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, 1998
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 March 31, 1998 13,610,680
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value,
shares outstanding and privately
held by CILCORP Inc. at March 31, 1998 13,563,871
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1: Financial Statements
CILCORP INC.
Consolidated Balance Sheets 3-4
Consolidated Statements of Income 5-6
Consolidated Statements of Cash Flows 7-8
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets 9-10
Consolidated Statements of Income 11
Consolidated Statements of Cash Flows 12-13
Notes to Consolidated Financial Statements 14-17
CILCORP Inc. and Central Illinois Light Company
Item 2: Management's Discussion and Analysis of Financial 18-30
Condition and Results of Operations
CILCORP Inc. and Central Illinois Light Company
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 31
Item 4: Submission of Matters to a Vote of Security Holders 31
Item 5: Other Information 31-32
Item 6: Exhibits and Reports on Form 8-K 33
Signatures 34-35
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
March 31, December 31,
1998 1997
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 10,269 $ 10,576
Receivables, less reserves of $3,092 and $2,454 139,436 141,234
Accrued unbilled revenue 30,512 38,775
Fuel, at average cost 9,252 7,816
Materials and supplies, at average cost 13,742 13,685
Gas in underground storage, at average cost 8,380 22,666
Prepayments and other 9,068 10,971
---------- ----------
Total current assets 220,659 245,723
---------- ----------
Investments and other property:
Investment in leveraged leases 147,504 146,458
Cash surrender value of company-owned life
insurance, net of related policy loans of
$42,898 3,062 2,399
Other investments 18,044 18,675
---------- ----------
Total investments and other property 168,610 167,532
---------- ----------
Property, plant and equipment:
Utility plant, at original cost
Electric 1,218,337 1,213,585
Gas 403,499 401,870
---------- ----------
1,621,836 1,615,455
Less - accumulated provision for depreciation 783,908 769,792
---------- ----------
837,928 845,663
Construction work in progress 23,851 21,550
Other, net of depreciation 23,697 22,188
---------- ----------
Total property, plant and equipment 885,476 889,401
---------- ----------
Other assets 27,648 32,163
---------- ----------
Total assets $1,302,393 $1,334,819
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these Balance Sheets.
</TABLE>
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
March 31, December 31,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 22,170 $ 22,185
Notes payable 48,450 62,150
Accounts payable 124,626 132,286
Accrued taxes 8,871 2,810
Accrued interest 6,845 9,473
Purchased gas adjustment over-recoveries -- 1,666
Other 6,434 19,798
---------- ----------
Total current liabilities 217,396 250,368
---------- ----------
Long-term debt 298,543 298,528
---------- ----------
Deferred credits and other liabilities:
Accumulated deferred income taxes 239,085 241,013
Regulatory liability of regulated subsidiary 56,709 56,807
Deferred investment tax credits 20,701 21,117
Other 51,923 48,273
---------- ----------
Total deferred credits and other liab. 368,418 367,210
---------- ----------
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 192,567 192,567
Retained earnings 158,673 159,350
Accumulated other comprehensive income 676 676
---------- ----------
Total stockholders' equity 351,916 352,593
---------- ----------
Total liabilities and stockholders' equity $1,302,393 $1,334,819
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these Balance Sheets.
</TABLE>
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)*
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
<C> <C>
Revenue:
Electric utility $ 79,177 $ 73,292
Gas utility 69,902 92,503
Non-regulated energy and energy services 204,404 6,018
Environmental and engineering services 17,467 17,593
Other businesses 5,195 2,800
-------- --------
Total 376,145 192,206
-------- --------
Operating expenses:
Fuel for generation and purchased power 53,382 26,422
Gas purchased for resale 222,710 66,553
Other operations and maintenance 51,391 49,104
Depreciation and amortization 16,922 16,747
Taxes, other than income taxes 11,516 11,109
-------- --------
Total 355,921 169,935
-------- --------
Fixed charges and other:
Interest expense 7,588 7,083
Preferred stock dividends of subsidiary 802 786
Allowance for funds used during const. 23 (8)
Other 222 330
-------- --------
Total 8,635 8,191
-------- --------
Income from continuing operations
before income taxes 11,589 14,080
Income taxes 3,895 4,263
-------- --------
Net income from continuing operations 7,694 9,817
Loss from operations of discontinued
business, net of tax of ($68) -- (98)
-------- --------
Net income 7,694 9,719
Other comprehensive income -- --
-------- --------
Comprehensive income $ 7,694 $ 9,719
======== ========
Avg. common shares outstanding - basic 13,611 13,611
======== ========
Earnings per common share - basic
Continuing operations $ .57 $ .72
Discontinued operations -- (.01)
-------- --------
Net income per common share - basic $ .57 $ .71
======== ========
Avg. common shares outstanding - diluted 13,690 13,611
======== ========
Earnings per common share - diluted
Continuing operations $ .56 $ .72
Discontinued operations -- (.01)
-------- --------
Net income per common share - diluted $ .56 $ .71
======== ========
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,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 8,496 $ 10,603
-------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
Non-cash lease income and investment income (416) (1,039)
Depreciation and amortization 16,922 16,747
Deferred income taxes, investment tax credit
and regulatory liability of subsidiary, net (2,442) (2,528)
Changes in operating assets and liabilities:
Decrease in accounts receivable and
accrued unbilled revenue 10,061 20,433
Decrease in inventories 12,793 14,223
Decrease in accounts payable (7,498) (18,534)
Increase in accrued taxes 6,063 4,948
Decrease in other assets 7,115 14,061
Decrease in other liabilities (14,008) (5,629)
-------- ---------
Total adjustments 28,590 42,682
-------- ---------
Net cash provided by operating activities from
continuing operations 37,086 53,285
-------- ---------
Net cash used by operating activities of
discontinued operations (861) (1,272)
Cash flow from operations 36,225 52,013
Cash flows from investing activities:
Additions to plant (12,119) (10,038)
Other (1,540) (883)
-------- ---------
