UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ........ to ........
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-8946 CILCORP Inc. 37-1169387
(An Illinois Corporation)
300 Hamilton Blvd, Suite 300
Peoria, Illinois 61602
(309) 675-8810
1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050
(An Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 675-8810
Indicate by check mark whether the Registrants (1) have
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2)
have been subject to such filing requirements for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date:
CILCORP Inc. Common stock, no par value,
shares outstanding at April 30, 1997 13,610,680
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value,
shares outstanding and privately
held by CILCORP Inc. at April 30, 1997 13,563,871
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1: Financial Statements
CILCORP INC.
Consolidated Balance Sheets 3-4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6-7
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets 8-9
Consolidated Statements of Income 10
Consolidated Statements of Cash Flows 11-12
Notes to Consolidated Financial Statements 13-15
CILCORP Inc. and Central Illinois Light Company
Item 2: Management's Discussion and Analysis of Financial 16-29
Condition and Results of Operations
CILCORP Inc. and Central Illinois Light Company
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 30
Item 4: Submission of Matters to a Vote of Security Holders 30
Item 5: Other Information 30-33
Item 6: Exhibits and Reports on Form 8-K 33
Signatures 34-35
<PAGE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 13,461 $ 4,941
Receivables, less reserves of $3,041 and 74,563 78,309
$2,600
Accrued unbilled revenue 23,164 39,851
Fuel, at average cost 10,617 7,643
Materials and supplies, at average cost 14,300 15,126
Gas in underground storage, at average cost 8,352 24,723
Prepayments and other 12,153 11,614
---------- ----------
Total current assets 156,610 182,207
---------- ----------
Investments and other property:
Investment in leveraged leases 134,507 133,030
Cash surrender value of company-owned
life insurance, net of related policy loans
of $37,948 2,678 2,128
Other investments 19,089 19,679
---------- ----------
Total investments and other property 156,274 154,837
---------- ----------
Property, plant and equipment:
Utility plant, at original cost
Electric 1,190,044 1,186,110
Gas 394,712 393,246
---------- ----------
1,584,756 1,579,356
Less - accumulated provision for
depreciation 738,728 724,398
---------- ----------
846,028 854,958
Construction work in progress 17,145 15,092
Other, net of depreciation 22,383 21,554
---------- ----------
Total property, plant and equipment 885,556 891,604
---------- ----------
Other assets:
Cost in excess of net assets of acquired
businesses, net of accumulated
amortization of $5,172 and $4,997 22,965 23,141
Other 20,580 33,904
---------- ----------
Total other assets 43,545 57,045
---------- ----------
Total assets $1,241,985 $1,285,693
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these Balance Sheets.
</TABLE>
<PAGE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 3,041 $ 23,057
Notes payable 24,500 27,900
Accounts payable 45,070 63,434
Accrued taxes 13,681 8,801
Accrued interest 6,466 10,711
Purchased gas adjustment over-recoveries 2,529 601
Other 17,733 22,867
---------- --------
Total current liabilities 113,020 157,371
---------- --------
Long-term debt 320,669 320,666
---------- --------
Deferred credits and other liabilities:
Deferred income taxes 233,561 235,239
Regulatory liability of regulated
subsidiary 68,136 68,565
Deferred investment tax credit 22,380 22,801
Other 48,548 46,726
---------- --------
Total deferred credits 372,625 373,331
---------- --------
Preferred stock of subsidiary 66,120 66,120
---------- --------
Stockholders' equity:
Common stock, no par value; authorized
50,000,000 shares - outstanding
13,610,680 shares 190,760 190,760
Retained earnings 178,791 177,445
---------- --------
Total stockholders' equity 369,551 368,205
---------- --------
Total liabilities and stockholders'
equity $1,241,985 $1,285,693
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these Balance Sheets.
</TABLE>
<PAGE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)*
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<C> <C>
Revenue:
Electric $ 73,292 $ 76,691
Gas 92,503 78,040
Non-regulated energy and energy services 6,018 --
Environmental and engineering services 17,623 20,475
Other businesses 2,800 2,780
-------- --------
Total 192,236 177,986
-------- --------
Operating expenses:
Fuel for generation and purchased power 26,422 28,194
Gas purchased for resale 66,749 45,589
Other operations and maintenance 49,104 50,469
Depreciation and amortization 16,747 16,616
Taxes, other than income taxes 11,109 11,638
-------- --------
Total 170,131 152,506
-------- --------
Fixed charges and other:
Interest expense 7,083 6,771
Preferred stock dividends of subsidiary 786 815
Allowance for funds used during construction (8) (35)
Other 330 945
-------- --------
Total 8,191 8,496
-------- --------
Income before income taxes 13,914 16,984
Income taxes 4,195 6,590
-------- --------
Net income available for common
stockholders $ 9,719 $ 10,394
======== ========
Average common shares outstanding 13,611 13,366
Net income per common share $ .71 $ .78
Dividends per common share $ .615 $ .615
<FN>
*Except per share amounts
The accompanying Notes to the Consolidated Financial
Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 10,505 $ 11,209
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash lease & investment income (1,039) (1,493)
Depreciation and amortization 16,747 16,616
Deferred income taxes, investment tax credit and
regulatory liability of subsidiary (2,528) 114
Changes in operating assets and liabilities:
Decrease in accounts receivable and
accrued unbilled revenue 20,433 7,394
Decrease in inventories 14,223 13,843
Decrease in accounts payable (18,364) (11,534)
Increase in accrued taxes 4,880 7,027
Decrease in other assets 12,785 9,921
(Decrease) increase in other liabilities (5,629) (4,846)
-------- --------
Total adjustments 41,508 37,042
-------- --------
Net cash provided by operating activities 52,013 48,251
-------- --------
Cash flows from investing activities:
Additions to plant (10,038) (7,938)
Other (883) (817)
-------- --------
Net cash used in investing activities (10,921) (8,755)
-------- --------
Cash flows from financing activities:
Net decrease in short-term debt (3,400) (28,030)
Repayment of long-term debt (20,013) (16,207)
Common dividends paid (8,373) (8,207)
Preferred dividends paid (786) (815)
Proceeds from issuance of stock -- 3,637
-------- --------
Net cash used in financing activities (32,572) (49,622)
-------- --------
Net increase (decrease) in cash and
temporary cash investments 8,520 (10,126)
Cash and temporary cash investments at
beginning of year 4,941 17,100
-------- --------
