UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class so registered on which registered
CILCORP Inc. Common stock, no par value New York and Chicago
CILCO Preferred Stock, Cumulative
$100 par, 4 1/2% series New York
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)
At March 11, 1997, the aggregate market value of the voting
stock of CILCORP Inc. (CILCORP) held by nonaffiliates was
approximately $522 million. On that date, 13,610,680 common
shares (no par value) were outstanding.
At March 11, 1997, the aggregate market value of the voting
stock of Central Illinois Light Company (CILCO) held by
nonaffiliates was approximately $60 million. The voting
stock of CILCO consists of its common and preferred stock.
On that date, 13,563,871 shares of CILCO's common stock, no
par value, were issued and outstanding and privately held,
beneficially and of record, by CILCORP Inc.
DOCUMENTS INCORPORATED BY REFERENCE
CILCORP Inc.'s Proxy Statement dated March 10, 1997, in
connection with its Annual Meeting to be held on April 22,
1997, is incorporated into Part I and Part III hereof.
Central Illinois Light Company's Proxy Statement dated March
25, 1997, in connection with its Annual Meeting to be held
on April 22, 1997, is incorporated into Part I and Part III
hereof.
CILCORP Inc.'s Annual Report to Shareholders for the year
ended December 31, 1996 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations is
incorporated herein by reference into Part II Item 7.
CILCORP Inc.'s Annual Report to Shareholders for the year
ended December 31, 1996 -- Financial Statements, Notes to
the Financial Statements and Supplementary Data is
incorporated herein by reference into Part II Item 8.
CILCORP INC.
and
Central Illinois Light Company
1996 Form 10-K Annual Report
This combined Form 10-K is separately filed by CILCORP Inc.
and Central Illinois Light Company (CILCO). Information herein relating
to each individual registrant is filed by such registrant on
its own behalf. Accordingly, except for its subsidiaries,
CILCO makes no representation as to information relating to
any other subsidiary of CILCORP Inc.
Table of Contents
Page
Glossary 5-6
Part I
Item 1. Business
The Company and its Subsidiaries 7-9
Business of CILCO 9
Electric Service 9-10
Gas Service 10-11
Regulation 11-12
Electric Fuel and Purchased Gas
Adjustment Clauses 12
Fuel Supply - Coal 12-13
Natural Gas Supply 13
Financing and Capital Expenditures Programs 14
Environmental Matters 14-15
Significant Customer 15
Franchises 15
Competition 15-16
Employees 16
Union Contracts 17
Early Retirement Programs 17
Business of QST (Excluding ESE) 17
Energy Supply 17-18
Competition 18
Employees 18
Business of ESE 18-20
Customers 20
Regulation of ESE's Clients 20-22
Regulation of ESE 22-23
Competition 23
Subcontractors 23
Government Contracts 23
Patents and Trademark Protection 23
Potential Liabilities and Insurance 23-24
Employees 25
Other Businesses 25
CIM 25
CVI 25-26
Employees 26
Item 2. Properties 27-28
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security
Holders 29
Executive Officers of the Registrant 29-31
Part II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 32
Item 6. Selected Financial Data 33
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 33
Item 8. Index - Financial Statements, Supplementary Data
and Exhibits 34
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 60
Part III
Item 10. Directors and Executive Officers of the
Registrants 60
Item 11. Executive Compensation 61
Item 12. Security Ownership of Certain Beneficial
Owners and Management 61
Item 13. Certain Relationships and Related Transactions 61-62
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 63-68
GLOSSARY OF TERMS
When used herein, the following terms have the meanings
indicated.
AFUDC -- Allowance for Funds Used During Construction
BTU -- British Thermal Unit. The quantity of heat required
to raise the temperature of one pound of water one
degree Fahrenheit.
BCF -- Billion cubic feet
Caterpillar -- Caterpillar Inc., CILCO's largest industrial customer
CECO -- CILCO Energy Corporation, a wholly-owned subsidiary of CILCO
CEDCO -- CILCO Exploration and Development Company, a wholly-owned
subsidiary of CILCO
CERCLA -- Comprehensive Environmental Response, Compensation and
Liability Act
CESI -- CILCORP Energy Services Inc.
CILCO -- Central Illinois Light Company
CIM -- CILCORP Investment Management Inc.
CIPS -- Central Illinois Public Service Company
CLM -- CILCORP Lease Management Inc.
Company -- CILCORP Inc. and subsidiaries
Cooling Degree Day --The measure of the degree of warmer
than normal weather experienced, based
on the extent to which the average of
high and low temperatures for a day
falls above 65 degrees Fahrenheit
(annual degree days above historic
average indicate warmer than average
temperatures); the historic average
provided by U.S. Weather Bureau for 30-
year period.
CVI -- CILCORP Ventures Inc.
DSM -- Demand Side Management. The process of helping customers
control how they use energy resources.
EPA -- Environmental Protection Agency (Federal)
ESE -- Environmental Science & Engineering, Inc.
FAC -- Fuel Adjustment Clause
FASB -- Financial Accounting Standards Board
FERC -- Federal Energy Regulatory Commission
Heating Degree Day --The measure of the degree of colder
than normal weather experienced, based
on the extent to which the average of
high and low temperatures for a day
falls below 65 degrees Fahrenheit
(annual degree days above historic
average indicates cooler than average
temperatures); the historic average
provided by U.S. Weather Bureau for 30-
year period.
ICC -- Illinois Commerce Commission
KW -- Kilowatt, a thousand watts
KWH -- Kilowatt-hour, one thousand watts used for one hour
(unit of work)
LCP -- Least Cost Energy Plan, a long-term resource acquisition
strategy that balances both supply and demand-side
resource options designed to provide the best value
at the least cost to customers.
MAIN -- Mid-America Interconnected Network. One of nine
regions that make up the North American Electric
Reliability Council. Its purpose is to ensure the
Midwest region will meet its load responsibility.
MCF -- One thousand cubic feet
MW -- Megawatt, a million watts
MWG -- Midwest Grain Products, Inc.
NEPA -- National Energy Policy Act.
PGA -- Purchased Gas Adjustment
QST -- QST Enterprises Inc.
QST Com -- QST Communications Inc.
QST Energy -- QST Energy Inc.
QST Trading -- QST Energy Trading Inc.
RCRA -- Resource Conservation and Recovery Act.
SFAS -- Statement of Financial Accounting Standards
Therm -- Unit of measurement for natural gas; a therm is
equal to one hundred cubic feet (volume); a therm is also
equal to 100,000 BTUs (energy).
PART I
Item 1. Business
THE COMPANY AND ITS SUBSIDIARIES
CILCORP Inc. (CILCORP or the Company) was incorporated as a
holding company in the state of Illinois in 1985. The
financial condition and operating results of CILCORP
primarily reflect the operations of Central Illinois Light
Company (CILCO), the Company's principal business
subsidiary. The Company's other core business subsidiary is
QST Enterprises Inc. (QST). Formerly a CILCORP first-tier
subsidiary, Environmental Science & Engineering, Inc. (ESE)
became a subsidiary of QST effective October 29, 1996. The
Company 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 itself (Holding Company), are collectively referred
to herein as Other Businesses. CILCORP owns 100% of the
common stock of CILCO. All of the other subsidiaries are
wholly-owned by CILCORP.
CILCO is engaged in the generation, transmission,
distribution and sale of electric energy in an area of
approximately 3,700 square miles in central and east-central
Illinois, and the purchase, distribution, transportation and
sale of natural gas in an area of approximately 4,500 square
miles in central and east-central Illinois.
CILCO has two wholly-owned subsidiaries, CILCO Exploration
and Development Company (CEDCO) and CILCO Energy Corporation
(CECO). CEDCO was formed to engage in the exploration and
development of gas, oil, coal and other mineral resources.
CECO was formed to research and develop new sources of
energy, including the conversion of coal and other minerals
into gas. The operations of these subsidiaries are not
currently significant.
QST, formed in December 1995, provides energy and energy-
related services to a broad spectrum of retail and wholesale
customers through its subsidiary, QST Energy Inc. (QST
Energy). QST Energy has one wholly-owned subsidiary - QST
Energy Trading Inc. (QST Trading), which purchases and sells
energy on the wholesale market. QST also provides fiber
optic and advanced Internet-based communication services and
products through another wholly-owned subsidiary, QST
Communications Inc. (QST Com) (formerly CILCORP FiberCom
Inc., a subsidiary of CVI). Effective October 29, 1996, ESE
also became a wholly-owned subsidiary of QST.
ESE was formed in February 1990 to conduct the environmental
consulting and analytical services businesses acquired from
Hunter Environmental Services, Inc. (Hunter) during that
year. ESE provides engineering and environmental
consulting, analysis and laboratory services to a variety of
governmental and private customers. ESE, through certain
subsidiaries, also acquires or invests in environmentally
impaired property for remediation and resale. ESE has six
wholly-owned active subsidiaries: Keck Instruments, which
manufactures geophysical instruments used in environmental
applications; ESE Architectural Services, Inc., which
provides architectural services; National Professional
Casualty Co., which provides professional and pollution
liability insurance to ESE; ESE International Ltd., which
provides engineering and consulting services in foreign
countries; Environmental Staffing Solutions, Inc. which
provides temporary staffing services, and ESE Land
Corporation organized to purchase or invest in
environmentally impaired parcels of real estate for
remediation and resale. ESE Land Corporation has two wholly-
owned subsidiaries: ESE Placentia Development Corporation
and Savannah Resources Corp. ESE Land Corporation is a
member of North Shore at Mandalay Bay L.L.C., Palm City
Developers L.L.C., and ELC Makenai L.L.C., which were
organized to purchase an environmentally impaired parcel of
real estate for resale. ESE is also a member of the DSE
Environmental L.L.C., organized to perform environmental and
remediation services. In addition, ESE owns a minority
interest in ESE Ohio, Inc., which provides professional
engineering services in the State of Ohio.
CIM manages the Company's investment portfolio. CIM holds
seven leveraged lease investments through three wholly-owned
subsidiaries: CILCORP Lease Management Inc. which was formed
in 1985, and CIM Leasing Inc. and CIM Air Leasing Inc.,
which were both formed in 1993. CIM's other wholly-owned
subsidiary is CIM Energy Investments Inc., which was formed
in 1989 to invest in non-regulated, independent power
production facilities (see Other Businesses). CIM also
directly owns limited partnership interests in affordable
housing portfolios.
CVI invests in ventures in energy, biotechnology, and health
care, and in economic development projects in Central
Illinois. CVI has an 80% interest in the Agricultural
Research and Development Corporation and has one wholly-
owned subsidiary, CILCORP Energy Services, Inc. (CESI).
CESI was formed to pursue energy-related opportunities in
the non-regulated market. CESI's primary businesses are the
sale of carbon monoxide detectors to utilities for resale to
their customers, the sale of outdoor lighting to commercial
businesses, and the sale of non-regulated energy services.
During 1996 CESI provided services to Caterpillar Inc. under
the alliance between CILCORP and Caterpillar Inc. (refer to
the caption "Competition" of Item 7. Management's Discussion
and Analysis of Financial Condition and Results of
Operations beginning on page 19 of CILCORP's 1996 Annual
Report to Shareholders which is incorporated herein by
reference).
The following table summarizes the relative contribution of
each business group to consolidated assets, revenue and net
income for the year ended December 31, 1996.
<TABLE>
<CAPTION>
Assets Revenue Net Income
(Loss)
(In thousands)
<S> <C> <C> <C>
CILCO $1,036,169 $518,555 $41,940
QST (excluding ESE) 15,290 14,835 (3,998)
ESE 79,202 86,497 (5,999)
Other Businesses 155,032 8,505 (4,000)
---------- -------- -------
$1,285,693 $628,392 $27,943
========== ======== =======
</TABLE>
CILCORP is an intrastate exempt holding company under the
Public Utility Holding Company Act of 1935 (PUHCA).
Legislation dealing with the restructuring of the electric
utility industry, including repeal of PUHCA, has been
introduced in both Houses of Congress. The Company cannot
predict whether or when any of these proposals might be
enacted, or the ultimate effect on the Company.
BUSINESS OF CILCO
CILCO was incorporated under the laws of Illinois in 1913.
CILCO's principal business is the generation, transmission,
distribution and sale of electric energy in an area of
approximately 3,700 square miles in central and east-central
Illinois, and the purchase, distribution, transportation and
sale of natural gas in an area of approximately 4,500 square
miles in central and east-central Illinois.
CILCO is continuing to experience, in varying degrees, the
impact of developments common to the electric and gas
utility industries. These include increased competition in
wholesale markets and the prospect of competition in retail
markets, changes in regulation and legislation affecting
utilities, uncertainties as to the future demand for
electricity and natural gas, structural and competitive
changes in the markets for these commodities, the high cost
of compliance with environmental and safety laws and
regulations and uncertainties in regulatory and political
processes. At the same time, CILCO has sought to provide
reliable service at reasonable rates for its customers and a
fair return for its investors. Refer to the caption
"Competition" of Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations
beginning on page 19 of CILCORP's 1996 Annual Report to
Shareholders which is incorporated herein by reference.
ELECTRIC SERVICE
CILCO furnishes electric service to retail customers in 138
Illinois communities (including Peoria, East Peoria, Pekin,
Lincoln and Morton). At December 31, 1996, CILCO had
approximately 192,000 retail electric customers.
In 1996, 62% of CILCO's total operating revenue was derived
from the sale of electricity. Approximately 38% of electric
revenue resulted from residential sales, 31% from commercial
sales, 24% from industrial sales, 5% from sales for resale
and 2% from other sales. Electric sales, particularly
residential and commercial sales during the summer months,
fluctuate based on weather conditions.
The electric operating revenues of CILCO were derived from
the following sources:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Residential $121,668 $129,722 $120,314
Commercial 100,944 99,992 95,932
Industrial 79,065 87,491 86,804
Sales for resale 15,206 5,132 8,182
Street lighting 1,283 1,132 1,058
Other revenue 4,619 2,729 795
-------- -------- --------
Total electric revenue $322,785 $326,198 $313,085
======== ======== ========
</TABLE>
CILCO owns and operates two coal-fired base load generating
plants, a natural gas-fired cogeneration plant, and two
natural gas combustion turbine-generators which are used for
peaking service. The 1996 system peak demand was 1,148 MW on
August 6, 1996. The all-time system peak demand of 1,188 MW
was set on August 17, 1995.
The system peak demand for 1997 is estimated to be 1,198 MW
with a reserve margin of approximately 16.5%. The system
peak demand estimate does not account for any load loss due
to CILCO's retail competition pilot programs (see
Competition). The reserve margin takes into account 90 MW
of firm purchased power and 87 MW of interruptible
industrial load and other related Demand Side Management
(DSM) programs. CILCO's planned reserve margin complies with
planning reserve margin requirements established by the Mid-
America Interconnected Network (MAIN), of which CILCO is a
member.
Studies conducted by CILCO indicate that it has sufficient
base load generating capacity and purchased capacity to
provide an adequate and reliable supply of electricity to
satisfy base load demand through the end of the century. To
help meet anticipated increases in peak demand and maintain
adequate reserve margins, CILCO has entered into three
wholesale bulk power agreements to purchase capacity from
CIPS since 1990. Each agreement was approved by the
Illinois Commerce Commission (ICC) as part of CILCO's
electric least cost energy plan filings. (see CILCO's Note
8, Item 8. Financial Statements and Supplementary Data for
further discussion of the purchase agreements with CIPS).
CILCO is interconnected with CIPS, Commonwealth Edison
Company, Illinois Power Company and the Springfield City
Water, Light and Power Department to provide for the
interchange of electric energy on an emergency and mutual
help basis.
GAS SERVICE
CILCO provides gas service to customers in 129 Illinois
communities (including Peoria, East Peoria, Pekin, Lincoln
and Springfield). At December 31, 1996, CILCO had
approximately 199,000 gas customers, including 974
industrial, commercial and residential gas transportation
customers that purchase gas directly from suppliers for
transportation through CILCO's system. For further
discussion of gas transportation, refer to the captions
"Competition" and "CILCO Gas Operations" of Item 7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations beginning on pages 19 and 24 of
CILCORP's 1996 Annual Report to Shareholders, incorporated
herein by reference.
In 1996, 38% of CILCO's total operating revenue was derived
from the sale or transportation of natural gas.
Approximately 64% of gas revenue resulted from residential
sales, 23% from commercial sales, 3% from industrial sales,
4% from transportation and 6% from other sales. Gas sales,
particularly residential and commercial sales during the
winter months, fluctuate based on weather conditions.
The gas operating revenues of CILCO were derived from the
following sources:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C > <C>
Residential $125,869 $103,992 $ 99,567
Commercial 44,695 32,792 32,563
Industrial 5,670 3,165 4,219
Transportation of gas 8,388 8,927 10,124
Other revenue 11,148 2,670 1,812
-------- -------- --------
Total gas revenue $195,770 $151,546 $148,285
======== ======== ========
</TABLE>
CILCO's all-time maximum daily send-out of 443,167 MCF
occurred on January 15, 1972. The 1996 peak day send-out of
397,519 MCF occurred on February 2, 1996. CILCO has been
able to meet all of its existing customer requirements
during the 1996-1997 heating season. CILCO believes that
its present and planned supplies of gas will continue to be
sufficient to serve all of its existing customer
requirements during the 1997-1998 heating season.
REGULATION
CILCO is a public utility under the laws of the State of
Illinois and is subject to the jurisdiction of the ICC. The
ICC has general power of supervision and regulation with
respect to services and facilities, rates and charges,
classification of accounts, valuations of property,
determination of depreciation rates, construction, contracts
with any affiliated interest, the issuance of stock and
evidences of indebtedness and various other matters. With
respect to certain electric matters, CILCO is subject to
regulation by the FERC. CILCO is exempt from the provisions
of the Natural Gas Act, but is affected by orders, rules and
regulations issued by the FERC with respect to certain gas
matters. Refer to the caption "Competition" of Item 7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations beginning on page 19 of CILCORP's
1996 Annual Report to Shareholders which is incorporated
herein by reference.
The Illinois statute governing public utilities requires the
ICC to review and adopt electric least-cost energy plans
(LCP) for public utilities. In general, CILCO's LCP
consists of customer demand forecasts and the projected
resources that CILCO will rely upon to meet that demand.
The planning horizon is 20 years, and the LCP is reviewed by
the ICC every three years. CILCO filed its most recent
electric LCP on June 30, 1995, and it was approved on May 8,
1996. The ICC may not issue a certificate of convenience
and necessity for any new construction project unless the
ICC has determined that the proposed construction is
consistent with CILCO's most recently approved LCP, as
updated. The law requires that the LCP incorporate
economical cogeneration, renewable resources and DSM
programs, to the fullest extent possible, as resources for
meeting the future energy service needs of CILCO's
customers.
CILCO's most recently filed LCP contains several existing
DSM programs including interruptible and standby generation
rates, residential heat pumps, commercial audits and the "In
Concert With The Environment" program. The new plan also
includes four new DSM programs to help meet system load
growth anticipated over the planning period. These include
new interruptible contracts, new standby generation
contracts, air conditioning cycling and targeted thermal
storage cooling programs. Three new informational programs
are also proposed, including new construction efficiency,
motor efficiency and commercial lighting efficiency
programs. Based on a preliminary assessment, electric DSM
programs are projected to reduce CILCO's peak demand by
137 MW over the twenty-year planning horizon. In 1996, the
total cost of the programs, excluding interruptible rates,
was approximately $306,000.
ELECTRIC FUEL AND PURCHASED GAS ADJUSTMENT CLAUSES
CILCO's tariffs provide for adjustments to its electric
rates through the fuel adjustment clause (FAC) to reflect
increases or decreases in the cost of fuel used in its
generating stations. The transportation costs of coal are
not currently included in the FAC, and are normally
addressed in general ratemaking proceedings. However, by
statute effective as of August 27, 1991, any Illinois
utility purchasing coal under any contract that was in
effect on August 27, 1991, shall, whenever the utility
requests but not later than the conclusion of the utility's
next general electric rate proceeding, begin recovering the
transportation costs of that coal through the utility's FAC.
CILCO's tariffs also provide for adjustments to its gas
rates through the purchased gas adjustment clause (PGA) to
reflect increases or decreases in the cost of natural gas
purchased for sale to customers.
FUEL SUPPLY - COAL
Substantially all of CILCO's electric generation capacity is
coal-fired, including 100% of its current base load
capacity. Approximately 2.8 million tons of coal were
burned during 1996. Existing coal contracts with suppliers
in central Illinois are expected to supply about 70% of the
1997 requirements. Coal will be purchased on the spot
market during the year to meet remaining annual fuel
requirements.
During the years 1996, 1995 and 1994, the average cost per
ton of coal burned, including transportation, was $31.82,
$37.21 and $39.22, respectively. The cost of coal burned
per million BTU's was $1.49, $1.66 and $1.71, respectively
(see Electric Fuel and Purchased Gas Adjustment Clauses).
During 1995, Illinois mid-sulfur coal was successfully test
burned at E. D. Edwards Station. A two-year contract signed
with the supplier at the end of 1995 will reduce Edwards
Station's dependency on east Kentucky low-sulfur coal and
contribute to lower station fuel cost.
CILCO has a long-term contract with Freeman United Coal
Mining Company (Freeman) for the purchase of high-sulfur,
Illinois coal used predominantly at the Duck Creek Station.
The contract gives CILCO the flexibility to purchase between
500,000 and 1,000,000 tons annually. Under the terms of the
contract, CILCO's obligation to purchase coal could be
extended through 2010; however, Freeman has the option of
terminating the contract after 1997. The contract requires
CILCO to pay all variable coal production costs on tons
purchased and certain fixed costs not affected by the volume
purchased. CILCO and Freeman conducted discussions in 1996
concerning coal cost reduction strategies in 1997. Several
initiatives identified in those discussions will be pursued.
For a discussion of the agreement reached with Freeman
regarding the accounting for postretirement benefits costs,
refer to the caption "CILCO Electric Operations" of Item 7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations beginning on page 22 of CILCORP's
1996 Annual Report to Shareholders which is incorporated
herein by reference.
NATURAL GAS SUPPLY
During 1996, CILCO continued to maintain a widely
diversified and flexible natural gas supply portfolio. This
portfolio is structured around firm and interruptible gas
transportation service provided by five interconnecting
interstate pipeline suppliers and firm and interruptible gas
purchase arrangements of varying terms made directly with
approximately 40 gas suppliers. Reliability was enhanced
through natural gas injections and withdrawals at CILCO's
two natural gas storage fields and contracted storage
facilities. The supply and pipeline capacity portfolio
continues to provide reliable supplies at prevailing market
prices. CILCO believes that its present and planned supply
of gas will continue to be sufficient to serve all of its
present and projected firm customer requirements at
prevailing market prices.
During 1996, CILCO purchased and delivered approximately
39,500,000 MCF of natural gas at a cost of approximately
$121.3 million, or an average cost of $3.07 per MCF. The
average cost per MCF of natural gas purchased and delivered
was $2.14 in 1995 and $2.71 in 1994 (see Electric Fuel and
Purchased Gas Adjustment Clauses).
For a discussion of other gas issues, refer to the caption
"Gas Pipeline Supplier Transition Costs" of Item 7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations on page 22 of CILCORP's 1996
Annual Report to Shareholders which is incorporated herein
by reference.
FINANCING AND CAPITAL EXPENDITURES PROGRAMS
CILCO's ongoing capital expenditures program is designed to
maintain reliable electric and gas service and to meet the
anticipated demands of its customers. Capital expenditures
for 1997 are estimated to be $53.2 million, including
pollution control expenditures of $5.8 million. Expenditures
include $24.8 million for the electric business,
$12.6 million for the gas business and $15.8 million for
general and miscellaneous purposes. Electric expenditures
include $7.0 million for additions and modifications to
generating facilities and $17.8 million for transmission and
distribution system additions and improvements. Gas
expenditures are primarily for necessary additions,
replacements and improvements to existing facilities.
Anticipated gas and electric capital expenditures for 1998-
2001 are $217.2 million.
CILCO expects to finance its 1997 capital expenditures with
funds provided by operating activities. CILCO retired $16
million of first mortgage bonds due in February 1996. CILCO
had $9.9 million of short-term commercial paper outstanding
at December 31, 1996, and expects to issue short-term
commercial paper throughout 1997. At December 31, 1996,
CILCO had bank lines of credit aggregating $20 million, all
of which were unused, except in support of commercial paper
issuance. CILCO expects the support of commercial paper
issuance to be the only use of these bank lines during 1997.
Refer to the caption "Capital Resources and Liquidity -
CILCO" of Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations on page 18 of
CILCORP's 1996 Annual Report to Shareholders which is
incorporated herein by reference.
ENVIRONMENTAL MATTERS
Refer to the caption "Environmental Matters" of Item 7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations on page 21 of CILCORP's 1996
Annual Report to Shareholders which is incorporated herein
by reference.
CILCO, through agreements with the U. S. Department of
Energy, has developed and implemented voluntary programs
pursuant to the Climate Change Action Plan goal of
limiting greenhouse gas emissions (primarily carbon
dioxide) to 1990 levels by the year 2000. Commitments
made by CILCO will build upon current and planned energy
and environmental initiatives contained within its
Business Plan and will not materially impact CILCO's
financial results. Failure of voluntary programs
undertaken by the utility industry could result in the
imposition of mandatory greenhouse gas reduction programs
which could have material impacts on the Company. Past
legislative proposals have called for as much as a $30 per
ton tax on carbon dioxide, which could cost CILCO
approximately $166 million per year if enacted.
Many urban areas around the country face the major
challenge of achieving compliance with ozone air quality
standards. Ozone is formed when volatile organic compound
(VOC) emissions and/or nitrogen oxide (NOx) emissions
photochemically react in the atmosphere. Strategies for
reduction of ozone levels have targeted mobile, area and
stationary sources (including power plants) of VOCs and
NOx.
Under Title I of the Clean Air Act, states are required to
develop and implement State Implementation Plans (SIP) for
ozone compliance by 2007. Where boundary area emissions
are contributing to the non-attainment areas, additional
VOC/NOx controls in attainment areas are being considered.
This matter is further complicated by the transport of
emissions across state boundaries and regions. CILCO may
be targeted for additional NOx emission reductions of up
to 75% at its power plants pursuant to regional ozone
compliance programs, despite the fact that CILCO's plants
are in attainment areas.
CILCO is participating in ozone compliance strategy
activities at the national, regional, and state levels.
CILCO's position calls for (1) equitable consideration
among all VOC/NOx sources, (2) credit for past and planned
emission reductions and (3) cost-benefit/risk-benefit
support for control regulation.
Should additional NOx emission controls be mandated for
CILCO's power plants, new and costly control technology
retrofits would be required. The exact costs for such
compliance cannot be determined at this time, and multiple
technologies might be necessary to meet extremely
stringent NOx levels.
CILCO is currently in the process of investigating potential
beneficial re-use for ash (a coal combustion by-product)
generated at both generating stations. Recent legislation
in Illinois promotes the beneficial re-use of coal
combustion by-products. Providing alternate uses for the
ash will allow CILCO to avoid potential costs associated
with the construction of additional facilities to store this
by-product.
SIGNIFICANT CUSTOMER
Caterpillar Inc. is CILCO's largest industrial customer.
Aggregate gas and electric revenues from sales to
Caterpillar were 7.5%, 8.6%, and 9.4% of CILCO's total
operating revenue for 1996, 1995 and 1994, respectively.
See CILCO's Consolidated Statements of Segments of Business
under Item 8. Financial Statements and Supplementary Data.
FRANCHISES
CILCO negotiates franchise agreements which authorize it to
provide utility services to the communities in its service
area. The franchises are for various terms, usually 25 to
50 years. Based on past experience, CILCO anticipates that
as franchises expire new franchises will be granted in the
normal course of business.
COMPETITION
CILCO, as a regulated public utility, has an obligation to
provide service to retail customers within its defined
service territory; thus, CILCO is not generally in
competition with other public utilities for retail electric
or gas customers in these areas. However, electricity and
natural gas compete with other forms of energy available to
customers. For example, within the City of Springfield,
CILCO's natural gas business competes with the City's
municipal electric system to provide customer energy needs.
In 1996, to lead the movement toward increased customer
choice, CILCO began Power Quest, which consists of two
electric pilot retail competition programs and a natural gas
pilot retail competition program. The programs offer
greater choice to customers and provide the opportunity for
CILCO and certain of its electric and natural gas customers
to participate in a competitive business environment.
Management believes that increased consumer choice
throughout Illinois and the nation will expand CILCO's
business opportunities.
During 1996, CILCO transported gas purchased by residential,
commercial and industrial customers directly from producers
and marketers. In 1996, approximately $8.4 million of
revenue was generated from transportation services provided
to 974 customers, which includes $87,000 of transportation
revenue from 795 residential transportation customers as a
result of the Power Quest gas residential pilot program.
Transportation arrangements have made it practical for
certain industrial customers to continue to use gas instead
of switching to alternate fuels. The amount of gas
transported in the future will depend on a number of factors
including regulatory and legislative action, the relative
cost of gas available for purchase directly from producers
compared to the cost of gas provided by CILCO, the cost of
alternate fuels, and the feasibility of customers bypassing
the CILCO system. Legislation passed in Illinois exempts
qualifying gas transportation customers, beginning
January 1, 1996, from paying gross receipts taxes on their
purchases of natural gas supply and interstate
transportation services from the local gas distribution
company. This legislation allows CILCO to more effectively
compete with out-of-state gas marketing companies.
Refer to the captions "Competition", "CILCO Electric
Operations", and "CILCO Gas Operations" of Item 7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations beginning on pages 19, 22 and 24
of CILCORP's 1996 Annual Report to Shareholders,
incorporated herein by reference, for additional discussion
of Power Quest, CILCO's introduction of a Consumer Freedom
to Choose Electricity Law to be considered by the Illinois
General Assembly in 1997, and a discussion of other
competitive trends which may affect CILCO's electric and gas
operations.
EMPLOYEES
The number of full-time and part-time employees at December
31, 1996, was 1,321, excluding employees assigned to the
Holding Company, QST and Other Businesses. These numbers
include 76 employees who retired January 1, 1997 (see
CILCO's Early Retirement Programs). Of these, 208 power
plant employees were represented by Local 8 of the
International Brotherhood of Firemen and Oilers (IBF&O), and
460 gas and electric department employees were represented
by Local 51 of the International Brotherhood of Electrical
Workers (IBEW).
CILCO'S UNION CONTRACTS
A two-year IBEW contract and a three-year IBF&O contract
were both ratified effective July 1, 1995. Both the IBEW
and the IBF&O contracts provide for annual 3% salary
increases during the contracts.
CILCO'S EARLY RETIREMENT PROGRAMS
As part of a continuing effort to better position itself for
competition in the energy services industry, in November
1996, CILCO offered Voluntary Early Retirement Programs to
eligible management and office and technical employees and
employees represented by the IBEW. A total of 76 of the 210
eligible employees retired, effective January 1, 1997. The
1996 programs resulted in an after-tax charge to earnings of
approximately $5.4 million. As a result of the 1996
programs, management expects to realize annual after-tax
cost savings of approximately $2.6 million beginning in
1997.
In 1995, CILCO offered similar Voluntary Early Retirement
Programs to selected employees. A total of 166 of the 257
eligible employees accepted the offer, resulting in an after-
tax charge of approximately $7.8 million in 1995. As a
result of the 1995 programs, CILCO realized approximately
$3.4 million in annual after-tax cost savings in 1996.
BUSINESS OF QST (EXCLUDING ESE)
QST Enterprises Inc. was formed in December 1995 to
facilitate CILCORP's expansion into non-regulated energy and
related services businesses. QST provides total energy
services -- buying, managing, and controlling energy -- for
customers who are able to choose their energy supplier.
QST provides a portfolio of non-regulated, energy-related
products and services. QST also provides fiber optic and
advanced Internet-based communication services and products
in Central Illinois.
The initial focus of QST has been to compete against energy
suppliers who participate in CILCO's Power Quest pilot
programs (refer to the caption "Competition" of Item 7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations on page 19 of CILCORP's 1996
Annual Report to Shareholders which is incorporated herein
by reference). Power Quest provides a means for certain
customers to buy energy from suppliers other than CILCO.