Net cash provided (used) by investing
activities (13,659) (10,921)
-------- ---------
Cash flows from financing activities:
Net decrease in short-term debt (13,700) (3,400)
Decrease in long-term debt -- (20,013)
Common dividends paid (8,371) (8,373)
Preferred dividends paid (802) (786)
-------- ---------
Net cash used by financing activities (22,873) (32,572)
-------- ---------
Net increase (decrease) in cash and
temporary cash investments: (307) 8,520
Cash and temporary cash investments at
beginning of year: 10,576 4,941
-------- --------
Cash and temporary cash investments
at March 31: $ 10,269 $ 13,461
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 8,861 $ 12,353
Income taxes $ 4,755 $ 2,717
<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 1998 1997
(Unaudited)
<S> <C> <C>
Utility plant, at original cost:
Electric $1,218,337 $1,213,585
Gas 403,499 401,870
---------- ----------
1,621,836 1,615,455
Less - accum. provision for depr. 783,908 769,792
---------- ----------
837,928 845,663
Construction work in progress 23,851 21,550
Plant acquisition adjustments, net of
amortization 1,039 1,217
---------- ----------
Total utility plant 862,818 868,430
---------- ----------
Other property and investments:
Cash surrender value of company-owned
life insurance (net of related policy
loans of $42,898) 3,062 2,399
Other 1,213 1,214
---------- ----------
Total other property and investments 4,275 3,613
---------- ----------
Current assets:
Cash and temporary cash investments 1,402 698
Receivables, less rsrves of $1,279 & $703 44,502 44,550
Accrued unbilled revenue 21,693 31,248
Fuel, at average cost 9,252 7,816
Materials and supplies, at average cost 13,742 13,685
Gas in underground storage, at avg. cost 7,835 22,118
Prepaid taxes 210 1,189
Other 6,681 6,331
---------- ----------
Total current assets 105,317 127,635
---------- ----------
Deferred debits:
Unamortized loss on reacquired debt 3,501 3,581
Unamortized debt expense 1,974 2,019
Prepaid pension cost 455 455
Other 12,425 16,922
---------- ----------
Total deferred debits 18,355 22,977
---------- ----------
Total assets $ 990,765 $1,022,655
========== ==========
<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 1998 1997
(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 144,549 146,405
Accumulated other comprehensive income 676 676
---------- ----------
Total common shareholder's equity 330,886 332,742
Preferred stock w/o mandatory redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt 267,848 267,836
---------- ----------
Total capitalization 664,854 666,698
---------- ----------
Current liabilities:
Current maturities of long-term debt 10,650 10,650
Notes payable 1,200 21,300
Accounts payable 33,935 44,844
Accrued taxes 10,741 2,593
Accrued interest 6,914 9,234
Purchased gas adjustment over-recoveries -- 1,666
Level payment plan 203 2,375
Other 4,804 4,670
---------- ----------
Total current liabilities 68,447 97,332
---------- ----------
Deferred credits and other liabilities:
Accumulated deferred income taxes 138,111 139,274
Regulatory liability 56,709 56,807
Deferred investment tax credits 20,701 21,117
Capital lease obligation 2,066 2,182
Other 39,877 39,245
---------- ----------
Total def. credits and other liab. 257,464 258,625
---------- ----------
Total capitalization and liabilities $ 990,765 $1,022,655
========== ==========
<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,
1998 1997
<S> <C> <C>
Operating revenue:
Electric $ 79,178 $ 73,292
Gas 69,902 92,503
-------- --------
Total operating revenues 149,080 165,795
-------- --------
Operating expenses:
Cost of fuel 24,342 21,727
Cost of gas 40,622 61,667
Purchased power 4,674 4,104
Other operations and maintenance 26,817 26,264
Depreciation and amortization 15,755 15,393
Income taxes 7,777 7,248
Other taxes 10,769 10,195
-------- --------
Total operating expenses 130,756 146,598
-------- --------
Operating income 18,324 19,197
-------- --------
Other income and deductions:
Cost of equity funds capitalized -- (26)
Company-owned life insurance, net (205) (330)
Other, net (82) (38)
-------- --------
Total other inc. & (deductions) (287) (394)
-------- --------
Income before interest expense 18,037 18,803
-------- --------
Interest expenses:
Interest on long-term debt 4,960 5,144
Cost of borrowed funds capitalized 23 (34)
Other 738 642
-------- --------
Total interest expense 5,721 5,752
-------- --------
Net income 12,316 13,051
-------- --------
Dividends on preferred stock 802 786
-------- --------
Net income available for common stock 11,514 12,265
-------- --------
Other comprehensive income -- --
-------- --------
Comprehensive income $ 11,514 $ 12,265
======== ========
<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,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 12,316 $ 13,051
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 15,933 15,571
Def. income taxes, investment tax credit
and regulatory liability, net (1,677) (1,767)
Changes in operating assets and liabilities:
Decrease (increase) in accts. receivable 48 (3,930)
Decrease in fuel, materials and supplies,
and gas in underground storage 12,789 14,206
Decrease in unbilled revenue 9,555 15,425
Decrease in accounts payable (10,909) (10,550)
Increase in accrued taxes and interest 5,828 790
Capital lease payments 161 161
Decrease in other current assets 627 7,651
Decrease in other current liabilities (3,704) (2,339)
Decrease in other non-current assets 5,149 7,602
Increase in other non-current liabilities 608 2,206
-------- --------
Net cash provided by operating activities 46,724 58,077
-------- --------
Cash flows from investing activities:
Capital expenditures (10,463) (8,013)
Cost of equity funds capitalized -- 26
Other (1,123) (1,950)
-------- --------
Net cash used in investing activities (11,586) (9,937)
-------- --------
Cash flows from financing activities:
Common dividends paid (13,371) (8,371)
Preferred dividends paid (802) (786)
Long-term debt retired -- (20,000)
Payments on capital lease obligation (161) (161)
Decrease in short-term borrowing (20,100) (9,900)
-------- --------
Net cash used in financing activities (34,434) (39,218)
-------- --------
Net increase in cash and temporary cash
investments 704 8,922
Cash and temporary cash investments at
beginning of year 698 1,662
-------- --------
Cash and temporary cash investments at March 31 $ 1,402 $ 10,584
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest (net of cost of borrowed
funds capitalized) $ 8,209 $ 9,321
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), QST Environmental Inc.,
formerly known as Environmental Science & Engineering, Inc.