Cash and temporary cash investments at end
of quarter $ 13,461 $ 6,974
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 12,353 $ 11,702
Income Taxes $ 2,717 $ 500
<FN>
The accompanying Notes to the Consolidated Financial
Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
(Unaudited)
<S> <C> <C>
Utility plant, at original cost:
Electric $1,190,044 $1,186,110
Gas 394,712 393,246
---------- ----------
1,584,756 1,579,356
Less - accumulated provision for depreciation 738,728 724,398
---------- ----------
846,028 854,958
Construction work in progress 17,145 15,092
Plant acquisition adjustments, net of
amortization 1,752 1,930
-------- --------
Total utility plant 864,925 871,980
-------- --------
Other property and investments:
Cash surrender value of company-owned
life insurance (net of related policy
loans of $37,948) 2,678 2,128
Other 1,550 1,553
-------- --------
Total other property and investments 4,228 3,681
-------- --------
Current assets:
Cash and temporary cash investments 10,584 1,662
Receivables, less reserves of $1,343 and $1,000 47,534 43,604
Accrued unbilled revenue 15,454 30,879
Fuel, at average cost 10,617 7,643
Materials and supplies, at average cost 14,300 15,126
Gas in underground storage, at average cost 7,868 24,222
Prepaid taxes 268 1,183
Other 2,934 9,668
-------- --------
Total current assets 109,559 133,987
-------- --------
Deferred debits:
Unamortized loss on reacquired debt 5,458 5,572
Unamortized debt expense 2,152 2,198
Prepaid pension cost 496 496
Other 11,280 18,255
-------- --------
Total deferred debits 19,386 26,521
-------- --------
Total assets $ 998,098 $1,036,169
======== =========
<FN>
The accompanying Notes to the Consolidated Financial
Statements are an integral part of these Balance Sheets.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
March 31, December 31,
CAPITALIZATION AND LIABILITIES 1997 1996
(Unaudited)
<S> <C> <C>
Capitalization:
Common shareholder's equity:
Common stock, no par value; authorized
20,000,000 shares; outstanding
13,563,871 shares $185,661 $ 185,661
Retained earnings 140,523 136,629
-------- ---------
Total common shareholder's equity 326,184 322,290
Preferred stock without mandatory redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt 278,449 278,439
-------- ---------
Total capitalization 670,753 666,849
-------- ---------
Current liabilities:
Current maturities of long-term debt - 20,000
Notes payable - 9,900
Accounts payable 35,576 46,126
Accrued taxes 11,095 7,013
Accrued interest 6,469 9,761
Purchased gas adjustment over-recoveries 2,529 601
Level payment plan - 2,737
Other 4,300 5,831
-------- ---------
Total current liabilities 59,969 101,969
-------- ---------
Deferred liabilities and credits:
Accumulated deferred income taxes 134,334 135,251
Regulatory liability 68,136 68,565
Investment tax credits 22,380 22,801
Capital lease obligation 2,514 2,621
Other 40,012 38,113
-------- ---------
Total deferred liabilities and credits 267,376 267,351
-------- ---------
Total capitalization and liabilities $998,098 $1,036,169
======== =========
<FN>
The accompanying Notes to the Consolidated Financial
Statements are an integral part of these Balance Sheets.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Income
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Operating revenues:
Electric $ 73,292 $ 76,691
Gas 92,503 78,040
-------- --------
Total operating revenues 165,795 154,731
-------- --------
Operating expenses:
Cost of fuel 21,727 25,932
Cost of gas 61,667 45,589
Purchased power 4,104 2,262
Other operation and maintenance 26,264 26,702
Depreciation and amortization 15,393 15,054
Income taxes 7,248 8,614
Other taxes 10,195 10,386
-------- --------
Total operating expenses 146,598 134,539
-------- --------
Operating income 19,197 20,192
-------- --------
Other income and deductions:
Cost of equity funds capitalized (26) 19
Company-owned life insurance, net (330) (206)
Other, net (38) (60)
-------- --------
Total other income and (deductions) (394) (247)
-------- --------
Income before interest expenses 18,803 19,945
-------- --------
Interest expenses:
Interest on long-term debt 5,144 5,304
Cost of borrowed funds capitalized (34) (16)
Other 642 739
-------- --------
Total interest expenses 5,752 6,027
-------- --------
Net income 13,051 13,918
-------- --------
Dividends on preferred stock 786 815
-------- --------
Net income available for common stock $ 12,265 $ 13,103
======== ========
<FN>
The accompanying Notes to the Consolidated Financial
Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 13,051 $ 13,918
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 15,571 15,232
Deferred taxes, investment tax credits
and regulatory liability (1,767) (1,152)
Increase in accounts receivable (3,930) (10,470)
Decrease in fuel, materials and supplies,
and gas in underground storage 14,206 13,424
Decrease in unbilled revenue 15,425 9,414
Decrease in accounts payable (10,550) (9,577)
Increase (decrease) in accrued taxes
and interest 790 (837)
Capital lease payments 161 161
Decrease in other current assets 7,651 14,025
Decrease in other current liabilities (2,339) (1,275)
Decrease in other non-current assets 7,602 4,598
Increase in other non-current liabilities 2,206 580
-------- --------
Net cash provided by operating activities 58,077 48,041
-------- --------
Cash flows from investing activities:
Capital expenditures (8,013) (7,852)
Cost of equity funds capitalized 26 (19)
Other (1,950) (1,509)
-------- --------
Net cash used in investing activities (9,937) (9,380)
-------- --------
Cash flows from financing activities:
Common dividends paid (8,371) (8,208)
Preferred dividends paid (786) (815)
Retirement of long-term debt (20,000) (16,000)
Payments on capital lease obligation (161) (161)
Decrease in short-term borrowing (9,900) (24,600)
-------- --------
Net cash used in financing activities (39,218) (49,784)
-------- --------
Net increase (decrease) in cash and
temporary cash investments 8,922 (11,123)
Cash and temporary cash investments at
beginning of year 1,662 16,556
-------- --------
Cash and temporary cash investments at March 31 $ 10,584 $ 5,433
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest (net of cost of borrowed funds
capitalized) $ 9,321 $ 9,400
Income taxes 4,095 --
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Introduction
The consolidated financial statements include the accounts
of CILCORP Inc. (CILCORP or Company), Central Illinois Light
Company (CILCO), QST Enterprises Inc. (QST), Environmental
Science & Engineering, Inc. (ESE), and CILCORP's other
subsidiaries after elimination of significant intercompany
transactions. Effective October 29, 1996, ESE became a
subsidiary of QST. Effective June 1, 1997, ESE will change
its name to QST Environmental Inc. CILCORP owns directly or
indirectly 100% of the common stock of its subsidiaries. The
consolidated financial statements of CILCO include the
accounts of CILCO and its subsidiaries, CILCO Exploration
and Development Company and CILCO Energy Corporation.