QST will also compete against marketers to provide energy
and services to customers of utilities and other energy
providers which 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 energy
supplier. QST, through its subsidiary QST Energy Trading
Inc., also purchases and sells energy on a wholesale basis.
Its customers include marketers, utilities, and independent
power producers. QST is also engaged in the development of
on-site electric generating facilities.
ENERGY SUPPLY
QST Energy Inc. and its wholly-owned subsidiary, QST Energy
Trading Inc., have entered into contracts and enabling
agreements with public utilities, independent electricity or
natural gas producers and transporters, and other marketers
to purchase electricity and natural gas to serve QST's
customers. Contracts typically may be re-negotiated on an
annual basis. Electricity is purchased on either a term
basis (which does not exceed one year) or a spot basis. The
majority of QST's gas supply is currently purchased on a 30-
day spot basis. QST has encountered no difficulties in
obtaining energy supplies to serve its customers.
COMPETITION
QST currently competes with utilities and marketers to
provide electricity to retail customers who may choose their
energy supplier, primarily as a result of retail competition
pilot programs offered by regulated utilities. QST also
competes with other marketers and suppliers to sell natural
gas to wholesale and retail customers as those markets
become deregulated. Currently, the market for natural gas
sales is highly competitive, particularly on the wholesale
level and in some areas of the country (including Illinois)
for large usage customers on the retail level. Competition
in QST's electric energy business is currently a function of
the design of retail competition pilot programs offered by
utilities. Competition within both the electric and gas
segments of QST's business is expected to increase with the
deregulation of the U.S. energy industry (refer to the
caption "Competition" in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of
Operations beginning on page 19 of CILCORP's Annual Report
to Shareholders, incorporated herein by reference).
EMPLOYEES
At December 31, 1996, there were 38 full-time employees
assigned to QST.
BUSINESS OF ESE
ESE is an environmental consulting and engineering firm with
additional capabilities in laboratory analysis and equipment
manufacturing. ESE, through its subsidiaries, also acquires
or invests in environmentally impaired property for
remediation and resale. ESE's services are intended to
address the concern over the quality of the environment, the
numerous complex federal, state and local environmental
regulations and enforcement efforts in support of
environmental laws. As such, ESE's business is affected by
the existence and enforcement of various federal and state
statutes and regulations dealing with the environment and
the use, control, disposal and clean-up of hazardous wastes
(see Regulation of ESE's Clients herein). ESE provides a
full-service approach to business, industrial and
governmental clients, commencing with problem identification
and analysis, continuing through regulatory negotiation and
engineering, and concluding with the preparation and
implementation of a remediation plan or final design and
construction.
ESE has a wide range of clients in business, industry and
government, including federal agencies, local and state
governments, institutional, commercial and industrial firms
and professional service firms. ESE employs environmental,
chemical, geotechnical, civil, mechanical, structural and
transportation engineers; geologists; hydrogeologists;
chemists; biologists; toxicologists; meteorologists;
industrial hygienists; architects; and surveyors. ESE has a
nationwide network of offices with its corporate office in
Peoria, Illinois. Presently, ESE has two major laboratories
located in Gainesville, Florida and Peoria, Illinois.
Through its wholly-owned subsidiary, ESE Land Corporation,
ESE acquires or invests in land that is environmentally
impaired, and remediates and then sells this property. ESE
is currently evaluating the market for the sale of ESE Land
Corporation, its subsidiaries and partnership interests.
ESE provides services in the following areas:
Air Quality Services: ESE provides ambient air monitoring,
source testing, permitting and licensing emissions
inventories; planning and compliance strategies; dispersion
modeling; data management; indoor air quality; and
engineering design/installation.
Analytical Services: ESE provides comprehensive chemical
analysis, field sampling services, and interpretation for
environmental, wastewater and air pollution chemistry,
industrial hygiene and treatability studies.
Asbestos Management/Industrial Hygiene/Lead-Based Paint
Services: ESE provides on-site consultation and facility
surveys to identify potential asbestos, industrial hygiene,
and lead-based paint problems.
Engineering Design: ESE performs a variety of civil
engineering services including highway, street and bridge
planning and design, hydrological hydraulic studies and
drainage design, structural analysis and design foundation
engineering, computer-aided drafting and design services and
subdivision design and surveying.
Construction Management: ESE provides turnkey design and
construction services and construction observation services
on transportation and site development projects and
infrastructure projects.
Environmental Assessment and Toxicology Services: ESE
conducts field and laboratory studies involving chemical
migration and transport, aquatic toxicology and bioassay,
ecological and human health risk assessments, site selection
and certification, development of regional impact studies
and environmental impact statements.
Environmental Audit Service: ESE performs operational
audits for clients in industry to verify an operating
facility's compliance status with regulatory requirements,
identifies potential liabilities associated with past waste
management practices and identifies methods for minimizing
future waste generation. ESE also performs transactional
audits which focus on the transfer of potential liabilities
in real estate or business transactions.
Environmental Engineering Services: ESE provides
environmental engineering services which include applied
research and development, water and waste characterization,
treatability and disposal studies, process and concept
design of treatment and disposal facilities, design of
drinking water treatment and distribution facilities, design
of wastewater/industrial waste treatment and collection
facilities, technical and economic feasibility evaluations,
contract operation and maintenance of water and wastewater
treatment facilities, pursuit of permit approval for water
and solid waste-oriented activities and design of solid
waste landfills and recycling facilities.
Hydrogeology: ESE performs subsurface investigations and
evaluations for both geological and engineering studies.
Manufacture of Equipment: Through its wholly-owned
subsidiary, Keck Instruments, Inc., ESE designs, assembles,
and markets instrumentation for measuring, monitoring,
detecting and sampling groundwater as well as instruments
for mineral exploration and detection, analysis and
subsurface mapping.
Remediation: ESE develops, designs and implements
remediation plans at contaminated sites.
Storage Tank Management Service: ESE provides services for
managing environmental issues related to underground and
above-ground storage tanks.
Surface Water Resources Service: ESE offers
characterizations of the freshwater, estuarine, and oceanic
environments; environmental impact assessments; site
selection studies; licensing and permitting studies; field
surveys and monitoring; numerical/physical modeling;
technical analyses; and hydrologic and hydraulic engineering
services including stormwater drainage analysis, floodplain
management and receiving water quality evaluations.
Transportation Engineering: ESE has sited, designed and
provided construction oversight for numerous transportation
systems, including highways and bridges, for state
transportation agencies and local governments.
CUSTOMERS
ESE sells its products and services to governmental agencies
and public and private companies. Approximately 43% of
ESE's revenue for 1996 was generated by services performed
for federal, state and local governmental agencies compared
to 46% for 1995. No single customer accounted for more than
5% of ESE's gross revenues for the years ended December 31,
1996 and 1995.
In 1996, approximately 80% of ESE's revenue was generated
from environmental consulting and engineering services, 15%
from laboratory services, 4% from land remediation and
resale and 1% from manufactured equipment sales.
REGULATION OF ESE'S CLIENTS
The level and nature of ESE's business activity is largely
dependent upon government statutes and regulations relating
to the environment.
Significant legislation includes the following:
Clean Air Act of 1970 (CAA): Provisions of the CAA, as
amended in 1977 and 1990, authorize the EPA to set maximum
acceptable contaminant levels in the ambient air, to control
emissions of certain toxic materials, and to ensure
compliance with air quality standards.
Clean Water Act of 1972, as amended in 1987 (CWA): CWA
requires every state to set water quality standards for each
significant body of water within its boundaries and to
ensure attainment and/or maintenance of those standards.
These standards and limitations are enforced in large part
under a nationwide permit program known as the National
Pollutant Discharge Elimination System (NPDES). CWA's
reauthorization by Congress is anticipated in 1997 or 1998.
Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (Superfund or CERCLA): CERCLA is the
most significant federal statute addressing practices
involving hazardous substances and imposing liability for
cleaning up contamination in soil and groundwater. This
legislation has four basic provisions: (i) creation of an
information gathering and analysis program which enables
federal and state governments to identify abandoned waste
sites and to set priorities for investigation and response;
(ii) granting of federal authority to respond to hazardous
waste emergencies and to clean up hazardous waste sites;
(iii) imposition of liability on persons responsible for
disposal of hazardous substances that may be released into
the environment; and (iv) creation of a federally managed
trust fund to pay for the cleanup of waste sites where a
"potentially responsible party" cannot be identified or
where a threat to the environment requires immediate
response. The EPA and State regulatory authorities are
encouraging "voluntary" clean-up of contaminated sites
independent of CERCLA through state administered programs.
In October 1986, the Superfund Amendments and
Reauthorization Act (SARA) was passed as a five-year
extension of the Superfund program. Title III of SARA, also
known as the Emergency Planning and Community Right-to-Know
Act of 1986, established a reporting and notification system
for companies dealing with hazardous chemicals. The
Superfund program was reauthorized in 1990 and was extended
without change until September 30, 1994. CERCLA's
reauthorization is anticipated in 1997 or 1998.
Federal Insecticide, Fungicide and Rodenticide Act (FIFRA):
FIFRA regulates the use and manufacture of pesticides and
related chemicals.
National Environmental Policy Act of 1970 (NEPA): NEPA
requires an analysis of the environmental impact of any
major federal action, including the issuance of federal
environmental permits for industrial facilities which may
significantly affect the quality of the environment.
National Pollutant Discharge Elimination System (NPDES)
Stormwater Permitting Regulations of 1990: The intent of
these regulations, passed in November 1990, is to control
pollution from stormwater discharges associated with
industrial activity and municipal storm sewer systems.
Occupational Safety and Health Act of 1970 (OSHA): Health
and safety at the workplace are regulated under OSHA. OSHA
provides for permissible exposure levels for certain
hazardous substances, including asbestos, and also
establishes an enforcement mechanism for these and other
health and safety standards.
Resource Conservation and Recovery Act of 1976 (RCRA):
While Superfund seeks to remedy the damage caused by
inactive or abandoned waste sites, RCRA imposes
comprehensive regulation of the management of hazardous
waste at active facilities. RCRA and the regulations
thereunder establish a comprehensive "cradle to grave"
regulatory program applicable to hazardous waste and impose
requirements for performance testing and recordkeeping for
any person generating, transporting, treating, storing, or
disposing of more than the specified minimum levels of
hazardous waste. In November 1984, RCRA was amended by the
Hazardous and Solid Waste Amendments, which extend RCRA to
most industrial and commercial activities in the nation. In
addition, RCRA requires that underground storage tanks be
identified and inspected, and those found to be leaking must
be cleaned up. RCRA's reauthorization by Congress has been
postponed through 1997. Legislative actions continue to
evolve through regulatory changes such as risk-based
corrective actions.
Safe Drinking Water Act, as amended in 1986 and 1996 (SDWA):
The SDWA affects numerous public water supplies. Under this
Act, the EPA established and amended primary drinking water
standards applicable to public water supplies.
Toxic Substances Control Act of 1976 (TSCA): TSCA
authorizes the EPA to gather information relating to the
risks posed by chemicals and to regulate the use and
disposal of asbestos and polychlorinated biphenyls.
State and Local Regulations: In addition to federal
statutes and regulations, numerous state and local statutes
and regulations relating to environmental risks impose
additional environmental standards on ESE's customers.
REGULATION OF ESE
The environmental statutes and regulations described above
primarily affect ESE's clients, and thus have a significant
impact on the volume of ESE's business activity and specific
types of services that ESE provides to its clients. These
environmental statutes and regulations also govern the
manner in which ESE performs services for its clients and
also effect the market and business operations of ESE Land
Corporation. ESE must comply with specific worker
protection requirements and other health and safety
standards. These standards include taking steps to limit
exposure to asbestos and chemical substances in the
workplace. ESE also must comply with regulations pertaining
to the disposal of certain hazardous chemicals and
substances pursuant to guidelines established under federal
and state law. Among those substances are chemicals used in
ESE's laboratory processes as well as materials removed from
the properties and facilities of its clients. Disposal
costs for these materials, and legal compliance costs
generally for ESE, have risen steadily in recent years and
are expected to continue to increase.
Management believes that the degree of enforcement of
environmental regulations at the federal, state and local
level will continue to affect the levels of business of ESE
and its clients.
COMPETITION
The market for ESE's consulting services is highly
competitive, and ESE is subject to competition with respect
to all of the services it provides. ESE competes primarily
on the basis of quality of service, expertise, and price.
ESE's competitors range from small local firms to major
national companies. No single entity currently dominates
the environmental consulting and engineering services
marketplace.
SUBCONTRACTORS
Because of the nature of the projects in which ESE is
involved, ESE often subcontracts a portion of its projects
to other contractors in order to utilize their expertise,
equipment and experience in areas where ESE may lack the
ability to complete the entire project. For example,
because ESE does not have the necessary equipment to perform
drilling services in all parts of the country, such work may
be subcontracted to local contractors. In addition,
contracts which ESE has with federal, state and local
governmental agencies may require, as a matter of law, that
on a particular job ESE hire a certain percentage of
minority-owned subcontractors.
GOVERNMENT CONTRACTS
Many of ESE's contracts with governmental agencies are cost-
plus, based on a combination of labor cost, overhead cost
and allowable fee. Overhead rates are estimated at the time
of contract negotiations. Following the completion of a
contract, actual overhead is determined and the difference
is reimbursed to the government or paid to ESE within the
limits of the contract. Although ESE enjoys a good working
relationship with the governmental agencies for which it
performs these services, these contracts may be subject to
renegotiation of profits or termination at the election of
the government agency.
PATENTS AND TRADEMARK PROTECTION
ESE has applied for or been assigned certain patents or
patent rights. ESE believes that its technical expertise,
field experience, understanding of regulatory requirements
and implementation of technological advances will continue
to provide opportunities for ideas to develop which may lead
to patents; however, research and development is not
currently significant to ESE's operations.
POTENTIAL LIABILITIES AND INSURANCE
ESE is exposed to risk of financial loss during its normal
course of business in a variety of ways typically associated
with an environmental and engineering consulting business,
including: work-related injury or illness of employees or
third parties; damage to property in ESE's control during
the course of a project; damage to ESE's property; repair or
rectification costs resulting from failure to detect,
analyze, or measure pollutants, asbestos or other toxic
substances; repair or rectification costs due to faulty
design, workmanship, or liability resulting from ESE's
construction or design activities; failure to perform or
delay in project completion; and claims by third parties for
alleged pollution or contamination damage. Also, ESE
assumes contingent liabilities arising out of its need to
exercise care in the selection and supervision of
subcontractors on various projects. Since ESE derives
revenues from work involving hazardous materials, toxic
wastes and pollutants, potential losses may surface many
years after a project is completed.
These risks, along with enforcement of environmental
regulations and increasing public awareness regarding
environmental issues and responsibilities, make it mandatory
that ESE maintain a sound risk management and insurance
program.
ESE carries professional liability insurance which covers
design errors and omissions resulting from its typical
operations. This policy is extended to include pollution
liability losses. The current policy, effective April 1,
1996, has a limit of $8 million per claim ($10 million in
aggregate for the three year policy term), with the first $3
million of coverage provided by ESE's wholly-owned captive
insurance subsidiary, National Professional Casualty Co.
(Captive) and the next $5 million of coverage provided by a
non-affiliated company. Captive is capitalized by the
combination of an ESE bank letter of credit and cash.
Captive does not transfer risk and is not reinsured; CILCORP
does not provide credit support to Captive. The policies
cover activities in which ESE is typically involved.
Accordingly, in the event of a serious spill or loss
resulting from a design error or omission, ESE faces
potential liability for the self-insured retention portion
of a claim, as well as any amounts in excess of $8 million.
ESE's professional and pollution liability insurance
coverage has a standard term of one year. ESE expects to
renew these policies annually in the normal course of
business. The professional and pollution liability
insurance policies include standard industry exclusions for:
dishonesty, discrimination, warranties and guarantees,
punitive damages, intentional non-compliance with government
regulations or statutes, nuclear energy, war and bodily
injury from the specification, installation, transportation,
storage or disposal of asbestos.
ESE also carries insurance policies covering worker's
compensation, general liability and auto and property damage
claims. The worker's compensation policy provides statutory
average limits. It is a loss sensitive program under which
insurance premiums vary according to actual claims paid.
General liability and auto policies provide full insurance
coverage with minor deductible amounts. Also, performance
and payment bonds may be provided for specific projects if
required by clients. To supplement its insurance policies,
ESE attempts with its clients to limit and/or transfer its
risk contractually.
ESE believes it operates in a safe manner and, as described
above, purchases insurance to protect against loss and
maintain competitiveness in the marketplace; however, its
entire potential liability may not be covered by insurance.
Also, the total cost of a potential claim could exceed ESE's
policy limits.
EMPLOYEES
At December 31, 1996, ESE employed 734 full-time, part-time
and on-call employees, many of whom have advanced degrees in
a variety of technical disciplines. ESE believes its
relations with its employees are good. No ESE employees are
represented by a labor union.
OTHER BUSINESSES
CIM
The investment portfolio of CIM at December 31, 1996, and
December 31, 1995, is shown in the following table:
<TABLE>
<CAPTION>
Type of Investment
At December 31 1996 1995
(In thousands)
<S> <C> <C>
Investment in leveraged leases $133,030 $127,140
Cash and temporary cash
investments 53 124
Investment in Energy Investors Fund 129 1,591
Investment in affordable
housing funds 17,172 1,500
Other 35 67
-------- --------
Total $150,419 $130,422
======== ========
</TABLE>
At December 31, 1996, CIM held equity investments in seven
leveraged leases through its wholly-owned subsidiaries,
CILCORP Lease Management Inc. (CLM), CIM Air Leasing Inc.
and CIM Leasing Inc. According to the terms of some of the
lease agreements, under certain circumstances, subsidiaries
of CIM may be obligated to incur additional non-recourse
debt to finance the cost of certain alterations, additions,
or improvements required by the lessee.
CIM, through its wholly-owned subsidiary CIM Energy
Investments Inc., has a net investment of $129,000 in the
Energy Investors Fund, L.P.(Fund), representing a 3.1%
interest in the Fund at December 31, 1996. CIM's 1996
operating results include a $1.3 million pre-tax loss
resulting from the write-down of this investment. The Fund
invests in non-regulated, non-utility facilities for the
production of electricity or thermal energy. The equity
method of accounting is used for this investment.
CIM is a limited partner in seven affordable housing
portfolios. The ownership interests in these partnerships
range from 3% to 10% at December 31, 1996. The equity
method of accounting is used for these investments.
CVI
CVI's net investment in CESI, its wholly-owned subsidiary,
is approximately $330,000. CESI's primary business is the
sale of carbon monoxide detectors to utilities for resale to
their customers and the sale of outdoor lighting services to
commercial businesses. In addition, during 1996 costs
related to providing additional value-added services to
Caterpillar in connection with CILCO's Power Quest programs
were reflected in CESI's operating results (refer to the
caption "Competition" of Item 7. Management's Discussion
and Analysis of Financial Condition and Results of
Operations beginning on page 19 of CILCORP's 1996 Annual
Report to Shareholders which is incorporated herein by
reference).
EMPLOYEES
At December 31, 1996, there were 28 full-time employees
assigned to CILCORP, CVI and CIM.
Item 2. Properties
CILCO
CILCO owns and operates two steam-electric generating
plants, a cogeneration plant and two combustion turbine-
generators. These facilities had an available summer
capability of 1,152 MW in 1996. The two combustion turbine
generators have a summer rating of 30 MW (15 MW each) and
are used during peak periods. They typically operate less
than 100 hours per year. The cogeneration plant, which
became operational during 1995, produces steam for MWG and
also generates electricity for distribution to CILCO's
customers. This turbine-generator has an available summer
capability of 16 MW.
The major generating facilities of CILCO (representing 96.0%
of CILCO's available summer generating capability projected
for 1997), all of which are fueled with coal, are as
follows:
<TABLE>
<CAPTION>
Available
Summer
Capability
(MW)
Station & Unit Installed Actual 1996
<S> <C> <C>
Duck Creek
Unit 1 1976 366
E. D. Edwards
Unit 1 1960 117
Unit 2 1968 262
Unit 3 1972 361
</TABLE>
CILCO's transmission system includes approximately 285
circuit miles operating at 138,000 volts, 48 circuit miles
operating at 345,000 volts and 14 principal substations with
an installed capacity of 3,364,200 kilovolt-amperes.
The electric distribution system includes approximately
6,214 miles of overhead pole and tower lines and 2,008 miles
of underground distribution cables. The distribution system
also includes 105 substations with an installed capacity of
2,007,860 kilovolt-amperes.
The gas system includes approximately 3,540 miles of
transmission and distribution mains.
CILCO has an underground gas storage facility located about
ten miles southwest of Peoria near Glasford, Illinois. The
facility has a present recoverable capacity of approximately
4.5 BCF. An additional storage facility near Lincoln,
Illinois, has a present recoverable capacity of
approximately 5.2 BCF.
ESE
ESE owns approximately 53 acres of land in Gainesville,
Florida, containing 118,000 square feet of offices,
laboratory and other space. In Peoria, Illinois, ESE owns
approximately 27,000 square feet of offices, laboratory and
other space and leases approximately 21,000 square feet of
additional space for offices. ESE and its subsidiaries
lease additional facilities for offices, laboratories and
warehouse space in 30 cities throughout the United States.
ESE believes its facilities are suitable and adequate for
its current businesses and does not expect to make any
material acquisitions of real property in the near future,
other than the purchases of land for remediation and resale
through its subsidiaries. Refer to the caption "Capital
Resources and Liquidity - ESE" of Item 7. Management's
Discussion and Analysis of Financial Condition and Results
of Operation on page 18 of CILCORP's 1996 Annual Report to
shareholders which is incorporated herein by reference.
Item 3. Legal Proceedings
Reference is made to the captions "Environmental Matters"
and "Gas Pipeline Supplier Transition Costs" of Item 7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations of CILCORP's 1996 Annual Report to
Shareholders incorporated herein by reference, for certain
pending legal proceedings and/or proceedings known to be
contemplated by governmental authorities. Reference is also
made to Note 9 - Rate Matters, included herein. Pursuant to
CILCO's By-Laws, CILCO has advanced legal and other expenses
actually and reasonably incurred by employees, and former
employees, in connection with the investigation of CILCO's
Springfield gas operations described in Note 9 - Rate
Matters.
In July 1996, a United States District Court judge entered
an order summarily dismissing a lawsuit filed against CILCO
seeking damages related to alleged coal tar contamination
from a gas manufacturing plant which was owned but never
operated by CILCO. This decision which was on the grounds
that the applicable statute of limitations had expired has
been appealed. For a further discussion of gas
manufacturing plant sites refer to the caption
"Environmental Matters" of Item 7. Management's Discussion
and Analysis of Financial Condition and Results of
Operations on page 21 of CILCORP's 1996 Annual Report to
Shareholders which is incorporated herein by reference.
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.
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, or (iii) reserves for potential
losses.
Item 4. Submission of Matters to a Vote of Security Holders
CILCORP
There were no matters submitted to a vote of security
holders during the fourth quarter of 1996.
CILCO
There were no matters submitted to a vote of security
holders during the fourth quarter of 1996.
<TABLE>
<CAPTION>
Executive Officers of CILCORP
Age at Positions Held During Initial
Name 3/31/97 Past Five Years Effective Date(1)
<S> <C> <C> <C>
R. O. Viets 53 President and Chief
Executive Officer February 1, 1988
W. M. Shay (2) 44 Executive Vice President November 4, 1996
J. G. Sahn 50 Vice President, General March 1, 1994
Counsel and Secretary
Vice President
and General Counsel February 1, 1989
A.R. St.Clair (3) 40 Vice President and
Chief Personnel Officer June 1, 1996
M. D. Austin 38 Treasurer and
Assistant Secretary April 25, 1995
Director - Corporate
Investments April 1, 1990
T.D. Hutchinson(4)42 Controller January 20, 1997
<FN>
Notes:
(1) The term of each executive officer extends to the
organization meeting of CILCORP's Board of Directors
following the next annual election of Directors.
(2) W. M. Shay served as President and Chief Operating
Officer of QST Enterprises Inc. from January 29, 1996
to November 4, 1996. Previously, he was Group
President of CILCO from April 1, 1995 to January 29,
1996 and Vice President of CILCO from January 1, 1993
to April 4, 1995. He was Vice President of CILCORP
from August 15, 1988 to January 1, 1993.
(3) A. R. St. Clair resigned as Vice President and Chief
Personnel Officer, effective March 31, 1997.
(4) T. D. Hutchinson served as Controller from February 1,
1988, until April 1, 1995, when he became CILCO
Director - Competitive Strategy. Mr. Hutchinson later
served as Director of Planning and Administration for
QST Enterprises Inc. J. L. Barnett served as
Controller from April 1, 1995 to January 20, 1997.
</TABLE>
<TABLE>
<CAPTION>
Executive Officers of CILCO
Age as of Positions Held During Initial
Name 3/31/97 Past Five Years(1) Effective Date(2)
<S> <C> <C> <C>
R. O. Viets (3) 53 Chairman of the
Board and Chief
Executive Officer April 1, 1995
J. F. Vergon (4) 49 President and Chief
Operating Officer January 29, 1996
Group President,
Gas Operations April 1, 1995
Vice President October 1, 1986
M. J. Bowling (5) 50 Vice President April 1, 1995
S. A. Cisel (5) 43 Vice President April 1, 1995
T. S. Romanowski (5) 47 Vice President October 1, 1986
T. K. Severson (5) 50 Vice President August 12, 1996
W. R. Dodds 42 Treasurer and Manager
of Treasury Department October 1, 1990
T. D. Hutchinson (6) 42 Controller and Manager of
Accounting January 1, 1997
J. G. Sahn (7) 50 Secretary March 1, 1993
<FN>
Notes:
(1) The officers listed have been employed by CILCO in
executive or management positions for the past five
years except for Mr. Viets, Mr. Hutchinson, Mr. Sahn and
Mr. Severson.
(2) The term of each executive officer extends to the
organization meeting of CILCO's Board of Directors
following the next annual election of Directors.
(3) Mr. Viets previously served as Chairman of the Board
from February 1, 1988 to April 23, 1991. He also serves
as President and Chief Executive Officer of CILCO's
parent, CILCORP Inc., a position he has held since
February 1, 1988.
(4) J. F. Vergon became Group President of Gas Operations on
April 1, 1995 and was elected President and Chief
Operating Officer of CILCO on January 29, 1996. He also
serves as Chairman of the Board of CILCORP Investment
Management Inc.
(5) M. J. Bowling, S. A. Cisel, T. S. Romanowski and T. K.
Severson head Distribution; Rates, Regulation and
Legislation; Finance; and Human Resources, respectively.
T. S. Romanowski also serves as CILCO's Chief Financial
Officer. R. J. Sprowls, a former Vice President,
resigned January 29, 1996 to become Assistant to the
President and Chief Executive Officer of CILCORP.
Effective August 19, 1996, Mr. Sprowls is Vice President
of QST Enterprises Inc., a subsidiary of CILCORP. S. R.
Corwell, also a former Vice President, resigned
September 1, 1996 to become Vice President of QST Energy
Inc., a subsidiary of QST Enterprises Inc.
(6) R. L. Beetschen retired from CILCO January 1, 1997. He
was replaced by T. D. Hutchinson as Controller and
Manager of Accounting. Mr. Hutchinson is also
Controller of CILCORP, effective January 20, 1997,
having previously served as CILCORP Controller from
February 1, 1988 to April 1, 1995. He served as CILCO
Director-Competitive Strategy from May 1, 1995 to
December 31, 1995 and as Director of Planning and
Administration of QST Enterprises Inc. from January 1,
1996 to January 1, 1997.
(7) Mr. Sahn also serves as Vice President and General
Counsel of CILCORP Inc., a position he has held since
February 1, 1989. He was elected to the additional
positions of Secretary and Assistant Treasurer of
CILCORP effective March 1, 1994.
</TABLE>
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
CILCORP
The Company's common stock is listed on the New York and
Chicago Stock Exchanges (ticker symbol CER). At December
31, 1996, there were 12,770 holders of record of the
Company's common stock. The following table sets forth, for
the periods indicated, the dividends per share of common
stock and the high and low prices of the common stock as
reported in New York Stock Exchange Composite Transactions.
<TABLE>
<CAPTION>
Quarter
1995 First Second Third Fourth
<S> <C> <C> <C> <C>
Price Range
High $37 $37 7/8 $38 $44 3/4
Low $31 7/8 $35 3/8 $34 $37 1/2
Dividends Paid $ .615 $ .615 $ .615 $ .615
1996
Price Range
High $45 1/8 $44 1/8 $43 1/2 $39 5/8
Low $40 1/2 $40 7/8 $39 1/2 $35 1/2
Dividends Paid $ .615 $ .615 $ .615 $ .615
<FN>
The number of common shareholders of record as of March 11,
1997, was 12,522.
</TABLE>
CILCO
CILCO's common stock is not traded on any market. As of
March 11, 1997, 13,563,871 shares of CILCO's Common Stock,
no par value, were issued, and outstanding and privately
held, beneficially and of record, by CILCORP Inc.
CILCO's requirement for retained earnings before common
stock dividends may be paid is described in Note 5 of
CILCO's Notes to the Consolidated Financial Statements
contained in Item 8. Financial Statements and Supplementary
Data.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
CILCORP INC.
Selected Financial Data
<CAPTION>
For the Years Ended December 31
1996 1995 1994 1993 1992
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenue $ 628,392 $614,740 $605,139 $584,511 $581,225
Net income
available for common
stockholders 27,943 38,582 32,586 33,583 32,097
Earnings per share 2.07 2.93 2.50 2.60 2.48
Total assets 1,285,693 1,279,303 1,238,384 1,198,440 1,184,916
Long-term debt 320,666 344,113 326,695 325,711 307,628
Dividends declared
per common share 2.46 2.46 2.46 2.46 2.46
</TABLE>
<TABLE>
Central Illinois Light Company
Selected Financial Data
<CAPTION>
For the Years Ended December 31
1996 1995 1994 1993 1992
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenue $518,555 $477,744 $461,370 $453,878 $433,739
Net income
available for
common stockholders 41,940 39,099 29,507 33,635 31,195
Total assets 1,036,169 1,063,223 1,019,109 988,325 965,691
Long-term debt 278,439 298,397 278,359 278,321 257,361
Ratio of earnings
to fixed charges 3.4 3.3 3.0 3.2 3.1
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information under the heading Management's Discussion
and Analysis of Financial Condition and Results of
Operations on pages 16 through 27 of CILCORP's 1996 Annual
Report to Shareholders is incorporated herein by reference.
Item 8.: Financial Statements and Supplementary Data
The financial statements on pages 29 through 44 and
Management's Report to the Stockholders of CILCORP Inc. on
page 28 of CILCORP's 1996 Annual Report to Shareholders
are incorporated herein by reference.
Index to Financial Statements:
CILCORP
Page
Report of Independent Public Accountants on
Schedules 35
CILCO
Management's Report 36
Report of Independent Public Accountants 37
Consolidated Statements of Income 38
Consolidated Balance Sheets 39-40
Consolidated Statements of Cash Flows 41-42
Statements of Segments of Business 43-44
Consolidated Statements of Retained Earnings 45
Notes to Consolidated Financial Statements 46-60
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To CILCORP Inc.:
We have audited in accordance with generally accepted
auditing standards, the consolidated financial statements
included in CILCORP Inc.'s Annual Report to Shareholders
incorporated by reference in this Form 10-K, and have issued
our report thereon dated January 27, 1997. Our audits were
made for the purpose of forming an opinion on those
statements taken as a whole. The financial statement
schedules listed in Item 14(a)2 are the responsibility of
the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's
rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein
in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1997
<PAGE>
MANAGEMENT'S REPORT
The accompanying financial statements and notes for CILCO
and its consolidated subsidiaries have been prepared by
management in accordance with generally accepted accounting
principles. Estimates and judgments used in developing
these statements are the responsibility of management.
Financial data presented throughout this report is
consistent with these statements.
CILCO maintains a system of internal accounting controls
which management believes is adequate to provide reasonable
assurance as to the integrity of accounting records and the
protection of assets. Such controls include established
policies and procedures, a program of internal audit and the
careful selection and training of qualified personnel.
