --------
Gas operating income $ 1,457 $ 1,159 $ 11,564 $ 9,977
======= ======= ======== ========
</TABLE>
Gas gross margin increased 6% for the quarter and 7% for the six months
ended June 30, 1996, compared to the same periods in 1995, primarily due
to increased sales to residential and commercial customers. Residential
sales increased 15% for the quarter and 12% for the six months ended
June 30, 1996. Commercial sales increased 29% for the second quarter of
1996, and 17% for the six months ended June 30, 1996, due to cooler
weather and to commercial customers switching from gas transportation to
CILCO system supply. Heating degree days were 11% higher for the
quarter and 13% higher for the six months ended June 30, 1996, compared
to the same periods in 1995. 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 in the near term.
In the long term, CILCO natural gas sales may be affected by further
deregulation in the natural gas industry.
Revenue from gas transportation services decreased 8% and 2%, while
sales volumes decreased 9% and 5% for the quarter and six months ended
June 30, 1996, respectively, compared to the same periods in 1995.
Transportation revenues and volumes declined primarily due to decreased
purchases of gas by industrial transportation customers from suppliers
other than CILCO and to commercial and industrial customers switching
back to system supply.
The cost of gas increased 69% for the quarter and 60% for the six months
ended June 30, 1996, compared to the same periods in 1995. This
increase was principally due to increased sales and higher natural gas
prices from CILCO's suppliers. The higher natural gas prices, which
contributed to the 34% increase in gas retail revenue, were passed
through to CILCO's gas customers via the Purchased Gas Adjustment Clause
(PGA). The PGA is the mechanism used to pass increases or decreases in
the cost of natural gas through to customers.
Other operation and maintenance expenses remained relatively constant
for the quarter and six months ended June 30, 1996, compared to the same
periods in 1995.
Depreciation and amortization expense increased 9% for the quarter and
for the six months ended June 30, 1996, compared to the same period in
1995, reflecting additions and replacements of utility plant at costs in
excess of the original cost of the property retired, and the addition of
CILCO's new customer information system in October 1995.
Income and other taxes expense increased for the quarter and the six
months ended June 30, 1996, primarily due to higher pre-tax operating
income.
CILCO Other Income and Deductions and Interest Expense
The following table summarizes other income and deductions and interest
expense for the three months and six months ended June 30, 1996 and
1995:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of Other Income and June 30, June 30,
Deductions and Interest Expense 1996 1995 1996 1995
(In thousands)
<S> <C> <C> <C> <C>
Net interest expense $(5,498) $(5,861) $(11,412) $(11,675)
Income taxes 584 540 1,296 1,105
Other (964) (624) (2,036) (1,176)
------- ------- -------- --------
Other income (deductions) $(5,878) $(5,945) $(12,152) $(11,746)
======= ======= ======== ========
</TABLE>
Interest expense decreased primarily as a result of a settlement during
the second quarter of 1995 with the Illinois Department of Revenue
related to an audit of the Illinois gross receipts tax. Other
deductions for the quarter and six months ended June 30, 1996, compared
to the same periods in 1995, increased primarily due to increased
advertising, corporate contributions, and lobbying expenses.
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, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of ESE Net Loss June 30, June 30,
1996 1995 1996 1995
(In thousands)
<S> <C> <C> <C> <C>
Environmental and engineering
services revenue $21,380 $30,199 $41,855 $64,873
Direct non-labor project costs 6,200 10,657 11,866 24,617
-------- -------- -------- --------
Net revenue 15,180 19,542 29,989 40,256
-------- -------- -------- --------
Expenses:
Direct salaries and other costs 7,886 10,167 16,293 20,315
General and administrative 7,540 7,990 15,289 15,798
Depreciation and amortization 1,295 1,416 2,627 2,859
-------- -------- -------- --------
Operating expenses 16,721 19,573 34,209 38,972
-------- -------- -------- --------
Interest expense 240 535 636 1,046
-------- -------- -------- --------
Income (loss) before income taxes (1,781) (566) (4,856) 238
Income taxes (590) (110) (1,693) 317
-------- -------- -------- --------
ESE net loss $(1,191) $ (456) $(3,163) $ (79)
======== ======== ======== ========
</TABLE>
ESE's results have fluctuated from quarter to quarter since its
acquisition in 1990. Such fluctuations may be expected to continue.