The accompanying unaudited consolidated financial statements
have been prepared according to the rules and regulations of
the Securities and Exchange Commission (SEC). Although
CILCORP believes the disclosures are adequate to make the
information presented not misleading, these consolidated
financial statements should be read along with the Company's
1996 Annual Report on Form 10-K.
In the Company's opinion, the consolidated financial
statements furnished reflect all normal and recurring
adjustments necessary for a fair presentation of the results
of operations for the periods presented. Operating results
for interim periods are not necessarily indicative of
operating results to be expected for the year or of the
Company's future financial condition.
NOTE 2. Gas Pipeline Supplier Transition Costs
CILCO's natural gas suppliers are subject to various Federal
Energy Regulatory Commission (FERC) orders and settlements
related to the transition to a more competitive natural gas
industry. FERC Order No. 636 unbundled the sale,
transportation and storage functions of interstate gas
pipelines, and also allows pipelines to recover prudently
incurred transition costs from gas distribution companies.
On July 16, 1996, the United States Court of Appeals
affirmed Order No. 636 "in its broad contours and in most of
its specifics," but remanded parts of Order No. 636 for
further explanation including the FERC's failure to allocate
any part of transition costs to the pipelines. FERC Order
No. 500 and Order No. 528 allow interstate gas pipelines to
bill gas distribution companies for take-or-pay and other
charges related to the transition to a more competitive gas
industry. During the three months ended March 31, 1997,
CILCO paid $.4 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 $.4 million on its Balance Sheets as of March
31, 1997, for these transition costs, all of which will be
due in 1997.
NOTE 3. Contingencies
Neither CILCORP, CILCO, nor any of their subsidiaries has
been identified as a potentially responsible party (PRP)
under federal or state environmental laws 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 has been
completed. 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.
During the three months ended March 31, 1997, CILCO paid
approximately $22,000 to outside parties for former gas
manufacturing plant site monitoring, legal fees and
feasibility studies and expects to spend approximately $1.1
million during the remainder of 1997. A $3.5 million
liability and a corresponding regulatory asset are recorded
on the Balance Sheets representing the minimum amount of
coal tar investigation and remediation costs CILCO expects
to incur. Coal tar remediation costs incurred through March
1997 have been deferred on the Balance Sheets, net of
amounts recovered from customers.
Through March 31, 1997, CILCO has recovered approximately $5
million in coal tar remediation costs from its customers
through a gas rate rider approved by the Illinois Commerce
Commission (ICC). Currently, that rider allows recovery of
prudently incurred coal tar costs in the year they are
incurred. Under these circumstances, management believes
that the cost of coal tar remediation will not have a
material adverse effect on CILCO's financial position or
results of operations.
NOTE 4. Commitments
In August 1990, CILCO entered into a firm, wholesale power
purchase agreement with Central Illinois Public Service
Company (CIPS). This agreement provides for a minimum
contract delivery rate from CIPS of 80 megawatts (MW) of
capacity through May 1997, then increasing to 90 MW until
the contract expires in May 1998.
In March 1995, CILCO and CIPS renegotiated a 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.
NOTE 5. Electric Transmission Open Access
On April 24, 1996 the FERC issued Order No. 888, Order No.
889, and a Notice of Proposed Rulemaking (NOPR). Order No.
888 requires all public utilities that own, operate or
control interstate electric transmission facilities to file
tariffs that will allow third parties, including power
marketers and other utilities, the same transmission
services that such utilities provide themselves and
finalizes the conditions under which a utility may seek
recovery of stranded costs from wholesale jurisdictional
customers. Order No. 889 requires public utilities to
implement standards of conduct and an Open Access
Transmission Same-time Information System (OASIS). The NOPR
requests comments regarding the potential replacement of the
single tariff contained in Order No. 888 with a capacity
reservation tariff. CILCO filed an open access tariff under
rulemaking provisions prior to the issuance of Order No.
888. This tariff was revised to comply with the final rule
in Order No. 888. The FERC granted a two-step extension of
the implementation schedule for compliance with the Phase 1
OASIS requirements and Standards of Conduct. Under the
extension, OASIS operations began on a test basis starting
December 2, 1996, and full commercial operations and
compliance with the Standards of Conduct began January 3,
1997. CILCO is continuing to evaluate modifications to the
Company's Standards of Conduct required by Order 889. The
Company's wholesale electric merchant function has been
transferred internally to the Energy Supply Group to comply
with the requirements of Order 889. CILCO is currently
working with the Mid-America Interconnected Network (MAIN)
and intends to rely on MAIN to calculate Available Transfer
Capability and provide an OASIS as required by Order No.
889. CILCO is also working with the Midwest Independent
System Operator Group. The goal of this group is to
assure the secure, reliable, and independent operation of
the transmission network.