The financial statements have been audited by CILCO's
independent public accountants, Arthur Andersen LLP. Their
audit was conducted in accordance with generally accepted
auditing standards and included an assessment of selected
internal accounting controls only to determine the scope of
their audit procedures. The report of the independent
public accountants is contained in this Form 10-K annual
report.
The Audit Committee of the CILCORP Inc. Board of Directors,
consisting solely of outside directors, meets periodically
with the independent public accountants, internal auditors
and management to review accounting, auditing, internal
accounting control and financial reporting matters. The
independent public accountants have direct access to the
Audit Committee. The Audit Committee meets separately with
the independent public accountants.
J. F. Vergon
President and Chief
Operating Officer
T. S. Romanowski
Vice President and Chief
Financial Officer
T. D. Hutchinson
Controller and Manager
of Accounting
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Central Illinois Light Company:
We have audited the accompanying consolidated balance sheets
of Central Illinois Light Company (an Illinois corporation)
and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, cash flows,
segments of business, and retained earnings for each of the
three years in the period ended December 31, 1996. These
financial statements and the schedule referred to below are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Central Illinois Light Company and subsidiaries
as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
financial statement schedule listed in Item 14(a)2 is
presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a required part of
the basic financial statements. This financial statement
schedule has been subjected to the auditing procedures
applied in our audits of the basic financial statements and,
in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1997
<TABLE>
Central Illinois Light Company
Consolidated Statements of Income
<CAPTION>
For the Years Ended December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Operating Revenues:
Electric $322,785 $326,198 $313,085
Gas 195,770 151,546 148,285
-------- -------- --------
Total Operating Revenues 518,555 477,744 461,370
-------- -------- --------
Operating Expenses:
Cost of Fuel 90,715 94,235 97,184
Cost of Gas 108,286 68,948 78,696
Purchased Power 10,907 12,353 9,433
Other Operation Expenses 94,273 94,519 81,143
Maintenance 25,061 31,037 28,174
Depreciation and Amortization 59,664 56,765 54,349
Income Taxes 26,548 23,267 21,489
State and Local Taxes on Revenue 22,004 20,867 20,450
Other Taxes 11,419 12,205 11,945
------- ------- -------
Total Operating Expenses 448,877 414,196 402,863
------- ------- -------
Operating Income 69,678 63,548 58,507
------- ------- -------
Other Income and Deductions:
Cost of Equity Funds Capitalized 36 97 530
CILCO-owned Life Insurance, Net (678) (623) (667)
Disallowed Plant Cost -- -- (7,523)
Income Tax Reduction for Disallowed Plant Cost -- -- 2,982
Other, Net 200 2,581 (1,051)
------- ------- -------
Total Other Income and (Deductions) (442) 2,055 (5,729)
------- ------- -------
Income Before Interest Expenses 69,236 65,603 52,778
------- ------- -------
Interest Expenses:
Interest on Long-term Debt 21,012 20,242 19,221
Cost of Borrowed Funds Capitalized (54) (417) (510)
Other 3,150 3,380 1,580
------- ------- -------
Total Interest Expenses 24,108 23,205 20,291
------- ------- -------
Net Income 45,128 42,398 32,487
------- ------- -------
Dividends on Preferred Stock 3,188 3,299 2,980
------- ------- -------
Net Income Available for Common Stock $ 41,940 $ 39,099 $ 29,507
======= ======= =======
<FN>
The accompanying Notes to the Consolidated Financial
Statements are an integral part of these statements.
</TABLE>
<TABLE>
Central Illinois Light Company
Consolidated Balance Sheets
Assets
<CAPTION>
As of December 31 1996 1995
(In thousands)
<S> <C> <C>
Utility Plant, At Original Cost:
Electric $1,186,110 $1,142,945
Gas 393,246 379,985
--------- ---------
1,579,356 1,522,930
Less - Accumulated Provision for Depreciation 724,398 682,574
--------- ---------
854,958 840,356
Construction Work in Progress 15,092 44,749
Plant Acquisition Adjustments, Net of
Amortization 1,930 2,642
--------- ---------
Total Utility Plant 871,980 887,747
--------- ---------
Other Property and Investments:
Cash Surrender Value of Company-owned
Life Insurance (Net of Related Policy
Loans of $37,948 in 1996 and $33,211 in 1995) 2,128 1,924
Other 1,553 1,623
--------- ---------
Total Other Property and Investments 3,681 3,547
--------- ---------
Current Assets:
Cash and Temporary Cash Investments 1,662 16,556
Receivables, Less Reserves of $1,000 and $650 43,604 42,312
Accrued Unbilled Revenue 30,879 28,891
Fuel, at Average Cost 7,643 11,596
Materials and Supplies, at Average Cost 15,126 16,541
Gas in Underground Storage, at Average Cost 24,222 13,592
Prepaid Taxes 1,183 7,978
Other 9,668 10,300
--------- ---------
Total Current Assets 133,987 147,766
--------- ---------
Deferred Debits:
Unamortized Loss on Reacquired Debt 5,572 6,029
Unamortized Debt Expense 2,198 2,374
Prepaid Pension Cost 496 536
Other 18,255 15,224
--------- ---------
Total Deferred Debits 26,521 24,163
--------- ---------
Total Assets $1,036,169 $1,063,223
========== ==========
<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
Capitalization and Liabilities
<CAPTION>
As of December 31 1996 1995
(In thousands)
<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 136,629 140,814
--------- ---------
Total Common Shareholder's Equity 322,290 326,475
Preferred Stock Without Mandatory Redemption 44,120 44,120
Preferred Stock With Mandatory Redemption 22,000 22,000
Long-term Debt 278,439 298,397
--------- ---------
Total Capitalization 666,849 690,992
--------- ---------
Current Liabilities:
Current Maturities of Long-Term Debt 20,000 16,000
Notes Payable 9,900 24,600
Accounts Payable 46,126 40,483
Accrued Taxes 7,013 5,917
Accrued Interest 9,761 8,508
PGA Over-Recoveries 601 1,987
Level Payment Plan 2,737 1,870
Other 5,831 6,418
--------- ---------
Total Current Liabilities 101,969 105,783
--------- ---------
Deferred Liabilities and Credits:
Accumulated Deferred Income Taxes 135,251 144,378
Regulatory Liability 68,565 62,714
Investment Tax Credits 22,801 24,485
Capital Lease Obligation 2,621 3,025
Other 38,113 31,846
--------- ---------
Total Deferred Liabilities and Credits 267,351 266,448
--------- ---------
Total Capitalization and Liabilities $1,036,169 $1,063,223
========== ==========
<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 Cash Flows
<CAPTION>
For the Years Ended December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income Before Preferred Dividends $ 45,128 $ 42,398 $ 32,487
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Disallowed Plant Costs -- -- 7,522
Income Tax Reduction for Disallowed
Plant Costs -- -- (2,982)
Depreciation and Amortization 60,376 57,478 55,062
Deferred Taxes, Investment Tax Credits
and Regulatory Liability, Net (4,960) (6,454) (2,006)
(Increase) Decrease in Accounts Receivable (1,292) (11,769) 3,654
(Increase) Decrease in Fuel, Materials and
Supplies, and Gas in Underground Storage (5,262) 7,251 565
(Increase) Decrease in Unbilled Revenue (1,988) (6,551) 2,771
Increase (Decrease) in Accounts Payable 5,643 (7,053) 6,565
Increase (Decrease) in Accrued Taxes
and Interest 2,349 (439) 867
Capital Lease Payments 645 590 478
(Increase)Decrease in Other Current Assets 7,427 (8,958) 193
Increase(Decrease) in Other Current
Liabilities (1,106) (2,831) 1,192
(Increase)Decrease in Other Non-Current
Assets (273) 13,792 (1,631)
Increase in Other Non-Current Liabilities 5,129 3,424 2,319
-------- ------- -------
Net Cash Provided by Operating Activities 111,816 80,878 107,056
-------- ------- -------
Cash Flows from Investing Activities:
Capital Expenditures (43,525) (69,412) (90,873)
Cost of Equity Funds Capitalized (36) (97) (530)
Other (2,495) (8,462) (7,308)
-------- ------- --------
Net Cash Used in Investing Activities (46,056) (77,971) (98,711)
-------- ------- --------
Cash Flows from Financing Activities:
Common Dividends Paid (46,121) (20,056) (16,027)
Preferred Dividends Paid (3,188) (3,299) (2,980)
Long-Term Debt Issued -- 35,765 175
Long-Term Debt Retired (16,000) -- --
Payments on Capital Lease Obligation (645) (590) (478)
Increase (Decrease) in Short-Term Borrowings (14,700) 1,200 11,000
-------- ------- -------
Net Cash Provided from (Used in)
Financing Activities (80,654) 13,020 (8,310)
-------- -------- -------
Net Increase(Decrease) in Cash and
Temporary Cash Investments (14,894) 15,927 35
Cash and Temporary Cash Investments at
Beginning of Year 16,556 629 594
-------- ------- --------
Cash and Temporary Cash Investments at
December 31 $ 1,662 $ 16,556 $ 629
========= ======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (Net of Cost of Borrowed Funds
Capitalized) $ 23,475 $ 22,145 $20,809
Income Taxes 22,079 35,954 24,155
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Central Illinois Light Company
Statements of Segments of Business
<CAPTION>
Operating Information
For the Years Ended December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Utility Segment:
Electric Operations
Revenue $322,785 $326,198 $313,085
Expenses 270,672 277,429 263,462
-------- -------- --------
Operating Income 52,113 48,769 49,623
Income Taxes 19,576 17,975 19,925
-------- -------- --------
Operating Income Before
Income Taxes $ 71,689 $ 66,744 $ 69,548
======== ======== ========
Depreciation and
Amortization $ 42,530 $ 40,665 $ 39,130
Capital Expenditures $ 28,032 $ 45,466 $ 66,537
Gas Operations
Revenue $195,770 $151,546 $148,285
Expenses 178,205 136,767 139,401
-------- -------- --------
Operating Income 17,565 14,779 8,884
Income Taxes 6,972 5,292 1,564
-------- -------- --------
Operating Income Before
Income Taxes $ 24,537 $ 20,071 $ 10,448
======== ======== ========
Depreciation and
Amortization $ 17,134 $ 16,100 $ 15,219
Capital Expenditures $ 15,529 $ 24,043 $ 24,867
</TABLE>
<TABLE>
<CAPTION>
Major Customer for the Years Ended December 31
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Caterpillar Inc.
Electric Revenue $37,724 11.7% $40,109 12.3% $41,422 13.2%
Gas Revenue 1,053 .5% 1,022 .7% 1,719 1.2%
------ ----- ------ ---- ------- ----
Total $38,777 7.5% $41,131 8.6% $43,141 9.4%
======= ===== ======= ===== ======= ====
</TABLE>
<TABLE>
<CAPTION>
Utility Identifiable Assets as of December 31
1996 1995 1994
<S> <C> <C> <C>
Electric $ 721,468 $ 735,463 $ 718,431
Gas 292,925 273,428 260,070
Other Utility Assets* 21,776 54,332 40,608
---------- ---------- ----------
Total Utility Assets $1,036,169 $1,063,223 $1,019,109
========== ========== ==========
<FN>
*Other investments, miscellaneous accounts receivable,
prepaid assets, deferred pension costs and unamortized debt, discount and
expense.
The accompanying Notes to Financial Statements are an
integral part of
these statements.
</TABLE>
<PAGE>
<TABLE>
Central Illinois Light Company
Consolidated Statements of Retained Earnings
<CAPTION>
For the Years Ended December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Balance Beginning of Year $140,814 $122,125 $108,645
Add
Net Income 45,128 42,398 32,487
-------- -------- --------
Total $185,942 $164,523 $141,132
-------- -------- --------
Deduct
Cash Dividends Declared
Preferred Stock
$100 Par Value
4 1/2% Series 501 501 501
4.64% Series 371 371 371
5.85% Series 1,287 1,287 1,287
Auction Rate Series (rate at
December 31, 1996 was 3.936%) 1,029 1,140 821
Common Stock, No Par Value 46,121 20,056 16,027
-------- ------- -------
Total Dividends Declared 49,309 23,355 19,007
-------- ------- -------
Additional Minimum Liability for
Non-Qualified Pension Plan at
December 31, 1996 and 1995, net of
$3 and $233 taxes, respectively 4 354 --
------- ------- -------
49,313 23,709 19,007
------- ------- -------
Balance End of Year $136,629 $140,814 $122,125
======== ======== ========
<FN>
The accompanying Notes to the Consolidated Financial
Statements are an integral part of these statements.
</TABLE>
<PAGE>
CENTRAL ILLINOIS LIGHT COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of CILCO include the
accounts of CILCO and its subsidiaries, CILCO Exploration
and Development Company and CILCO Energy Corporation.
CILCO is a subsidiary of CILCORP Inc. Prior year amounts
have been reclassified on a basis consistent with the 1996
presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REGULATION
CILCO is a public utility subject to regulation by the
Illinois Commerce Commission and the Federal Energy
Regulatory Commission with respect to accounting matters,
and maintains its accounts in accordance with the Uniform
System of Accounts prescribed by these agencies.
As a regulated public utility, CILCO is subject to the
provisions of Statement of Financial Accounting Standards
No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS71). Regulatory increases and decreases,
respectively, of assets and liabilities represent probable
future increases and decreases, respectively, of revenues
to CILCO resulting from the ratemaking action of
regulatory agencies. Regulatory liabilities, consisting
of deferred tax items, are approximately $68.6 million and
$62.7 million at December 31, 1996 and 1995, respectively
(see Note 2). At December 31, 1996, and 1995, the
regulatory assets included on the Consolidated Balance
Sheets were as follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Included in prepayments and other:
Fuel and gas cost adjustments $ 9,658 $ 5,444
Coal tar remediation cost -
estimated current 1,071 1,500
Gas transition costs 1,022 2,268
------- -------
Current costs included in
prepayments and other 11,751 9,212
------- -------
Included in other assets:
Coal tar remediation cost, net of
recoveries 2,839 4,222
Regulatory tax asset 4,777 3,232
Gas transition costs -- 1,656
Deferred gas costs 4,330 3,207
Unamortized loss on reacquired debt 5,572 6,029
------- -------
Future costs included in other assets 17,518 18,346
------- -------
Total regulatory assets $29,269 $27,558
======= =======
</TABLE>
If a portion of CILCO's operations becomes no longer
subject to the provisions of SFAS 71, a write-off of
related regulatory assets and liabilities would be
required, unless some form of transition cost recovery
continues through rates established and collected for
CILCO's remaining regulated operations. In addition,
CILCO would be required to determine any impairment to the
costs recorded for deregulated plant and inventory assets.
UTILITY OPERATING REVENUES, FUEL COSTS AND COST OF GAS
Electric and gas revenues include service provided but
unbilled at year end. Substantially all electric rates
and gas system sales rates of CILCO include a fuel
adjustment clause and a purchased gas adjustment clause,
respectively. These clauses provide for the recovery of
changes in electric fuel costs, excluding coal
transportation, and changes in the cost of gas on a
current basis in billings to customers. CILCO adjusts the
cost of fuel and cost of gas to recognize over or under
recoveries of allowable costs. The cumulative effects are
deferred on the Balance Sheets as a current asset or
current liability (see Regulation, above) and adjusted by
refunds or collections through future billings to
customers.
CONCENTRATION OF CREDIT RISK
CILCO, as a public utility, must provide service to
customers within its defined service territory and may not
discontinue service to residential customers when certain
weather conditions exist. CILCO continually reviews
customers' creditworthiness and requests deposits or
refunds deposits based on that review. At December 31,
1996, CILCO had net receivables of $43.6 million, of which
approximately $9.2 million was due from its major
industrial customers.
TRANSACTIONS WITH AFFILIATES
CILCO, which is a subsidiary of CILCORP, incurs certain
corporate expenses such as legal, shareholder and
accounting fees on behalf of CILCORP and its other
subsidiaries. These expenses are billed monthly to
CILCORP and its other subsidiaries based on specific
identification of costs except for shareholder-related
costs which are based on the relative equity percentages
of CILCORP and its subsidiary corporations. A return on
CILCO assets used by CILCORP and its other subsidiaries is
also calculated and billed monthly. Total billings to
CILCORP and its other subsidiaries amounted to $5.4
million, $1.7 million and $2.4 million in 1996, 1995 and
1994, respectively.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The allowance, representing the cost of equity and
borrowed funds used to finance construction, is
capitalized as a component of the cost of utility plant.
The amount of the allowance varies depending on the rate
used and the size and length of the construction program.
The Uniform System of Accounts defines AFUDC, a non-cash
item, as the net cost for the period of construction of
borrowed funds used for construction purposes and a
reasonable rate upon other funds when so used. On the
income statement, the cost of borrowed funds capitalized
is reported as a reduction of total interest expense and
the cost of equity funds capitalized is reported as other
income. In accordance with the FERC formula, the
composite AFUDC rates used in 1996, 1995 and 1994 were
7.8%, 6.7% and 8.0%, respectively.
DEPRECIATION AND MAINTENANCE
Provisions for depreciation of utility property for
financial reporting purposes are based on straight-line
composite rates. The annual provisions for utility plant
depreciation, expressed as a percentage of average
depreciable utility property, were 3.8% and 4.6% for
electric and gas, respectively, for each of the last three
years. Utility maintenance and repair costs are charged
directly to expense. Renewals of units of property are
charged to the utility plant account, and the original
cost of depreciable property replaced or retired, together
with the removal cost less salvage, is charged to the
accumulated provision for depreciation.
INCOME TAXES
CILCO follows a policy of comprehensive interperiod income
tax allocation. Investment tax credits related to utility
property have been deferred and are being amortized over
the estimated useful lives of the related property.
CILCORP and its subsidiaries file a consolidated federal
income tax return. Income taxes are allocated to the
individual companies based on their respective taxable
income or loss.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CILCO considers all highly liquid debt instruments
purchased with a remaining maturity of three months or
less to be cash equivalents for purposes of the
Consolidated Statements of Cash Flows.
CILCO-OWNED LIFE INSURANCE POLICIES
The following amounts related to CILCO-owned life
insurance contracts, issued by one major insurance
company, are recorded on the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Cash surrender value of contracts $ 40,076 $ 35,135
Borrowings against contracts (37,948) (33,211)
--------- ---------
Net investment $ 2,128 $ 1,924
========= =========
</TABLE>
Interest expense related to borrowings against CILCO-owned
life insurance, included in CILCO-owned Life Insurance,
Net on the Consolidated Statements of Income, was $2.7
million, $2.3 million and $2 million for 1996, 1995 and
1994, respectively.
NOTE 2 - INCOME TAXES
CILCO uses the liability method to account for income
taxes. Under the liability method, deferred income taxes
are recognized at currently enacted income tax rates to
reflect the tax effect of temporary differences between
the financial reporting basis and the tax basis of assets
and liabilities. Temporary differences occur because the
income tax law either requires or permits certain items to
be reported on CILCO's income tax return in a different
year than they are reported in the financial statements.
CILCO has recorded a regulatory asset and liability to
account for the effect of expected future regulatory
actions related to unamortized investment tax credits,
income tax liabilities initially recorded at tax rates in
excess of current rates, the equity component of Allowance
for Funds Used During Construction and other items for
which deferred taxes had not previously been provided.
The temporary differences related to the consolidated
deferred income tax asset and liability at December 31,
1996, December 31, 1995 and December 31, 1994, were as
follows:
<TABLE>
<CAPTION>
December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Regulatory tax liabilities $ 68,565 $ 62,714 $ 61,742
Other 14,967 13,086 11,560
-------- -------- --------
Total deferred tax assets 83,532 75,800 73,302
-------- -------- --------
Deferred tax liabilities:
Property, including allowance
for funds used during
construction 211,517 213,187 212,308
Regulatory tax assets 4,777 3,232 1,745
Other 2,489 3,759 11,105
-------- -------- --------
Total deferred tax liabilities 218,783 220,178 225,158
-------- -------- --------
Net accumulated deferred
income tax liability $135,251 $144,378 $151,856
======== ======== ========
</TABLE>
The following table reconciles the change in the
accumulated deferred income tax liability to the deferred
income tax expense included in the income statement for
the period:
<TABLE>
<CAPTION>
December 31 1996 1995
(In thousands)
<S> <C> <C>
Net change in deferred
income tax liability $ (9,127) $ (7,478)
Change in tax effects of
income tax related regulatory
assets and liabilities 4,306 (515)
Equity adjustment related to
early retirement programs 3 233
-------- --------
Deferred income tax benefit
for this period $ (4,818) $ (7,760)
========= =========
</TABLE>
Income tax expenses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Current income taxes
Federal $27,260 $26,712 $18,912
State 5,504 5,780 4,165
------- ------- -------
Total operating current
taxes 32,764 32,492 23,077
------- ------- -------
Deferred operating
income taxes, net
Depreciation and
amortization (3,937) (3,642) (1,905)
Repair allowance (197) 1,917 648
Borrowed component of AFUDC 136 396 (249)
Capitalized overhead costs (750) (893) (794)
Removal costs 4,832 2,130 2,176
Gas take-or-pay settlements (706) (751) (1,244)
Gas storage field 405 861 408
Taxable salvage 351 654 1,229
Environmental remediation
costs (642) 642 253
Pension expense (1,726) (6,673) (145)
Other (2,298) (2,173) (273)
------- ------- -------
Total operating deferred
income taxes, net (4,532) (7,532) 104
------- ------- -------
Investment tax credit
amortization (1,684) (1,693) (1,693)
------- ------- -------
Total operating
income taxes 26,548 23,267 21,488
-------- ------- -------
Income tax reduction
for disallowed plant costs 156 168 (2,982)
Other net (2,622) (902) (1,339)
-------- ------- -------
Total income taxes $24,082 $22,533 $17,167
======= ======= =======
<FN>
Total deferred income taxes, net, includes deferred state
income taxes of $(113,000), $533,000 and $752,000 for
1996, 1995 and 1994, respectively.
</TABLE>
The following table represents a reconciliation of the
effective tax rate with the statutory federal income tax
rate.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
===== ===== =====
Equity component of AFUDC not
subject to taxation -- (.1) (.4)
Depreciation differences for which
deferred taxes have not been provided (2.2) (2.0) (1.4)
Amortization of investment tax credit (2.6) (2.7) (3.6)
CILCO-owned life insurance (1.1) (1.0) (1.0)
State income taxes 5.0 5.8 6.0
Civil fine -- -- .7
Preferred dividends and other
permanent differences 2.0 2.0 2.4
Other differences .5 (.4) (.9)
----- ----- ----
Total 1.6 1.6 1.8
----- ----- ----
Effective income tax rate 36.6% 36.6% 36.8%
----- ----- ----
</TABLE>
NOTE 3 - POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE
CILCO has recorded a liability of approximately $1.4 million
and $.9 million at December 31, 1996 and 1995, respectively,
for benefits other than pensions or health care provided to
former or inactive employees.
PENSION BENEFITS
Substantially all of CILCO's full-time employees, including
those assigned to the Holding Company, are covered by
trusteed, non-contributory defined benefit pension plans.
Benefits under these qualified plans reflect the employee's
years of service, age at retirement and maximum total
compensation for any consecutive sixty-month period prior to
retirement. CILCO also has an unfunded nonqualified plan for
certain employees.
Pension costs for the past three years were charged as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Operating expenses $ 9,700 $15,528 $2,637
Utility plant and other 922 994 1,017
------- ------ ------
Net pension costs $10,622 $16,522 $3,654
======= ======= =======
</TABLE>
Provisions for pension expense reflect the use of the
projected unit credit actuarial cost method. At December
31, 1996 and 1995, CILCO recognized an additional minimum
liability on the Balance Sheets for the plan in which the
accumulated benefit obligation exceeds the fair value of
plan assets.
The components of net periodic pension costs follow:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Cost of pension benefits earned by employees $ 4,998 $ 4,654
Interest cost on projected benefit obligation 16,666 15,188
Actual return on plan assets (34,173) (50,816)
Net amortization and deferral 15,213 34,437
Special termination benefits 7,918 13,059
-------- --------
Net pension costs $ 10,622 $ 16,522
======== ========
</TABLE>
During 1996 and 1995, CILCO recognized $7.9 million and
$13.1 million, respectively, of net pension costs in
accordance with Statement of Financial Accounting Standards
No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits." These amounts represented the costs
associated with additional benefits extended in connection
with voluntary early retirement programs.
Information on the funded status of plans in which assets
exceed accumulated benefits follows:
<TABLE>
<CAPTION>
Actuarial present value of benefit obligation: 1996 1995
(In thousands)
<S> <C> <C>
Vested benefits - employees' rights to receive
benefits no longer contingent upon
continued employment $(191,301) $(171,422)
Non-vested benefits - employees' rights to
receive benefits contingent upon
continued employment (11,293) (15,266)
-------- --------
Accumulated benefit obligation (202,594) (186,688)
Provision for future pay increases (30,224) (47,058)
-------- --------
Projected benefit obligation (232,818) (233,746)
Pension assets at fair market value 254,824 232,560
-------- --------
Projected benefit obligation (greater)
less than plan assets 22,006 (1,186)
Unrecognized transition asset (5,787) (6,675)
Unrecognized prior service cost 8,006 9,034
Unrecognized net gain (33,488) (3,338)
------- --------
Pension liability recorded on Balance Sheets $ (9,263) $ (2,165)
======== ========
</TABLE>
Information on the funded status of the plan in which
accumulated benefits exceed assets follows:
<TABLE>
<CAPTION>
Actuarial present value of benefit obligation: 1996 1995
(In thousands)
<S> <C> <C>
Vested benefits - employees' rights to
receive benefits no longer contingent
upon continued employment $ (1,938) $ (1,792)
Non-vested benefits - employees' rights to
receive benefits contingent upon continued
employment (169) (132)
-------- --------
Accumulated benefit obligation (2,107) (1,924)
Provision for future pay increases (515) (765)
-------- --------
Projected benefit obligation (2,622) (2,689)
Pension assets at fair market value -- --
-------- --------
Projected benefit obligation greater than
plan assets (2,622) (2,689)
Unrecognized prior service cost 495 536
Unrecognized net loss 1,111 1,352
Additional minimum liability (1,091) (1,123)
-------- --------
Pension liability recorded on Balance Sheets $ (2,107) $ (1,924)
========= =========
</TABLE>
<TABLE>
<CAPTION>
Significant assumptions used for calculations: 1996 1995
<S> <C> <C>
Discount rate 7.75% 7.25%
Expected rate of salary increase 4.50% 4.50%
Expected long-term rate of return 8.50% 8.50%
</TABLE>
POSTRETIREMENT HEALTH CARE BENEFITS
Provisions for postretirement benefits expenses are
determined under the accrual method of accounting.
Substantially all of CILCO's full-time employees,
including those assigned to the Holding Company, are
currently covered by a trusteed, non-contributory defined
benefit postretirement health care plan. The plan pays
stated percentages of most necessary medical expenses
incurred by retirees, after subtracting payments by
Medicare or other providers and after a stated deductible
has been met. Participants become eligible for the
benefits if they retire from CILCO after reaching age 55
with 10 or more years of service.
Postretirement health care benefit costs were charged as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Operating expenses $5,096 $5,108 $5,253
Utility plant and other 1,883 1,882 1,913
------ ------ ------
Net postretirement health
care benefit costs $6,979 $6,990 $7,166
====== ====== ======
</TABLE>
Information on the plans' funded status follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Components of net postretirement health care
benefit costs:
Service cost - benefits attributed
to service during the period $ 1,429 $ 1,302
Actual return on plan assets (4,290) (5,936)
Interest cost on accumulated
postretirement health care
benefit obligation 4,545 4,795
Amortization of transition
obligation over 18.6 years 2,858 2,858
Other net amortization and
deferral 1,441 3,971
Special termination benefits 996 --
------- -------
Net postretirement health
care benefit costs $ 6,979 $ 6,990
======= =======
Actuarial present value of
accumulated postretirement
health care benefit obligation:
Retirees $(41,287) $(36,646)
Other fully eligible participants (3,904) (12,668)
Other active participants (18,079) (22,003)
------- -------
Accumulated postretirement
health care benefit obligation (63,270) (71,317)
Plan assets at fair value 39,601 33,157
------- -------
Accumulated health care benefit
obligation greater than plan assets (23,669) (38,160)
Unrecognized actuarial gain (13,447) (814)
Unrecognized transition obligation 36,013 38,871
------- -------
Postretirement health care benefit
liability recorded on Balance Sheets $ (1,103) $ (103)
======= =======
</TABLE>
For measurement purposes, the annual health care cost
trend rate averaged 7.2% for 1996; the rate was assumed to
decrease gradually to 5.7% for 2025 and remain at that
level thereafter.
Increasing the assumed health care cost trend rate by 1%
in each year would increase the accumulated postretirement
benefit obligation at December 31, 1996, by $2.4 million
and the aggregate of the service and interest cost
components of net postretirement health care cost for 1996
by $211,000. The discount rate used in determining the
accumulated postretirement benefit obligation at December
31, 1996, was 7.75% and at December 31, 1995, was 7.25%.
The weighted average expected return on assets net of
taxes was 8.1%, where taxes are assumed to decrease return
by 0.4%.
NOTE 4 - SHORT-TERM DEBT
CILCO had arrangements for bank lines of credit totaling
$20.0 million at December 31, 1996, all of which were
unused. These lines of credit were maintained by
commitment fees of 1/20 of 1% per annum in lieu of
balances. These bank lines of credit support CILCO's
issuance of commercial paper. Short-term borrowings
consisted of commercial paper totaling $9.9 million and
$24.6 million at December 31, 1996 and 1995, respectively.
NOTE 5 - RETAINED EARNINGS
CILCO's Articles of Incorporation provide that no
dividends shall be paid on the common stock if, at the
time of declaration, the balance of retained earnings does
not equal at least two times the annual dividend
requirement on all outstanding shares of preferred stock.
The amount of retained earnings so required at December
31, 1996, was $6.3 million.
NOTE 6 - PREFERRED STOCK
<TABLE>
<CAPTION>
At December 31 1996 1995
(In thousands)
<S> <C> <C>
Preferred stock, cumulative
$100 par value, authorized 1,500,000 shares
Without mandatory redemption
4.50% series - 111,264 shares $11,126 $11,126
4.64% series - 79,940 shares 7,994 7,994
Class A, no par value, authorized
3,500,000 shares
Flexible auction rate -
250,000 shares(a) 25,000 25,000
With mandatory redemption
5.85% series - 220,000 22,000 22,000
------- -------
Total preferred stock $66,120 $66,120
======= =======
<FN>
(a) Dividend rates at December 31, 1996 and 1995, were
3.936% and 4.400%, respectively.
</TABLE>
All classes of preferred stock are entitled to receive
cumulative dividends and rank equally as to dividends and
assets, according to their respective terms.
The total annual dividend requirement for preferred stock
outstanding at December 31, 1996, is $3.1 million, assuming a
continuation of the auction dividend rate at December 31,
1996, for the flexible auction rate series.
PREFERRED STOCK WITHOUT MANDATORY REDEMPTION
The call provisions of preferred stock redeemable at CILCO's
option outstanding at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Series Callable Price Per Share (plus accrued dividends)
<S> <C>
4.50% $110
4.64% $102
Flexible auction rate $100
</TABLE>
PREFERRED STOCK WITH MANDATORY REDEMPTION
CILCO's 5.85% Class A preferred stock may be redeemed in 2003
at $100 per share. A mandatory redemption fund must be
established on July 1, 2003. The fund will provide for the
redemption of 11,000 shares for $1.1 million on July 1 of
each year through July 1, 2007. On July 1, 2008, the
remaining 165,000 shares will be retired for $16.5 million.
PREFERENCE STOCK, CUMULATIVE
No Par Value, Authorized 2,000,000 shares, of which none have
been issued.