(ESE), and CILCORP's other subsidiaries after elimination of
significant intercompany transactions. Formerly a CILCORP first-
tier subsidiary, ESE became a subsidiary of QST effective October
29, 1996. Effective June 1, 1997, ESE began operating under the
name QST Environmental Inc. (QST Environmental). CILCORP owns
directly or indirectly 100% of the common stock of its first-tier
subsidiaries. The consolidated financial statements of CILCO
include the accounts of CILCO and its subsidiaries, CILCO
Exploration and Development Company and CILCO Energy Corporation.
QST Enterprises Inc. completed the sale of substantially all of
the assets of ESE Land Corporation, a subsidiary of QST
Environmental Inc., in the fourth quarter of 1997. Results of
ESE Land Corporation are being reported as discontinued
operations. Prior year amounts have been reclassified on a basis
consistent with the 1998 presentation.
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 1997 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. Contingencies
Gas Manufacturing Plant Sites
CILCO continues to investigate and/or monitor four former gas
manufacturing plant sites located within CILCO's present gas
service territory. The purpose of these studies is to determine
if waste materials, principally coal tar, are present, whether
such waste materials constitute an environmental or health risk
and if CILCO is responsible for the remediation of any remaining
waste materials at those sites.
During the three months ended March 31, 1998, CILCO paid
approximately $170,000 to outside parties for former gas
manufacturing plant site monitoring, legal fees and feasibility
studies, and expects to spend approximately $760,000 (including
remediation costs) during the remainder of 1998. A $3.4 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 ultimately
incur. Coal tar remediation costs incurred through March 1998
have been deferred on the Balance Sheets, net of amounts
recovered from customers.
Through March 31, 1998, CILCO has recovered approximately $5.2
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 remediation costs in the year that the
expenditures occur. 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.
CILCO's Union Contracts
The International Brotherhood of Electrical Workers Local 51
(IBEW) ratified the Company's contract proposal on October 10,
1997. The new contract expires on July 1, 2000, and among other
items, provides for 3% wage increases each year of the contract.
The IBEW represents approximately 399 CILCO gas and electric
department employees. The current contract with the
International Brotherhood of Firemen and Oilers Local 8 (IBF&O),
which represents approximately 203 CILCO power plant employees,
expires June 30, 1998. Negotiations regarding the IBF&O contract
are in progress.
NOTE 3. Commitments
In August 1990, CILCO entered into a firm, wholesale power
purchase agreement with Central Illinois Public Service Company,
now AmerenCIPS (CIPS). This agreement provides for a minimum
contract delivery rate from CIPS of 90 MW until the contract
expires in May 1998.
In March 1995, CILCO and CIPS amended 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.
On January 27, 1997, CILCO intervened in a proceeding pending
before the Federal Energy Regulatory Commission (FERC), to
challenge the validity of the power agreements with CIPS because
of the failure of CIPS to obtain FERC approval of the agreements.
In the alternative, CILCO requested that FERC provide an "open
season" during which CILCO may cancel the power agreements in
whole or in part. In an order issued on October 15, 1997, FERC
rejected the challenge to the validity of the agreements and
denied CILCO's request for an open season. However, CIPS was
ordered to file the agreements with FERC, and FERC on its own
motion initiated a separate proceeding to investigate the terms
of the agreements. CILCO has asked FERC to assess penalties
against CIPS under its rules for the failure to file the
contracts as required; FERC has not yet addressed this issue.
FERC's order also failed to address certain contract issues
raised by CILCO. FERC denied rehearing of that order on February
3, 1998, and CILCO has appealed to the United States Court of
Appeals for the District of Columbia circuit for a review of
FERC's orders concerning the CIPS contract. CILCO cannot predict
how FERC or the Court will ultimately rule on the issues in these
two cases.
NOTE 4. 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. CILCO revised its open access tariff
to comply with the final rule in Order No. 888, and later filed a
tariff to comply with subsequent FERC Order 888-A.
CILCO's compliance filings under Order 888 and Order 888-A
revised the charges for the provision of ancillary services. On
July 31, 1997, FERC issued an order accepting CILCO's charges for
the provision of ancillary services that were proposed in CILCO's
Order 888 compliance filing. CILCO's Order 888-A compliance
filing revised two of the ancillary service charges (energy
imbalance service and real power loss service) to make these
charges easier to document and administer than they were in the
Company's Order 888 compliance filing. The revised charges for
these two ancillary services have not yet been approved and
remain subject to refund. Management believes that the cost of
any future refunds for these charges will not have a material
adverse effect on CILCO's financial position or results of
operations.
Order No. 889 requires public utilities to implement Standards of
Conduct and an Open Access Transmission Same-time Information
System (OASIS). Effective May 13, 1997, FERC Order No. 889-A
incorporated minor revisions to the original order and revised
the policy on posting discounts. In accordance with FERC Orders
889 and 889-A, CILCO is using the OASIS to nominate, obtain and
sell available electric transmission. On May 13, 1997, CILCO and
QST Energy Trading Inc. revised their original Standards of
Conduct as required by Order 889-A.
NOTE 5. QST Environmental Discontinued Operations
In November 1997, QST Environmental sold substantially all of the
assets of its wholly-owned subsidiary, ESE Land Corporation, for
$9.5 million in cash and residual interests in three newly-formed
limited liability corporations valued at $5.962 million,
resulting in an after-tax gain of approximately $2.7 million.
Accordingly, the discontinued activities are shown as
discontinued operations in the statement of income. Prior year
financial statements have been reclassified to conform to the
current year presentation.