NOTE 6. Earnings Per Share Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement No. 128, "Earnings per Share" (SFAS
128). This statement establishes standards for computing
and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common
stock. This statement is effective for financial statements
issued for periods ending after December 15, 1997. This
statement will not have a material effect on the Company's
earnings per share as reported under current generally
accepted accounting principles.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CILCORP Inc. (CILCORP or the Company) is the parent of two
core operating businesses, Central Illinois Light Company
(CILCO) and QST Enterprises Inc. (QST). CILCORP also has
two other first-tier subsidiaries, CILCORP Investment
Management Inc. (CIM), and CILCORP Ventures Inc. (CVI),
whose operations, combined with those of the holding company
(Holding Company) itself, are collectively referred to
herein as Other Businesses.
CILCO, the primary business subsidiary, is an electric and
gas utility serving customers in central and east central
Illinois. CILCO's financial condition and results of
operations are currently the principal factors affecting the
Company's financial condition and results of operations.
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). 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. Effective June 1, 1997, ESE will change its
name to QST Environmental Inc.
ESE is an environmental consulting and engineering firm
serving governmental, industrial and commercial customers.
ESE, through several subsidiaries, also acquires
environmentally impaired property for remediation and
resale.
CIM invests in a diversified portfolio of long-term
financial investments which currently includes leveraged
leases, energy-related projects and affordable residential
housing.
CVI invests in ventures in energy, biotechnology, and health
care, and in economic development projects in Central
Illinois. CVI, through one of its subsidiaries, CILCORP
Energy Services Inc. (CESI), also provides services for
CILCORP's strategic alliances with Caterpillar Inc. and
other industrial customers (see Part II. Item 5: Other
Information, Power Quest Electric Pilot Programs). CESI was
formed to pursue energy-related opportunities in the non-
regulated market.
Forward-Looking Information
Forward-looking information is included in Part I. Item 2:
Management's Discussion and Analysis of Financial Condition
and Results of Operations and Part II. Item 5: Other
Information. Such information generally relates to future
expected or anticipated events or trends and identified
contingencies and uncertainties. Certain material
contingencies are also described in Note 3 to the
Consolidated Financial Statements.
Some important factors could cause actual results or
outcomes to differ materially from those discussed in the
forward-looking statements. These factors include
prevailing governmental policies, 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 business. The business and
profitability of CILCORP and its subsidiaries are also
influenced by economic and geographic factors, including
ongoing changes in environmental laws, regulations and
policies which affect demand for ESE's services; weather
conditions; the extent and pace of development of
competition for retail and wholesale customers; 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 & Liquidity
Declaration of dividends by CILCORP is at the discretion of
the Board of Directors. CILCORP's ability to declare and
pay dividends is currently contingent upon its receipt of
dividends from CILCO and is also affected by business and
economic conditions, capital requirements, earnings and the
overall financial condition of the Company. The Company
believes that internal and external sources of capital which
are, or are expected to be, available to the Holding Company
and its subsidiaries will be adequate to meet the Company's
capital expenditures program, finance acquisitions, pay its
financial obligations, meet working capital needs and retire
debt as it matures.
CILCORP
Short-term borrowing capability is available to the Company
for additional cash requirements. CILCORP's Board of
Directors has authorized it to borrow up to $50 million on a
short-term basis. On March 31, 1997, CILCORP had committed
bank lines of credit of $45 million, of which $24.5 million
was outstanding.
The Company issued 275,074 shares of common stock at an
average price of $41.55 during 1996 through the CILCO
Employees' Savings Plan (ESP) and the CILCORP Inc.
Investors Choice Automatic Reinvestment and Stock Purchase
Plan (DRIP). Effective December 19, 1996, issuance of new
shares of common stock through the ESP and DRIP was
suspended. Depending on market conditions and corporate
needs, the Company may issue additional shares of common
stock through the ESP or the DRIP at any time. 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 from the ESP or the DRIP 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.
The Company has $42 million of medium-term notes
outstanding at March 31, 1997. 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
Capital expenditures totaled $8 million for the three months
ended March 31, 1997. Capital expenditures are anticipated
to be approximately $45.2 million for the remainder of 1997.
Capital expenditures for the years 1998 and 1999 are
estimated to be $57.3 million and $53 million, respectively.
CILCO retired $20 million of first mortgage bonds in March
1997. Currently, CILCO does not plan to issue long-term
debt during the remainder of 1997. CILCO intends to finance
its 1997 and 1998 capital expenditures with funds provided
by operations.
At March 31, 1997, CILCO had committed bank lines of credit
aggregating $20 million, all of which were unused. CILCO
uses these lines of credit to support issuance of short-term
commercial paper. CILCO had no commercial paper outstanding
at March 31, 1997 and expects to issue commercial paper
periodically throughout the remainder of 1997.
QST (Excluding ESE)
Capital expenditures totaled approximately $1.9 million for
the three months ended March 31, 1997, and are anticipated
to be approximately $12.2 million for the remainder of 1997,
primarily for construction of co-generation assets and fiber
optic and other communications facilities. The property
management company which operates the Sears Tower (Tower) in
Chicago has hired QST to install a cogeneration system that would
supply electricity to the Tower and its tenants. The Sears Tower
is the tallest building in North America which has 110 floors and
10,000 employees working in the building. Installing the
cogeneration system would save the Tower and its tenants
approximately $2 million annually in energy costs. The Tower's
current utility provider, Commonwealth Edison (ComEd), however,
is refusing to allow installation of the system. As a result,
QST and the property management company have filed a joint
complaint with the Illinois Commerce Commission. QST expects to
finance the co-generation assets with a combination of long-
term debt and funds provided by CILCORP. QST expects to
finance the fiber optic and other communication facilities
and working capital needs during the remainder of 1997 with
funds provided by CILCORP.
At March 31, 1997, QST had outstanding debt of $4.8 million,
all of which was owed to the Holding Company.
ESE
For the quarter ended March 31, 1997, ESE's expenditures for
capital additions and improvements were approximately
$99,000. Capital expenditures for the remainder of 1997 are
expected to be $1.2 million. In addition, through its
subsidiary, ESE Land Corporation, ESE spent $1.2 million
during the first quarter of 1997 to acquire land for
remediation and resale. ESE is currently soliciting offers
to purchase ESE Land Corporation.