NOTE 7 - LONG-TERM DEBT
<TABLE>
<CAPTION>
At December 31 1996 1995
(In thousands)
<S> <C> <C>
First Mortgage Bonds
5 1/2% series due 1997 $ -- $ 20,000
7 1/2% series due 2007 50,000 50,000
8 1/5% series due 2022 65,000 65,000
Medium-Term Notes
5.7% series due 1998 10,650 10,650
6.4% series due 2000 30,000 30,000
6.82% series due 2003 25,350 25,350
6.13% series due 2005 16,000 16,000
7.8% series due 2023 10,000 10,000
7.73% series due 2025 20,000 20,000
Pollution Control Refunding Bonds
6.5% series F due 2010 5,000 5,000
6.2% series G due 2012 1,000 1,000
6.5% series E due 2018 14,200 14,200
5.9% series H due 2023 32,000 32,000
-------- --------
279,200 299,200
Unamortized premium and discount
on long-term debt, net (761) (803)
-------- --------
Total CILCO long-term debt $278,439 $298,397
======== ========
</TABLE>
CILCO's first mortgage bonds are secured by a lien on
substantially all of its property and franchises.
Unamortized borrowing expense, premium and discount on
outstanding long-term debt are being amortized over the
lives of the respective issues.
Scheduled maturities of long-term debt for 1998 and 2000
are $10.6 million and $30 million, respectively. There
are no scheduled maturities of long-term debt for 1999 or
2001. The 1997 maturities of long-term borrowings have
been classified as current liabilities.
NOTE 8 - COMMITMENTS & CONTINGENCIES
CILCO's 1997 capital expenditures for utility plant are
estimated to be $53.2 million, in connection with which
CILCO has normal and customary purchase commitments at
December 31, 1996.
CILCO's policy is to act as a self-insurer for certain
insurable risks resulting from employee health and life
insurance programs.
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 from CIPS of 80 megawatts (MW) of
capacity through May 1997, then increasing to 90 MW until
the contract expires in 1998.
In March 1995, CILCO and CIPS renegotiated a limited-term
power agreement reached in November 1992. This agreement,
which now 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 was granted on May 8, 1996.
For a discussion of former gas manufacturing sites, refer
to the caption "Environmental Matters" of Item 7.
Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 21 of
CILCORP's 1996 Annual Report which is incorporated herein
by reference.
NOTE 9 - RATE MATTERS
In December 1994, the Illinois Commerce Commission (ICC)
issued a rate order designed to grant CILCO a $10.6
million, or 6.7% annual increase in gas base rate
revenues. The new rates, designed to yield an 11.82%
return on common equity and a 9.24% return on rate base,
were effective in December 1994.
In mid-1992, after a significant number of leaks were
detected in CILCO's Springfield cast iron gas distribution
system, CILCO began a detailed examination of its
Springfield gas distribution system and related operating
practices and procedures. CILCO thereafter began an
aggressive program to renew its Springfield gas cast iron
main system. This project was completed in November 1995.
As a part of the 1994 rate order, the ICC disallowed
approximately $7.5 million of CILCO's $24 million
investment in the Springfield cast iron main renewal
project. To reflect the disallowance, CILCO recorded a
pre-tax charge of approximately $7.5 million ($4.5 million
after-tax) against 1994 earnings.
In September 1994, CILCO entered into a federal court
civil consent decree with the U.S. Department of Justice
(DOJ) which concluded investigations by the DOJ and U.S.
Department of Transportation (DOT) of CILCO's Springfield
gas operations. As a part of the settlement with the DOJ,
CILCO accepted adjustments recommended by the ICC staff
which resulted in a net disallowance from CILCO's gas rate
base of approximately $4.5 million of the cost of the
Springfield cast iron main renewal project. This charge
is part of the $7.5 million disallowance included in the
December 1994 rate order. In addition to the rate base
disallowance, CILCO agreed to pay an $844,000 civil fine
to the United States and agreed to reimburse the ICC, the
DOT and the DOJ $156,000 for the costs of their
investigations. CILCO also agreed to underwrite the
reasonable expense of an outside expert, selected by the
ICC, to examine CILCO's gas operations manuals and systems
to ensure they are in compliance with all applicable
statutes and regulations. The audit was completed in
October 1995 at a total cost of $356,000.
NOTE 10 - LEASES
CILCO leases certain equipment, buildings and other
facilities under capital and operating leases. Minimum
future rental payments under non-cancelable capital and
operating leases having remaining terms in excess of one
year as of December 31, 1996, are $16.2 million in total.
Payments due during the years ending December 31, 1997,
through December 31, 2001, are $4.6 million, $4.4 million,
$3.2 million, $1.7 million and $1.1 million, respectively.
NOTE 11 - DISCLOSURES ABOUT DERIVATIVE FINANCIAL
INSTRUMENTS
During 1996 and 1995, CILCO utilized NYMEX (New York
Mercantile Exchange) futures contracts to hedge
approximately 19% and 3%, respectively, of owned natural
gas storage. The purpose of the program is to provide a
higher level of natural gas price stability for CILCO's
natural gas customers and reduce the cost of natural gas
injected into CILCO-owned storage fields. The program
includes investments in derivative financial instruments
such as futures, options and swap agreements. CILCO does
not trade these financial instruments and accounts for
them as hedges under SFAS No. 80, "Accounting for Futures
Contracts." Any gains or losses from these financial
instruments are reflected as adjustments to Gas in
Underground Storage on the balance sheets. As natural gas
is withdrawn from storage, gains or losses are passed to
customers through the purchased gas adjustment clause,
which is included in Gas Purchased for Resale on the
income statement.
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following quarterly operating results are unaudited,
but, in the opinion of management, include all adjustments
(consisting of normal recurring accruals) necessary for a
fair presentation of CILCO's operating results for the
periods indicated. The results of operations for each of
the fiscal quarters are not necessarily comparable to, or
indicative of, the results of an entire year due to the
seasonal nature of CILCO's business.
<TABLE>
<CAPTION>
For the Three Months Ended March 31 June 30 September 30 December 31
(In thousands)
<S> <C> <C> <C> <C>
1996
Operating revenue $154,731 $108,434 $114,864 $140,526
Operating income 20,192 12,188 22,489 14,809
Net income 13,918 6,310 16,234 8,666
1995
Operating revenue $133,227 $100,512 $122,035 $121,970
Operating income 17,883 13,019 26,127 6,519
Net income 12,082 7,074 20,106 3,136
</TABLE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
CILCORP
Not applicable.
CILCO
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
CILCORP
The information required by Item 10 relating to directors is
set forth in the Company's definitive proxy statement for
its 1997 Annual Meeting of Stockholders filed with the
Commission pursuant to Regulation 14A. Such information is
incorporated herein by reference to the material appearing
under the caption "Election of Directors" of such proxy
statement. Information required by Item 10 relating to
executive officers of the Company is set forth under a
separate caption in Part I hereof.
CILCO
The information required by Item 10 relating to directors is
set forth in CILCO's definitive proxy statement for its 1997
Annual Meeting of Stockholders filed with the Commission
pursuant to Regulation 14A. Such information is
incorporated herein by reference to the material appearing
under the caption "Election of Directors" of such proxy
statement. Information required by Item 10 relating to
executive officers of CILCO is set forth under a separate
caption in Part I hereof.
Item 11. Executive Compensation
CILCORP
The Company has filed with the Commission a definitive proxy
statement pursuant to Regulation 14A. The information
required by Item 11 is incorporated herein by reference to
the material appearing under the caption "Executive
Compensation" of such proxy statement.
CILCO
CILCO has filed with the Commission a definitive proxy
statement pursuant to Regulation 14A. The information
required by Item 11 is incorporated herein by reference to
the material appearing under the caption "Executive
Compensation" of such proxy statement.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
CILCORP
The Company has filed with the Commission a definitive proxy
statement pursuant to Regulation 14A. The information
required by Item 12 is incorporated herein by reference to
the material appearing under the caption "Voting Securities
and Principal Holders" of such proxy statement.
CILCO
CILCO has filed with the Commission a definitive proxy
statement pursuant to Regulation 14A. The information
required by Item 12 is incorporated herein by reference to
the material appearing under the caption "Voting Securities
and Principal Holders" of such proxy statement.
Item 13. Certain Relationships and Related Transactions
CILCORP
CILCORP Inc. (CILCORP or Company), a holding company, is the
parent of its direct subsidiaries Central Illinois Light
Company (CILCO), CILCORP Investment Management Inc. (CIM),
CILCORP Ventures Inc. (CVI), and QST Enterprises Inc. (QST).
Formerly a CILCORP first-tier subsidiary, Environmental
Science & Engineering, Inc. (ESE) became a subsidiary of QST
effective October 29, 1996. In the course of business, the
Company carries on certain relations with affiliated
companies such as shared facilities, utilization of
employees and other business transactions. Central Illinois
Light Company is reimbursed at cost by the Company and the
other subsidiaries for any services it provides.
ESE and the Holding Company entered into an agreement to
consolidate ESE's outstanding debt. Under this agreement,
ESE can draw on a $15 million revolving line of credit which
expires May 2, 1998. At December 31, 1996, ESE had no
borrowings from CILCORP under this agreement. ESE also
borrowed $20 million from the Holding Company on a term
credit basis with the principal due May 2, 1998.
At December 31, 1996, CILCORP guaranteed $3 million of
outstanding debt of CILCORP Lease Management Inc. CILCORP
receives a fee for the guarantee.
CIM has guaranteed the performance of CIM Leasing Inc. and
CIM Air Leasing Inc. with respect to certain obligations
arising from the leveraged lease investments held by these
subsidiaries.
CILCORP has been authorized by the Board of Directors to
guarantee up to $10 million of obligations incurred by QST
Enterprises Inc. (QST). In turn, QST has been authorized to
guarantee up to $10 million of obligations incurred by its
subsidiary, QST Energy Inc., and its subsidiary QST Energy
Trading Inc. Through February 28, 1997, CILCORP has
guaranteed $3.9 million of QST obligations, and QST has
guaranteed $2.5 million of QST Trading Inc. obligations.
CILCO
One member of the Board of Directors of CILCORP Inc. is also
a member of the Board of Directors of CILCO. The Chairman
and Chief Executive Officer of CILCO is also the President
and Chief Executive Officer of CILCORP and the secretary of
CILCO is also Vice President, General Counsel and Secretary
of CILCORP Inc.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
CILCORP
Page in
Annual Report to
Stockholders
(a) 1. Financial Statements
The following statements are included in
Exhibit 13 of this filing and are incorporated
herein by reference from CILCORP Inc.'s 1996
Annual Report:
Management's Report 28
Report of Independent Public Accountants 28
Consolidated Statements of Income for the three
years ended December 31, 1996 29
Consolidated Balance Sheets as of
December 31, 1996, and December 31, 1995 30-31
Consolidated Statements of Segments of Business for
the three years ended December 31, 1996 32-33
Consolidated Statements of Cash Flows for the three
years ended December 31, 1996 34
Consolidated Statements of Common Stockholders'
Equity for the three years ended
December 31, 1996 35
Notes to the Consolidated Financial Statements 36-44
(a) 2. Financial Statement Schedules
The following schedules are included herein:
Page No.
Form 10-K
---------
Schedule II - Valuation and Qualifying Accounts
and Reserves 69
Schedule XIII -Investment in Leveraged Leases at
December 31, 1996 71
Other schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial statements or
notes thereto.
(a) 3. Exhibits
*(3) Articles of Incorporation (Designated in Form 10-K
for the year ended December 31, 1991, File No. 1-8946, as Exhibit 3)).
*(3)a By-laws as amended effective April 25, 1995. [Designated in Form 10-K
for the year ended December 31, 1995, File No. 1-8946,
as Exhibit (3)a]
***(4) Instruments defining the rights of security holders,
including indentures
*(10) CILCO Executive Deferral Plan. As amended through
January 29, 1996. (Designated in Form 10-K for the year ended
December 31, 1995, File No. 1-8946, as Exhibit (10)).
*(10)a CILCO Executive Deferral Plan II. As amended
January 29, 1996 (Designated in Form 10-K for the year ended
December 31, 1995, File No. 1-8946, as Exhibit (10)a).
*(10)b CILCORP Economic Value Added Incentive Compensation
Plan (Adopted February 29, 1989 & Revised January 29, 1991 and January
30, 1996.) [Designated in Form 10-K for the year ended
December 31, 1995. File No. 1-8946, as Exhibit 10(b)]
*(10)c CILCORP Compensation Protection Plan. (Adopted June
28, 1994.) [Designated in Form 10-K for the year ended
December 31, 1994, File No. 1-8946, as Exhibit 10(c)]
*(10)d CILCO Benefit Replacement Plan (Designated in Form 10-K
for the year ended December 31, 1991, File No. 1-8946, as Exhibit
(10)e).
*(10)e CILCORP Deferred Compensation Stock Plan (Designated
in Form 10-K for the year ended December 31, 1991,
File No. 1-8946, as Exhibit (10)f).
(10)f CILCORP Shareholder Return Incentive Compensation
Plan (as amended effective January 28, 1997).
(12) Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
Page No.
Form 10-K
----------
(13) Annual Report to Security Holders 76
(24) Consent of Arthur Andersen LLP 77
(25) Power of Attorney
(27) CILCORP Inc. Consolidated Financial Data Schedule
(b) 3. Reports on Form 8-K
A Form 8-K was filed on October 29, 1996 to
disclose the authorization and declaration of a
dividend distribution of one right for each
outstanding share of common stock, subject to the
terms and conditions of a certain Rights Agreement
dated October 29, 1996.
A Form 8-K was filed on November 25, 1996 to disclose
the announcement by CILCO of a voluntary early
retirement incentive plan.
* These exhibits have been previously filed with the
Securities and Exchange Commission (SEC) as exhibits to registration
statements or to other filings of CILCORP or CILCO with the
SEC and are incorporated herein as exhibits by reference.
The file number and exhibit number of each such
exhibit (where applicable) are stated in the description
of such exhibit.
***Pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of
Regulation S-K, the Company has not filed as an exhibit to
this Form 10-K any instrument with respect to long-term debt
as the total amount of securities authorized thereunder does
not exceed 10 percent of the total assets of the Company and
its subsidiaries on a consolidated basis, but hereby
agrees to furnish to the SEC on request any such
instruments.
CILCO
Page No.
Form 10-K
----------
(a) 1. Financial Statements
The following are included herein:
Management's Report 36
Report of Independent Public Accountants 37
Consolidated Statements of Income for the three
years ended December 31, 1996 38
Consolidated Balance Sheets as of December 31,
1996 and December 31, 1995 39-40
Consolidated Statements of Cash Flows for the
three years ended December 31, 1996 41-42
Consolidated Statements of Segments of Business
for the three years ended December 31, 1996 43-44
Consolidated Statements of Retained Earnings for
the three years ended December 31, 1996 45
Notes to the Consolidated Financial Statements 46-60
(a) 2. Financial Statement Schedules
The following schedule is included herein:
Schedule II - Valuation and Qualifying Accounts
and Reserves for the three years
ended December 31, 1996 70
Other schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial statements or
notes thereto.
(a)3. Exhibits
*(3) Articles of Incorporation. As amended July 26, 1993.
(3)a Bylaws. As amended effective April 23, 1996.
*(4) Indenture of Mortgage and Deed of Trust between Illinois Power
Company and Bankers Trust Company, as Trustee, dated as of
April 1, 1933, Supplemental Indenture between the same parties
dated as of June 30, 1933, Supplemental Indenture
between the Company and Bankers Trust Company, as
Trustee, dated as of July 1, 1933 and Supplemental
Indenture between the same parties dated as of
January 1, 1935, securing First Mortgage Bonds, and
indentures supplemental to the foregoing through
November 1, 1994. (Designated in Registration No.
2-1937 as Exhibit B-1, in Registration No. 2-2093
as Exhibit B-1(a), in Form 8-K for April 1940, File
No. 1-2732-2, as Exhibit A, in Form 8-K for
December 1949, File No. 1-2732-2, as Exhibit A, in
Form 8-K for December 1951, File No. 1-2732, as
Exhibit A, in Form 8-K for July 1957, File No. 1-
2732, as Exhibit A, in Form 8-K for July 1958, File
No. 1-2732, as Exhibit A, in Form 8-K for March
1960, File No. 1-2732, as Exhibit A, in Form 8-K
for September 1961, File No. 1-2732, as Exhibit B,
in Form 8-K for March 1963, File No. 1-2732, as
Exhibit A, in Form 8-K for February 1966, File No.
1-2732, as Exhibit A, in Form 8-K for March 1967,
File No. 1-2732, as Exhibit A, in Form 8-K for
August 1970, File No. 1-2732, as Exhibit A, in Form
8-K for September 1971, File No. 1-2732, as Exhibit
A, in Form 8-K for September 1972, File No. 1-2732,
as Exhibit A, in Form 8-K for April 1974, File No.
1-2732, as Exhibit 2(b), in Form 8-K for June 1974,
File No. 1-2732, as Exhibit A, in Form 8-K for
March 1975, File No. 1-2732, as Exhibit A, in Form
8-K for May 1976, File No. 1-2732, as Exhibit A, in
Form 10-Q for the quarter ended June 30, 1978, File
No. 1-2732, as Exhibit 2, in Form 10-K for the year
ended December 31, 1982, File No. 1-2732, as
Exhibit (4)(b), in Form 8-K dated January 30, 1992,
File No. 1-2732, as Exhibit (4) in Form 8-K dated
January 29, 1993, File No. 1-2732, as Exhibit (4)
and in Form 8-K dated December 2, 1994, File No. 1-
2732, as Exhibit (4).)
*(4)a Supplemental Indenture dated November 1, 1994.
(Designated in Form 8-K dated November 1,
1994, File No. 1-2732, as Exhibit (4).)
*(10) CILCO Executive Deferral Plan. As
amended January 29, 1996. (Designated in Form 10-K
for the year ended December 31, 1995, File No. 1-
2732, as Exhibit (10).)
*(10)a CILCO Executive Deferral Plan II. As amended January 29, 1996.
(Designated in Form 10-K for the year ended December 31, 1995,
File No. 1-2732, as Exhibit (10)a.)
*(10)b CILCO Compensation Protection Plan.
(Designated in Form 10-K for the year ended December 31, 1990,
File No. 1-2732, as Exhibit (10)c.)
*(10)c CILCO Deferred Compensation Stock Plan. (Designated in Form 10-K
for the year ended December 31, 1990, File No. 1-2732, as Exhibit
(10)d.)
*(10)d CILCO Economic Value Added Incentive Compensation Plan
(adopted January 29, 1991 and revised January 29, 1996).
(Designated in Form 10-K for the year ended December 31, 1995,
File No. 1-2732, as Exhibit (10)d.)
*(10)e Benefit Replacement Plan. (Designated in Form 10-K for the year
ended December 31, 1991, File No. 1-2732, as Exhibit (10)f.)
(10)f Shareholder Return Incentive Compensation Plan (as amended
effective January 28, 1997)
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Central Illinois Light Company Financial Data Schedule
(b) 3.
Reports on Form 8-K
A Form 8-K was filed on November 25, 1996 to disclose
the announcement of a voluntary early retirement incentive plan.
*These exhibits have been previously filed with the
Securities and Exchange Commission (SEC) as exhibits to
registration statements or to other filings of CILCO with
the SEC and are incorporated herein as exhibits by
reference. The file number and exhibit number of each such
exhibit (where applicable) are stated in the description of
such exhibit.
<PAGE>
<TABLE>
SCHEDULE II
CILCORP INC. AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1996, 1995 and 1994
(Thousands of dollars)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged Charged Balance at
Beginning to to Other End of
Description of Period Income Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Accumulated Provisions
Deducted from Assets -
Doubtful Accounts $2,223 $3,464 -- $3,087 $2,600
Accumulated Provisions
Not Deducted from Assets -
Injuries and Damages 2,550 1,328 -- 2,497 1,381
Year ended December 31, 1995
Accumulated Provisions
Deducted from Assets -
Doubtful Accounts $2,291 $2,216 -- $2,284 $2,223
Accumulated Provisions
Not Deducted from Assets -
Injuries and Damages 2,600 1,279 -- 1,329 2,550
Year ended December 31, 1994
Accumulated Provisions
Deducted from Assets -
Doubtful Accounts $2,255 $2,617 -- $2,581 $2,291
Accumulated Provisions
Not Deducted from Assets -
Injuries and Damages 2,321 1,027 -- 748 2,600
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
CENTRAL ILLINOIS LIGHT COMPANY
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1996, 1995 and 1994
(Thousands of dollars)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged Charged Balance at
Beginning to to Other End of
Description of Period Income Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Accumulated Provisions
Deducted from Assets -
Doubtful Accounts $ 650 $2,832 -- $2,482 $1,000
Accumulated Provisions
Not Deducted from Assets -
Injuries and Damages 2,550 1,328 -- 2,497 1,381
Year ended December 31, 1995
Accumulated Provisions
Deducted from Assets -
Doubtful Accounts $ 600 $1,299 -- $1,249 $ 650
Accumulated Provisions
Not Deducted from Assets -
Injuries and Damages 2,600 1,279 -- 1,329 2,550
Year ended December 31, 1994
Accumulated Provisions
Deducted from Assets -
Doubtful Accounts $ 585 $1,494 -- $1,479 $ 600
Accumulated Provisions
Not Deducted from Assets -
Injuries and Damages 2,321 1,027 -- 748 2,600
</TABLE>
<PAGE>
<TABLE>
SCHEDULE XIII
CILCORP INC. AND SUBSIDIARY COMPANIES
Investment in Leveraged Leases
<CAPTION>
Year Ended December 31, 1996
(Thousands of dollars)
Cost Amount
Leveraged leases of each carried on
lease(A) BalanceSheet(B)
<S> <C> <C>
Office buildings $23,130 $ 53,308
Warehouses 11,746 19,894
Mining equipment 10,244 17,943
Generating station 14,957 22,312
Passenger railway equipment 3,805 5,340
Cargo aircraft 9,583 14,233
-------- --------
Totals $73,465 $133,030
======== ========
<FN>
(A) This value is the original cost of the leveraged lease
net of original nonrecourse debt.
(B) The amount carried on the balance sheet includes
current rents receivable and estimated residual value, net of
unearned and deferred income and nonrecourse debt.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CILCORP INC.
March 18, 1997 By
R. O. Viets
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature Title Date
(i) and (ii) Principal executive officer, director and
principal financial officer:
R. O. Viets President, Chief March 18, 1997
Executive Officer
and Director
(iii) Controller
T. D. Hutchinson Controller March 18, 1997
(iv) A majority of the Directors
(including the director named above):
M. Alexis* Director March 18, 1997
J. R. Brazil* Director March 18, 1997
W. Bunn III* Director March 18, 1997
J. D. Caulder* Director March 18, 1997
H. J. Holland* Director March 18, 1997
H. S. Peacock* Director March 18, 1997
K. E. Smith* Director March 18, 1997
R. M. Ullman* Director March 18, 1997
M. M. Yeomans* Director March 18, 1997
R. O. Viets Director March 18, 1997
*By
R. O. Viets
Attorney-in-fact
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CENTRAL ILLINOIS LIGHT COMPANY
March 18, 1997 By
J. F. Vergon
President and Chief
Operating Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
(i) Principal executive officer and director:
J. F. Vergon President and Chief March 18, 1997
Operating Officer
and Director
(ii) Principal financial officer and director:
T. S. Romanowski Vice President March 18, 1997
(iii) Controller
T. D. Hutchinson Controller and March 18, 1997
Manager of Accounting
(iv) A majority of the Directors
(including the directors named above):
T. S. Romanowski Director March 18, 1997
J. F. Vergon Director March 18, 1997
R. O. Viets Director March 18, 1997
<PAGE>
<TABLE>
EXHIBIT (12)
CILCORP INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
<CAPTION>
Twelve Months Ended 1996 1995 1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Earnings, as Defined:
Net Income $27,943 $38,582 $32,586 $33,583 $32,097
Income Taxes 14,505 23,274 18,180 18,069 20,810
Interest 29,068 29,861 26,341 27,363 29,205
Interest Portion of Rentals 2,844 1,905 1,864 2,447 415
Preferred Dividends 3,188 3,299 2,980 4,043 4,441
------- ------ ------ ------ -------
Total Earnings, as Defined $77,548 $96,921 $81,951 $85,505 $86,968
======= ====== ====== ====== =======
Fixed Charges, as Defined:
Interest Expense $26,337 $27,512 $24,313 $25,929 $28,275
Interest Expense on COLI 2,731 2,349 2,028 1,434 930
Interest Portion of Rentals 2,844 1,905 1,864 2,447 415
Tax Effected Preferred
Dividends 5,284 5,468 4,939 6,701 7,249
------- ------ ------ ------ -------
Total Fixed Charges, as
Defined $37,196 $37,234 $33,144 $36,511 $36,869
======= ====== ====== ====== =======
Ratio of Earnings to Fixed
Charges 2.1 2.6 2.5 2.3 2.4
=== === === === ===
</TABLE>
<PAGE>
<TABLE>
EXHIBIT (12)
CENTRAL ILLINOIS LIGHT COMPANY
Computation of Ratio of Earnings
to Fixed Charges
<CAPTION>
Twelve Months Ended 1996 1995 1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Earnings, as Defined:
Net Income $45,128 $42,398 $32,487 $37,678 $35,636
Income Taxes 24,082 22,534 17,168 20,368 17,723
Fixed Charges, as Below 28,504 27,876 24,693 26,335 25,130
------ ------ ------ ------ ------
Total Earnings, as Defined $97,714 $92,808 $74,348 $84,381 $78,489
====== ====== ====== ====== ======
Fixed Charges, as Defined:
Interest on COLI $ 2,731 $ 2,349 $ 2,028 $ 1,434 $ 930
Interest on Short-term Debt 149 744 292 592 180
Interest on Long-term Debt 21,012 20,242 19,221 19,753 20,747
Amortization of Debt Discount
& Expense, Premium and
Reacquired Loss 681 669 665 624 410
Miscellaneous Interest
Expense 2,320 1,967 623 1,485 2,448
Interest Portion of Rentals 1,611 1,905 1,864 2,447 415
------ ------ ------ ------ -----
Total Fixed Charges, as
Defined $28,504 $27,876 24,693 $26,335 $25,130
====== ====== ====== ====== ======
Ratio of Earnings to Fixed
Charges 3.4 3.3 3.0 3.2 3.1
=== === === === ===
</TABLE>
NOTICE
This copy of CILCORP Inc.'s and Central Illinois Light
Company's Form 10-K does not include our 1996 Consolidated
Annual Report. If you have not received our 1996
Consolidated Annual Report and would like one, please let us
know.
Telephone:
In Peoria 675-8808
Elsewhere in Illinois 1-800-322-3569
Outside Illinois 1-800-622-5514
TDD 1-309-675-8892
Or you can write to us at:
Investor Relations Department
CILCORP Inc.
300 Hamilton Blvd.
Suite 300
Peoria, IL 61602-1238
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports, dated January 27,
1997, included herein or incorporated by reference in this Form
10-K, into CILCORP Inc.'s previously filed Registration
Statements File No. 33-45318, 33-51315 and 33-51241.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 18, 1997
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The financial condition and operating results of CILCORP Inc. and its
subsidiaries (the Company) primarily reflect the operations of Central Illinois
Light Company (CILCO), the Company's principal business subsidiary. The
Company's other core business subsidiary is QST Enterprises Inc. (QST). The
Other Businesses segment includes the operations of the holding company itself
(Holding Company), its investment subsidiary, CILCORP Investment Management Inc.
(CIM), and its venture capital subsidiary, CILCORP Ventures Inc. (CVI).
CILCO is a regulated public utility engaged in the generation, transmission
and distribution of electric energy and the purchase, transportation and
distribution of natural gas in Central Illinois.
QST, formed in December 1995, provides energy and energy-related services to a
broad spectrum of retail and wholesale customers through its subsidiary, QST
Energy Inc. (QST Energy) which began operations in 1996. QST also provides
fiber optic and advanced Internet-based communication services and products
through QST Communications Inc. (QST Com), another subsidiary which was
formerly CILCORP Fibercom Inc., a subsidiary of CVI. QST's operations include
those of Environmental Science & Engineering, Inc. (ESE), a former first-tier
CILCORP subsidiary which, effective October 29, 1996, became a QST subsidiary.
ESE's results are reported as a separate business segment from QST's energy
and telecommunications operations.
ESE is an environmental consulting and engineering firm with additional
capabilities in laboratory analysis and equipment manufacturing. ESE, through
a subsidiary, also acquires environmentally impaired property for remediation
and resale.
OVERVIEW
Contributions to the Company's earnings per share for the last three calendar
years are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CILCO $3.11 $2.97 $2.26
QST (excluding ESE) (.30) -- --
ESE (.44) .01 .14
Other Businesses (.30) (.05) .10
----- ----- -----
Earnings per share $2.07 $2.93 $2.50
===== ===== =====
</TABLE>
CILCO's earnings increased by 5% in 1996. Electric gross margin increased by
1%, while gas gross margin increased by 5% due to increased sales resulting
from colder weather during the heating season. Other factors contributing to
CILCO's favorable results were decreased operating expenses due to the
deferral of a maintenance outage at a generating station and lower wage
expense due to the 1995 early retirement programs (see CILCO's Early
Retirement Programs). Partially offsetting these decreases in operating
expenses were a $5.4 million after-tax charge ($.40 per share) related to an
early retirement program offered by CILCO in November 1996 (see CILCO's Early
Retirement Programs), increased outside service costs ($.16 per share) (see
Competition), and a one-time $1.4 million after-tax charge ($.10 per share)
related to a write-off of inventory.
A $7.8 million after-tax charge related to CILCO's 1995 early retirement
programs reduced that year's earnings by $.59 per share, partially offset by
the sale of two parcels of land at the former R.S. Wallace electric
generating plant site which generated an after-tax gain of $2.1 million, or
$.16 per share.
Earnings for 1994 reflect a $4.5 million after-tax charge due to the Illinois
Commerce Commission's (ICC) disallowance of a portion of CILCO's investment
in renewing its gas system in Springfield, Illinois. In 1994 CILCO also paid
$1 million, consisting of a fine and expenses, related to a U.S. Department
of Justice and U.S. Department of Transportation review of CILCO's gas
operations. These one-time charges reduced 1994 earnings by $.42 per share.
QST was formed in December 1995; its earnings are reflective of a company in
the initial stages of development. ESE's earnings declined in 1996 due to
reduced levels of business caused by a variety of factors, primarily industry
overcapacity resulting from changes in the regulatory climate at both the
federal and state levels. Charges related to the downsizing or closing of
operations, including the Denver laboratory, drilling operations and certain
consulting offices, to reflect business conditions also contributed
significantly to the 1996 loss. These and similar expenses totaled $4.3
million, including severance costs, asset write-offs, and pre-tax operating
losses of closed operations.
Other Businesses results declined in 1996 due to a write-down of an
investment held by CIM, increased costs relating to corporate repositioning
at the Holding Company and costs relating to the Caterpillar alliance
(see Competition). Also, revenue from CIM's lease portfolio was lower in
1996 compared to 1995 due to the normal maturation of the lease portfolio.
Results for 1994 reflect a $1.8 million gain on the sale of stock and
warrants held by a CILCORP subsidiary as a result of a leveraged lease
restructuring.
The following table summarizes each business segment's contribution to net
income (see Results of Operations for further discussion).
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
(in thousands)
Electric operating income $52,113 $48,769 $49,623
Gas operating income 17,565 14,779 8,884
------- ------- -------
Total utility operating income 69,678 63,548 58,507
Utility interest expense and other (28,053) (24,743) (24,686)
Disallowed plant cost of
regulated subsidiary, net of tax -- -- (4,541)
Non-regulated energy and energy
services loss (3,998) -- --
Environmental and engineering
services net income (loss) (5,999) 113 1,824
Other Businesses net income (loss) (3,685) (336) 1,482
------- ------- -------
Net income $27,943 $38,582 $32,586
======= ======= =======
</TABLE>
Return on average common equity was 7.7% in 1996 compared to 11% in 1995 and
9.5% in 1994. The ratio of common equity to total capitalization, including
short-term debt, was 46% in 1996, 43% in 1995 and 44% in 1994. The fixed
charge coverage ratio decreased to 2.1 in 1996 compared to 2.7 in 1995 and
2.6 in 1994.
Inflation may have a significant impact on the Company's future operations
and its ability to contain costs. To help protect CILCO from the effects of
inflation, substantially all electric and gas sales rates include a fuel
adjustment clause or a purchased gas adjustment clause to provide for changes
in electric fuel costs, excluding coal transportation, and changes in the
cost of natural gas. Over the past five years, the annual rate of inflation,
as measured by the Consumer Price Index, has ranged from 2.6% to 3.0%.