NOTE 6. Financial Instruments and Price Risk Management
As of March 31, 1998, QST Energy Inc., a subsidiary of QST, had
open derivative financial instruments representing hedges of
natural gas sales of 5.4 Bcf and natural gas purchases and
inventories of 4.4 Bcf for commitments through 1998. The net
deferred gain on these derivatives as of March 31, 1998, was $.3
million. The net loss reflected in operating results arising
from financial instruments entered into by QST Energy Inc. for
hedging and trading purposes was $1.8 million for the quarter
ended March 31, 1998.
NOTE 7. New Accounting Pronouncements
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" (SFAS 130) and Statement No. 131,
"Disclosure About Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 130 establishes standards for
reporting and display of comprehensive income and its components
in a full set of general purpose financial statements.
Comprehensive income is the total of net income and all other non-
owner changes in equity. SFAS 131 establishes standards for
reporting information about operating segments for interim and
annual financial reports. Operating segments are components of a
company about which separate financial information is available
that is regularly evaluated by the chief operating decision maker
to determine how to allocate resources and to assess performance.
SFAS 130 and SFAS 131 are effective for financial statements
issued for periods beginning after December 15, 1997. The
Company has adopted these pronouncements issued by FASB, neither
of which is expected to have a material effect on the Company's
financial position, results of operations or cash flows.
NOTE 8. Earnings Per Share
The following data show the amounts used in computing earnings
per share and the effect on income and the weighted average
number of shares of dilutive potential common stock. The
shares calculated for potential dilution result from Award
Agreements entered into pursuant to the CILCORP Shareholder
Return Incentive Compensation Plan.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
(In thousands)
<S> <C>
Income available to common shareholders $ 7,694
Weighted average number of common shares
used in Basic Earnings Per Share 13,611
Weighted number of dilutive potential common
shares used in Diluted Earnings Per Share 79
</TABLE>
The Company adopted Statement of Financial Accounting Standards
No. 128, Earnings Per Share, for the year ended December 31,
1997. Restatement of first quarter 1997 is not applicable as no
potential common stock dilution occurred until the fourth quarter
of 1997.
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
telecommunications services through QST Communications Inc. (QST
Com). QST's operations include those of QST Environmental Inc.
(QST Environmental), a former first-tier CILCORP subsidiary which
became a QST subsidiary effective October 29, 1996. QST
Environmental's results are currently reported separately from
QST's energy and telecommunications operations.
QST Environmental is an environmental consulting and engineering
firm serving governmental, industrial and commercial customers.
CIM invests in a diversified portfolio of long-term financial
investments which currently includes leveraged leases, energy-
related projects and affordable residential housing.
CVI primarily invests in ventures in energy-related products and
services. CVI has an 80% interest in the Agricultural Research
and Development Corporation and has one wholly-owned subsidiary,
CILCORP Energy Services, Inc., (CESI). CESI's primary business
is the sale of non-regulated energy services, including non-
regulated sales of natural gas.
The Company is continually investigating and exploring strategic
restructuring opportunities, including potential combinations and
alliances involving other investor-owned utility companies, as
well as other companies engaged in the sale at retail or
wholesale of electricity, natural gas and related products and
services. Such restructuring activity has become more prevalent
in the utility industry over the last few years. An obvious
corollary to such activity is that the Company may acquire other
companies or may itself be acquired. The Company's policy
prohibits management from commenting on any possible merger,
acquisition, or other major restructuring prior to the time that
the law requires public disclosure. In the case of combinations
and alliances, disclosure is generally not required prior to the
time the Company enters into a definitive agreement pertaining to
the particular transaction. Consequently, the Company may engage
in preliminary discussions or negotiations at any time, without
disclosing their existence, that could subsequently lead to a
definitive agreement and public announcement.
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 2 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 QST
Environmental's services; weather conditions; the extent and pace
of development of competition for retail and wholesale customers;
changes in technology; third party noncompliance with Year 2000
requirements; pricing and transportation of commodities; market
demand for energy and for environmental consulting, engineering
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 or refinance
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 $60 million on a short-term basis.
On March 31, 1998, CILCORP had committed bank lines of credit of
$60 million, of which $47.3 million was used.
Depending on market conditions and corporate needs, the Company
may issue additional shares of common stock through the CILCO
Employees' Savings Plan (ESP) or the CILCORP Inc. Investors
Choice Automatic Reinvestment and Stock Purchase Plan (DRIP) at
any time. 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, and for other
corporate purposes. As of the date of this filing, neither the
ESP nor the DRIP is utilizing original-issue stock to meet plan
requirements.
The Company had $42 million of medium-term notes outstanding at
March 31, 1998. The Company may issue an additional $27
million under its existing $75 million medium-term note program
in order to retire maturing debt and to provide funds for other
corporate purposes.
CILCO
Capital expenditures totaled $10.5 million for the three months
ended March 31, 1998. Capital expenditures are anticipated to be
approximately $40.6 million for the remainder of 1998 and are
estimated to be $51.7 million in 1999. Included in 1998
estimates for information technology projects is replacement of
existing computer software containing two-digit date fields which
will not be able to distinguish the year 2000 from the year 1900.
Modifications of existing programs will be expensed as incurred,
while expenditures for programs replaced in their entirety will
be capitalized. Management continues to evaluate the impact of
Year 2000 issues on CILCO's computer software systems and
operations. An outside consulting firm has been engaged to
assist in this process and is currently updating business impact
analyses. CILCO currently believes it will be able to achieve
Year 2000 compliance through a combination of modifications of
some existing programs and systems, and the replacement of others
with new software that is already Year 2000 compliant. However,
if such modifications and conversions are not made, or are not
made in a timely manner, the Year 2000 issue could have a
material impact on CILCO's operations. In addition, management
cannot predict the nature or impact on operations of third party
noncompliance with Year 2000 requirements.
Currently, CILCO does not plan to issue long-term debt during the
remainder of 1998. CILCO intends to finance its 1998 and 1999
capital expenditures with funds provided by operations.
As of April 1, 1998, CILCO had committed bank lines of credit
aggregating $35 million, all of which were unused. CILCO uses
these lines of credit to support issuance of short-term
commercial paper. CILCO had $1.2 million of commercial paper
outstanding at March 31, 1998 and expects to issue commercial
paper periodically throughout the remainder of 1998.