At March 31, 1997, ESE had borrowings from CILCORP of
$21 million. Of this amount, $20 million is term debt due
May 1998 and $1 million is revolving debt. ESE has $7
million available on its revolving line of credit from
CILCORP. ESE also has a $10 million bank line of credit, of
which $4.3 million was outstanding at March 31, 1997, to
collateralize performance bonds issued in connection with
ESE projects.
CIM
At March 31, 1997, CIM had outstanding debt of
$28.6 million, consisting of $25.6 million borrowed from
CILCORP 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. During the first quarter of
1997, CIM funded an additional $.7 million of its
commitment. During the remainder of 1997, CIM expects to
contribute approximately $6.3 million in cash for these
investments, with substantially all of the remainder of the
cash contributions to be made in 1998. These investments
will be funded through borrowings from CILCORP. CIM
expects to finance new investments and working capital
needs during 1997 with a combination of funds generated
internally and with funds provided by CILCORP.
CVI
CVI expects to finance its activities and working capital
needs during the remainder of 1997 with a combination of
funds generated internally and with funds provided by
CILCORP.
Results of Operations
The following table summarizes net income of CILCO, QST, ESE
and Other Businesses for the three months ended March 31,
1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
(In thousands)
(Unaudited)
<S> <C> <C>
Core Businesses:
CILCO
Electric operating income $ 9,906 $10,085
Gas operating income 9,291 10,107
------- -------
Total utility operating income 19,197 20,192
Utility other income and deductions (6,146) (6,274)
Preferred stock dividends of CILCO (786) (815)
------- -------
Total utility net income 12,265 13,103
QST (Excluding ESE) net loss (891) (446)
ESE net loss (929) (1,972)
------- -------
Total core business income 10,445 10,685
Other businesses net loss (726) (291)
------- -------
Consolidated net income available
to common shareholders $ 9,719 $10,394
======= =======
</TABLE>
CILCO Electric Operations
The following table summarizes the components of CILCO
electric operating income for the three months ended March
31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
Components of Electric March 31,
Operating Income 1997 1996
(In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Electric retail $69,339 $73,256
Sales for resale 3,953 3,435
------- -------
Total revenue 73,292 76,691
------- -------
Cost of sales:
Cost of fuel 21,727 25,932
Purchased power expense 4,104 2,262
Revenue taxes 3,600 3,645
------- -------
Total cost of sales 29,431 31,839
------- -------
Gross margin 43,861 44,852
------- -------
Operating expenses:
Other operation and maintenance 18,314 18,737
Depreciation and amortization 10,974 10,766
Income and other taxes 4,667 5,264
------- -------
Total operating expenses 33,955 34,767
------- -------
Electric operating income $ 9,906 $10,085
======= =======
</TABLE>
Electric gross margin and retail sales volumes decreased 2%
and 5%, respectively, for the three months ended March 31,
1997, compared to the same period in 1996. Residential and
commercial sales decreased 5% and 4%, respectively,
primarily due to an 8% decrease in heating degree days
compared to the same period in 1996. Industrial sales
decreased 5% due primarily to decreased demand by several
large customers and to customers switching to off-system
suppliers under CILCO's Power Quest program (see Part II.
Item 5: Other Information, Power Quest Electric Pilot
Programs).
The overall level of business activity in CILCO's service
territory and weather conditions are expected to continue to
be the primary factors affecting electric sales in the near
term. CILCO's electric sales may also be affected by
deregulation and increased competition in the electric
utility industry (see Part II. Item 5: Other Information,
Competition).
Sales for resale increased during the first quarter of 1997
due to favorable market conditions. Sales for resale vary
based on CILCO's available capacity for bulk power sales,
the market price of power available for sale and the energy
requirements of neighboring utilities. CILCO expects
increased competition in the market for sales for resale and
purchased power.
Substantially all of CILCO's electric generating capacity is
coal-fired. The cost of fuel decreased 16% in the first
quarter of 1997, compared to the same period in 1996. The
decrease was due to a 10% decrease in electric generation,
resulting from a scheduled maintenance outage commencing
March 1 at CILCO's Duck Creek generation facility, and a 13%
reduction in the cost of coal burned.
Purchased power increased for the three months ended March
31, 1997, compared to the same period in 1996 primarily due
to the scheduled outage at the Duck Creek facility.
Purchased power expense varies based on CILCO's need for
energy and the market price of power available for purchase.
CILCO makes use of purchased power when it is economical to
do so and when required during maintenance outages at CILCO
plants. Costs and savings realized from the purchase of
power are passed through to CILCO's customers via the fuel
adjustment clause (FAC). The FAC allows CILCO to pass
increases or decreases in the cost of fuel through to
customers.
Other operation and maintenance expenses decreased 2% for
the three months ended March 31, 1997, compared to the
corresponding period in 1996. The decrease was primarily
due to decreased employee salaries and employee pension and
benefit expenses as a result of the 1996 early retirement
program. Tree trimming expenses also decreased. Increases
in power plant maintenance expenses associated with
the outage at the Duck Creek generation facility and
increases in outside service costs partially offset the
decrease for the first quarter of 1997.
Depreciation and amortization expense increased 2%,
reflecting additions and replacements of utility plant at
costs in excess of the original cost of the property
retired.
Income and other taxes expense decreased primarily due to
lower pre-tax operating income.
CILCO Gas Operations
The following table summarizes the components of CILCO gas
operating income for the three months ended March 31, 1997
and 1996:
<TABLE>
<CAPTION>
Three Months Ended
Components of Gas March 31,
Operating Income 1997 1996
(In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Sale of gas $90,467 $75,290
Transportation services 2,036 2,750
------- -------
Total revenue 92,503 78,040
------- -------
Cost of sales:
Cost of gas 61,667 45,589
Revenue taxes 3,566 3,678
------- -------
Total cost of sales 65,233 49,267
------- -------
Gross margin 27,270 28,773
------- -------
Operating expenses:
Other operation and maintenance 7,950 7,965
Depreciation and amortization 4,419 4,288
Income and other taxes 5,610 6,413
------- -------
Total operating expenses 17,979 18,666
------- -------
Gas operating income $ 9,291 $10,107
======= =======
</TABLE>
Gas gross margin decreased 5% for the quarter ended March
31, 1997, compared to the same period in 1996. Residential
sales decreased 13% for the first quarter of 1997 primarily
due to warmer winter weather. Heating degree days were 8%
lower compared to the same period in 1996. Commercial sales
increased 10% for the quarter due to customers switching
from gas transportation to CILCO system supply as a result
of the competitiveness of CILCO's gas price and a 1996
Illinois law which exempts certain customers from the state
gross receipts tax on sales of natural gas. The overall
level of business activity in CILCO's service territory and
weather conditions are expected to continue to be the
primary factors affecting gas sales in the near term.