Forward-Looking Information
Forward-looking information is included in Management's Discussion and Analysis
of Financial Condition and Results of Operations (MD&A). Certain material
contingencies are also described in Note 9 to the Consolidated Financial
Statements.
Some important factors could cause actual results or outcomes to differ
materially from those discussed in the MD&A. These factors include prevailing
governmental policies, statutory changes, and regulatory actions 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 programs; and increasing wholesale and retail
competition in the electric and gas businesses. The business and profitability
of CILCORP and its subsidiaries are 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 energy
customers; pricing and transportation of commodities; market demand for energy
and for environmental consulting and analytical services; inflation; capital
market conditions; and environmental protection 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.
CAPITAL RESOURCES AND LIQUIDITY
The Company believes that internal and external sources of capital which are
or will be available to the Holding Company and its subsidiaries will be
adequate during the coming year to fund the Company's capital expenditures
program, pay its financial obligations, meet working capital needs and retire
or refinance debt as it matures. The Company's long-term ability to declare
and pay dividends depends upon the ability of its subsidiaries to generate
cash from their operations, future business conditions, earnings, and the
financial condition of the Company.
THE COMPANY
The Company issued 275,074 and 299,850 shares of common stock during 1996 and
1995, respectively, through the CILCO Employees' Savings Plan (ESP) and the
CILCORP Inc. Investors Choice Automatic Reinvestment and Stock Purchase Plan
(DRIP). These shares were issued at average prices of $41.55 and $37.83 for
1996 and 1995, respectively. Effective December 19, 1996, issuance of new
shares of common stock through the ESP and DRIP was suspended for at least 90
days. Depending on market conditions and corporate needs, the Company may
issue additional shares of common stock through the ESP or the DRIP at the
end of this 90-day period. On December 23, 1996, the Company began 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. The proceeds from any newly-issued stock have been, and will
continue to be, used to retire CILCORP short-term debt, to meet working
capital and capital expenditure requirements at subsidiaries other than
CILCO, and for other corporate purposes.
CILCORP is currently authorized by its Board of Directors to borrow up to $50
million on a short-term basis. The Company had $50 million of committed bank
lines and $5 million of discretionary bank lines at the end of 1996 and 1995.
At December 31, 1996, $18 million of the lines were used, compared to $22.5
million in use at December 31, 1995.
After retirement of $3 million of medium-term notes during 1996, the Company
had $42 million of medium-term notes outstanding at year-end. The Company
may issue an additional $27 million under its existing $75 million medium-
term note program. The Company may issue additional notes in the future
under this program to retire maturing debt and to provide funds for other
corporate purposes.
CILCO
In 1996, CILCO spent $43.6 million for capital additions and improvements.
These expenditures consisted primarily of replacements and improvements to
the existing electric transmission and distribution and natural gas
distribution systems.
CILCO's estimated capital expenditures for 1997 are $53.2 million, including
$7.8 million for electric energy supply and transmission projects,
$1.3 million for gas supply and transmission projects, $28.4 million for
electric and gas distribution system improvements, and $11.8 million for
information technology projects. Actual capital expenditures may vary from
these estimates due to a number of factors, including changes in costs of
labor, equipment, capital, environmental regulations, and load growth
estimates.
CILCO's short-term debt decreased to $9.9 million at December 31, 1996, from
$24.6 million at December 31, 1995. CILCO expects to issue commercial paper
periodically during 1997, and is currently authorized by its Board of
Directors to issue up to $66 million of short-term debt. At December 31,
1996, committed bank lines of credit totaled $20 million, all of which were
unused except in support of commercial paper issuance. During 1997, CILCO
expects the support of commercial paper issuance to be the sole use of these
bank lines of credit.
CILCO retired $16 million and $20 million, respectively, of first mortgage bonds
in February 1996 and March 1997. CILCO plans to finance its 1997 and 1998
capital expenditures with funds provided by operations. Future funds provided
by operations may be affected by the deregulation of the electric and natural
gas utility industries (see Competition).
QST (Excluding ESE)
Capital expenditures totaled approximately $2.4 million for 1996, primarily
for construction of fiber optic and other communication facilities. QST
Energy capital expenditures for 1997 are estimated to be $10.6 million,
primarily for an on-site generation project currently in the development
stage. QST Com's estimated capital expenditures for 1997 total $3.3 million.
Depending upon business growth, up to an additional $8 million may be needed
by QST for working capital by year-end. QST expects to finance new
investments, working capital needs and any operating losses during 1997 with
funds provided by the Holding Company.
QST had outstanding debt of $4 million at the end of 1996, all of which was
owed to the Holding Company.
ESE
ESE spent $.6 million for capital additions and improvements in 1996. ESE
plans to spend $1.4 million in 1997 on capital additions.
ESE generated $6.3 million of cash from operations in 1996, after reflecting
purchases and sales of real estate held for resale by its wholly-owned
subsidiary, ESE Land Corporation (ELC), and other fixed asset dispositions.
During 1996, ELC invested $7.6 million to acquire land for remediation and
resale and sold a property with a book value of $3.3 million acquired in 1995,
realizing a pre-tax gain of $.4 million. ELC expects to invest $8.3 million
($5 million of which it expects to finance with non-recourse debt) in 1997 to
acquire land for remediation and resale.
ESE's cash flow is supplemented by a $15 million revolving line of credit with
the Holding Company which expires on May 2, 1998. At December 31, 1996, this
line of credit was unused, compared to $2.6 million outstanding at December
31, 1995. At December 31, 1996, ESE had long-term borrowings of $20 million
(due on May 2, 1998) from the Holding Company and advances to the Holding
Company of $.9 million. ESE increased its cash and short-term investments to
$2.1 million at December 31, 1996, compared to zero at year-end 1995. ESE
also has a $10 million bank line of credit to collateralize performance bonds
issued in connection with ESE projects, of which $4.4 million was committed as
of December 31, 1996. ESE anticipates that cash and short-term investments,
funds generated by operations and the amounts available under the Holding
Company revolving line of credit will be sufficient to meet its anticipated
working capital requirements.
CIM
CIM had outstanding debt of $29 million and $26 million at the end of 1996 and
1995, respectively. The debt at the end of 1996 consisted of $26 million
borrowed from the Holding Company and $3 million borrowed from external
sources. During the fourth quarter of 1996, CIM committed $15.8 million to
fund four affordable housing tax credit investments. Approximately $5 million
of this commitment was funded in cash in 1996. In 1997 CIM expects to
contribute $7 million in cash for these investments, with substantially all of
the remainder of the cash contributions to be made in 1998. The cash to fund
these investments was obtained from Holding Company borrowings. CIM expects
to finance new investments and working capital needs during 1997 with a
combination of funds generated internally and with funds provided by the
Holding Company.
COMPETITION
CILCO anticipates significant changes in the electric utility industry at both
the wholesale and retail levels in the years to come, including increased
competition. CILCO also anticipates changes in the natural gas industry at the
retail level. Management cannot predict the ultimate effect of these changes,
but believes that they will eventually result in all customers having the
opportunity to select the energy supplier of their choice and that low operating
costs, improved efficiency and new and better services and products will be the
key competitive factors for utilities.
CILCO has introduced a Consumer Freedom to Choose Electricity Law (Choice Law)
to be considered by the Illinois General Assembly in 1997. The Choice Law, if
enacted: (1) provides that beginning January 1, 1998, consumers in Illinois may
purchase electricity and customer-related services from any supplier they
choose; (2) continues monopoly services where appropriate; (3) allows for a
smooth transition to a competitive market; (4) ensures life-sustaining
requirements for electricity are met for residential customers; (5) allows for
financially distressed utilities to prove their need for assistance through the
transition to a competitive market via a lost margin charge; (6) removes
unnecessary regulation; and (7) creates a level playing field where taxation is
not a barrier to effective supplier competition. Other legislative proposals
regarding electric utility competition have been, or are expected to be,
introduced in the General Assembly and in the United States Congress.
Management cannot predict the ultimate form of any legislation which may be
enacted.
Various mergers and business combinations are occurring in the utility industry.
Many utilities are preparing for a competitive marketplace by merging with or
acquiring other utilities. Management will monitor this activity and continue
to position itself for competition by keeping costs and prices low, maintaining
good customer relations, and developing the flexibility to respond directly to
individual customer requirements.
In preparation for a competitive marketplace, the Company has undertaken
corporate repositioning activities, including developing new product offerings,
upgrading customer data systems, and tapping needed expertise through alliances,
consulting relationships, and the hiring of employees with experience in
competitive markets. During 1996, the Company has incurred approximately $9.3
million of pre-tax expense for these repositioning activities, including
consulting fees but excluding the charges for CILCO's early retirement program.
In addition to these repositioning costs, ESE, in its efforts to respond to
continued competitive pressures, incurred approximately $4.3 million in charges
in 1996 for severance and outplacement costs, write-off of assets and other
similar charges. Management expects the Company's 1997 earnings to be impacted
to a lesser degree by items of this nature.
In 1996, to lead the movement toward increased customer choice, CILCO began
Power Quest, which consists of two electric pilot retail competition programs
and a natural gas pilot retail competition program. The programs offer greater
choice to customers and provide the opportunity for CILCO and certain of its
electric and natural gas customers to participate in a competitive business
environment. Broadened consumer choice throughout Illinois and the nation will
expand CILCORP's business opportunities.
CILCO has experienced a reduction in electric profit margin because some
eligible customers are purchasing some or all of their power requirements from
other suppliers as a result of Power Quest. The amount of any such reduction
depends largely upon the extent of customer participation in the programs.
CILCO has offset some of the reduced profit margin by increased wholesale
electric sales outside its service territory. Also, CILCORP established QST in
December 1995 to compete with non-regulated marketers for customers in the pilot
areas. Its subsidiary, QST Energy, is currently serving over 90% of the Power
Quest customers who have chosen a supplier other than CILCO.
CILCORP has formed a strategic alliance with Caterpillar Inc. (Caterpillar), the
largest of the industrial customers eligible to participate in Power Quest.
Caterpillar will remain a full requirements customer of CILCO for the first year
of the Power Quest program, but in exchange CILCORP will provide additional
value-added service and innovative solutions to energy and environmental needs.
Costs associated with the Caterpillar alliance are reflected in Other Businesses
Operations.
One of CILCO's electric pilot programs permits eight of CILCO's largest
industrial customers that had peak loads of 10 megawatts or more 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. Industrial customers began receiving electricity under
this Power Quest program in May 1996. For the industrial pilot program, CILCO
could experience a reduction in pre-tax income of up to $5.2 million on an
annual basis if the entire 50 megawatts of eligible industrial capacity moved to
off-system suppliers. Based on participation levels by eligible industrial
customers during 1996, CILCORP experienced a reduction of $3.8 million of pre-
tax income (including costs associated with the Caterpillar alliance offset by
gross margins earned by QST). Assuming the same participation level for all of
1997, CILCORP would experience a reduction to pre-tax income, excluding costs
associated with the Caterpillar alliance, of $2.2 million.
In the other Power Quest electric program, CILCO designated six areas within its
service territory as Open Access Sites for up to five years. The sites include
the Central Illinois communities of Heyworth, Manito, Peoria Heights and
Williamsville; a large regional shopping center in Peoria; and a developing
commercial business site in Lincoln. During that period, approximately 5,500
customers located within these Open Access Sites 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. Customers in
all but the Peoria Heights Open Access Sites began receiving electricity from
suppliers other than CILCO in May 1996. If all eligible customers in Open
Access Sites participate in Power Quest, CILCO would experience a reduction in
pre-tax income of up to $1.2 million on an annual basis. Based upon
participation levels by eligible commercial and residential customers during
1996, CILCORP experienced a reduction of $.3 million of pre-tax income.
Assuming the same participation level for all of 1997, CILCORP would experience
a reduction to pre-tax income of $.4 million.
CILCO's gas residential pilot program is a five year program that allows
residential gas customers located in sites designated by CILCO to select their
natural gas supplier, with CILCO continuing to provide distribution and metering
services. CILCO selected the Central Illinois towns of Heyworth, Manito, and
Williamsville as the initial sites for the gas pilot program and later added the
city of Springfield, Illinois, subject to the limitation that no more than 8,000
residential customers from Springfield may participate in the program.
Participants in the gas retail pilot program began receiving natural gas from
other suppliers in October 1996. This program did not have a material adverse
impact on CILCO's 1996 financial position or results of operations nor does
management believe this program will have a material adverse impact on CILCO's
future financial position or results of operations.
CILCO'S EARLY RETIREMENT PROGRAMS
As part of a continuing effort to better position itself for competition in the
energy services industry (see Competition), in November 1996, CILCO offered
Voluntary Early Retirement Programs to eligible management and office and
technical employees and employees represented by the International Brotherhood
of Electrical Workers (IBEW). A total of 76 of the 210 eligible employees
retired, effective January 1, 1997. The 1996 programs resulted in an after-tax
charge to earnings of approximately $5.4 million. As a result of the 1996
programs, management expects to realize annual after-tax cost savings of
approximately $2.6 million beginning in 1997.
In 1995, CILCO offered similar Voluntary Early Retirement Programs to selected
employees. A total of 166 of the 257 eligible employees accepted the offer,
resulting in an after-tax charge of approximately $7.8 million in 1995. As a
result of the 1995 programs, CILCO realized approximately $3.4 million in annual
after-tax cost savings in 1996.
ENVIRONMENTAL MATTERS
CILCO's capital expenditures related to pollution control facilities are
estimated to be $5.8 million in 1997. The acid rain provisions of the Clean
Air Act Amendments of 1990 (Amendments) require additional sulfur dioxide
(SO2) and nitrogen oxide (NOx) emission reductions at CILCO's generating
facilities. CILCO's facilities are exempt from Phase I of the Amendments due
to previous emission reductions, but are subject to Phase II of the Amendments
which require additional emission reductions by the year 2000.
CILCO's final compliance strategy is being developed based upon regulations
issued under the Amendments. CILCO has not yet determined definitive
compliance costs. CILCO continues to monitor regulatory actions and develop
compliance strategies to minimize any financial impact. Under current
regulatory policies, CILCO can recover compliance costs associated with the
Amendments and other environmental regulations through rates charged to
customers. CILCO's present strategy includes use of an existing SO2 scrubber,
limited fuel switching and SO2 allowance purchases to meet Phase II SO2
emissions targets, and combustion control modifications to meet Phase II NOx
emissions targets. The U.S. Environmental Protection Agency (USEPA)
established SO2 emission allowance reserves for power plants in Phase II.
Allowances are transferable to third parties at market prices. CILCO
continues to weigh the costs of purchasing additional allowances against
alternative operating scenarios. Under this strategy, CILCO's generating
units will not require additional SO2 scrubbers. During 1997, CILCO expects
to spend $4.1 million for boiler retrofits and emissions monitoring equipment
related to the Amendments.
Neither CILCORP, CILCO, nor any of their affiliates has been identified as a
potentially responsible party under federal or state environmental laws
governing waste storage or disposal.
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. Remediation work at one of the four sites was
completed in 1991. A risk assessment/remedial alternatives study at a second
site was completed in 1996, taking into consideration new clean-up options
under current Illinois law. A remedial action plan for the second site is
expected to be determined during 1997, with remediation of the site expected
to begin in late 1997. CILCO has not determined the ultimate extent of its
liability for, or the ultimate cost of any remediation of, the remaining two
sites, pending further studies.
CILCO spent approximately $.4 million for former gas manufacturing plant site
monitoring, legal fees and feasibility studies in 1996. A $3.9 million
regulatory asset and a corresponding liability are recorded on the Balance
Sheets representing the minimum amount of future coal tar investigation and
remediation costs CILCO expects to incur. Coal tar remediation costs incurred
through December 1996 have been deferred on the Balance Sheets, net of amounts
recovered from customers (see Note 1).
Through December 31, 1996, CILCO has recovered approximately $4.5 million in
coal tar remediation costs from its customers through a gas rate rider approved
by the ICC. Currently, that rider allows recovery of coal tar remediation 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.
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
allowed 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.
For the year ended December 31, 1996, CILCO paid $1.6 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 currently recoverable from customers, management does not expect
gas pipeline supplier transition costs to materially impact CILCO's financial
position or results of operations. CILCO has recorded a regulatory asset and a
corresponding liability of $1.0 million on its Balance Sheets as of December
31, 1996 for these transition costs, all of which will be due within one year
(see Note 1).
ACCOUNTING PRONOUNCEMENTS
No accounting pronouncements issued and not yet effective by the Financial
Accounting Standards Board (FASB) and the American Institute of Certified
Public Accountants (AICPA) in 1996 will have a material effect on the
Company's financial position, results of operations or cash flows.
RESULTS OF OPERATIONS
CILCO ELECTRIC OPERATIONS
The following table summarizes electric operating revenue and expenses by
component.
<TABLE>
<CAPTION>
Components of Electric Operating Income 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Revenue:
Electric retail $307,579 $321,066 $304,903
Sales for resale 15,206 5,132 8,182
-------- -------- --------
Total revenue 322,785 326,198 313,085
-------- -------- --------
Cost of sales:
Cost of fuel 90,715 94,235 97,184
Purchased power expense 10,907 12,353 9,433
Revenue taxes 14,504 14,244 13,260
-------- -------- --------
Total cost of sales 116,126 120,832 119,877
-------- -------- --------
Gross margin 206,659 205,366 193,208
-------- -------- --------
Operating expenses:
Operation and maintenance
expenses 84,174 89,113 75,806
Depreciation and amortization 42,530 40,665 39,130
Income taxes 19,576 17,975 19,925
Other taxes 8,266 8,844 8,724
-------- -------- --------
Total operating expenses 154,546 156,597 143,585
-------- -------- --------
Electric operating income $ 52,113 $ 48,769 $ 49,623
======== ======== ========
</TABLE>
Electric gross margin increased 1% in 1996. A retail kilowatt hour (kwh)
sales decrease of 4% was offset by increased sales for resale. Residential
sales volumes decreased 4% while commercial sales volumes increased 2%. The
residential sales decreases were primarily due to cooler summer weather.
Cooling degree days were 26% lower in 1996 than in 1995. The commercial sales
increases were due to an increase in the number of commercial customers.
Industrial sales volumes decreased 9% compared to 1995. These decreases were
due to decreased demand by several large customers and to customers switching
to off-system suppliers under CILCO's Power Quest program (see Competition).
Electric gross margin increased 6% in 1995, primarily due to a 4% increase in
retail kilowatt hour sales. The increase in retail sales was partially offset
by a decrease in sales for resale revenue. Residential sales volumes
increased 7% while commercial sales volumes increased 5%. These increases
were primarily due to warmer summer weather. Cooling degree days were 11%
higher in 1995 than in 1994. Industrial sales volumes increased 1% compared
to 1994. CILCO set a new all-time system peak demand of 1,188 megawatts (MW)
on August 17, 1995.
Sales for resale increased 196% from 1995 to 1996. Sales for resale decreased
37% in 1995 compared to 1994. Sales for resale vary based on CILCO's
available capacity for bulk power sales, energy requirements of neighboring
utilities, the price of power available for sale and expanding electric
markets outside CILCO's service territory. In the future, CILCO expects
increased competition and reduced margins in the sales for resale and
purchased power markets.
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 and gross
margin may also be affected by increased competition in the electric utility
industry.
Despite greater electricity generation, cost of fuel decreased 4% in 1996
primarily due to lower coal and purchased power costs. Substantially all of
CILCO's electric generation capacity is coal-fired. The cost per ton of coal
burned, including transportation cost, decreased 14% in 1996 compared to
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, or when required to meet its power
requirements, such as during maintenance outages at CILCO plants. Costs and
savings realized from the purchase of power are passed on to CILCO's
customers via the fuel adjustment clause (FAC), which requires CILCO to pass
increases and decreases in the cost of fuel through to customers. CILCO
expects the wholesale power market to become increasingly competitive.
In April 1995, Freeman United Coal Mining Company (Freeman), a coal supplier
with whom CILCO has a long-term contract, notified CILCO of its intent to
change from the cash method of billing for postretirement benefits/costs
other than pensions to the accrual basis. Freeman has billed CILCO an
additional $5.8 million for postretirement benefit costs for the period from
January 1, 1993, through December 31, 1995. Under a settlement agreement
reached with Freeman, CILCO paid $2.6 million of these charges during 1996.
The remaining $3.2 million has been recorded as a liability on the Balance
Sheets and will be paid to Freeman during 1997. Also, under the agreement,
CILCO will receive credit for expenses already paid to Freeman under the cash
method of billing. These charges and credits from Freeman are being passed
to customers through the FAC. Since these charges and credits are being
passed to customers, management does not expect Freeman's change to the
accrual basis to have a material adverse impact on CILCO's financial position
or results of operations.
Electric operation and maintenance expenses decreased 6% in 1996 compared to
1995. The 1996 decreases were primarily due to lower wage expenses resulting
from the 1995 early retirement programs and the deferral of a maintenance
outage at the Duck Creek generating station until 1997. Typically, CILCO
schedules a maintenance outage at one of its generating units each year but
did not undertake such an outage in 1996. Pension expense also decreased in
1996 due to the lower cost of the 1996 early retirement program relative to
the 1995 program. The decreases were partially offset by increased outside
service expenses (see Competition), higher bad debt expense, and a one-time
write-down for disposal of obsolete materials and supplies inventories. The
1995 increases were primarily due to the 1995 early retirement programs,
power plant operation and maintenance expenses, and outside services, which
were partially offset by decreased costs accrued for certain benefits
provided to former or inactive employees.
The increases in depreciation and amortization expense in 1996 and 1995
reflect additions and replacements of utility plant at costs in excess of the
original cost of the property retired.
The changes in income taxes in 1996 and 1995 were primarily the result of
changes in pre-tax income.
CILCO GAS OPERATIONS
The following table summarizes gas operating revenue and expenses by
component.
<TABLE>
<CAPTION>
Components of Gas Operating Income 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Revenue:
Sale of gas $187,432 $142,619 $138,161
Transportation services 8,338 8,927 10,124
-------- -------- --------
Total revenue 195,770 151,546 148,285
-------- -------- --------
Cost of sales:
Cost of gas 108,286 68,948 78,696
Revenue taxes 7,500 6,623 7,190
-------- -------- --------
Total cost of sales 115,786 75,571 85,886
-------- -------- --------
Gross margin 79,984 75,975 62,399
-------- -------- --------
Operating expenses:
Operation and maintenance
expenses 35,160 36,443 33,511
Depreciation and
amortization 17,134 16,100 15,219
Income taxes 6,972 5,292 1,564
Other taxes 3,153 3,361 3,221
-------- -------- --------
Total operating
expenses 62,419 61,196 53,515
-------- -------- --------
Gas operating income $ 17,565 $ 14,779 $ 8,884
======== ======== ========
</TABLE>
Gas gross margin increased 5% in 1996 compared to 1995. Residential and
commercial sales volumes increased 7% and 21%, respectively, primarily due to
colder weather during the heating season. Heating degree days were 7% higher
in 1996 than in 1995. Commercial sales were also positively impacted by
commercial customers switching back to CILCO system supply from gas
transportation. A 1996 Illinois law which exempts certain customers from the
state gross receipts tax on natural gas has made it economical for some gas
transportation customers to resume purchasing gas from CILCO.
Gas gross margin increased 22% in 1995 compared to 1994. Gross margin was
positively affected by a December 1994, 6.7% increase in overall gas base
rates (see Note 10). Also, residential and commercial sales volumes increased
6% and 10%, respectively, primarily due to colder weather during the heating
season. Heating degree days were 9% higher in 1995 than in 1994.
The cost of gas increased 57% in 1996 and decreased 12% in 1995, primarily due
to changes in natural gas prices. These changes were passed through to
customers via the PGA. Gas operation and maintenance expenses decreased 4% in
1996 and increased 9% in 1995. The decrease for 1996 was primarily due to
lower wage expense resulting from the 1995 early retirement programs. Pension
expense also decreased due to the lower cost of the 1996 early retirement
program relative to the 1995 programs. The decreases were partially offset by
increased outside service expenses and higher bad debt expense. The increase
for 1995 was principally due to increased pension expenses resulting from the
1995 early retirement programs, increased outside services expenses and
increased injury and damage claims. Decreased gas regulatory commission
expenses partially offset the increases.
Revenue from gas transportation services decreased 7% in 1996 and 12% in 1995,
while the volume of gas transported decreased 4% in 1996 and 10% in 1995.
Transportation revenues for 1996 and 1995 declined primarily due to a
continuing decline in the number of commercial transportation customers.
There were 179 commercial and industrial transportation customers in 1996
compared to 391 customers in 1995 and 567 in 1994. The 795 residential
transportation customers added in 1996 as a result of the Power Quest gas
residential pilot program generated $87,000 of transportation revenue in 1996
(see Competition).
During 1996 and 1995, CILCO utilized NYMEX (New York Mercantile Exchange)
futures contracts to hedge CILCO-owned natural gas storage. For 1997, CILCO
expects hedging activity to remain at 1996 levels (see Note 12).
Weather conditions, the ability of customers to purchase gas on the open
market at competitive rates, the continuing trend toward more efficient gas
appliances and overall economic conditions in CILCO's service area will affect
future gas sales.
The increases in depreciation and amortization expenses in 1996 and 1995
reflect additions and replacements of utility plant at costs in excess of the
original cost of the property retired.
The changes in income taxes in 1996 and 1995 were primarily the result of
changes in taxable income.
CILCO OTHER INCOME AND DEDUCTIONS
Utility other income decreased in 1996 from 1995 primarily due to the sale in
December 1995 of two parcels of land at the former R.S. Wallace electric
generating plant site. Sales of additional parcels during 1996 partially
offset this decrease. In 1994, CILCO entered into an agreement to sell the
95-acre site for $7 million. The sale of the remaining parcels at the site
will close in 1998. Interest expense increased in 1996 from 1995 primarily
due to a full year of interest expense on $36 million of medium-term notes
issued during 1995, partially offset by interest on $16 million of long-term
notes retired in February 1996.
Utility other income increased in 1995 from 1994 primarily due to the
aforementioned sale of land at the former R.S. Wallace electric generating
plant site. The after-tax gain from the sale was $2.1 million. Interest
expense increased primarily due to the issuance of $36 million of secured
medium-term notes (see Note 8) and an increase in short-term debt during
1995.
In 1994, disallowed gas plant costs, net of related income taxes, resulting
from an ICC gas rate order, significantly increased CILCO's other deductions
(see Note 10). The civil fine and other costs CILCO agreed to pay as a
result of the U.S. Department of Justice and the U.S. Department of
Transportation investigations also contributed to the increase in other
deductions.
QST (Excluding ESE)
The following table summarizes the revenue and expenses for QST.
<TABLE>
<CAPTION>
Components of QST Net Loss 1996
(In thousands)
<S> <C>
Revenue:
Electric revenue $ 1,433
Gas revenue 13,270
Other revenue 132
-------
Total revenue 14,835
-------
Cost of sales:
Cost of electricity 1,308
Cost of gas 13,401
-------
Total cost of sales 14,709
-------
Gross margin 126
-------
Other expenses:
General and administrative 6,594
Depreciation and amortization 83
Interest 77
-------
Total other expenses 6,754
-------
Net loss before taxes (6,628)
Income taxes (2,630)
-------
QST net loss $(3,998)
=======
</TABLE>
QST Enterprises Inc. was formed in December 1995 to facilitate CILCORP's
expansion into non-regulated energy and related services businesses. QST's
initial focus has been to compete against energy suppliers who participate in
CILCO's Power Quest programs. QST will also compete against marketers to
provide energy and services to customers of utilities and other energy providers
which 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
energy supplier. QST provides a portfolio of non-regulated, energy-related
products and services.
QST Energy's wholly-owned subsidiary, QST Energy Trading Inc. (QST Trading), is
a wholesale natural gas and power marketer which purchases, sells and brokers
energy and capacity at market-based rates to other marketers, including QST
Energy, utilities and other customers. QST Energy and QST Trading currently have
offices in Peoria, Chicago and Houston. Additional offices may be opened as the
company continues to grow.
QST's net loss in 1996 was caused primarily by outside services and
administrative and general expenses, including QST salaries, which are not being
covered by revenues at this early stage of QST's development. Gas revenue in
1996 resulted primarily from wholesale sales of gas by QST Trading, while
electric revenues were from participation by QST in Power Quest and a pilot
program of another Illinois utility. Losses are expected to continue in 1997
but at a reduced level, as QST continues to develop its businesses. Revenues
are anticipated to increase as the company grows through participation in
additional pilot programs; retail sales of energy to other energy marketers,
commercial and industrial customers; and wholesale natural gas and power
marketing transactions.
ESE
The following table summarizes ESE's revenue and expenses.
<TABLE>
<CAPTION>
Components of ESE Net Income (Loss) 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Environmental and
engineering services
revenue $86,497 $127,530 $132,799
Direct non-labor project costs 29,185 50,245 52,896
-------- -------- --------
Net revenue 57,312 77,285 79,903
-------- -------- --------
Expenses:
Direct salaries and other costs 30,375 38,624 39,720
General & administrative 30,198 30,153 29,319
Depreciation and amortization 5,069 5,646 5,867
-------- -------- --------
Operating expenses 65,642 74,423 74,906
-------- -------- --------
Interest 1,236 1,902 1,915
-------- -------- --------
Income (loss) before income (9,566) 960 3,082
taxes
Income taxes (3,567) 847 1,258
-------- -------- --------
ESE net income (loss) $(5,999) $ 113 $1,824
======== ======== ========
</TABLE>
ESE incurs substantial direct non-labor project costs from the use of
subcontractors on projects. These costs are passed directly to ESE's
clients. As a result, a better measure of ESE's operating performance is net
revenue, which is determined by deducting such direct non-labor project costs
from gross revenues. Net revenue decreased by $20 million or 26% in 1996
compared to 1995 after decreasing by 3% in 1995 compared to 1994. The 1996
decrease was due to reduced levels of business caused by a variety of
factors, including industry overcapacity resulting from changes in the
regulatory climate at both the federal and state levels. The environmental
industry has been affected by the delayed reauthorizations of air, water and
toxic waste programs as both private clients and governmental agencies have
postponed environmental clean-up programs in response to regulatory
uncertainty. Furthermore, the delay in federal budget approvals for 1996
compounded the industry's condition. The continuing budget curtailment of
all federal agencies, including the USEPA, resulted in slowdowns and
significant delays in regulatory enforcement of existing programs.
These conditions have left the industry with excess capacity, resulting in
increased competitive pressures. ESE significantly reduced its workforce
during the past year from 1,099 employees at December 31, 1995 to 734
employees at December 31, 1996. ESE will continue to adjust its workforce to
meet business volume.
Direct salaries and other costs reflect the labor and associated benefits
costs of project and technical staff, excluding marketing time. Such costs
consist of salaries and related fringe benefits, including employer-paid
insurance, payroll taxes, vacations, sick leave, and retirement plan
contributions. General and administrative expenses include non-billable
employee time devoted to administration, marketing, proposals, supervision
and professional development; supplies expense; and corporate administrative
expenses.
Direct salaries and other costs decreased by $8 million or 21% in 1996, after
decreasing by 3% in 1995. The decreases reflect ESE's adjustment of its
staffing levels to respond to changing business conditions.
General and administrative expenses remained relatively constant in 1996
after increasing by 3% in 1995. ESE incurred significant losses on
operations closed during the year including the Denver laboratory, the
drilling operations, various consulting offices and as a result of the
general downsizing of many operations. During 1996, severance and out-
placement costs totaled $1.5 million, the write-off of assets totaled $1.5
million, fees for outside consulting and for technology marketing rights were
$.7 million and other similar charges totaled $.6 million.
Depreciation and amortization expense declined by 10% in 1996 and by 4% in
1995 primarily due to the full amortization in early 1995 of a non-compete
agreement associated with the acquisition of ESE and an increase in fully
depreciated assets. Amortization expense continues for the Cost in Excess of
Net Assets of Acquired Businesses, which is being amortized over 40 years.
Interest expense decreased by $.7 million or 35% in 1996 after remaining
relatively constant in 1995 due to reduced borrowings from ESE's line of
credit.