QST (Excluding QST Environmental)
Capital expenditures totaled approximately $2.7 million for the
quarter ended March 31, 1998, primarily for construction of fiber
optic and other communications facilities by QST Communications.
Capital expenditures for the remainder of 1998 are expected to be
$6 million. The 1998 capital expenditures are primarily for the
construction and expansion of fiber optic and other
communications facilities. Working capital balances increased by
$.5 million during the first quarter of 1998. QST expects to
finance capital expenditures and working capital needs during
1998 with funds provided by the Holding Company. Management does
not currently expect that Year 2000 compliance issues will
materially impact QST's operations, but cannot predict the effect
of third party noncompliance.
The property management firm which operates the Sears Tower
(Tower) in Chicago has contracted with QST to install a
$10 million cogeneration system that would supply electricity to
the Tower and its tenants. Expenditures for the system are not
included in projected 1998 capital expenditures. The Tower's
current utility provider, Commonwealth Edison Company (ComEd),
has refused QST necessary access to ComEd's distribution system.
In April 1997, QST and Tower filed a joint complaint with the
Illinois Commerce Commission (ICC) alleging that ComEd's refusal
to permit an interconnection constituted a violation of the
Illinois Public Utilities Act. Hearings began in December 1997
and continued during the first quarter of 1998. The Hearing
Examiner issued a proposed order favorable to ComEd in March
1998. Subsequently, QST filed its exceptions to the proposed
order and expects the final order from the Illinois Commerce
Commission in late May. If QST's complaint before the ICC is
successful and the project proceeds, it expects to finance the
cogeneration project with a combination of long-term debt and
funds provided by the Holding Company.
At March 31, 1998, QST had outstanding debt of $4.9 million, all
of which was owed to the Holding Company.
QST Environmental
For the quarter ended March 31, 1998, QST Environmental's
expenditures for capital additions and improvements were
approximately $68,000. Capital expenditures for the remainder of
1998 are expected to be $1.0 million, which includes the
replacement of the existing accounting/project management system
in order to become Year 2000 compliant.
QST Environmental has lines of credit with CILCORP under which
QST Environmental may borrow up to $15 million of revolving debt,
depending upon the amount of QST Environmental's receivables and
fixed assets. These lines of credit expire in May 2000. At
March 31, 1998, QST Environmental had borrowed $12.5 million of
debt from CILCORP and had advanced $2.4 million to CILCORP,
resulting in a net borrowing of $10.1 million. Based upon its
current receivables and fixed assets, QST Environmental has
$4.9 million available under its revolving line of credit with
CILCORP.
CIM
At March 31, 1998, CIM had outstanding debt of $41 million,
borrowed from CILCORP. During 1997 and prior years, CIM
committed to invest $16.6 million in affordable housing tax
credit funds. Through March 31, 1998, approximately
$11.5 million of these commitments had been funded. CIM expects
to contribute approximately $3.2 million in cash for these
investments during the remainder of 1998, $.9 million in 1999,
and lesser amounts each year thereafter through 2006. These
investments will be funded through borrowings from CILCORP. CIM
expects to finance any other new investments and working capital
needs during the remainder of 1998 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 1998 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, QST
Environmental and Other Businesses for the three months ended
March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
(In thousands)
(Unaudited)
<S> <C> <C>
Core Businesses:
CILCO
Electric and gas utility operating income $18,324 $19,197
Utility other income and deductions (6,008) (6,146)
Preferred stock dividends of CILCO (802) (786)
------- -------
Total utility net income 11,514 12,265
QST (excluding QST Environmental) net loss (3,221) (891)
QST Environmental net loss (includes ESE Land) (401) (929)
------- -------
Total core business income 7,892 10,445
Other businesses net loss (198) (726)
------- -------
Consolidated net income available to
common shareholders $ 7,694 $ 9,719
======= =======
</TABLE>
CILCO Electric and Gas Operations
The following table summarizes the components of CILCO electric
and gas operating income for the three months ended March 31,
1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
Components of Electric and Gas March 31,
Operating Income 1998 1997
(In thousands)
(Unaudited)
<S> <C> <C>
Electric revenue:
Electric retail $73,357 $69,339
Sales for resale 5,821 3,953
------- -------
Total electric revenue 79,178 73,292
------- -------
Electric cost of sales:
Cost of fuel 24,342 21,727
Purchased power 4,674 4,104
Revenue taxes 4,317 3,600
------- -------
Total electric cost of sales 33,333 29,431
------- -------
Electric gross margin 45,845 43,861
------- -------
Gas revenue:
Sale of gas 68,280 90,467
Transportation services 1,622 2,036
------- -------
Total gas revenue 69,902 92,503
------- -------
Gas cost of sales:
Cost of gas 40,622 61,667
Revenue taxes 3,492 3,566
------- -------
Total gas cost of sales 44,114 65,233
------- -------
Gas gross margin 25,788 27,270
------- -------
Electric and gas operating expenses
Other operation and maintenance 26,817 26,264
Depreciation and amortization 15,755 15,393
Income and other taxes 10,737 10,277
------- -------
Total electric and gas operating
expenses 53,309 51,934
------- -------
Electric and gas operating income $18,324 $19,197
======= =======
</TABLE>
Electric gross margin increased 5% for the three months ended
March 31, 1998, compared to the same period in 1997. Retail
kilowatt hour (Kwh) sales remained constant for the three months
ended March 31, 1998, compared to the first quarter of 1997.
Residential sales decreased 5% for the three months ended
March 31, 1998, compared to the same period in 1997, primarily
due to a 17% decrease in heating degree days. Commercial sales
increased 3% due, in part, to an increase in the number of
commercial customers. Industrial sales increased 3% for the
three months ended March 31, 1998, compared to the same period in
1997. Industrial sales continue to be negatively impacted by
customers switching to off-system suppliers under CILCO's Power
Quest program (see Part II. Item 5: Other Information, Power
Quest Electric Pilot Programs).