Factors influencing such variations include: project delays, which may
be caused by delays in regulatory agency approvals or client
considerations; the level of subcontractor services; and weather, which
may limit the amount of time ESE professionals have in the field.
Accordingly, results from one quarter are not necessarily indicative of
results for any other quarter or for the year.
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.
Net revenues decreased by $4.4 million or 22% for the second quarter and
by $10.3 million or 26% for the six months ended June 30, 1996, compared
to the same periods in 1995. The net revenue decreases for these
periods resulted from ongoing changes in environmental regulatory
requirements of many states, funding delays at the federal level and
increased competition in the consulting and laboratory businesses.
Direct salaries and other expenses include the cost of professional and
technical staff and other costs billable to customers. These costs
include salaries and related fringe benefits, including employer paid
medical and dental insurance, payroll taxes, paid time off, and 401(k)
contributions. Direct and indirect salary expense decreased by
$2.3 million or 22% for the second quarter and by $4.0 million or 19%
for the six months ended June 30, 1996 compared to the same periods in
1995. This decrease is primarily due to a reduction in the number of
technical staff to match decreased levels of business activity.
General and administrative expenses include non-billable employee time
devoted to marketing, proposals, supervision, and professional
development; supply expenses; and corporate administrative expenses.
General and administrative expenses decreased by $450,000 or 6% for the
three months ended June 30, 1996, and decreased by $509,000 or 3% for
the six months ended June 30, 1996. The decreases for these periods
resulted from lower general and administrative salary and related
benefit expense, and cost controls. Offsetting the decrease in these
expenses are severance costs related to the second quarter reductions in
employment levels. Approximately $700,000 of severance costs were
incurred in the second quarter of 1996.
Due to the labor intensive nature of ESE's business, ESE has the ability
to adjust staffing levels to recognize changing business conditions.
ESE had 809 full-time equivalent employees at June 30, 1996, compared to
1,223 at June 30, 1995.
QST Operations
QST Enterprises Inc. was formed in December 1995 to facilitate CILCORP's
expansion into non-regulated energy and related services businesses.
QST provides energy and energy-related services to a broad spectrum of
customers.
QST's initial focus is to compete against energy suppliers who may
participate in CILCO's Power Quest programs (see Part II. Item 5: Other
Information, Electric Competition). QST will also compete against
marketers to provide energy and services to customers of utilities that
will offer, or be required to offer, similar retail competition
programs, and to sell energy to customers who may already have the
ability to choose their electric supplier. QST provides a portfolio of
non-regulated, energy-related products and services to customers and
intends to supplement its competencies through selected acquisitions of
other energy services and marketing companies aimed at broadening its
customer base.
Power Quest was approved by the ICC on March 13, 1996. QST began
delivery of electricity in May 1996 to customers participating in Power
Quest, and in June 1996 began delivery of energy to a customer
participating in another Illinois utility's retail competition pilot
program.
QST has two wholly-owned subsidiaries -- QST Energy Inc. and QST
Communications Inc. QST Communications Inc. is engaged in the business
of fiber optic communication. QST Energy Inc. has one wholly-owned
subsidiary -- QST Energy Trading Inc. On March 14, 1996, the FERC
approved a request by QST Energy Trading Inc. to purchase, sell and
broker energy and capacity at market-based rates as a wholesale power
marketer. As part of this authorization, QST Energy Trading Inc. can
purchase and sell power to QST Energy Inc. which, in turn, can sell
power to retail customers. This filing became effective on March 15,
1996.
QST's revenues from the sale of electricity to customers participating
in CILCO's Power Quest programs and another Illinois utility's retail
competition pilot program were approximately $218,000 for the three
months ended June 30, 1996. QST had net losses for the three months and
six months ended June 30, 1996, of approximately $915,000 and
$1,361,000, respectively, caused primarily by the purchase of outside
services and administrative and general expenses not being covered by
revenues at this early stage of QST's development.