In September 1996 ESE sold Ordnance/Explosives Environmental Services, Inc.
(OES), one of its wholly-owned subsidiaries. OES completed a major contract
in 1996, but was unsuccessful in winning sufficient contracts to maintain its
profitability. The sale of OES resulted in an immaterial loss.
In 1997, management will continue to evaluate ESE's role in QST's and
CILCORP's business strategy. ESE's future business activity and
profitability will continue to be impacted by the level of demand for its
services, which is affected by government funding levels, the enforcement of
various federal and state statutes and regulations dealing with the
environment and the use, control, disposal, and clean-up of hazardous wastes.
The market for ESE's services is highly competitive; however, no single
entity currently dominates the environmental and engineering consulting
services marketplace. ESE also expects to provide certain technical services
in support of QST's energy-related business strategy.
OTHER BUSINESSES
The following table summarizes Other Businesses revenue and expenses. Other
Businesses results include income earned and expenses incurred at the Holding
Company, CIM, CVI and non-operating interest income of CILCO.
<TABLE>
<CAPTION>
Components of Other Businesses
Net Income (Loss) 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Revenue:
Leveraged lease revenue $5,933 $ 6,224 $ 6,907
Other revenue 2,572 3,242 4,063
------ ------- -------
Total revenue 8,505 9,466 10,970
------ ------- -------
Expenses:
Operating expenses 11,657 5,064 5,527
Depreciation and
amortization 198 203 214
Interest expense 3,411 4,227 3,624
Income and other taxes (3,076) 308 123
------ ------- -------
Total expenses 12,190 9,802 9,488
------ ------- -------
Other businesses net income
(loss) $(3,685) $ (336) $ 1,482
======= ======= =======
</TABLE>
Leveraged lease revenues declined by 5% in 1996. Under generally accepted
accounting principles pertaining to leveraged leases, revenues decline as the
lease portfolio matures. During 1997 and future years, CIM expects leveraged
lease revenues to decrease, absent any investment in new leases.
Other revenues decreased in 1996 due to a $1.3 million pre-tax loss resulting
from a write-down of CIM Energy Investments Inc.'s (CEII) investment in the
Energy Investors Fund, L.P. CEII, a subsidiary of CIM, holds a 3% limited
partnership interest in this fund, which invests in non-regulated, non-utility
facilities for the production of electricity or thermal energy. CIM's total
investment in this fund was $5 million. Increased revenue from CILCORP Energy
Services Inc. (CESI), a subsidiary of CVI, from the start and expansion of
several business programs in 1996 partially offset this loss. These business
programs include the sale of carbon monoxide sensors to utilities other than
CILCO for resale to their customers and the sale of outdoor lighting to
commercial businesses.
Operating expenses increased in 1996 primarily due to higher professional
service fees related to corporate repositioning activities at the Holding
Company and expenses related to the Caterpillar alliance (see Competition).
Also contributing to the increase were higher operating expenses related to
the leveraged lease investment portfolio in 1996 compared to 1995.
Interest expense decreased in 1996 due to lower average debt balances.
Income and other taxes decreased in 1996 primarily due to lower pre-tax
earnings.
<PAGE>
Management's Report
To the Stockholders of CILCORP Inc.:
Management has prepared the accompanying financial statements and notes for
CILCORP Inc. and its consolidated subsidiaries in accordance with generally
accepted accounting principles. Estimates and judgments used in developing
these statements are the responsibility of management. Financial data presented
throughout this report is consistent with these statements.
CILCORP Inc. maintains a system of internal accounting controls which management
believes is adequate to provide reasonable assurance as to the integrity of
accounting records and the protection of assets. Such controls include
established policies and procedures, a program of internal audit and the careful
selection and training of qualified personnel.
The financial statements have been audited by CILCORP's independent public
accountants, Arthur Andersen LLP. Their audit was conducted in accordance with
generally accepted auditing standards and included an assessment of selected
internal accounting controls only to determine the scope of their audit
procedures. The report of the independent public accountants is contained in
this annual report.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, meets periodically with the independent public accountants, internal
auditors and management to review accounting, auditing, internal accounting
control, and financial reporting matters. The independent public accountants
have direct access to the Audit Committee. The Audit Committee meets separately
with the independent public accountants.
R. O. Viets
President and Chief Executive Officer
T. D. Hutchinson
Controller
Report of Independent Public Accountants
To the Stockholders of CILCORP Inc.:
We have audited the accompanying consolidated balance sheets of CILCORP Inc. (an
Illinois corporation) and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, cash flows, stockholders' equity and
segments of business for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CILCORP Inc. and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
January 27, 1997
<PAGE>
<TABLE>
Consolidated Statements of Income
CILCORP Inc. and Subsidiaries
<CAPTION>
For the Years Ended December 31 1996 1995 1994
(In thousands except per share amounts)
<S> <C> <C> <C>
Revenue:
Electric $322,785 $326,198 $313,085
Gas 195,770 151,546 148,285
Non-Regulated Energy and Energy
Services 14,835 -- --
Environmental and Engineering
Services 86,497 127,530 132,799
Other Businesses 8,505 9,466 10,970
-------- -------- --------
Total 628,392 614,740 605,139
-------- -------- --------
Operating Expenses:
Fuel for Generation and
Purchased Power 102,930 106,588 106,617
Gas Purchased for Resale 121,687 68,948 78,696
Other Operations and Maintenance 225,475 243,043 234,323
Disallowed Plant Cost of
Regulated Subsidiary -- -- 7,522
Depreciation and Amortization 65,726 63,326 61,143
State and Local Revenue Taxes 22,004 20,866 20,485
Other Taxes 15,277 16,844 16,640
-------- -------- --------
Total 553,099 519,615 525,426
-------- -------- --------
Fixed Charges and Other:
Interest Expense 29,068 29,861 26,341
Preferred Stock Dividends
of Subsidiary 3,188 3,299 2,980
Allowance for Funds Used During
Construction (90) (514) (1,040)
Other 679 623 666
-------- -------- --------
Total 32,845 33,269 28,947
-------- -------- --------
Income Before Income Taxes 42,448 61,856 50,766
Income Taxes 14,505 23,274 18,180
-------- -------- --------
Net Income Available for
Common Stockholders $ 27,943 $ 38,582 $ 32,586
======== ======== ========
Average Common Shares
Outstanding 13,480 13,147 13,026
======== ======== ========
Net Income Per Common Share $2.07 $2.93 $2.50
======== ======== ========
Dividends Per Common Share $2.46 $2.46 $2.46
======== ======== ========
<FN>
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
CILCORP Inc. and Subsidiaries
<CAPTION>
Assets (As of December 31) 1996 1995
(In thousands)
<S> <C> <C>
Current Assets:
Cash and Temporary Cash Investments $ 4,941 $ 17,100
Receivables, Less Reserves of $2,600 and $2,223 78,309 68,479
Accrued Unbilled Revenue 39,851 42,842
Fuel, at Average Cost 7,643 11,596
Materials and Supplies, at Average Cost 15,126 16,963
Gas in Underground Storage, at Average Cost 24,723 13,592
Prepayments and Other 11,614 14,921
---------- ----------
Total Current Assets 182,207 185,493
---------- ----------
Investments and Other Property:
Investment in Leveraged Leases 133,030 127,141
Other Investments 21,807 7,316
---------- ----------
Total Investments and Other Property 154,837 134,457
---------- ----------
Property, Plant and Equipment:
Utility Plant, at Original Cost
Electric 1,186,110 1,142,945
Gas 393,246 379,985
---------- ----------
1,579,356 1,522,930
Less - Accumulated Provision for Depreciation 724,398 682,574
---------- ----------
854,958 840,356
Construction Work in Progress 15,092 44,749
Other, Net of Depreciation 21,554 25,416
---------- ----------
Total Property, Plant and Equipment 891,604 910,521
---------- ----------
Other Assets:
Cost in Excess of Net Assets of Acquired Businesses,
Net of Accumulated Amortization of $4,997 and $4,293 23,141 23,845
Other 33,904 24,987
---------- ----------
Total Other Assets 57,045 48,832
---------- ----------
Total Assets $1,285,693 $1,279,303
========== ==========
<FN>
The accompanying Notes to Financial Statements are an integral part of these balance
sheets.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
CILCORP Inc. and Subsidiaries
<CAPTION>
Liabilities and Stockholders' Equity (As of December 31)
1996 1995
(In thousands)
<S> <C> <C>
Current Liabilities:
Current Portion of Long-Term Debt $ 23,057 $ 19,052
Notes Payable 27,900 47,100
Accounts Payable 63,434 44,550
Accrued Taxes 8,801 5,035
Accrued Interest 10,711 10,059
Purchased Gas Adjustment Over-Recoveries 601 1,987
Other 22,867 15,259
---------- ----------
Total Current Liabilities 157,371 143,042
---------- ----------
Long-Term Debt 320,666 344,113
---------- ----------
Deferred Credits and Other Liabilities:
Deferred Income Taxes 235,239 241,603
Regulatory Liability of Regulated Subsidiary 68,565 62,714
Deferred Investment Tax Credit 22,801 24,485
Other 46,726 35,248
---------- ----------
Total Deferred Credits 373,331 364,050
---------- ----------
Preferred Stock of Subsidiary 66,120 66,120
---------- ----------
Stockholders' Equity: (See Statements on page 35)
Common Stock, no par value; Authorized
50,000,000 shares - Outstanding 13,610,680 and
13,335,606 shares 190,760 179,330
Retained Earnings 177,445 182,648
---------- ----------
Total Stockholders' Equity 368,205 361,978
---------- ----------
Total Liabilities and Stockholders' Equity $1,285,693 $1,279,303
========== ==========
<FN>
The accompanying Notes to Financial Statements are an integral part of these balance
sheets.
</TABLE>
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Operating Information For the Years Ended December 31
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Regulated Utility Segment:
Electric Operations
Revenue $322,785 $326,198 $313,085
Expenses 270,672 277,429 263,462
-------- -------- --------
Operating Income 52,113 48,769 49,623
Income Taxes 19,576 17,975 19,925
-------- -------- --------
Operating Income Before
Income Taxes $ 71,689 $ 66,744 $ 69,548
======== ======== ========
Depreciation and Amortization $ 42,530 $ 40,665 $ 39,130
======== ======== ========
Capital Expenditures $ 28,032 $ 45,466 $ 66,537
======== ======== ========
Gas Operations
Revenue $195,770 $151,546 $148,285
Expenses 178,205 136,767 139,401
-------- -------- --------
Operating Income 17,565 14,779 8,884
Income Taxes 6,972 5,292 1,564
-------- -------- --------
Operating Income Before
Income Taxes $ 24,537 $ 20,071 $ 10,448
======== ======== ========
Depreciation and Amortization
$ 17,134 $ 16,100 $ 15,219
======== ======== ========
Capital Expenditures $ 15,529 $ 24,043 $ 24,867
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Major Customer For the Years Ended December 31
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Caterpillar Inc.
Electric Revenue $37,724 11.7% $40,109 12.3% $41,422 13.2%
Gas Revenue 1,053 .5% 1,022 .7% 1,719 1.2%
------- ----- ------- ---- ------- ----
Total $38,777 7.5% $41,131 8.6% $43,141 9.4%
======= ===== ======= ==== ======= ====
</TABLE>
<TABLE>
<CAPTION>
Regulated Utility Identifiable Assets as of December 31
1996 1995 1994
<S> <C> <C> <C>
Electric $ 721,468 $ 735,463 $ 718,431
Gas 292,925 273,428 260,070
Other Utility Assets* 20,593 46,354 38,505
---------- ---------- ----------
Total Utility Assets $1,034,986 $1,055,245 $1,017,006
========== ========== ==========
<FN>
*Other investments, miscellaneous accounts receivable, prepaid assets,
deferred pension costs, and unamortized debt, discount, and expense
The accompanying Notes to Financial Statements are an integral part of
these statements.
</TABLE>
<PAGE>
<TABLE>
Non-Regulated Energy and Energy Services Segment
For the Year Ended December 31 1996
(In thousands)
<S> <C>
Revenue $ 14,835
Expenses 21,463
--------
Loss Before Income Taxes $ (6,628)
========
Capital Expenditures $ 2,447
========
</TABLE>
<TABLE>
Non-Regulated Energy and Energy Services Identifiable
Assets as of December 31 1996
(In thousands)
<S> <C>
Accounts Receivable and Unbilled Revenue $ 11,991
Cash and Temporary Cash Investments 470
Property, Plant and Equipment 2,385
Other Assets 444
--------
Total Non-Regulated Energy and Energy Services Assets $ 15,290
========
</TABLE>
<TABLE>
Environmental and Engineering Services Segment
<CAPTION>
For the Years Ended December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Revenue $ 86,497 $127,530 $132,799
Operating Expenses 94,827 124,668 127,802
-------- -------- --------
Operating Income (Loss) Before
Income Taxes $ (8,330) $ 2,862 $ 4,997
======== ======== ========
Depreciation and Amortization $ 5,069 $ 5,646 $ 5,867
======== ======== ========
Capital Expenditures $ 593 $ 4,537 $ 4,358
======== ======== ========
</TABLE>
<TABLE>
Environmental and Engineering Services
<CAPTION>
Identifiable Assets as of December 31 1996 1995 1994
<S> <C> <C> <C>
Property, Plant and Equipment $16,494 $21,961 $22,254
Cost in Excess of Net Assets of
Acquired Businesses, Net of
Amortization 23,141 23,845 24,548
Accounts Receivable and Unbilled
Revenue 28,825 37,238 42,199
Cash and Temporary Cash
Investments 2,130 -- --
Other Assets* 8,612 4,908 4,463
------- ------- -------
Total Environmental and
Engineering Services Assets $79,202 $87,952 $93,464
======= ======= =======
<FN>
*Real estate held for resale and other current assets
</TABLE>
<TABLE>
Other Businesses Segment
<CAPTION>
For the Years Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Revenue $ 8,505 $ 9,466 $10,970
Expenses 15,266 9,494 9,365
------- ------- -------
Income (Loss) Before
Income Taxes $(6,761) $ (28) $ 1,605
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Other Businesses Identifiable
Assets as of December 31 1996 1995 1994
<S> <C> <C> <C>
Leveraged Leases $133,030 $127,140 $120,961
Cash and Temporary Cash
Investments 680 544 1,179
Other Assets 22,505 8,422 5,774
-------- -------- --------
Total Other Businesses Assets $156,215 $136,106 $127,914
======== ======== ========
<FN>
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
CILCORP Inc. and Subsidiaries
<CAPTION>
For the Years Ended December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income Before Preferred Dividends $ 31,131 $ 41,881 $ 35,566
-------- -------- --------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Non-Cash Lease & Investment Income (4,297) (6,224) (7,121)
Depreciation and Amortization 65,726 63,326 61,143
Disallowed Plant Cost of Regulated
Subsidiary -- -- 7,522
Deferred Income Taxes, Investment
Tax Credit and Regulatory
Liability of Subsidiary, Net (2,197) (4,188) 5,745
Changes in Operating Assets and
Liabilities:
(Increase) Decrease in Accounts
Receivable and Accrued Unbilled
Revenue (6,839) (15,068) 276
(Increase) Decrease in Inventories (5,341) 6,829 565
Increase (Decrease) in Accounts
Payable 18,884 (7,402) 4,284
(Increase) Decrease in Real Estate
Held for Resale (4,576) (60) (2,351)
(Increase) Decrease in Other Assets (1,038) 9,419 (2,158)
Increase in Other Liabilities 10,923 2,276 6,885
-------- -------- --------
Total Adjustments 71,245 48,908 74,790
-------- -------- --------
Net Cash Provided by Operating
Activities 102,376 90,789 110,356
-------- -------- --------
Cash Flows from Investing Activities:
Additions to Plant (46,741) (74,046) (95,762)
Purchase of Long-Term Investments (4,713) (1,617) (11)
Proceeds from Sale of Long-Term
Investments -- 500 4,667
Other 461 (8,836) (6,559)
-------- -------- --------
Net Cash (Used in) Investing
Activities (50,993) (83,999) (97,665)
-------- -------- --------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Short-Term
Debt (19,200) 17,700 (1,800)
Proceeds from Issuance of Long-Term
Debt -- 36,473 22,000
Repayment of Long-Term Debt (19,442) (21,203) --
Common Dividends Paid (33,142) (32,308) (32,063)
Preferred Dividends Paid (3,188) (3,299) (2,980)
Common Stock Issued 11,430 11,343 2,325
Preferred and Common Stock Issuance
Costs -- -- (9)
-------- -------- --------
Net Cash Provided by (Used in)
Financing Activities (63,542) 8,706 (12,527)
-------- -------- --------
Net Increase (Decrease) in Cash and
Temporary Cash Investments (12,159) 15,496 164
Cash and Temporary Cash Investments
at Beginning of Year 17,100 1,604 1,440
-------- -------- --------
Cash and Temporary Cash Investments
at End of Year $ 4,941 $ 17,100 $ 1,604
======== ======== ========
<FN>
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
CILCORP Inc. and Subsidiaries
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
(In thousands except share amounts)
<S> <C> <C> <C> <C>
Balance at December 31, 1993 12,971,501 $165,662 $176,214 $341,876
Common Stock Issued 64,255 2,325 2,325
Cash Dividend Declared on
Common Stock ($2.46 per
share) (32,063) (32,063)
Preferred and Common Stock
Issuance Costs (9) (9)
Net Income 32,586 32,586
---------- -------- -------- --------
Balance at December 31, 1994 13,035,756 $167,987 $176,728 $344,715
Common Stock Issued 299,850 11,343 11,343
Cash Dividend Declared on
Common Stock ($2.46 per
share) (32,308) (32,308)
Additional Minimum Liability of
Non-Qualified Pension Plan at
December 31, 1995, net of
$233 taxes (354) (354)
Net Income 38,582 38,582
---------- -------- -------- --------
Balance at December 31, 1995 13,335,606 $179,330 $182,648 $361,978
---------- -------- -------- --------
Common Stock Issued 275,074 11,430 11,430
Cash Dividend Declared on
Common Stock ($2.46 per
share) (33,142) (33,142)
Additional Minimum Liability of
Non-Qualified Pension Plan at
December 31, 1996, net of
$3 taxes (4) (4)
Net Income 27,943 27,943
---------- -------- -------- --------
Balance at December 31, 1996 13,610,680 $190,760 $177,445 $368,205
========== ======== ======== ========
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CILCORP Inc.
(CILCORP or the Holding Company), Central Illinois Light Company (CILCO), QST
Enterprises Inc. (QST), Environmental Science & Engineering, Inc. (ESE) and
CILCORP's other subsidiaries (collectively, the Company) after elimination of
significant intercompany transactions. Formerly a CILCORP first-tier
subsidiary, ESE became a subsidiary of QST effective October 29, 1996. Prior
year amounts have been reclassified on a basis consistent with the 1996
presentation.
CILCORP is an investor-owned public utility holding company. CILCO, the
Company's principal business subsidiary, is engaged in the generation,
transmission, distribution and sale of electric energy in an area of
approximately 3,700 square miles in central and east-central Illinois, and
the purchase, distribution, transportation and sale of natural gas in an
area of approximately 4,500 square miles in central and east-central
Illinois. QST has three first-tier subsidiaries. QST Energy Inc. provides
energy and energy-related services to a broad spectrum of retail and
wholesale customers. QST Communications Inc. provides fiber optic and
advanced Internet-based communication services and products. ESE provides
engineering and environmental consulting, analysis and laboratory services
and acquires and remediates environmentally impaired property for resale.
Other CILCORP first-tier subsidiaries are CIM, which manages the Company's
investment portfolio and CVI, which pursues investment opportunities in new
ventures.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REGULATION
CILCO is a public utility subject to regulation by the Illinois Commerce
Commission and the Federal Energy Regulatory Commission with respect to
accounting matters, and maintains its accounts in accordance with the
Uniform System of Accounts prescribed by these agencies.
As a regulated public utility, CILCO is subject to the provisions of
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" (SFAS 71). Regulatory increases
and decreases, respectively, of assets and liabilities represent probable
future increases and decreases, respectively, of revenues to CILCO
resulting from the ratemaking action of regulatory agencies. Regulatory
liabilities, consisting of deferred tax items, are approximately
$68.6 million and $62.7 million at December 31, 1996 and 1995, respectively
(see Note 2). At December 31, 1996 and 1995, the regulatory assets
included on the Consolidated Balance Sheets were as follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Included in prepayments and other:
Fuel and gas cost adjustments $ 9,658 $ 5,444
Coal tar remediation cost - estimated
current 1,071 1,500
Gas transition costs 1,022 2,268
------- -------
Current costs included in
prepayments and other 11,751 9,212
------- -------
Included in other assets:
Coal tar remediation cost, net of
recoveries 2,839 4,222
Regulatory tax asset 4,777 3,232
Gas transition costs -- 1,656
Deferred gas costs 4,330 3,207
Unamortized loss on reacquired debt 5,572 6,029
------- -------
Future costs included in other assets 17,518 18,346
------- -------
Total regulatory assets $29,269 $27,558
======= =======
</TABLE>
If a portion of CILCO's operations is no longer subject to the provisions of
SFAS 71, a write-off of related regulatory assets and liabilities would be
required, unless some form of transition cost recovery continues through
rates established and collected for CILCO's remaining regulated operations.
In addition, CILCO would be required to determine any impairment to the costs
recorded for deregulated plant and inventory assets.
OPERATING REVENUES, FUEL COSTS AND COST OF GAS
Electric, gas, and non-regulated energy and energy services revenues include
service provided but unbilled at year end. Substantially all electric rates
and gas system sales rates of CILCO include a fuel adjustment clause and a
purchased gas adjustment clause, respectively. These clauses provide for the
recovery of changes in electric fuel costs, excluding coal transportation, and
changes in the cost of gas on a current basis in billings to customers. CILCO
adjusts the cost of fuel and cost of gas to recognize over or under recoveries
of allowable costs. The cumulative effects are deferred on the Balance Sheets
as a current asset or current liability (see Regulation, above) and adjusted
by refunds or collections through future billings to customers.
CONCENTRATION OF CREDIT RISK
CILCO, as a public utility, must provide service to customers within its
defined service territory and may not discontinue service to residential
customers when certain weather conditions exist. CILCO continually reviews
customers' creditworthiness and requests deposits or refunds deposits based on
that review. At December 31, 1996, CILCO had net receivables of
$43.6 million, of which approximately $9.2 million was due from its major
industrial customers.
See Note 6 for a discussion of receivables related to CILCORP Investment
Management Inc.'s leveraged lease portfolio.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of Cash and Temporary Cash Investments, Other Investments,
Preferred Stock with Mandatory Redemption and Notes Payable approximates fair
value. The estimated fair value of the Company's Long-Term Debt, including
current maturities, was $365 million at December 31, 1996, and $399 million at
December 31, 1995, based on current market interest rates for other companies
with comparable credit ratings, capital structures, and size.
ENVIRONMENTAL AND ENGINEERING SERVICES REVENUES
ESE performs professional environmental and engineering consulting and
analytical laboratory services under time and material, cost-plus and fixed-
price contracts. These service revenues include amounts for services provided
but unbilled at year end. Revenues from time and material and cost-plus
contracts are recognized as costs are incurred. Revenues from fixed-price
contracts are recognized under the percentage-of-completion method.
DEPRECIATION AND MAINTENANCE
Provisions for depreciation of utility property for financial reporting
purposes are based on straight-line composite rates. The annual provisions
for utility plant depreciation, expressed as a percentage of average
depreciable utility property, were 3.8% and 4.6% for electric and gas,
respectively, for each of the last three years. Utility maintenance and
repair costs are charged directly to expense. Renewals of units of property
are charged to the utility plant account, and the original cost of depreciable
property replaced or retired, together with the removal cost less salvage, is
charged to the accumulated provision for depreciation.
Non-utility property is depreciated over estimated lives ranging from 5 to 40
years.
COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES
Cost in Excess of Net Assets of Acquired Businesses is being amortized using
the straight-line method over 40 years. The amortization is related to the
acquisition of ESE and is a component of depreciation and amortization expense
on the Consolidated Statements of Income.
INCOME TAXES
The Company follows a policy of comprehensive interperiod income tax
allocation. Investment tax credits related to utility property have been
deferred and are being amortized over the estimated useful lives of the
related property. CILCORP and its subsidiaries file a consolidated federal
income tax return. Income taxes are allocated to the individual companies
based on their respective taxable income or loss.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company considers all highly liquid debt instruments purchased with a
remaining maturity of three months or less to be cash equivalents for purposes
of the Consolidated Statements of Cash Flows.
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Interest $28,988 $27,615 $27,663
Income taxes 13,572 32,673 13,103
------- ------- -------
</TABLE>
COMPANY-OWNED LIFE INSURANCE POLICIES
The following amounts related to Company-owned life insurance contracts,
issued by one major insurance company, are included in Other Investments:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Cash surrender value of contracts $40,076 $35,135
Borrowings against contracts (37,948) (33,211)
------- -------
Net investment $ 2,128 $ 1,924
======= =======
</TABLE>
Interest expense related to borrowings against Company-owned life insurance,
included in "Other" on the Consolidated Statements of Income, was
$2.7 million, $2.3 million and $2 million for 1996, 1995 and 1994,
respectively.
NOTE 2 - INCOME TAXES
The Company uses the liability method to account for income taxes. Under the
liability method, deferred income taxes are recognized at currently enacted
income tax rates to reflect the tax effect of temporary differences between
the financial reporting basis and the tax basis of assets and liabilities.
Temporary differences occur because the income tax law either requires or
permits certain items to be reported on the Company's income tax return in a
different year than they are reported in the financial statements. CILCO has
recorded a regulatory asset and liability to account for the effect of
expected future regulatory actions related to unamortized investment tax
credits, income tax liabilities initially recorded at tax rates in excess of
current rates, the equity component of Allowance for Funds Used during
Construction and other items for which deferred taxes had not previously been
provided. The temporary differences related to the consolidated deferred
income tax asset and liability at December 31, 1996, 1995, and 1994 were as
follows:
<TABLE>
<CAPTION>
December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Regulatory tax liabilities $68,565 $62,714 $61,742
Other 16,452 15,171 11,560
-------- -------- --------
$85,017 $77,885 $73,302
-------- -------- --------
<FN>
</TABLE>
<TABLE>
<CAPTION>
December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Deferred tax liabilities:
Property, including
allowance for funds used
during construction $214,356 $217,049 $216,304
Leveraged leases 97,964 93,566 88,308
Regulatory tax assets 4,777 3,232 1,745
Other 3,159 5,641 13,760
-------- -------- --------
$320,256 $319,488 $320,117
-------- -------- --------
Net accumulated deferred income
tax liability $ 235,239 $ 241,603 $246,815
======== ======== ========
<FN>
The following table reconciles the change in the accumulated deferred income
tax liability to the deferred income tax expense included in the income
statement:
</TABLE>
<TABLE>
<CAPTION>
December 31 1996 1995
(In thousands)
<S> <C> <C>
Net change in deferred income
tax liability per above
table $(6,364) $(5,212)
Change in tax effects of income
tax related regulatory assets
and liabilities 4,306 (515)
Equity adjustment relating to
early retirement program 3 233
Other 946 117
-------- --------
Deferred income tax benefit
for the period $(1,109) $(5,377)
======== ========
<FN>
Income tax expenses were as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Current income taxes
Federal $ 15,129 $25,024 $11,825
State 2,169 5,320 2,238
------- ------- -------
Total current taxes 17,298 30,344 14,063
------- ------- -------
Deferred income taxes, net
Property-related deferred
income taxes (2,346) 516 (1,094)
Leveraged leases 4,398 6,341 8,179
Unbilled revenue 425 (2,982) 222
Gas take-or-pay settlements (706) (751) (1,244)
Environmental remediation
costs (642) 642 253
Pension expenses (1,726) (6,673) (145)
Customer advances (40) (1,467) (143)
Other (472) (1,003) (218)
-------- ------- -------
Total deferred income
taxes, net (1,109) (5,377) 5,810
-------- ------- -------
Investment tax credit
amortization (1,684) (1,693) (1,693)
-------- ------- -------
Total income tax
provisions $14,505 $23,274 $18,180
======== ======= =======
<FN>
Total deferred income taxes, net, includes deferred state income taxes of
$538,000, $(67,000) and $1,801,000 for 1996, 1995 and 1994, respectively.
</TABLE>
The following table represents a reconciliation of the effective tax rate with
the statutory federal income tax rate.
<TABLE>
<CAPTION> Years Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Statutory federal income tax 35.0% 35.0% 35.0%
----- ----- -----
Equity component of AFUDC not subject to
taxation -- (.1) (.4)
Depreciation differences for which
deferred taxes have not been provided (3.4) (2.0) (1.6)
Amortization of investment tax credit (4.0) (2.7) (3.3)
State income taxes 4.8 5.9 5.3
Excess of book over tax basis of assets .6 .4 .5
Preferred dividends of subsidiary and
other permanent differences 1.9 1.1 2.3
Tax provision adjustment (.4) .5 (1.3)
Civil fine -- -- .7
Other differences (.3) (.5) (1.4)
----- ----- ----
Total (.8) 2.6 .8
----- ----- ----
Effective income tax rate 34.2% 37.6% 35.8%
===== ==== ====
</TABLE>
NOTE 3 - POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE
CILCO has recorded a liability of approximately $1.4 million and $.9 million at
December 31, 1996 and 1995, respectively, for benefits other than pensions or
health care provided to former or inactive employees.
PENSION BENEFITS
Substantially all of CILCO's full-time employees, including those assigned to
the Holding Company, are covered by trusteed, non-contributory defined benefit
pension plans. Benefits under these qualified plans reflect the employee's
years of service, age at retirement and maximum total compensation for any
consecutive sixty-month period prior to retirement. CILCO also has an unfunded
nonqualified plan for certain employees.
Pension costs for the past three years were charged as follows:
<TABLE>
<CAPTION> 1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Operating expenses $ 9,700 $15,528 $2,637
Utility plant and other 922 994 1,017
------- ------ ------
Net pension costs $10,622 $16,522 $3,654
======= ====== ======
</TABLE>
Provisions for pension expense reflect the use of the projected unit credit
actuarial cost method. At December 31, 1996 and 1995, CILCO recognized an
additional minimum liability on the Balance Sheets for the plan in which the
accumulated benefit obligation exceeds the fair value of plan assets.
The components of net periodic pension costs follows:
<TABLE>
<CAPTION> 1996 1995
(In thousands)
<S> <C> <C>
Cost of pension benefits earned by employees $ 4,998 $ 4,654
Interest cost on projected benefit obligation 16,666 15,188
Actual return on plan assets (34,173) (50,816)
Net amortization and deferral 15,213 34,437
Special termination benefits 7,918 13,059
-------- --------
Net pension costs $10,622 $ 16,522
======= ========
</TABLE>
During 1996 and 1995, CILCO recognized $7.9 million and $13.1 million,
respectively, of net pension costs in accordance with Statement of Financial
Accounting Standards No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits".
These amounts represented the costs associated with additional benefits extended
in connection with voluntary early retirement programs.