Sales for resale increased 47% during the first quarter of 1998,
compared to the same period in 1997, due to favorable market
conditions. Sales for resale vary based on the energy
requirements of neighboring utilities and power marketers,
CILCO's available capacity for bulk power sales and the price of
power available for sale. 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 may also be affected for the near term by
the Power Quest pilot programs, and in the long term by
deregulation and increased competition in the electric utility
industry (see Part II. Item 5: Other Information, Power Quest
Electric Pilot Programs).
Substantially all of CILCO's electric generating capacity is coal-
fired. The cost of fuel increased 12% in the first quarter of
1998, compared to the same period in 1997. This increase was due
to an 8% increase in generation, and a 9% increase in the cost of
coal burned. Purchased power increased for the three months
ended March 31, 1998, compared to the same period in 1997.
Purchased power expense varies based on CILCO's need for energy
and the price of power available for purchase. CILCO makes use
of purchased power when it is economical to do so and when
required during maintenance outages at CILCO plants. The costs
of purchased power for retail customers are passed through to
those customers via the fuel adjustment clause (FAC). CILCO
expects the wholesale power market to become increasingly
competitive.
Gas gross margin decreased 5% for the quarter ended March 31,
1998, compared to the same period in 1997. Residential and
commercial sales volumes decreased 11% and 7%, respectively, for
the three months ended March 31, 1998, primarily due to warmer
weather. Heating degree days were 17% lower for the three months
ended March 31, 1998, compared to the same period in 1997, and
21% below normal. 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 at the retail level in the natural gas industry.
Revenue from gas transportation services decreased 20% while gas
transportation sales volumes decreased 10% for the first quarter
of 1998, compared to the same period in 1997. Transportation
revenues continue to decline due to commercial transportation
customers switching back to CILCO system supply.
The cost of gas decreased 34% for the quarter ended March 31,
1998, compared to the same period in 1997. This decrease was
primarily due to lower natural gas prices from CILCO's suppliers.
Operation and maintenance expense increased 2% for the three
months ended March 31, 1998, compared to the same period in 1997.
The increase was due to a scheduled outage at CILCO's
E.D. Edwards generation facility, increased customer service
costs related to the Customer Care Center which opened on
June 30, 1997, and increased distribution overhead line
maintenance and tree trimming costs. These increases were
partially offset by lower outside services costs and decreases in
the actuarially determined costs for pensions and post-employment
benefits.
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 increased for the quarter ended
March 31, 1998, partially due to higher pre-tax operating income.
CILCO Other Income and Deductions and Interest Expense
The following table summarizes other income and deductions and
interest expense for the three months ended March 31, 1998 and
1997.
<TABLE>
<CAPTION>
Three Months Ended
Components of Other Income and March 31,
Deductions and Interest Expense 1998 1997
(In thousands)
(Unaudited)
<S> <C> <C>
Net interest expense $(5,667) $(5,694)
Income taxes 697 670
Other (1,038) (1,122)
------- -------
Other income (deductions) $(6,008) $(6,146)
======= =======
</TABLE>
QST (Excluding QST Environmental)
The following table summarizes the revenue and expenses for QST
for the three months ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
Components of QST Net Loss (In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Electric revenue $ 24,366 $ 609
Gas revenue 179,885 5,316
Telecommunications revenue 152 73
-------- -------
Total revenue 204,403 5,998
Cost of sales:
Cost of electricity 24,366 590
Cost of gas 182,087 5,082
Cost of sales - Telecommunications 51 34
-------- -------
Total cost of sales 206,504 5,706
-------- -------
Gross margin (2,101) 292
-------- -------
Other expenses:
General and administrative 2,975 1,599
Depreciation and amortization 246 61
Interest 16 109
-------- -------
Total other expenses 3,237 1,769
-------- -------
Net loss before taxes (5,338) (1,477)
Income taxes (2,117) (586)
-------- --------
QST net loss $ (3,221) $ (891)
======== ========
</TABLE>
QST Enterprises Inc. was formed to facilitate CILCORP's expansion
into non-regulated energy and related services businesses. Its
initial focus through QST Energy was to compete against energy
suppliers participating in CILCO's Power Quest programs. After
successfully competing for Power Quest program customers, QST
Energy has established and expanded the infrastructure required
to supply energy to customers outside of the CILCO service
territory, and currently has energy customers in Illinois,
Pennsylvania, and California. QST Energy competes against
marketers, brokers and utility affiliates to provide energy and
services to customers of utilities and other energy providers
which offer, or will be required to offer, similar retail
competition programs, as well as marketing energy to customers
who already have the ability to choose their supplier. QST
provides a portfolio of non-regulated, energy-related products
and services, and communication services based on a Central
Illinois fiber optic system.
QST Energy's wholly-owned subsidiary, QST Energy Trading Inc.
(QST Trading), is a wholesale natural gas and electric 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, Pittsburgh and
Houston.
On May 23, 1997, QST Trading acquired Trebor Energy Resources, a
Houston-based natural gas marketing and trading company. The
acquisition complements QST's growing wholesale and retail energy
business and enhances QST Trading's ability to purchase,
transport and sell natural gas to utilities and industrial and
commercial customers in the Gulf Coast, Midwest and Northeast
markets. The final acquisition price is based on a deferred
payment arrangement and will be determined by actual results
achieved compared to predetermined performance measures.
QST's revenue increased in the first quarter of 1998, compared to
the same period in 1997, due to increased wholesale natural gas
trading activity resulting from the acquisition of Trebor Energy
Resources and due to QST Energy's participation in the
Pennsylvania electric and gas pilots. QST's electric retail
gross margin increased by $48,000 in the first quarter of 1998,
primarily due to participation in the Pennsylvania electric
pilots. Positive electric retail margin at QST Energy for the
first quarter of 1998 was offset by negative electric wholesale
trading margin. Wholesale electric sales did not begin until the
second quarter of 1997. Electricity sales for the first quarter
of 1998 for the wholesale and retail initiatives were
approximately 980,500 megawatt hours, an increase of 955,300
megawatt hours from the first quarter of 1997.