<PAGE>
Other Businesses Operations
The following table summarizes the components of Other Businesses losses
for the three months and six months ended June 30, 1996 and 1995. Other
Businesses results include income earned and expenses incurred at the
Holding Company, CIM, CVI, and non-operating interest income of CILCO.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of Other Businesses June 30, June 30,
Net Loss 1996 1995 1996 1995
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Other revenue $1,897 $1,779 $4,676 $4,466
------- ------- ------- -------
Expenses:
Operating expenses 1,774 529 3,260 1,687
Depreciation and amortization 58 49 105 97
Interest expense 1,504 1,491 2,844 3,083
Income and other taxes (548) (181) (350) (142)
------- ------- ------- -------
Total expenses 2,788 1,888 5,859 4,725
------- ------- ------- -------
Other businesses net loss $ (891) $ (109) $(1,183) $ (259)
======= ======= ======= =======
</TABLE>
Other revenues increased for the three months and six months ended June
30, 1996, compared to the corresponding periods in 1995, primarily due
to an increase in CILCO's non-operating interest income.
Operating expenses increased for the three months and six months ended
June 30, 1996, compared to the same periods in 1995, primarily due to
higher administrative and general expenses at the Holding Company. Also
contributing to the differences were higher operating expenses related
to the leveraged lease investment portfolio in 1996 compared to 1995.
Income and other taxes were lower in the quarter and six months ended
June 30, 1996, compared to the same periods in 1995, primarily due to
lower pre-tax income.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Reference is made to "Environmental Matters" under "Item 1. Business"
in the Company's 1995 Annual Report on Form 10-K (the "1995 Form 10-K"),
and "Note 2. Gas Pipeline Supplier Transition Costs," "Note 3.
Contingencies," and "Note 5. Open Access Electric Transmission,"
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 or referred to 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 and results of operations of the Company or are adequately
covered by: (i) insurance; (ii) contractual or statutory
indemnification; and/or (iii) reserves for potential losses.
CILCO
As discussed in the 1995 Form 10-K, on July 6, 1994, a lawsuit was filed
against CILCO in a United States District Court by Vector-Springfield
Properties, Ltd., seeking damages related to alleged coal tar
contamination from the site of a former gas manufacturing plant which
was owned but never operated by CILCO. The lawsuit seeks cost recovery
of more than $3 million related to coal tar investigation expenses,
operating losses and diminution of market value. CILCO is vigorously
defending against these claims. In July 1996, a United States District
Court judge entered an order summarily dismissing the lawsuit on the
grounds that the applicable statute of limitations had expired. Since
CILCO expects this decision to be appealed, 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.
Item 5: Other Information
Electric Competition
The National Energy Policy Act of 1992 (NEPA) encourages competition
but specifically bans federally-mandated transmission of power to
retail customers. However, several state legislatures and public
utility regulatory commissions are investigating or adopting pilot
programs to initiate competition at the retail level, and legislation
has been introduced in Congress which would, if adopted, mandate
competition at the retail level by December 15, 2000. In addition,
incentive regulation is being implemented or considered by
legislatures and public utility commissions in more than twenty
states. Utilities may benefit or lose depending upon their ability
to reduce costs and improve efficiency.
In July 1995, Illinois enacted legislation which offers gas and electric
<PAGE>
public utilities an opportunity to develop alternative regulation and
performance-based ratemaking programs. These programs will be subject
to standards established by the ICC and will be restricted to the
utility's service territory. These programs must be approved by the ICC
and must end by June 30, 2000. A report on the results of the programs
will be delivered to the Illinois legislature by December 31, 2000.
With the proposed changes in the regulatory environment and the
potential for increased competition in the electric utility industry
at both the wholesale and retail levels, CILCO anticipates
significant changes in the industry in the years to come. Management
cannot predict the ultimate effect of these changes, but believes
that they will result in customers having the opportunity to select
the electric supplier of their choice and that low operating costs,
improved efficiency and new and better services and products will be
key competitive factors for electric utilities.
To lead the movement toward increased customer choice, CILCO
requested regulatory approval from the ICC in August 1995 to
establish two electric pilot retail competition programs known as
Power Quest. The programs offer greater choice to customers and
provide the opportunity for CILCO and its customers to participate in
a competitive business environment. These programs were approved by
the ICC in March 1996 and approved by the FERC in April 1996. Under
Power Quest, CILCO has also initiated a pilot program to allow
residential customers to select their natural gas suppliers (see
CILCO Gas Pilot Program).