Information on the funded status of plans in which assets exceed accumulated
benefits follows:
<TABLE>
<CAPTION>
Actuarial present value of benefit 1996 1995
obligation: (In thousands)
<S> <C> <C>
Vested benefits - employees' rights to receive
benefits no longer contingent upon continued
employment $(191,301) $(171,422)
Non-vested benefits - employees' rights to
receive benefits contingent upon continued
employment (11,293) (15,266)
-------- --------
Accumulated benefit obligation (202,594) (186,688)
Provisions for future pay increases (30,224) (47,058)
-------- --------
Projected benefit obligation (232,818) (233,746)
Pension assets at fair market value 254,824 232,560
-------- --------
Projected benefit obligation (greater) less
than plan assets 22,006 (1,186)
Unrecognized transition asset (5,787) (6,675)
Unrecognized prior service cost 8,006 9,034
Unrecognized net gain (33,488) (3,338)
------- --------
Pension liability recorded on Balance Sheets $ (9,263) $ (2,165)
======= ========
</TABLE>
Information on the funded status of the plan in which accumulated benefits
exceed assets follows:
<TABLE>
<CAPTION>
Actuarial present value of benefit 1996 1995
obligation: (In thousands)
<S> <C> <C>
Vested benefits - employees' rights to receive
benefits no longer contingent upon continued
employment $(1,938) $(1,792)
Non-vested benefits - employees' rights to
receive benefits contingent upon continued
employment (169) (132)
------ ------
Accumulated benefit obligation (2,107) (1,924)
Provision for future pay increases (515) (765)
------ ------
Projected benefit obligation (2,622) (2,689)
Pension assets at fair market value -- --
------- -------
Projected benefit obligation greater than plan
assets (2,622) (2,689)
Unrecognized prior service cost 495 536
Unrecognized net loss 1,111 1,352
Additional minimum liability (1,091) (1,123)
------- -------
Pension liability recorded on Balance Sheets $(2,107) $(1,924)
======= =======
</TABLE>
<TABLE>
<CAPTION>
Significant assumptions used for calculations: 1996 1995
<S> <C> <C>
Discount rate 7.75% 7.25%
Expected rate of salary increase 4.50% 4.50%
Expected long-term rate of return 8.50% 8.50%
</TABLE>
POSTRETIREMENT HEALTH CARE BENEFITS
Provisions for postretirement benefits expenses are determined under the
accrual method of accounting.
Substantially all of CILCO's full-time employees, including those assigned to
the Holding Company, are currently covered by a trusteed, non-contributory
defined benefit postretirement health care plan. The plan pays stated
percentages of most necessary medical expenses incurred by retirees, after
subtracting payments by Medicare or other providers and after a stated
deductible has been met. Participants become eligible for the benefits if
they retire from CILCO after reaching age 55 with 10 or more years of service.
ESE and QST do not provide health care benefits to retired employees.
Postretirement health care benefit costs were charged as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Operating expenses $5,096 $5,108 $5,253
Utility plant and other 1,883 1,882 1,913
------ ------ ------
Net postretirement health care
benefit costs $6,979 $6,990 $7,166
====== ====== ======
</TABLE>
Information on the plans' funded status follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Components of net postretirement health care
benefit costs:
Service cost - benefits attributed
to service during the period $ 1,429 $ 1,302
Actual return on plan assets (4,290) (5,936)
Interest cost on accumulated
postretirement health care
benefit obligation 4,545 4,795
Amortization of transition
obligation over 18.6 years 2,858 2,858
Other net amortization and
deferral 1,441 3,971
Special termination benefits 996 --
------- -------
Net postretirement health care
benefit costs $ 6,979 $ 6,990
======= =======
Actuarial present value of
accumulated postretirement health
care benefit obligation:
Retirees $(41,287) $(36,646)
Other fully eligible participants (3,904) (12,668)
Other active participants (18,079) (22,003)
------- -------
Accumulated postretirement health
care benefit obligation (63,270) (71,317)
Plan assets at fair value 39,601 33,157
------- -------
Accumulated health care benefit
obligation greater than plan
assets (23,669) (38,160)
Unrecognized actuarial gain (13,447) (814)
Unrecognized transition obligation 36,013 38,871
------- -------
Postretirement health care benefit
liability recorded on Balance
Sheets $(1,103) $ (103)
======= =======
</TABLE>
For measurement purposes, the annual health care cost trend rate averaged 7.2%
for 1996; the rate was assumed to decrease gradually to 5.7% by 2025 and
remain at that level thereafter.
Increasing the assumed health care cost trend rate by 1% in each year would
increase the accumulated postretirement benefit obligation at
December 31, 1996, by $2.4 million and the aggregate of the service and
interest cost components of net postretirement health care cost for 1996 by
$211,000. The discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 1996, was 7.75% and at
December 31, 1995, was 7.25%. The weighted average expected return on assets
net of taxes was 8.1%, where taxes are assumed to decrease return by 0.4%.
NOTE 4 - CILCORP SHAREHOLDER RETURN INCENTIVE COMPENSATION PLAN
Under the Company's Shareholder Return Incentive Compensation Plan, adopted
February 23, 1993, eligible key employees are entitled to receive shares of
the Company's common stock at the end of a performance measurement period
established by the Compensation Committee of the Company's Board of Directors
to the extent that the Company achieves pre-established financial objectives
set by the Committee for such period. Currently, the performance period is
five years and shares are distributed based on comparisons of the Company's
total shareholder return with a peer group of pre-selected utilities.
The year-end closing price was used to value the shares outstanding at the
end of the year.
The following table is a summary of the status of the Company's Shareholder
Return Plan as of December 31, 1996, 1995, and 1994, and changes during the
years ending on those dates:
<TABLE> 1996 1995 1994
<CAPTION> Market Market Market
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Performance Shares
Outstanding at beginning of
year 26,000 $42 3/8 9,000 $32 1/8 9,000 $37 1/2
Distributed -- -- 20,000 32 1/8 -- --
Exercised -- -- -- -- -- --
Forfeited (3,333) 36 5/8 (3,000) 42 3/8 -- --
------ ------ -----
Outstanding at end of year 22,667 36 5/8 26,000 42 3/8 9,000 32 1/8
====== ====== =====
Shares distributable at
year-end -- -- --
Weighted-average fair value
of shares granted during
the year -- $32 1/8 --
</TABLE>
NOTE 5 - SHORT-TERM DEBT
Short-term debt at December 31, 1996, consisted of $18 million of Holding
Company bank borrowings and $9.9 million of CILCO commercial paper. Short-
term debt at December 31, 1995, included $22.5 million of Holding Company
bank borrowings and $24.6 million of CILCO commercial paper.
The Holding Company had arrangements for bank lines of credit totaling
$50 million at December 31, 1996, of which $18 million was used. These lines
were maintained by commitment fees of 1/8 of 1% per annum in lieu of
balances. The Company also had a $5 million discretionary bank line at the
end of 1996, which was unused.
CILCO had arrangements for bank lines of credit totaling $20 million at
December 31, 1996, all of which were unused. These lines of credit were
maintained by commitment fees of 1/20 of 1% per annum in lieu of balances.
These bank lines of credit support CILCO's issuance of commercial paper.
At December 31, 1996, ESE had a $10 million bank line of credit, of which $4.4
million was committed at year end to collateralize performance bonds issued in
connection with ESE projects.
NOTE 6 - LEVERAGED LEASE INVESTMENTS
The Company, through subsidiaries of CILCORP Investment Management Inc. (CIM),
is a lessor in seven leveraged lease arrangements under which mining
equipment, electric production facilities, warehouses, office buildings,
passenger railway equipment and an aircraft are leased to third parties. The
economic lives and lease terms vary with the leases. CIM's share of total
equipment and facilities cost was approximately $305 million at December 31,
1996 and 1995.
The cost of the equipment and facilities owned by CIM is partially financed by
non-recourse debt provided by lenders, who have been granted, as their sole
remedy in the event of a lessee default, an assignment of rents due under the
leases and a security interest in the leased property. Such debt amounted to
$208 million at December 31, 1996, and $216 million at December 31, 1995.
Leveraged lease residual value assumptions, which are conservative in relation
to independently appraised residual values of the lease portfolio, are tested
on a periodic basis. CIM's net investment in leveraged leases at December 31,
1996 and 1995 is shown below:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Minimum lease payments receivable $122,669 $122,713
Estimated residual value 94,368 94,368
Less: Unearned income 84,007 89,940
-------- --------
Investment in lease financing
receivables 133,030 127,141
Less: Deferred taxes arising from
leveraged leases 97,964 93,566
-------- --------
Net investment in leveraged leases $ 35,066 $ 33,575
======== ========
</TABLE>
NOTE 7 - PREFERRED STOCK
PREFERRED STOCK OF SUBSIDIARY
<TABLE>
<CAPTION>
At December 31 1996 1995
(In thousands)
<S> <C> <C>
Preferred stock, cumulative
$100 par value, authorized 1,500,000 shares
Without mandatory redemption
4.50% series - 111,264 shares $11,126 $11,126
4.64% series - 79,940 shares 7,994 7,994
Class A, no par value, authorized
3,500,000 shares
Flexible auction rate - 250,000
shares (a) 25,000 25,000
With mandatory redemption
5.85% series - 220,000 shares 22,000 22,000
------- -------
Total preferred stock $66,120 $66,120
======= =======
<FN>
(a) Dividend rates at December 31, 1996 and 1995, were 3.936% and 4.40%,
respectively.
</TABLE>
All classes of preferred stock are entitled to receive cumulative dividends and
rank equally as to dividends and assets, according to their respective terms.
The total annual dividend requirement for preferred stock outstanding at
December 31, 1996, is $3.1 million, assuming a continuation of the auction
dividend rate at December 31, 1996, for the flexible auction rate series.
PREFERRED STOCK WITHOUT MANDATORY REDEMPTION
The call provisions of preferred stock redeemable at CILCO's option
outstanding at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Series Callable Price Per Share (plus accrued dividends)
<S> <C>
4.50% $110
4.64% $102
Flexible Auction Rate $100
</TABLE>
PREFERRED STOCK WITH MANDATORY REDEMPTION
CILCO's 5.85% Class A preferred stock may be redeemed in 2003 at $100 per share.
A mandatory redemption fund must be established on July 1, 2003. The fund will
provide for the redemption of 11,000 shares for $1.1 million on July 1 of each
year through July 1, 2007. On July 1, 2008, the remaining 165,000 shares
will be retired for $16.5 million.
PREFERENCE STOCK OF SUBSIDIARY, CUMULATIVE
No Par Value, Authorized 2,000,000 shares, of which none have been issued.
PREFERRED STOCK OF HOLDING COMPANY
No Par Value, Authorized 4,000,000 shares, of which none were outstanding
at December 31, 1996 and 1995.
COMMON STOCK RIGHTS
On October 29, 1996, the Board of Directors of CILCORP authorized and declared a
dividend distribution of one right for each share of common stock of the Company
to stockholders of record at November 12, 1996, and for each share of common
stock issued thereafter. Each right gives the stockholder the right to
purchase one one-hundredth of a share of preferred stock of the Company for
$100, subject to the conditions set forth in the agreement governing the
rights plan.
NOTE 8 - LONG-TERM DEBT
<TABLE>
<CAPTION>
At December 31 1996 1995
(In thousands)
<S> <C> <C>
CILCO first mortgage bonds
5 1/2% series due 1997 $ -- $20,000
7 1/2% series due 2007 50,000 50,000
8 1/5% series due 2022 65,000 65,000
Medium-term notes
5.7% series due 1998 10,650 10,650
6.4% series due 2000 30,000 30,000
6.82% series due 2003 25,350 25,350
6.13% series due 2005 16,000 16,000
7.8% series due 2023 10,000 10,000
7.73% series due 2025 20,000 20,000
Pollution control refunding bonds
6.5% series F due 2010 5,000 5,000
6.2% series G due 2012 1,000 1,000
6.5% series E due 2018 14,200 14,200
5.9% series H due 2023 32,000 32,000
-------- --------
279,200 299,200
Unamortized premium and discount on
long-term debt, net (761) (803)
-------- --------
Total CILCO $278,439 $298,397
-------- --------
CILCORP Lease Management Inc. Unsecured
financial institution borrowings;
interest rate of 9.55%; matures in
1997 -- 3,000
CILCORP Inc.
Unsecured medium-term notes; varying in term from
2 years to 6 years; interest rates ranging from 8.33%
to 9.10% 42,000 42,000
Other 227 716
-------- --------
Total long-term debt $320,666 $344,113
======== ========
</TABLE>
CILCO's first mortgage bonds are secured by a lien on substantially all of
its property and franchises. Unamortized borrowing expense, premium and
discount on outstanding long-term debt are being amortized over the lives of
the respective issues.
Total consolidated maturities of long-term debt for 1998-2001 are $22 million,
$13 million, $30 million and $18 million, respectively.
The 1997 and 1996 maturities of long-term borrowings have been classified as
current liabilities.
NOTE 9 - COMMITMENTS & CONTINGENCIES
CILCO's 1997 capital expenditures are estimated to be $53.2 million, in
connection with which CILCO has normal and customary purchase commitments at
December 31, 1996.
CILCO, ESE and QST act as self-insurers for certain insurable risks resulting
from employee health and life insurance programs.
QST, through ESE Land, expects to spend $8.3 million in 1997 to acquire land
for remediation and resale ($5 million of which it expects to finance with
non-recourse debt). Additional capital expenditures for 1997 are estimated
to be $10.6 million for QST Energy, $3.3 million for QST Com, and
$1.4 million for ESE, in connection with which QST has normal and customary
purchase commitments at December 31, 1996.
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 from CIPS of 80 megawatts (MW) of
capacity through May 1997, then increasing to 90 MW until the contract
expires in 1998.
In March 1995, CILCO and CIPS renegotiated a limited-term power agreement
reached in November 1992. This agreement, which now expires in May 2009,
provides for CILCO to purchase up to 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 was granted on May 8, 1996.
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations, Environmental Matters (regarding former
gas manufacturing sites) for a discussion of that item.
NOTE 10 - RATE MATTERS
In December 1994, the ICC issued a rate order designed to grant CILCO a $10.6
million, or 6.7% annual increase in gas base rate revenues. The new rates,
designed to yield an 11.82% return on common equity and a 9.24% return on
rate base, were effective in December 1994.
In mid-1992, after a significant number of leaks were detected in CILCO's
Springfield cast iron gas distribution system, CILCO began a detailed
examination of its Springfield gas distribution system and related operating
practices and procedures. CILCO thereafter began an aggressive program to
renew its Springfield gas cast iron main system. This project was completed
in November 1995.
As a part of the 1994 rate order, the ICC disallowed approximately $7.5
million of CILCO's $24 million investment in the Springfield cast iron main
renewal project. To reflect the disallowance, CILCO recorded a pre-tax
charge of approximately $7.5 million ($4.5 million after tax) against 1994
earnings.
In September 1994, CILCO entered into a federal court civil consent decree
with the US Department of Justice (DOJ) which concluded investigations by the
DOJ and US Department of Transportation (DOT) of CILCO's Springfield gas
operations. As a part of the settlement with the DOJ, CILCO accepted
adjustments recommended by the ICC staff which resulted in a net disallowance
from CILCO's gas rate base of approximately $4.5 million of the cost of the
Springfield cast iron main renewal project. This charge is part of the $7.5
million disallowance included in the December 1994 rate order. In addition
to the rate base disallowance, CILCO agreed to pay an $844,000 civil fine to
the United States and agreed to reimburse the ICC, the DOT and the DOJ
$156,000 for the costs of their investigations. CILCO also agreed to
underwrite the reasonable expense of an outside expert, selected by the ICC,
to examine CILCO's gas operations manuals and systems to ensure they are in
compliance with all applicable statutes and regulations. The audit was
completed in October 1995 at a total cost of $356,000.
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations, Competition and Environmental Matters
for a discussion of other gas and electric rate matters.
NOTE 11 - LEASES
The Company and its subsidiaries lease certain equipment, buildings and other
facilities under capital and operating leases. Several of the operating
leases provide that the Company pay taxes, maintenance and other occupancy
costs applicable to these premises.
Minimum future rental payments under non-cancellable capital and operating
leases having remaining terms in excess of one year as of December 31, 1996,
are $26.8 million in total. Payments due during the years ending December 31,
1997, through December 31, 2001, are $7.8 million, $6.9 million, $5.4 million,
$3.4 million and $2.5 million, respectively.
NOTE 12 - DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS
During 1996 and 1995, CILCO utilized NYMEX (New York Mercantile Exchange)
futures contracts to hedge approximately 19% and 3%, respectively, of owned
natural gas storage. The purpose of the pilot program is to provide a higher
level of natural gas price stability for CILCO's natural gas customers and
reduce the cost of natural gas injected into CILCO owned storage fields. The
program includes investments in derivatives such as futures, options and swap
agreements. CILCO does not trade these financial instruments and accounts for
them as hedges under SFAS No. 80, "Accounting for Futures Contracts." Any
gains or losses from these financial instruments are reflected as adjustments
to Gas in Underground Storage on the balance sheets. As natural gas is
withdrawn from storage, gains or losses are passed to customers through the
purchased gas adjustment clause, which is included in Gas Purchased for Resale
on the income statement.
NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following quarterly operating results are unaudited, but, in the opinion
of management, include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the Company's operating results
for the periods indicated. The results of operations for each of the fiscal
quarters are not necessarily comparable to, or indicative of, the results of
an entire year due to the seasonal nature of the Company's business and other
factors.
<TABLE>
<CAPTION>
For the Three Months Ended March 31 June 30 September 30 December 31
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
1996
Revenue $177,986 $129,708 $138,562 $182,136
Income before income taxes 16,984 3,767 20,031 1,666
Net income 10,394 2,527 12,472 2,550
Earnings per average
common share $ .78 $ .19 $ .92 $ .18
1995
Revenue $170,587 $132,490 $157,574 $154,089
Income before income taxes 18,833 8,890 32,031 2,102
Net income 11,473 5,677 19,435 1,997
Earnings per average
common share $.88 $.43 $1.47 $.15
</TABLE>
[DESCRIPTION] Graph Data attached to EXHIBIT 13
Information related to the nine graphs included in the CILCORP Inc. Annual
Report in Management's Discussion and Analysis and Financial Statements follows.
A bar graph titled "Fixed Charge Coverage (Scale: # of Times)" depicting the
following information appears in the left hand column on Page 16 of
Management's Discussion and Analysis.
1992 2.4
1993 2.4
1994 2.6
1995 2.7
1996 2.1
A bar graph titled "Utility Plant Expenditures (Scale: $ Millions)" depicting
the following information appears in the right hand column on page 17 of
Management's Discussion and Analysis.
1992 62
1993 73
1994 91
1995 70
1996 44
A bar graph titled "Electric Sales (Scale: Millions of kilowatt-hours)"
depicting the following information appears in the left hand column on page 22
of Management's Discussion and Analysis. Each bar consists of four sections
which build on one another.
1996 1995 1994 1993 1992
BAR 1 RESIDENTIAL 1,713 1,783 1,672 1,664 1,508
BAR 2 COMMERCIAL 1,564 1,537 1,470 1,396 1,327
CUMULATIVE 3,277 3,320 3,142 3,060 2,835
BAR 3 INDUSTRIAL 2,123 2,325 2,303 2,238 2,120
CUMULATIVE 5,400 5,645 5,445 5,298 4,955
BAR 4 OTHER 772 270 390 234 457
CUMULATIVE 6,172 5,915 5,835 5,532 5,412
A bar graph titled "Cooling Degree Days Per Year Compared to Normal" depicting
the following information appears in the left hand column on page 22 of
Management's Discussion and Analysis. A horizontal bar depicting normal
cooling days is shown at approximately 1,059 days.
1992 811.5
1993 1,056.0
1994 1,104.0
1995 1,222.0
1996 909.0
A bar graph titled "Gas Sales (Scale: Millions of mcf)" depicting the following
information appears in the left hand column on page 24 of Management's
Discussion and Analysis. Each bar consists of three sections which build on
one another.
1996 1995 1994 1993 1992
BAR 1 RESIDENTIAL 21,547 20,080 18,929 20,263 18,427
BAR 2 COMMERCIAL 8,948 7,374 6,686 6,748 6,205
CUMULATIVE 30,495 27,454 25,615 27,011 24,632
BAR 3 INDUSTRIAL 1,659 1,242 1,186 756 960
CUMULATIVE 32,154 28,696 26,801 27,767 25,592
A bar graph titled "Heating Degree Days Per Year Compared to Normal" depicting
the following information appears in the left hand column on page 24 of
Management's Discussion and Analysis. A horizontal bar depicting normal
heating degree days is shown at approximately 5,930 days.
1992 5,320.0
1993 5,882.0
1994 5,443.5
1995 5,920.5
1996 6,321.0
Two pie charts titled "Consolidated Assets by Segment" as percentage of the
whole by year are printed on page 30 below the Asset portion of the Balance
Sheets.
1996 1996 1995 1995
Electric 734,004 57.1% 763,275 59.9%
Gas 300,982 23.4% 291,970 22.6%
Non-Regulated Energy &
Energy Services 15,290 1.2% -- --
Environmental and
Engineering Services 79,202 6.2% 87,952 6.9%
Other 156,215 12.1% 136,106 10.6%
Total 1,285,693 100.0% 1,279,303 100.0%
Two pie charts titled "Consolidated Capitalization Including Short-Term Debt"
as percentages of the whole by year are printed on page 31 below the Liability
portion of the Balance Sheets.
1996 1996 1995 1995
S-T Debt 50,957 6% 66,152 8%
L-T Debt 320,666 40% 344,113 41%
Preferred Stock 66,120 8% 66,120 8%
Common Stock 368,205 46% 361,978 43%
Total 805,948 100% 838,363 100%
Three pie charts titled "Consolidated Revenue by Component" as percentages of
the whole by year is printed on page 32 below the Statements of Segments of
Business.
1996 1996 1995 1995 1994 1994
Electric 322,785 51% 326,198 53% 313,085 52%
Gas 195,770 31% 151,546 24% 148,285 24%
Non-Regulated Energy &
Energy Services 14,835 2% -- -- -- --
Environmental and
Engineering Services 86,497 14% 127,530 21% 132,799 22%
Other 8,505 2% 9,466 2% 10,970 2%
Total 628,392 100% 614,740 100% 605,139 100%
CILCORP Inc.
Shareholder Return Incentive Compensation Plan
February 1993
Amended effective January 28, 1997
TABLE OF CONTENTS
Article 1. Establishment and Purpose . . . . . . . . . . . . .1
1.1 Establishment of the Plan . . . . . . .1
1.2 Purposes. . . . . . . . . . . . . . . .1
Article 2. Definitions . . . . . . . . . . . . . . . . . . . .1
Article 3. Administration. . . . . . . . . . . . . . . . . . .4
3.1 The Committee . . . . . . . . . . . . .4
3.2 Authority of the Committee. . . . . . .4
3.3 Decisions Binding . . . . . . . . . . .4
Article 4. Shares Subject to the Plan. . . . . . . . . . . . .5
4.1 Number of Shares. . . . . . . . . . . .5
4.2 Lapsed Shares . . . . . . . . . . . . .5
4.3 Adjustments in Shares . . . . . . . . .5
Article 5. Eligibility and Participation . . . . . . . . . . .5
5.1 Eligibility . . . . . . . . . . . . . .5
5.2 Actual Participation. . . . . . . . . .5
5.3 Timing of Participation . . . . . . . .6
Article 6. Grants of Shares. . . . . . . . . . . . . . . . . .6
6.1 Grant Timing and Frequency. . . . . . .6
6.2 Number of Shares Granted. . . . . . . .6
6.3 Performance Measures and Performance Periods . . . . 6
6.4 Earning of Shares. . . . . . . . . . . 7
6.5 Share Ledger Account. . . . . . . . . .7
6.6 Award Agreements. . . . . . . . . . . .7
6.7 Form and Timing of Payment of Shares . 7
6.8 Restrictions on Sales . . . . . . . . .7
Article 7. Termination of Employment . . . . . . . . . . . . .8
7.1 Termination of Employment Due to Death, Disability
or Retirement . . . . . . . . . . . . . . . . . .8
7.2 Termination for Reasons Other Than Death,
Disability or Retirement. . . . . . . . . . . . .8
Article 8. Change in Control . . . . . . . . . . . . . . . . .8
Article 9. Beneficiary Designation . . . . . . . . . . . . . .9
9.1 Designation of Beneficiary. . . . . . .9
9.2 Death of Beneficiary. . . . . . . . . .9
Article 10. Rights of Participants . . . . . . . . . . . . . .9
10.1 Employment. . . . . . . . . . . . . . .9
10.2 Participation . . . . . . . . . . . . .9
10.3 Nontransferability. . . . . . . . . . .9
10.4 Voting and Dividend Rights. . . . . . .9
10.5 Rights to Common Stock. . . . . . . . 10
Article 11. Amendment, Modification and Termination. . . . . . 10
11.1 Amendment, Modification and Termination . . . . . .10
11.2 Awards Previously Granted . . . . . . . . . . . . .10
Article 12. Miscellaneous Provisions . . .. . . . . . . . . . 10
12.1 Costs of the Plan . . . . . . . . . 10
12.2 Share Withholding . . . . . . . . . . 10
12.3 Tax Withholding . . . . . . . . . . . 11
12.4 Successors. . . . . . . . . . . . . . 11
12.5 Notice. . . . . . . . . . . . . . . . 11
12.6 Severability. . . . . . . . . . . . . 11
12.7 Gender and Number . . . . . . . . . . 11
12.8 Requirements of Law . . . . . . . . .12
12.9 Governing Law . . . . . . . . . . . . 12
CILCORP Inc. Shareholder Return Incentive Compensation Plan
Article 1. Establishment and Purpose
1.1 Establishment of the Plan.
The Company hereby establishes an incentive compensation plan to
be known as the "CILCORP Inc. Shareholder Return Incentive
Compensation Plan" (the "Plan"), as set forth in this document.
The Plan shall become effective as of February 23, 1993, the date
of its adoption by the Board of Directors of the Company, subject
to approval by the Company's shareholders. The Plan shall remain
in effect until the tenth anniversary of its effective date,
unless terminated earlier by the Committee, with the Board's
approval.
1.2 Purposes.
The purposes of the Plan are to promote the achievement of long-term
corporate objectives by tying executives' long-term incentive compensation
opportunities to preestablished financial goals; to attract and retain
executives of outstanding competence, and to encourage teamwork among them;
and to reward performance based on the successful achievement of the
preestablished corporate objectives.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
(a) "Award Agreement" means an agreement setting forth the
terms and provisions applicable to each grant of
Shares.
(b) "Board" means the Board of Directors of the Company.
(c) "Change in Control" means the occurrence of any of the
following:
(1) the sale or transfer of the business of CILCO or
a Unit of CILCO to a person or entity not controlled,
directly or indirectly, by the Company, whether such
sale of the business of CILCO or a Unit of CILCO, as the
case may be, is effected through the (a) sale, directly
or indirectly, of the voting stock of CILCO, (b) merger
or consolidation of CILCO, (c) sale, lease, exchange or
transfer of all or substantially all of the assets of
CILCO or of a Unit of CILCO or (d) a combination of the
foregoing;
(2) a merger or consolidation of the Company with
one or more corporations, as a result of which the
Company is not the surviving corporation or pursuant to
which substantially all shares of the Company's common
stock are converted into cash, securities or other
property;
(3) the acquisition of beneficial ownership
(determined in accordance with Rule 13d-3 of the
Exchange Act), directly or indirectly, of more than 30
percent of the voting power of the outstanding stock of
the Company by any Person coupled with or followed by
the failure of Continuing Directors to constitute a
majority of the Board; or
(4) the sale, lease, exchange or transfer of all or
substantially all the assets of the Company;
provided, however, that the term "Change in Control"
shall not apply to any merger, consolidation, internal
reorganization, or recapitalization of the Company
initiated voluntarily by the Company in which Continuing
Directors constitute a majority of the members of the
Board or any successor thereto and the holders of common
stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving
corporation after the merger.
However, in no event shall a Change in Control be deemed
to have occurred, with respect to a Participant, if that
Participant is part of a purchasing group which
consummates the Change-in-Control transaction. A
Participant shall be deemed "part of a purchasing group"
for purposes of the preceding sentence if the
Participant is an equity participant or has agreed to
become an equity participant in the purchasing company
or group (except for: (i) passive ownership of less than
3% of the shares of voting securities of the purchasing
company, or (ii) ownership of equity participation in
the purchasing company or group which is otherwise not
deemed to be significant, as determined prior to the
Change in Control by a majority of the disinterested
Directors).
(d) "CILCO" means Central Illinois Light Company, an
Illinois corporation, and any successor thereto.
(e) "Committee" shall mean the Compensation Committee of the
Board, or any other committee appointed by the Board to
administer the Plan, pursuant to the terms of Article 3 herein.
(f) "Continuing Director" means any member of the Board,
while such person is a member of the Board, who was a
member of the Board prior to the date of adoption of
this Plan. A "Continuing Director" also means any person who
subsequently becomes a member of the Board, while such
person is a member of the Board, if such person's
nomination for election or election to the Board is
recommended or approved by resolution of a majority of the
Continuing Directors.
(g) "Company" means CILCORP Inc., an Illinois corporation,
and any successor thereto.
(h) "Director" means an individual who is a member of the
Board.
(i) "Disability" means a permanent and total disability
within the meaning of Internal Revenue Code
Section 22(e)(3), or any successor statute, as determined by
the Committee in good faith, upon receipt of and in
reliance on sufficient competent medical advice from one
or more individuals, selected by the Committee, who are qualified to
give professional medical advice.
(j) "Effective Date" means the date this Plan becomes
effective, as set forth in Section 1.1 herein.
(k) "Employee" means any full-time, nonunion employee of the
Company or any Subsidiary. Directors who are not otherwise
employed by the Company or a Subsidiary shall not be
considered Employees under this Plan.
(l) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor act
thereto.
(m) "Insider" shall mean an Employee who is, on the relevant
date, an officer, a director, or a ten percent beneficial
owner of the Company, as defined under Section 16 of the Exchange Act.
(n) "Key Employee" means an Employee who, by the nature and
scope of his position, is determined by the Committee in
its discretion to be "key" in that he regularly and directly
makes or influences policy decisions which impact the overall long-term
results or success of the Company.
(o) "Participant" means an Employee who has received a grant
of Shares under the Plan.
(p) "Performance Measure" shall mean one or more financial
objectives selected by the Committee prior to the beginning
of each Performance Period, the degree of achievement of
which shall determine the number of Shares earned by
Participants under the Plan.
(q) "Performance Period" means the period designated by the
Committee, during which the degree of achievement of the
Performance Measures shall determine the number of
Shares earned by Participants under the Plan.
(r) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in
Sections 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act.
(s) "Retirement" means termination of employment with the
Company or any Subsidiary after attaining age 62.
(t) "Subsidiary" shall mean any corporation in which the
Company owns directly or indirectly through its
Subsidiaries, at least fifty percent (50%) of the total
combined voting power of all classes of stock, or any
other entity (including, but not limited to,
partnerships and joint ventures) in which the Company owns
at least fifty percent (50%) of the combined equity
thereof.
(u) "Share" means a measure of participation under the Plan,
as set forth in Article 6 herein.
(v) "Unit of CILCO" means an operating group of CILCO as may
be so designated from time to time on the official
organization chart maintained by CILCO.<PAGE>
Article 3. Administration
3.1 The Committee.
The Plan shall be administered by the Compensation Committee of
the Board, or by any other committee appointed by the Board
consisting of not less than two (2) Directors who are Non-Employee Directors
(within the meaning of Rule 16b-3). The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of,
the Board.
3.2 Authority of the Committee.
Subject to the provisions herein and to the approval of the
Board, the Committee shall have full power to select employees to
whom Shares are granted; to determine the size and frequency of
grants (which need not be the same for each Participant); to
determine the terms and conditions of each grant in a manner
consistent with the provisions of the Plan; to establish
Performance Measures and Performance Periods; to set forth
guidelines governing the number of Shares which will be earned by
Participants with respect to various levels of achievement of the
Performance Measures during the Performance Period; subject to
the terms of Section 4.3 herein, to revise the number of Shares
available for grant under the Plan and the number of Shares held
by Participants; subject to the provisions of Section 6.3 herein,
to revise the Performance Measures during a Performance Period to
the extent necessary to preserve the integrity of the Performance
Measures, and to the extent necessary to prevent enlargement or
dilution of Participants' rights; to construe and interpret the
Plan and any agreement or instrument entered into under the Plan;
to establish, amend, rescind, or waive rules and regulations for
the Plan's administration; and, subject to the provisions of
Article 11 herein, to amend, modify, and/or terminate the Plan.
Further, the Committee shall have the full power to make all
other determinations which may be necessary or advisable for the
administration of the Plan, to the extent consistent with the
provisions of the Plan, and subject to the approval of the Board.
As permitted by law, the Committee may delegate its authority as
identified hereunder; provided, however, that the Committee may
not delegate certain of its responsibilities hereunder if such
delegation may jeopardize compliance with Rule 16b-3 of the
Exchange Act.
3.3 Decisions Binding.
All determinations and decisions made by the Committee pursuant
to the provisions of the Plan, and all related orders or
resolutions of the Board shall be final, conclusive, and binding
on all persons, including the Company, its stockholders,
Employees, Participants, and their estates, and beneficiaries.