Natural gas revenues increased by $174.6 million to $179.9
million in the first quarter of 1998. Physical natural gas sales
increased by 68.7 million MMBTU to 72.3 million MMBTU for the
first quarter of 1998. This increase was due to the Trebor
acquisition and wholesale marketing growth initiatives. Negative
natural gas gross margin contributed approximately $1.3 million
on an after-tax basis to QST's net loss for the first quarter of
1998, compared to a $.1 million positive after-tax gas gross
margin for the first quarter of 1997, due to wholesale trading
losses incurred by QST Trading.
QST's general and administrative expenses increased for the first
quarter of 1998, compared to the corresponding period in 1997,
due to the acquisition of Trebor Energy Resources and an increase
in the number of QST employees to support growing retail and
wholesale operations. Net losses are expected to continue in
1998 as QST continues to develop businesses which are focused on
the newly-emerging deregulated energy markets throughout the
United States. Revenues are anticipated to increase as QST
expands its retail sales of energy to additional commercial and
industrial customers and increases the level of its wholesale
natural gas and electric business. QST began delivering power to
commercial electric customers in California at approximately 325
locations on April 1, 1998.
QST Environmental Operations
The following table summarizes environmental and engineering
services revenue and expenses for the three months ended March
31, 1998 and 1997.
<TABLE>
<CAPTION>
Components of QST Environmental Three Months Ended
Net Loss March 31,
1998 1997
(In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Environmental & engineer. srvs. revenue $17,467 $17,593
Direct non-labor project costs 6,864 6,000
------- -------
Net revenue 10,603 11,593
------- -------
Expenses:
Direct salaries, indirect salaries and
related benefits 5,652 6,524
General and administrative 4,646 5,100
Depreciation and amortization 695 1,063
------- -------
Operating expenses 10,993 12,687
------- -------
Interest expense 248 142
------- -------
Loss before income taxes (638) (1,236)
Income taxes (237) (405)
------- -------
Net loss from continuing operations (401) (831)
Loss from oper. of discontinued bus. -- (98)
------- -------
QST Environmental net loss $ (401) $ (929)
======= =======
</TABLE>
QST Environmental's quarterly results 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 QST Environmental's professionals have in the field;
corporate repositioning costs; and increased competition in all
aspects of the business.
QST Environmental's net revenues decreased by $1 million, or 9%,
for the three months ended March 31, 1998, compared to the same
period in 1997. The net revenue decreases for this period
resulted primarily from reduced laboratory revenues as a result
of the sale of the Peoria Laboratory and reduced business volume
in the remaining Gainesville Laboratory. Consulting revenues for
the three months ended March 31, 1998 were consistent with the
corresponding period in 1997.
Direct salaries, indirect salaries and related benefits decreased
during the three months ended March 31, 1998. Salary 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 $.9 million, or 13%, for the three months ended
March 31, 1998, compared to the same period in 1997. This
decrease was primarily due to a planned reduction in the number
of laboratory and other technical staff to match decreased levels
of business activity.
General and administrative expenses decreased by $.5 million, or
9%, for the three months ended March 31, 1998, compared to the
same period in 1997. General and administrative expenses include
non-billable employee time devoted to marketing, proposals,
supervision, and professional development; office supply
expenses; and corporate administrative expenses. The decreases
for this period resulted from efforts to control administrative
and marketing costs, including lower general and administrative
salaries and related benefits expense.
In the fourth quarter of 1997, QST Environmental wrote off
$22.6 million of unamortized goodwill. Consequently, no
amortization is recorded in the quarter ended March 1998.
Depreciation expense declined $.2 million due primarily to an
increase in fully-depreciated assets coupled with reduced capital
expenditures.
In November 1997, QST Environmental sold substantially all the
assets of ESE Land for $9.5 million in cash and residual
interests in three newly-formed limited liability corporations.
These activities are shown as discontinued operations in the
statements of income. Interest expense increased because, as a
result of the ESE Land sale, a portion of interest costs is no
longer capitalized.
QST Environmental will continue to position itself to take
advantage of new market opportunities. QST Environmental is
collaborating with QST Energy to provide environmental consulting
and engineering services for QST Energy customers. The bundled
services that QST Energy offers its customers include the
environmental consulting capabilities of QST Environmental.
Due to the labor intensive nature of QST Environmental's
business, it has the ability to adjust staffing levels to
recognize changing business conditions. QST Environmental had
565 full-time equivalent employees at March 31, 1998, compared to
690 employees at March 31, 1997. To better utilize QST
Environmental's resources as part of CILCORP's commitment to
efficiently market non-regulated energy and related services, QST
Environmental became a subsidiary of QST effective October 29,
1996. QST Environmental'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 QST
Environmental's services is highly competitive; however, no
single entity currently dominates the environmental consulting
and engineering services marketplace.
Other Businesses Operations
The following table summarizes the components of Other Businesses
losses for the three months ended March 31, 1998 and 1997.
<TABLE> Three Months Ended
<CAPTION> March 31,
Components of Other Businesses 1998 1997
Net Income (Loss) (In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Other revenue $ 5,195 $ 2,800
------- -------
Expenses:
Operating Expenses 4,563 3,632
Depreciation and amortization 48 48
Interest expense 1,594 1,157
Income and other taxes (812) (1,311)
------- -------
Total expenses 5,393 3,526
------- -------
Other businesses net loss $ (198) $ (726)
======= =======
</TABLE>
Other revenues increased 86% for the three months ended March 31,
1998, primarily due to increased gas marketing revenue at CVI.
Operating expenses increased for the three months ended March 31,
1998, compared to the corresponding period in 1997, primarily due
to increased expenses related to the gas marketing program at
CVI, while interest expense increased due to higher average debt
balances.
The credit for income and other taxes decreased in the three
months ended March 31, 1998, compared to the corresponding period
in 1997, primarily due to a smaller pre-tax loss.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Reference is made to "Environmental Matters" under "Item 1.
Business" in the Company's 1997 Annual Report on Form 10-K (the
"1997 Form 10-K"), and "Note 2. Contingencies," and "Note 4.
Electric Transmission Open Access," 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 referred to
above, 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.