CILCO's gas sales may also be affected by further
deregulation in the natural gas industry.
Revenue from gas transportation services decreased 26% while
sales volumes increased 5% for the first quarter of 1997
compared to the same period in 1996. The revenue decrease
was not proportional to the increase in volume due to
increased transportation of gas by customers using Rate 10
contract service, which has a lower per unit charge than
other classes of transportation service. Rate 10 customers
have the ability to connect directly to interstate pipelines
and bypass CILCO's gas system. Rates are negotiated
individually with Rate 10 customers. In addition,
transportation revenues decreased due to commercial
customers switching back to CILCO system supply during the
first quarter of 1997.
The cost of gas increased 35% for the quarter ended March
31, 1997, compared to the same period in 1996. This
increase was primarily due to higher natural gas prices from
CILCO's suppliers. The higher natural gas prices, which
accounted for the majority of the 20% increase in gas retail
revenue, were passed through to CILCO's gas customers via
the PGA. The PGA is the mechanism used to pass increases or
decreases in the cost of natural gas through to customers.
Other operation and maintenance expenses remained relatively
constant for the three months ended March 31, 1997, compared
to the same period in 1996. Decreases in employee
salaries, pensions and benefits due to the 1996 early
retirement program were partially offset by increases in
outside service costs.
Depreciation and amortization expense increased 3% for the
quarter ended March 31, 1997, compared to the same period in
1996, reflecting additions and replacements of utility plant
at costs in excess of the original cost of the property
retired.
Income and other taxes expense decreased for the quarter
ended March 31, 1997, primarily due to lower pre-tax
operating income.
CILCO Other Income and Deductions and Interest Expense
The following table summarizes other income and deductions
and interest expense for the three months ended March 31,
1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
Components of Other Income and March 31,
Deductions and Interest Expense 1997 1996
(In thousands)
(Unaudited)
<S> <C> <C>
Net interest expense $(5,694) $(5,914)
Income taxes 670 712
Other (1,122) (1,072)
------- -------
Other income (deductions) $(6,146) $(6,274)
======= =======
</TABLE>
Interest expense decreased primarily as a result of a lower
long-term debt balance during the first quarter of 1997
compared to the same period in 1996.
QST (Excluding ESE)
The following table summarizes the revenue and expenses for
QST for the three months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
Components of QST Net Loss (In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Electric revenue $ 629 $ --
Gas revenue 5,316 --
Telecommunications revenue 73 --
------ -------
Total revenue 6,018 --
Cost of sales:
Cost of electricity 590 --
Cost of gas 5,082 --
Cost of sales - Telecommunications 34 --
------ -------
Total cost of sales 5,706 --
------ -------
Gross margin 312 --
------ -------
Other expenses:
General and administrative 1,619 786
Depreciation and amortization 61 5
Interest 109 --
------ -------
Total other expenses 1,789 791
------ -------
Net loss before taxes (1,477) (791)
Income taxes (586) (345)
------ -------
QST net loss $ (891) $ (446)
======= ========
</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 also competes 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 is successfully obtaining additional
large commercial and industrial customers in the Chicago area
and in the pilot program of a non-affiliated Illinois utility.
QST Enterprises, through QST Trading, entered into a
marketing services agreement on March 24, 1997, with Trebor
Energy Resources, a Houston-based natural gas marketing and
trading company, whereby Trebor will purchase, transport and
sell natural gas on behalf of QST to utilities, industrial
and commercial customers principally in the Gulf Coast,
Midwest and Northeast markets. Currently, QST is involved
in negotiations to acquire Trebor's assets whereby the
principals of Trebor will become QST employees. If the
acquisition proceeds to completion, QST expects that the
purchase price will be paid under a deferred payment
arrangement based on predetermined performance measures and
therefore cannot currently be determined.
QST's net loss for the first three months of 1997 was caused
primarily by outside services and administrative and general
expenses, including salaries, which are not being
covered by revenues at this early stage of QST's
development. Gas revenue for the first quarter of 1997
resulted primarily from wholesale sales of gas by QST
Trading, while electric revenues were from participation by
QST Energy in Power Quest and a pilot program of another
Illinois utility. QST Energy also participates in the Power
Quest gas pilot program, but revenues from this program are
not material. 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 Operations
The following table summarizes the components of the
environmental and engineering services results for the three
months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Components of ESE Net Loss Three Months Ended
March 31,
1997 1996
(In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Environmental and engineering
services revenue $17,623 $20,475
Direct non-labor project costs 6,000 5,666
------- -------
Net revenue 11,623 14,809
------- -------
Expenses:
Direct salaries and other costs 6,565 9,407
General and administrative 5,252 6,749
Depreciation and amortization 1,066 1,332
------- -------
Operating expenses 12,883 17,488
------- -------
Interest expense 142 396
------- -------
Loss before income taxes (1,402) (3,075)
Income taxes (473) (1,103)
------- -------
ESE net loss $ (929) $(1,972)
======= =======
</TABLE>
ESE's quarterly results in recent periods have been affected
by such factors as project delays, which may be caused by
delays in regulatory agency approvals or client
considerations; the level of subcontractor services;
weather, which may limit the amount of time ESE
professionals have in the field; corporate repositioning
costs; and increased competition in all aspects of the
business. Accordingly, results from one quarter are not
necessarily indicative of results for any other quarter or
for the year.