Article 4. Shares Subject to the Plan
4.1 Number of Shares.
Subject to adjustment as provided in Section 4.3 herein, the
total number of Shares available for grant under the Plan may not
exceed one hundred twenty-five thousand (125,000).
While a Share is outstanding, it shall be counted against the
authorized pool of Shares, regardless of its vested status.
4.2 Lapsed Shares.
If any Share granted under the Plan is canceled, terminates,
expires, or lapses for any reason, such Share shall again be
available for grant under the Plan.
However, in the event that prior to the Share's cancellation,
termination, expiration, or lapse, the holder of the Share at any
time received one or more "benefits of ownership" pursuant to
such Share (as defined by the Securities and Exchange Commission,
pursuant to any rule or interpretation promulgated under
Section 16 of the Exchange Act), the Share shall not be made
available for regrant under the Plan.
4.3 Adjustments in Shares.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, split-up, or any other change
affecting the common stock of the Company, the Committee may make
such adjustment(s) in the number of Shares available for grant
hereunder and Shares held by Participants, as the Committee deems
to be appropriate and equitable, in its sole discretion.
Article 5. Eligibility and Participation
5.1 Eligibility.
Eligibility for participation in the Plan shall be limited to Key
Employees.
5.2 Actual Participation.
Subject to the provisions of the Plan, prior to the beginning of
each Performance Period the Committee will identify which, if
any, Key Employees shall receive a grant of Shares for that
Performance Period.
As soon as practicable following selection, a Participant shall
execute an Award Agreement with the Company, as provided in
Section 6.7 herein, which shall describe the Shares, and which
shall detail the number of Shares granted, as well as all of the
terms and conditions to which the Shares are subject.
5.3 Timing of Participation.
Participation in the Plan shall begin on the first day of each
Performance Period. However, the Committee, in its sole
discretion, may allow an individual who becomes eligible during a
Performance Period to participate in the Plan. In such cases, the
Participant's degree of participation for such Performance Period
normally shall be prorated, based on the number of days of
participation during such Performance Period. A Participant who
receives a grant of Shares as part of the initial grant of Shares
for the first Performance Period shall be deemed to have begun
participating in the Plan on the first day of the first
Performance Period.
Article 6. Grants of Shares
6.1 Grant Timing and Frequency.
Subject to the terms and provisions of the Plan, Shares may be
granted to Participants as of the first day of each Performance
Period. In addition, subject to the terms of Section 5.3 herein,
the Committee may make Share grants during a Performance Period.
Shares granted as part of the initial grant of Shares for the
first Performance Period shall be deemed to be granted as of the
first day of the first Performance Period. The Committee shall
have complete discretion in determining the number and frequency
of grants to each Participant.
6.2 Number of Shares Granted.
The number of Shares to be granted to each Participant shall be
determined by the Committee in its sole discretion, subject to
the limitation on aggregate Shares available under the Plan, as
set forth in Section 4.1 herein.
6.3 Performance Measures and Performance Periods.
The Committee shall set Performance Measures in its discretion
which, depending on the extent to which they are met, will
determine the number of Shares that will be available to be
earned by the Participants. Subject to the last sentence of this
paragraph, the Committee shall establish Performance Periods in
its discretion during which the degree of achievement of the
Performance Measures shall determine the number of Shares earned
by Participants. Performance Periods shall, in all cases, exceed
six (6) months in length. The first Performance Period shall be
the five-year period beginning January 1, 1993 and ending
December 31, 1997.
The Committee also shall have the right to adjust the
determination of the degree of achievement of the Performance
Measures during and/or at the end of any Performance Period, to
keep Participants whole or to preserve the integrity of the
Performance Measures from the effects of infusions or
distributions of cash or property to or from the Company and its
Subsidiaries (including dividends), from the effects of
accounting rules that do not reflect economic reality or that
change over time, or from the effect of any change in the
capitalization or operations of the Company and its Subsidiaries
that affects the financial objectives and over which the
Participants had no control; provided that any such adjustment
shall be consistent with the purposes of the Plan.
Any such adjustments under this Section 6.3 can consist of
changes in the number of Shares held by each Participant, and/or
adjustments to the Performance Measures.
6.4 Earning of Shares.
Prior to the beginning of each Performance Period, the Committee
shall establish maximum, target, and threshold levels of Share
payout opportunities under the Plan, which shall correspond to
the degree of the achievement of the Performance Measures during
the Performance Period. The established Share payout
opportunities may vary in relation to each Participant's duties
and responsibilities, and together with the preestablished
Performance Measures, shall be described in the Award Agreements
delivered to Participants at the beginning of each Performance
Period.
After the applicable Performance Period has ended, the holder of
Shares granted at the beginning of such Performance Period shall
be entitled to receive payout with respect to the number of
Shares earned by the Participant over the Performance Period, to
be determined as a function of the extent to which the
corresponding Performance Measures have been achieved.
6.5 Share Ledger Account.
A Share ledger account (the "Account") shall be established and
maintained by the Company for each Participant who receives a
grant under the Plan. If additional Shares are granted, the
Account shall be adjusted accordingly. The Account of a
Participant shall be the record of the Shares granted to that
Participant under the Plan, and is solely for accounting
purposes, and shall not require a segregation of any Company
assets.
6.6 Award Agreements.
Each grant under the Plan shall be evidenced by an Award
Agreement. Each Agreement shall be signed by an officer of the
Company and by the Participant, and shall contain the terms and
conditions that apply to the grant, which shall include, but
shall not be limited to, the number of Shares granted to the
Participant, the Performance Measures, the maximum, target and
threshold levels of Share payout opportunities, and the length of
the Performance Period. The included terms and conditions need
not be the same for each Participant, nor for each grant.
6.7 Form and Timing of Payment of Shares.
Payment of earned Shares shall be made in shares of common stock
of the Company, at the rate of one share of common stock for each
earned Share, and, subject to Section 6.8 below, shall be made
within forty-five (45) calendar days following the close of the
applicable Performance Period.
6.8 Restrictions on Sales.
A Participant shall not be permitted to sell more than one-third
of the shares of common stock of the Company distributed to him
under the Plan with respect to a Performance Period during the
first twelve (12) months after the end of the Performance Period,
nor more than two-thirds of the shares of common stock
distributed to him under the Plan with respect to a Performance
Period during the first twenty-four (24) months after the end of
the Performance Period. The Committee may direct the Company to
withhold the delivery of stock certificates to Participants until
the shares of common stock of the Company covered by such
certificates may be sold by the Participant under this
Section 6.8.
The above restrictions on a Participant's sale of shares of
common stock of the Company received under the Plan shall
terminate immediately in the event of the Participant's death or
the occurrence of a Change in Control which the Committee
determines in its discretion to affect the Participant.
Article 7. Termination of Employment
7.1 Termination of Employment Due to Death, Disability or
Retirement.
In the event a Participant's employment is terminated by reason
of Disability or Retirement during a Performance Period, the
Participant shall be entitled to a prorated award for such
Performance Period. The award shall be reduced by multiplying the
number of Shares which would otherwise have been earned by such
Participant during the Performance Period by a fraction; the
numerator of which is the number of days of participation during
the Performance Period through the date of employment
termination, and the denominator of which is the number of days
in the Performance Period. The award thus determined shall be
paid as soon as practicable following the end of the Performance
Period.
In the event a Participant's employment is terminated by reason
of the Participant's death during a Performance Period, the
Participant shall be entitled to a prorated award for such
Performance Period. The award shall be reduced by multiplying the
number of Shares which would otherwise have been earned by such
Participant during the Performance Period (using the actual
performance achieved during the first Performance Period ending
after the Participant's death as the performance achieved for all
of such Participant's Performance Periods which have not yet
ended at the time of his death) by a fraction; the numerator of
which is the number of days of participation during the
Performance Period through the date of the Participant's death,
and the denominator of which is the number of days in the
Performance Period. The final awards thus determined shall be
paid as soon as practicable following the end of the first
Performance Period ending after the Participant's death.
7.2 Termination for Reasons Other Than Death, Disability or
Retirement.
In the event a Participant's employment is terminated for reasons
other than death, Disability or Retirement, all rights to any
unpaid awards under the Plan shall be forfeited.
Article 8. Change in Control
Upon the occurrence of a Change in Control, all outstanding
Shares of Participants determined by the Committee in its
discretion to be affected by the Change in Control shall be
deemed to have been fully earned for each entire Performance
Period as of the effective date of the Change in Control, and
shall be paid out to such Participants, within thirty (30)
calendar days following the effective date of the Change in
Control; provided, however, that Shares which were granted within
six (6) months prior to such date shall be forfeited, and shall
not entitle Participants to a payout.
Subject to Article 11 herein, prior to the effective date of an
imminent Change in Control, the Committee shall have the
authority to make any modifications to outstanding Shares as
determined by the Committee to be necessary to provide
Participants with an appropriate payout with respect to their
Shares.
Article 9. Beneficiary Designation
9.1 Designation of Beneficiary.
Each Participant shall be entitled to designate a beneficiary or
beneficiaries who, following the Participant's death, will be
entitled to receive any amounts that otherwise would have been
paid to the Participant under the Plan. All designations shall
be signed by the Participant, and shall be in such form as
prescribed by the Committee. Each designation shall be effective
as of the date delivered to the Secretary of the Company by the
Participant. The Participant may change his or her designation of
beneficiary on such form as prescribed by the Committee. The
payment of any amounts owing to a Participant pursuant to his or
her outstanding Shares shall be in accordance with the last
unrevoked written designation of beneficiary that has been signed
by the Participant and delivered by the Participant to the
Secretary of the Company prior to the Participant's death.
9.2 Death of Beneficiary.
In the event that all of the beneficiaries named by a Participant
pursuant to Section 9.1 herein predecease the Participant, any
amounts that would have been paid to the Participant or the
Participant's beneficiaries under the Plan shall be paid to the
Participant's estate.
Article 10. Rights of Participants
10.1 Employment.
Nothing in the Plan shall interfere with or limit in any way the
right of the Company or any of its Subsidiaries to terminate any
Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company or
Subsidiary.
10.2 Participation.
No Participant or other employee shall at any time have a right
to be selected for participation in the Plan for any Performance
Period, despite having been selected for participation in a
previous Performance Period.
10.3 Nontransferability.
No Share or other right or interest granted to a Participant
under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution.
10.4 Voting and Dividend Rights.
No Participant shall be entitled to any voting rights, or, except
as provided by the Committee, in its sole discretion, to receive
any dividends, or to have his or her Account credited or
increased as a result of any dividends or other distributions
with respect to the ownership of the Company.
10.5 Rights to Common Stock.
Grants of Shares under the Plan do not give a Participant any
rights whatsoever with respect to shares of the Company's common
stock until such shares are distributed to the Participant
pursuant to the terms of the Plan.
Article 11. Amendment, Modification and Termination
11.1 Amendment, Modification and Termination.
With the approval of the Board, at any time and from time to
time, the Committee may terminate, amend or modify the Plan.
However, without the approval of the shareholders of the Company
(as may be required by the insider trading rules of Section 16 of
the Exchange Act, by any national securities exchange or system
on which the Company's shares of common stock are then listed or
reported, or by a regulatory body having jurisdiction with
respect hereto) no such termination, amendment or modification
may:
(a) Materially increase the total number of Shares which may
be issued under this Plan, except as provided in
Section 4.3 herein; or
(b) Materially modify the eligibility requirements to add a
class of Insiders; or
(c) Materially increase the benefits accruing to
Participants under the Plan.
11.2 Awards Previously Granted.
No termination, amendment or modification of the Plan shall in
any manner adversely affect any outstanding Shares under the
Plan, without the written consent of the Participant holding such
Shares.
Article 12. Miscellaneous Provisions
12.1 Costs of the Plan.
All costs of the Plan including, but not limited to, payout of
Shares and administrative expenses, shall be incurred by the
Company out of the Company's general assets. Although not
prohibited from doing so, the Company is not required in any way
to segregate assets in any manner or to specifically fund the
benefits provided under the Plan.
12.2 Share Withholding.
With respect to withholding required upon any taxable event
hereunder, Participants may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in
part, by having the Company withhold shares of Company common
stock having a fair market value on the date the tax is to be
determined equal to the minimum statutory total tax which could
be imposed on the transaction. All elections shall be
irrevocable, made in writing, and signed by the Participant.
12.3 Tax Withholding.
The Company shall have the right to require Participants to remit
to the Company an amount sufficient to satisfy Federal, state,
and local withholding tax requirements, or to deduct from all
payments under this Plan amounts sufficient to satisfy all
withholding tax requirements.
12.4 Successors.
All obligations of the Company under the Plan with respect to
payout of Shares, and the corresponding rights granted hereunder,
shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or other acquisition of all or
substantially all of the business and/or assets of the Company.
12.5 Notice.
Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail to the
Secretary of the Company. Notice to the Secretary of the Company,
if mailed, shall be addressed to the principal executive offices
of the Company. Notice mailed to a Participant shall be at such
address as is given in the records of the Company. Notices shall
be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt
for registration or certification.
12.6 Severability.
In the event that any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision had
not been included.
12.7 Gender and Number.
Except where otherwise indicated by the context, any masculine
term used herein also shall include the feminine; the plural
shall include the singular, and the singular shall include the
plural.
12.8 Requirements of Law.
The granting and payout of Shares under the Plan shall be subject
to all applicable laws, rules, and regulations and to such
approvals by any governmental agencies or national securities
exchanges as may be required.
12.9 Governing Law.
To the extent not preempted by Federal law, the Plan, and all
agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Illinois.
January 28, 1997
Mr. R. O. Viets
Mr. J. G. Sahn
300 Hamilton Boulevard, Suite 300
Peoria, Illinois 61602
Mr. J. H. Byington, Jr.
Mr. D. P. Falck
One Battery Park Plaza
New York, New York 10004-1490
Gentlemen:
We hereby make, constitute and appoint each of you and any one of
you our true and lawful attorney for each of us and in each of
our names, places or steads, both in our individual capacities as
directors and/or that of officers of CILCORP Inc., to sign and
cause to be filed with the Securities and Exchange Commission
CILCORP Inc.'s annual report on Form 10-K for the fiscal year
ended December 31, 1996 and any appropriate amendment or
amendments to said report and any necessary exhibits.
The undersigned, CILCORP Inc., also authorizes you and any one of
you to sign said annual report and any amendment or amendments
thereto on its behalf as attorney-in-fact for its respective
officers, and to file the same as aforesaid together with any
exhibits.
Very truly yours,
CILCORP Inc.
By______________________
R. O. Viets, President
January 28, 1997
Power of attorney related to execution and filing of CILCORP Inc.
1996 annual report
on Form 10-K.
______________________________ __________________________________
M. Alexis H. S. Peacock
______________________________ __________________________________
J. R. Brazil K. E. Smith
______________________________ __________________________________
W. Bunn III R. N. Ullman
______________________________ __________________________________
J. D. Caulder R. O. Viets
______________________________ _________________________________
H. J. Holland M. M. Yeomans
_______________________________
T. D. Hutchinson
BYLAWS
of
CENTRAL ILLINOIS LIGHT COMPANY
As Amended Effective April 23, 1996
ARTICLE I: LOCATION OF OFFICES
Section 1 - Principal Office: The principal office of the
Company shall be in the City of Peoria, Illinois, at such
place as the Board of Directors may designate.
Section 2 - Other Offices: The Company may have and
maintain such other offices as the Board of Directors may
deem expedient.
ARTICLE II: CORPORATE SEAL
Section 1 - The Company shall have a corporate seal with the
name of the Company described about a circle and the words
"Incorporated 1913 Illinois" within such circle.
ARTICLE III: FISCAL YEAR
Section 1 - The fiscal year of the Company shall begin with
the first day of January and end with the thirty-first day
of December of each year.
ARTICLE IV: SHAREHOLDERS' MEETINGS
Section 1 - Annual Meeting: The annual meeting of the
shareholders shall be held at the principal office of the
Company on the fourth Tuesday of April in each year if not a
legal holiday, and if a legal holiday, then on the next day
following which is not a legal holiday nor a Saturday or a
Sunday. Such annual meeting shall commence at a time
determined by the Board of Directors specified in a notice
of such annual meeting sent to shareholders, which shall not
be earlier than 9:00 AM, nor later than 3:00 PM, local time
at the place of the meeting.
Section 2 - Special Meetings: Unless otherwise provided by
law, special meetings of the shareholders may be called by
the Board of Directors, by the Chairman of the Board, by the
President, by the Secretary under the written direction of a
majority of the Directors, or by shareholders holding not
less than one-fifth of the total capital stock. Such
meetings shall be held at the principal office of the
Company, or if the Board of Directors or the Chairman of the
Board or the President shall designate another place, then
at such other place as may be so designated.
Section 3 - Notices: Written notice of either annual or
special meetings shall be mailed at least ten days prior to
the meeting, or in the case of a merger, consolidation,
share exchange, dissolution or sale, lease or exchange of
assets at least twenty days prior to the meeting, to each
shareholder at his last known address as the same appears on
the stock books of the Company. Such notice shall specify
the time and place of holding the meeting and shall further
specify the dates for closing and opening the stock transfer
books of the Company, provided the Board of Directors shall
have ordered them closed.
Notices of special meetings shall further specify
the purpose for which the meeting is called and no other
business shall be transacted at such special meeting.
No notice of a special meeting shall be necessary
provided every shareholder shall have signed a written
waiver of such notice or shall be present or represented by
proxy at the meeting.
No notice of the holding of an adjourned meeting
shall be necessary.
Section 4 - Quorum: The holders of a majority of the stock
of the Company issued and outstanding shall constitute a
quorum for the transaction of business at any meeting but a
less number may convene and adjourn.
Section 5 - Voting: Shareholders may vote at all meetings
in person or by proxy.
At all meetings, each share of stock shall be
entitled to one vote on all questions and a majority of the
votes cast at any such meeting shall be sufficient for the
adoption or rejection of any question presented, unless
otherwise provided by law.
In the election of Directors, each shareholder shall
have the right to cast as many votes in the aggregate as
shall equal the number of shares of stock held by such
shareholder, multiplied by the number of Directors to be
then elected, and each shareholder may cast the whole number
of votes for one candidate or distribute them among two or
more candidates.
ARTICLE V: DIRECTORS
Section 1 - Number: The Board of Directors of this Company
shall consist of between three and seven members.
Section 2 - Election: The Directors shall be elected
annually at the annual meeting of the shareholders, provided
that in the event of failure to hold such meeting or to hold
said election thereat, it may be held at any special meeting
of shareholders called for that purpose.
Unless sooner terminated by any other provision
hereof, the term of any director shall automatically expire
at the first annual meeting of the shareholders following
his or her attainment of the age of 67. Provided, however,
that the term of any director serving in such capacity and
over the age of 60 on August 20, 1993 shall automatically
expire at the first annual meeting of the shareholders
following his or her attainment of the age of 70. No
Director who is an officer or full-time employee of the
Company, except the Chief Executive Officer, shall be re-elected to the
Board after retirement. The Chief Executive Officer may be re-elected
as a Director for one full term after retirement.
The Chief Executive Officer may appoint inspectors
or judges for such election who shall pass upon the validity
of all proxies, receive and count the votes cast, and make a
report thereof to the shareholders' meeting.
Section 3 - Term of Office: The Directors shall hold office
from the date of their election until the next succeeding
annual meeting or until their successors are elected and
shall qualify.
Section 4 - Vacancies: Any vacancy occurring in the Board
of Directors and any directorship to be filled by reason of
an increase in the number of Directors shall be filled in
the manner provided by the laws of Illinois then in effect.
Section 5 - Fees: Directors shall be reimbursed for
expenses, if any, incurred in attending meetings of the
Board of Directors and in otherwise performing duties of
such Directors. Directors' fees shall be fixed by the Board
of Directors, provided that any Director who receives
compensation from the Company as an officer or full-time
employee shall not receive Director's fees.
Section 6 - Executive or Other Committees: The Board of
Directors may authorize appointment of an Executive
Committee or other committees of the Board as the Board of
Directors determines to be desirable, and may fix the number
of members and designate the chairman of each such
committee. The powers, terms of office, and method of
filing vacancies shall be as defined in the resolution or
resolutions of the Board of Directors relating to the
authorization of such committees. Each such committee shall
make a written report or recommendation following its
meetings or keep minutes of all of its meetings.
ARTICLE VI: DIRECTORS' MEETINGS
Section 1 - Regular Meetings: Regular meetings of the Board
of Directors shall be held at the principal office of the
Company or at such other place or places, within or without
the State of Illinois, at such time and day as the Board of
Directors may designate.
Section 2 - Special Meetings: Unless otherwise provided by
law, special meetings of the Board of Directors may be held
at any time, at the principal office of the Company or
elsewhere, within or without the state.
The Secretary or Assistant Secretary shall call a
special meeting whenever so requested by the Chairman of the
Board, the President, a Vice President, or by three
Directors.
Section 3 - Organization Meeting: As soon as possible after
their election, the Board of Directors shall meet and
organize and they may also transact such other business as
may be presented, provided the same shall receive the
affirmative votes of a majority of the constituent
membership of the Board.
Section 4 - Notice: No notice shall be required for a
regular meeting.
No notice shall be required for an "Organization
Meeting," if held on the same day as the shareholders'
meeting at which the Directors were elected.
No notice of the holding of an adjourned meeting
shall be necessary.
A reasonable notice of special meetings, in writing
or otherwise, shall be given to each Director or sent to his
residence or place of business.
Notice of special meeting shall specify the time and
place of holding the meeting and, unless otherwise stated,
any and all business may be transacted at such special
meeting.
Notice of any meeting may be waived in writing.
Section 5 - Quorum: At all meetings of the Board of
Directors, a majority shall constitute a quorum, but a less
number may convene and adjourn.
Section 6 - Voting: All questions coming before any meeting
of the Board of Directors for action shall be decided by a
majority vote of the Directors present at said meeting,
unless otherwise provided by law or by these Bylaws.
ARTICLE VII: OFFICERS
Section 1 - General: The principal officers of the Company
shall be elected by the Board of Directors. They shall
include a President, one or more Vice Presidents, one or
more of whom may be designated as Executive or Senior Vice
President, one or more Assistant Vice Presidents, a
Secretary and a Treasurer, and may include a Chairman of the
Board. The Board of Directors may appoint or remove such
other officers and agents of the Company as it may deem
proper or may delegate such authority to the Chief Executive
Officer. The Chief Executive Officer of the Company shall be
the President or Chairman of the Board, as designated by the
Board of Directors. In the event that a Chairman of the
Board has not been elected, the President shall be the Chief
Executive Officer.
Section 2 - Qualifications: The Chairman of the Board, if
one is elected, and the President shall be chosen from among
the Board of Directors.
Section 3 - Election: The principal officers shall be
elected annually at the organization meeting of the
Directors, provided that any such officers not elected at
such meeting may be elected at any succeeding meeting of the
Directors.
Section 4 - Term of Office: The principal officers shall
hold office from the date of their election until the next
succeeding organization meeting of Directors or until their
successors are elected and shall qualify, provided that the
Directors shall at all times have the power to remove any
officer, when in their judgment such removal may be to the
best interests of the Company.
Section 5 - Vacancies: Any vacancy or vacancies among the
officers, arising from any cause, shall be filled by the
Directors as provided above.
Section 6 - Compensation: The compensation of the principal
officers shall be fixed by the Board of Directors. The
compensation of other officers shall, in the absence of any
action by the Board of Directors, be fixed by the Chief
Executive Officer.
Section 7 - Combining Offices: Except to the extent
otherwise provided by law, any two or more of such offices
may be held by the same person but no officer shall execute,
acknowledge, or verify any instrument in more than one
capacity if such instrument is required by law or by the
Bylaws to be executed, acknowledged, or verified by any two
or more officers.
ARTICLE VIII: AGENTS
Section 1 - Depositories: The funds of the Company, from
any source, shall be deposited in the name of the Company
with such depositories as may be designated by the Board of
Directors.
ARTICLE IX: POWERS AND DUTIES
Section 1 - Directors: The Board of Directors shall have
and exercise all power and authority in the government of
the affairs of the Company except where specifically
excepted by law or by these Bylaws.
Section 2 - Chairman of the Board: The Chairman of the
Board, if one is elected, shall preside at all meetings of
the shareholders and the Board of Directors. He shall do
and perform all acts and things incident to the position of
Chairman of the Board and such other duties as may be
assigned to him by the Board of Directors.
Section 3 - President: The President shall have the general
control and management of the business and affairs of the
Company, subject, however, to the supervision of the Board
of Directors. He shall perform and do all acts and things
incident to the position of President and such other duties
as may be assigned to him by the Board of Directors. In the
absence or disability of the Chairman of the Board, or if a
Chairman of the Board has not been elected, he shall have
and exercise all of the powers and duties of that office.
He shall appoint such agents and employees as he may
deem necessary for the proper conduct of the business of the
Company and shall prescribe their duties and fix their
compensation, provided that the Board of Directors shall at
all times have the power to remove any agent or employee,
when, in their judgment, such removal may be to the best
interest of the Company.
Section 4 - Vice Presidents: The Vice Presidents shall
perform such of the duties of the President and such other
duties on behalf of the Company as may be respectively
assigned to them by the Board of Directors, or the Chief
Executive Officer. In the absence or disability of the
President or in the case of his death, resignation, or
removal from office, the powers and duties of the President
shall temporarily pass to such one of the Vice Presidents as
the Board of Directors shall have designated or shall
designate, and the Vice President so designated shall have
and exercise all the powers and duties of the President
during such absence or disability or until the vacancy in
the office of President shall be filled.
Section 5 - Assistant Vice Presidents: The Assistant Vice
Presidents shall perform such of the duties of the Vice
Presidents and such other duties on behalf of the Company as
may be respectively assigned to them by the Board of
Directors, the Chief Executive Officer or a Vice President
who would otherwise perform such duties.
Section 6 - Secretary: Subject to the supervision of the
Board of Directors and the Chief Executive Officer, the
Secretary shall have the custody of the corporate seal and
records of the Company and shall prepare and file all
reports required by law to be made to any and all public
authorities and officials.
He shall act as Secretary at meetings of the
shareholders and Directors and shall be responsible for
keeping and recording the minutes of all meetings in a
suitable minute book and shall attend to publishing, giving,
and serving all official notices of the Company. He shall be
responsible for keeping the capital stock records.
He shall perform such other duties as may be
assigned to him by the Board of Directors and the Chief
Executive Officer.
Section 7 - Treasurer: Subject to the supervision of the
Board of Directors and Chief Executive Officer, the
Treasurer shall have the custody of all funds and securities
of the Company and charge of the collection of amounts due
the Company.
He shall disburse the funds of the Company only upon
receipt of properly authorized vouchers and shall keep a
record of all receipts and disbursements of funds by him.
He shall have authority to give receipts for moneys
paid to the Company and to endorse checks, drafts, and
warrants in the name of the Company.
He shall perform such other duties as may be
assigned to him by the Board of Directors and Chief
Executive Officer.
Section 8 - Other Officers and Agents: The powers and
duties of such other officers and agents shall be prescribed
by the Board of Directors or the Chief Executive Officer.
ARTICLE X: STOCK
Section 1 - Stock Certificates: The shares of stock of the
Company shall be represented by certificates signed by the
President or a Vice President and the Secretary or an
Assistant Secretary and sealed with the seal of the Company.
Such seal may be a facsimile. Where such certificate is
countersigned by a Transfer Agent other than the Company
itself or an employee of the Company, or by a Transfer Clerk
and registered by a Registrar, the signatures of the
President or Vice President and the Secretary or Assistant
Secretary upon such certificate may be facsimiles engraved
or printed. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate
is issued, it may be issued by the Company with the same
effect as if such officer had not ceased to be such at the
date of its issue.
Section 2 - Stock Transfer Books: The stock shall be
transferable on the stock transfer books of the Company in
person or by proxy duly authorized, and upon surrender and
cancellation of the old certificates therefor.
Section 3 - Replacing Certificates: In case of the loss or
destruction of any certificate of stock and the submission
of proper proof thereof by the owner, a new certificate may
be issued in lieu thereof under such regulations and
restrictions as the Board of Directors may prescribe.
ARTICLE XI: DIVIDENDS
Section 1 - The Directors may declare, from the net profits
or surplus of the Company, dividends upon its capital stock,
payable at such times and for such amounts as they may
determine in conformity with the Articles of Incorporation
of the Company, as amended, and the laws of the State of
Illinois.
ARTICLE XII: AUTHORIZED SIGNATURES
Section 1 - All checks, drafts, and other negotiable
instruments issued by the Company shall be made in the name
of the Company and shall be signed by such officer or
officers of the Company, or by such other person or persons
as the Board of Directors may designate. To the extent
authorized by the Board of Directors, facsimile signatures
may be used.
ARTICLE XIII: FIDELITY BONDS
Section 1 - The officers and employees of the Company
shall, in the discretion of the President, give bonds for
the faithful discharge of their respective duties, in such
form and for such amounts as may be directed by the
President.
ARTICLE XIV: AMENDMENTS
Section 1 - The Bylaws of the Company may be altered,
amended, or repealed by either the shareholders or the Board
of Directors.
ARTICLE XV: INDEMNIFICATION
Section 1 - The Company shall indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by
reason of the fact that he or she is or was a director,
officer, employee or agent of the Company, or who is or was
serving at the request of the Company as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit
or proceeding, if such person acted in good faith and in a
manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Company, and, with
respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to
be in or not opposed to the best interests of the Company
or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was
unlawful.
Section 2 - The Company shall indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the Company to procure a judgment in its favor by
reason of the fact that such person is or was a director,
officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the
defense or settlement of such action or suit, if such person
acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of
the Company, provided that no indemnification shall be made
in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence
or misconduct in the performance of his or her duty to the
Company, unless, and only to the extent that the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, but
in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper.
Section 3 - To the extent that a director, officer,
employee or agent of the Company has been successful, on the
merits or otherwise, in the defense of any action, suit or
proceeding referred to in Sections l and 2 of this Article,
or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 4 - Any indemnification under Sections l and 2 of
this Article (unless ordered by a court) shall be made by
the Company only as authorized in the specific case, upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he
or she has met the applicable standard of conduct set forth
in Section l or 2 of this Article. Such determination shall
be made (a) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (b) if such a quorum is
not obtainable, or even if obtainable, if a quorum of
disinterested directors so directs, by independent legal
counsel in a written opinion, or (c) by the shareholders.
Section 5 - Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the
Company in advance of the final disposition of such action,
suit or proceeding, as authorized by the Board of Directors
in the specific case, upon receipt of an undertaking by or
on behalf of the director, officer, employee or agent to
repay such amount, unless it shall ultimately be determined
that he or she is entitled to be indemnified by the Company
as authorized in this Article.
Section 6 - The indemnification provided by this Article
shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any by-law,
agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his or her official capacity and as to
action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee or
agent, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 7 - The Company shall have power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and
incurred by such person in any such capacity, or arising out
of his or her status as such, whether or not the Company
would have the power to indemnify such person against such
liability under the provisions of this Article.
Section 8 - If the Company has paid indemnity or has
advanced expenses to a director, officer, employee or agent,
the Company shall report the indemnification or advance in
writing to the shareholders with or before the notice of the
next shareholders' meeting.
Section 9 - For purposes of this Article, references to
"the Company" shall include, in addition to the surviving
Company, any merging Company (including any Company having
merged with a merging Company) absorbed in a merger which,
if its separate existence had continued, would have had the
power and authority to indemnify its directors, officers and
employees or agents, so that any person who was a director,
officer, employee or agent of such merging Company, or was
serving at the request of such merging Company as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this
Article with respect to the surviving Company as such person
would have with respect to such merging Company if its
separate existence had continued.
Section 10 - For purposes of this Article, references to
"other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit
plan; and references to "serving at the request of the
Company" shall include any service as a director, officer,
employee or agent of the Company which imposes duties on, or
involves services by such director, officer, employee, or
agent with respect to an employee benefit plan, its
participants, or beneficiaries. A person who acted in good
faith and in a manner he or she reasonably believed to be in
the best interest of the participants and beneficiaries of
an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as
referred to in this Article.
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