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 28, 1998:
Votes
Votes For Withheld
Elected to the Board
of Directors:
W. Bunn III 11,188,412 218,339
H. J. Holland 11,154,784 251,967
K. E. Smith 11,179,730 227,021
Item 5: Other Information
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 each have peak loads of 10
megawatts or more to secure all or part of their electric power
requirements from suppliers other than CILCO. However, program
participants' total purchases from other suppliers may not exceed
50 megawatts (10% of CILCO's industrial load) at any time.
Participating customers began receiving electricity under this
Power Quest pilot in May of 1996, and the program ended, as
scheduled, on April 30, 1998.
Seven of the eligible customers elected to participate in this
pilot program. The largest, Caterpillar Inc., elected to form a
strategic alliance with CILCORP and receive value-added energy
and environmental products and services rather than taking its
entire Power Quest allocation from suppliers other than CILCO.
Caterpillar remained a full requirements customer of CILCO during
the first year of the program. During the second year, which
began May 1, 1997, Caterpillar purchased a portion of its Power
Quest allocation off-system and received a correspondingly
reduced level of products and services under the strategic
alliance.
Based on Power Quest participation levels by eligible industrial
customers through March of 1998, CILCORP experienced a reduction
of $1.6 million of pre-tax income for the first three months of
1998 (including electric margin lost by CILCO, CVI costs
associated with the Caterpillar alliance, and QST margin on sales
to Power Quest industrial customers). Costs associated with the
Caterpillar alliance are included in Other Business Operations.
CILCO has offset some of the profit margin lost under Power Quest
with increased wholesale electric sales outside its service
territory.
With the expiration of the industrial Power Quest pilot and the
delay in the availability of choice for Illinois electricity
consumers until October 1, 1999, CILCO is working with these
Power Quest customers to sign electric service contracts with
CILCO. The Company and industrial Power Quest participants are
discussing electric supply contract options whose terms may
extend beyond the date when these customers will be able to
select alternative suppliers under Illinois law.
In the other Power Quest electric program, CILCO has 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.
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. Based on the current participation level of eligible
customers, CILCO anticipates a reduction in pre-tax income of up
to $1.6 million on an annual basis. Based upon participation
levels by eligible commercial and residential customers through
March 1998, CILCORP experienced a reduction of $.3 million in pre-
tax income for the first three months of 1998. Assuming the same
Power Quest participation level for all of 1998, CILCORP would
experience a reduction to pre-tax income of $1.2 million in 1998.
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 at any one time. 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 financial position or results of
operations for 1997 or the first three months of 1998, nor does
management believe this program will have a material adverse
impact on CILCO's future financial position or results of
operations.
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 8, 1998 R. O. Viets
R. O. Viets
President and
Chief Executive Officer
Date May 8, 1998 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 8, 1998 T. S. Romanowski
T. S. Romanowski
Vice President and Chief
Financial Officer
Date May 8, 1998 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.
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<NAME> CILCORP INC.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 862,818
<OTHER-PROPERTY-AND-INVEST> 191,268
<TOTAL-CURRENT-ASSETS> 220,659
<TOTAL-DEFERRED-CHARGES> 27,648
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,302,393
<COMMON> 192,567
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 159,349
<TOTAL-COMMON-STOCKHOLDERS-EQ> 351,916
22,000
44,120
<LONG-TERM-DEBT-NET> 298,543
<SHORT-TERM-NOTES> 47,250
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 1,200
<LONG-TERM-DEBT-CURRENT-PORT> 22,170
0
<CAPITAL-LEASE-OBLIGATIONS> 2,066
<LEASES-CURRENT> 449
<OTHER-ITEMS-CAPITAL-AND-LIAB> 512,679
<TOT-CAPITALIZATION-AND-LIAB> 1,302,393
<GROSS-OPERATING-REVENUE> 376,145
<INCOME-TAX-EXPENSE> 3,895
<OTHER-OPERATING-EXPENSES> 355,921
<TOTAL-OPERATING-EXPENSES> 359,816
<OPERATING-INCOME-LOSS> 16,329
<OTHER-INCOME-NET> 222
<INCOME-BEFORE-INTEREST-EXPEN> 16,107
<TOTAL-INTEREST-EXPENSE> 7,611
<NET-INCOME> 8,496
802
<EARNINGS-AVAILABLE-FOR-COMM> 7,694
<COMMON-STOCK-DIVIDENDS> 8,371
<TOTAL-INTEREST-ON-BONDS> 5,872
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<EPS-PRIMARY> .57
<EPS-DILUTED> .56
</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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 862,818
<OTHER-PROPERTY-AND-INVEST> 4,275
<TOTAL-CURRENT-ASSETS> 105,317
<TOTAL-DEFERRED-CHARGES> 18,355
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 990,765
<COMMON> 185,661
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 145,225
<TOTAL-COMMON-STOCKHOLDERS-EQ> 330,886
22,000
44,120
<LONG-TERM-DEBT-NET> 267,848
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 1,200
<LONG-TERM-DEBT-CURRENT-PORT> 10,650
0
<CAPITAL-LEASE-OBLIGATIONS> 2,066
<LEASES-CURRENT> 449
<OTHER-ITEMS-CAPITAL-AND-LIAB> 311,546
<TOT-CAPITALIZATION-AND-LIAB> 990,765
<GROSS-OPERATING-REVENUE> 149,080
<INCOME-TAX-EXPENSE> 7,777
<OTHER-OPERATING-EXPENSES> 122,979
<TOTAL-OPERATING-EXPENSES> 130,756
<OPERATING-INCOME-LOSS> 18,324
<OTHER-INCOME-NET> (287)
<INCOME-BEFORE-INTEREST-EXPEN> 18,037
<TOTAL-INTEREST-EXPENSE> 5,721
<NET-INCOME> 12,316
802
<EARNINGS-AVAILABLE-FOR-COMM> 11,514
<COMMON-STOCK-DIVIDENDS> 13,371
<TOTAL-INTEREST-ON-BONDS> 4,960
<CASH-FLOW-OPERATIONS> 46,724
<EPS-PRIMARY> 0
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