One electric program permits eight of CILCO's industrial customers
that had peak loads of 10 megawatts or more during the twelve months
ended July 31, 1995, to secure part or all of their electric power
requirements from suppliers other than CILCO, subject to the
limitation that at no time shall total purchases from other suppliers
by participants in the program exceed 50 megawatts (approximately 10%
of CILCO's industrial load). CILCO may extend the program's two-year
term with the approval of the ICC.
In the other electric program, CILCO designated five areas within its
service territory as "Open Access Sites" for up to five years. The
sites include three Central Illinois communities, a shopping center,
and a developing commercial business site. During that period,
customers located within these Open Access Sites -- whether
residential, commercial or industrial -- are eligible to purchase
some or all of their electric power requirements from suppliers other
than CILCO. CILCO may extend the program's five-year term with ICC
approval.
Under Power Quest, CILCO will deliver, for an approved fee, other
suppliers' power from a designated receipt point on CILCO's system to
the customer's location, as well as provide other associated services.
CILCO will not impose any exit fees, entrance fees, or stranded cost
recovery upon any customers in connection with Power Quest.
During Power Quest, CILCO anticipates a reduction in electric profit
margin because some eligible customers are expected to purchase some or
all of their power requirements from other suppliers. The amount of any
such reduction depends largely upon the extent of customer participation
in Power Quest. CILCO expects, but cannot assure, that some of the
reduced profit margin will be offset by increased sales outside its
service territory. For the industrial program, CILCO anticipates a
reduction in net income on an annual basis of up to $4 million if the
entire 50 megawatts of eligible industrial capacity move to off-system
suppliers. In an effort to retain industrial capacity, CILCORP has
formed a strategic alliance with Caterpillar, Inc. (Caterpillar),
CILCO's largest industrial electric customer. Under this alliance,
Caterpillar will remain a full requirements customer for the first year
of the Power Quest program. The alliance will provide Caterpillar with
higher service levels, lower prices, greater reliability, and innovative
solutions to energy requirements.
In the Power Quest Open Access Sites, the Company anticipates a
reduction in net income on an annual basis of up to $400,000, based on
customers' participation level through July 1996. If all eligible
customers in the Open Access Sites participate in Power Quest, the
Company would experience a reduction in net income on an annual basis of
up to $700,000. Management cannot currently predict the additional
impact on its financial condition which may result from proposed changes
in the regulatory environment or from increased competition in the
electric utility industry.
Corporate Repositioning
In an effort to obtain a competitive advantage, various mergers and
business combinations are occurring in the utility industry. There
have been several announced utility industry mergers or business
combinations which will have an impact on the region in which CILCO
currently operates. Mergers and combinations have also been
announced in other areas of the country. Management will monitor
this activity and continue to position itself for competition by
keeping its costs and prices low, maintaining good customer relations
and developing the flexibility to respond directly to individual
customer requirements.
As part of the effort to become more competitive, CILCO personnel are
performing a detailed analysis of materials and supplies inventories at
power plant and transmission and distribution storerooms. CILCO plans
to ultimately reduce materials and supplies inventory levels by
approximately $3 million through the sale, disposal, or use of
identified inventory items. During the first six months of 1996, CILCO
disposed of approximately $1 million of inventory and wrote off another
$1.25 million of inventory which is expected to be disposed of during
the remainder of the year. The remaining $750,000 of inventory
reduction is expected to be achieved by not restocking inventory.
This inventory reduction is expected to result in a total after-tax
reduction to 1996 net income of approximately $1.35 million.
CILCO has also undertaken other corporate repositioning activities,
including fleet reductions, increased use of computer technology, and
<PAGE>
other operations improvements. For the six months ended June 30,
1996, CILCO has incurred approximately $2.4 million of pre-tax
expense for these repositioning activities. These one-time charges
are not expected to be incurred in future years.
CILCO Gas Pilot Program
On May 8, 1996, CILCO filed a petition with the Illinois Commerce
Commission (ICC) seeking regulatory permission to create a five-year
pilot program that would allow certain residential consumers to select
their natural gas supplier. CILCO will continue to provide distribution
and metering services. Under this program, which is part of Power
Quest, a limited number of CILCO's residential gas sales customers,
located in open access sites to be designated by CILCO, will be
permitted to elect to receive only gas transportation services from
CILCO, and thus purchase natural gas from providers other than CILCO.