ESE's net revenues decreased by $3 million, or 22%, for the
three months ended March 31, 1997, compared to the same
period in 1996. The net revenue decrease for this period
resulted from ongoing changes in environmental regulatory
requirements of many states, funding delays at the federal
level and increased competition in the consulting and
laboratory businesses, and industry overcapacity.
Direct salaries and other expenses include the cost of
professional and technical staff and other costs billable to
customers. These costs include salaries and related fringe
benefits, including employer paid medical and dental
insurance, payroll taxes, paid time off, and 401(k)
contributions. Direct and indirect salary expense decreased
by $2.8 million or 30% for the three months ended March 31,
1997, compared to the same period in 1996. This decrease is
primarily due to a reduction in the number of technical
staff to match decreased levels of business activity.
General and administrative expenses include non-billable
employee time devoted to marketing, proposals, supervision,
and professional development; supply expenses; and corporate
administrative expenses. General and administrative
expenses decreased by $1.5 million or 22% for the three
months ended March 31, 1997. The decrease for this period
resulted from lower general and administrative salary and
related benefits expense, and cost controls.
ESE will continue to position itself to take advantage of
new market opportunities. ESE may also collaborate with QST
to provide environmental consulting and laboratory services
for QST customers. The bundled services that QST will offer
its customers will include the environmental consulting
capabilities of ESE.
Due to the labor intensive nature of ESE's business, ESE has
the ability to adjust staffing levels to recognize changing
business conditions. ESE had 690 full-time equivalent
employees at March 31, 1997, compared to 1,016 employees at
March 31, 1996. To better utilize ESE's resources as part of
CILCORP's commitment to efficiently market non-regulated
energy and related services, ESE became a subsidiary of QST
effective October 29, 1996. During 1997, management will
continue to evaluate ESE's role in QST's and CILCORP's
business strategy. This evaluation, which will take into
account ESE's ongoing performance and integration with QST's
operations, may result in adjustments to the carrying value
of ESE's assets. 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.
Other Businesses Operations
The following table summarizes the components of Other
Businesses losses for the three months ended March 31, 1997
and 1996.
<TABLE> Three Months Ended
<CAPTION> March 31,
Components of Other Businesses 1997 1996
Net Income (Loss) (In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Other revenue $ 2,800 $2,780
------- ------
Expenses:
Operating Expenses 3,621 1,486
Depreciation and amortization 48 47
Interest expense 1,168 1,340
Income and other taxes (1,311) 198
------- ------
Total expenses 3,526 3,071
------- ------
Other businesses net loss $ (726) $ (291)
======= ======
</TABLE>
Other revenues remained relatively constant for the three
months ended March 31, 1997.
Operating expenses increased for the three months ended
March 31, 1997, compared to the same periods in 1996,
primarily due to higher expenses related to the Caterpillar
Alliance at CVI (see Part II. Item 5: Other Information,
Power Quest Electric Pilot Programs).
Income and other taxes were lower in the three months ended
March 31, 1997, compared to the same periods in 1996,
primarily due to lower pre-tax income and tax credits
received in 1997 from affordable housing tax credit
investments committed to during the fourth quarter of 1996.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Reference is made to "Environmental Matters" under "Item 1.
Business" in the Company's 1996 Annual Report on Form 10-K
(the "1996 Form 10-K"), and "Note 2. Gas Pipeline Supplier Transition Costs,"
Note 3. Contingencies," and "Note 5. Open Access Electric Transmission,"
herein, for certain pending legal proceedings and proceedings known to
be contemplated by governmental authorities.
The Company and its subsidiaries are subject to certain
claims and lawsuits in connection with work performed in the
ordinary course of their businesses. Except as otherwise
disclosed or referred to in this section, in the opinion of
management, all such claims currently pending either will
not result in a material adverse effect on the financial
position and results of operations of the Company or are
adequately covered by: (i) insurance; (ii) contractual or
statutory indemnification; and/or (iii) reserves for
potential losses.
CILCO
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 based on the
grounds that the applicable statute of limitations has
expired, was upheld on March 17, 1997, by the 7th Circuit
Court of Appeals.
Item 4: Submission of Matters to a Vote of Security Holders
Shareholders cast the following votes at the Company's
Annual Meeting of Shareholders held April 22, 1997:
Votes Abstentions
Against &
Votes or Broker
for Withheld Non-Votes
Elected to the Board
of Directors:
M. Alexis 10,952,501 254,057 0
H. S. Peacock 10,954,535 252,023 0
R. N. Ullman 10,972,092 234,466 0
R. O. Viets 10,957,047 249,511 0
Amend Bylaws and/or
Articles of
Incorporation to
establish a minimum
level of stock
ownership for
directors 1,343,813 7,774,861 2,742,830
Item 5: Other Information
Competition
In July 1995, Illinois enacted legislation that offers gas
and electric public utilities an opportunity to develop
alternative regulation and performance-based ratemaking
programs. These programs are subject to standards
established by the ICC and are restricted to the utility's
service territory. These programs must be approved by the
ICC and must end by June 30, 2000. A report on the results
of the programs is to be delivered to the Illinois
legislature by December 31, 2000. CILCO has not filed any
alternative regulation or performance-based ratemaking
programs with the ICC.
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
and other energy providers.
CILCO has introduced legislation that will, if approved by
the Illinois General Assembly and the Governor, institute
changes to open the electric markets in Illinois to
competition by January 1, 1998 (see CILCO Consumer Choice
Legislation). Broadened consumer choice throughout Illinois
and the nation will expand CILCORP's business opportunities.
Power Quest Retail Competition Pilot Programs
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. The
electric programs were approved by the ICC in March 1996 and
approved by the FERC in April 1996 (see Power Quest Electric
Pilot Programs). The natural gas program was approved by
the ICC in June 1996 (see Power Quest Gas Pilot Program).
Power Quest Electric Pilot Programs
One of CILCO's electric pilot programs permits eight of
CILCO's largest industrial customers that have 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 $5.4 million on an
annual basis if the entire 50 megawatts of eligible
industrial capacity moved to off-system suppliers. CILCORP
has formed a strategic alliance (which has a term concurrent
with the Power Quest Electric Pilot Program) with
Caterpillar Inc. (Caterpillar), the largest of the
industrial customers eligible to participate in Power Quest.
Caterpillar remained a full requirements customer of CILCO
for the first year of the Power Quest program, and in
exchange, CILCORP provided additional value-added services
and innovative solutions to energy and environmental needs
of Caterpillar. Costs associated with the Caterpillar
alliance are reflected in Other Businesses Operations.
During the second year of the alliance which began May 1,
1997, Caterpillar began purchasing a portion of its
Power Quest allocation off-system (including from QST) and
will continue to receive products and services under the
strategic alliance.
CILCO has offset some of the reduced profit margin by
increased wholesale electric sales outside its service
territory. Based on participation levels by eligible
industrial customers through March 1997, CILCORP
experienced a reduction of $1 million of pre-tax
income for the first quarter of 1997 (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 $1.4 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 this 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. Energy deliveries
in Peoria Heights began in February 1997. If all eligible
customers in Open Access Sites participate in Power Quest,
CILCO would experience a reduction in pre-tax income of up
to $1.5 million on an annual basis. Based upon
participation levels by eligible commercial and residential
customers through March 1997, CILCORP experienced a
reduction of $.1 million of pre-tax income for the first
quarter of 1997. Assuming the same participation level for
all of 1997, CILCORP would experience a reduction to pre-tax
income of $.5 million. QST Energy, despite competition from
other suppliers, is currently serving more than 90% of the
Power Quest customers who have chosen a supplier other than CILCO.
Power Quest Gas Pilot Program
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 or first quarter
1997 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 Consumer Choice Legislation
CILCO has assisted legislators in developing 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. On March 7, 1997, another electric
restructuring bill was introduced in the Illinois House of
Representatives. Under this CILCO-supported bill, all
electric customers served by investor-owned utilities will
have the opportunity to buy electricity from their provider
of choice beginning May 1, 1998. 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.
Corporate Repositioning
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 the first quarter
of 1997, the Company and its subsidiaries incurred
approximately $1.5 million of pre-tax expense for these
repositioning activities.
CILCO's Union Contracts
CILCO is presently in contract negotiations with one of its
unions, the International Brotherhood of Electrical Workers
(IBEW). The contract expires on June 30, 1997. The IBEW
represents approximately 460 CILCO gas and electric
department employees. The current contract with the
International Brotherhood of Firemen and Oilers (IBF&O),
which represents approximately 208 CILCO employees, expires
June 30, 1998.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial data schedules
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934,
the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CILCORP Inc.
(Registrant)
Date May 12, 1997 R. O.Viets
R. O. Viets
President and Chief Executive Officer
Date May 12, 1997 T. D. Hutchinson
T. D.Hutchinson
Controller
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities 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
(Registrant)
Date May 12, 1997 T. S. Romanowski
T. S. Romanowski
Vice President and Chief
Financial Officer
Date May 12, 1997 T. D. Hutchinson
T. D. Hutchinson
Controller and Manager
of Accounting
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, AND BALANCE SHEET AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000762129
<NAME> CILCORP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 864,925
<OTHER-PROPERTY-AND-INVEST> 20,631
<TOTAL-CURRENT-ASSETS> 156,610
<TOTAL-DEFERRED-CHARGES> 43,545
<OTHER-ASSETS> 156,274
<TOTAL-ASSETS> 1,241,985
<COMMON> 190,760
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 178,791
<TOTAL-COMMON-STOCKHOLDERS-EQ> 369,551
22,000
44,120
<LONG-TERM-DEBT-NET> 320,669
<SHORT-TERM-NOTES> 24,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,041
0
<CAPITAL-LEASE-OBLIGATIONS> 2,514
<LEASES-CURRENT> 412
<OTHER-ITEMS-CAPITAL-AND-LIAB> 455,178
<TOT-CAPITALIZATION-AND-LIAB> 1,241,985
<GROSS-OPERATING-REVENUE> 192,236
<INCOME-TAX-EXPENSE> 4,195
<OTHER-OPERATING-EXPENSES> 170,131
<TOTAL-OPERATING-EXPENSES> 174,326
<OPERATING-INCOME-LOSS> 17,910
<OTHER-INCOME-NET> (330)
<INCOME-BEFORE-INTEREST-EXPEN> 17,580
<TOTAL-INTEREST-EXPENSE> 7,075
<NET-INCOME> 10,505
786
<EARNINGS-AVAILABLE-FOR-COMM> 9,719
<COMMON-STOCK-DIVIDENDS> 8,373
<TOTAL-INTEREST-ON-BONDS> 5,144
<CASH-FLOW-OPERATIONS> 52,013
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, AND BALANCE SHEET AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000018651
<NAME> CENTRAL ILLINOIS LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 864,925
<OTHER-PROPERTY-AND-INVEST> 4,228
<TOTAL-CURRENT-ASSETS> 109,559
<TOTAL-DEFERRED-CHARGES> 19,386
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 998,098
<COMMON> 185,661
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 140,523
<TOTAL-COMMON-STOCKHOLDERS-EQ> 326,184
22,000
44,120
<LONG-TERM-DEBT-NET> 278,449
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 2,514
<LEASES-CURRENT> 412
<OTHER-ITEMS-CAPITAL-AND-LIAB> 324,419
<TOT-CAPITALIZATION-AND-LIAB> 998,098
<GROSS-OPERATING-REVENUE> 165,795
<INCOME-TAX-EXPENSE> 7,248
<OTHER-OPERATING-EXPENSES> 139,350
<TOTAL-OPERATING-EXPENSES> 146,598
<OPERATING-INCOME-LOSS> 19,197
<OTHER-INCOME-NET> (394)
<INCOME-BEFORE-INTEREST-EXPEN> 18,803
<TOTAL-INTEREST-EXPENSE> 5,752
<NET-INCOME> 13,051
786
<EARNINGS-AVAILABLE-FOR-COMM> 12,265
<COMMON-STOCK-DIVIDENDS> 8,371
<TOTAL-INTEREST-ON-BONDS> 5,144
<CASH-FLOW-OPERATIONS> 58,077
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