CILCO has selected the towns of Heyworth, Manito and Williamsville as
initial sites for this gas pilot program. These communities are also
the residential sites in the electric pilot program. Other gas pilot
sites will be chosen by mid-August. The ICC granted approval of the
program on June 5, 1996. The effective date of the program will be
September 1, 1996. Management does not believe this program will have a
material adverse impact on CILCO's financial position or results of
operations.
ESE Officer Change
On May 29, 1996, William M. Shay, President and Chief Operating Officer
of QST Enterprises Inc., was also named President and Chief Executive
Officer of ESE. Shay replaced Joseph F. Silvey, who will serve ESE as a
consultant for special projects.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial data schedules
(b) Reports on Form 8-K
None
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 13, 1996 R. O. Viets
R. O. Viets
President and
Chief Executive Officer
Date August 13, 1996 J. L. Barnett
J. L. Barnett
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 13, 1996 T. S. Romanowski
T. S. Romanowski
Vice President and Chief
Financial Officer
Date August 13, 1996 R. L. Beetschen
R. L. Beetschen
Controller and Manager
of Accounting
<TABLE> <S> <C>
<ARTICLE> OPUR1
<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.
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<CIK> 0000762129
<NAME> CILCORP INC.
<MULTIPLIER> 1,000
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 879,127
<OTHER-PROPERTY-AND-INVEST> 21,503
<TOTAL-CURRENT-ASSETS> 130,086
<TOTAL-DEFERRED-CHARGES> 44,142
<OTHER-ASSETS> 137,050
<TOTAL-ASSETS> 1,211,908
<COMMON> 186,195
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 179,102
<TOTAL-COMMON-STOCKHOLDERS-EQ> 365,297
22,000
44,120
<LONG-TERM-DEBT-NET> 324,158
<SHORT-TERM-NOTES> 6,870
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 23,044
0
<CAPITAL-LEASE-OBLIGATIONS> 2,827
<LEASES-CURRENT> 387
<OTHER-ITEMS-CAPITAL-AND-LIAB> 423,205
<TOT-CAPITALIZATION-AND-LIAB> 1,211,908
<GROSS-OPERATING-REVENUE> 307,693
<INCOME-TAX-EXPENSE> 7,829
<OTHER-OPERATING-EXPENSES> 270,103
<TOTAL-OPERATING-EXPENSES> 277,932
<OPERATING-INCOME-LOSS> 29,761
<OTHER-INCOME-NET> (409)
<INCOME-BEFORE-INTEREST-EXPEN> 29,352
<TOTAL-INTEREST-EXPENSE> 14,831
<NET-INCOME> 14,521
1,601
<EARNINGS-AVAILABLE-FOR-COMM> 12,920
<COMMON-STOCK-DIVIDENDS> 16,466
<TOTAL-INTEREST-ON-BONDS> 10,527
<CASH-FLOW-OPERATIONS> 76,512
<EPS-PRIMARY> .96
<EPS-DILUTED> .96
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000018651
<NAME> CENTRAL ILLINOIS LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 879,127
<OTHER-PROPERTY-AND-INVEST> 3,305
<TOTAL-CURRENT-ASSETS> 92,899
<TOTAL-DEFERRED-CHARGES> 18,228
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 993,559
<COMMON> 185,661
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 129,979
<TOTAL-COMMON-STOCKHOLDERS-EQ> 315,640
22,000
44,120
<LONG-TERM-DEBT-NET> 278,418
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 20,000
0
<CAPITAL-LEASE-OBLIGATIONS> 2,827
<LEASES-CURRENT> 387
<OTHER-ITEMS-CAPITAL-AND-LIAB> 310,167
<TOT-CAPITALIZATION-AND-LIAB> 993,559
<GROSS-OPERATING-REVENUE> 260,938
<INCOME-TAX-EXPENSE> 12,142
<OTHER-OPERATING-EXPENSES> 216,416
<TOTAL-OPERATING-EXPENSES> 228,558
<OPERATING-INCOME-LOSS> 32,380
<OTHER-INCOME-NET> (359)
<INCOME-BEFORE-INTEREST-EXPEN> 32,021
<TOTAL-INTEREST-EXPENSE> 11,793
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1,601
<EARNINGS-AVAILABLE-FOR-COMM> 18,627
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