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 September 30, 1999
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 Liberty Street
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 September 30, 1999 13,625,680
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value,
shares outstanding and privately
held by CILCORP Inc. at September 30, 1999 13,563,871
1
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
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
Statements of Segments of Business 14-17
Notes to Consolidated Financial Statements
CILCORP Inc. and Central Illinois Light Company 18-20
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
CILCORP Inc. and Central Illinois Light Company 21-35
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 35
Item 5: Other Information 35-37
Item 6: Exhibits and Reports on Form 8-K 37
Signatures
2
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
1999 1998
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 4,087 $ 1,669
Receivables, less reserves of
$1,698 and $1,106 66,716 134,548
Accrued unbilled revenue 28,879 39,339
Fuel, at average cost 7,666 13,431
Materials and supplies, at
average cost 17,152 15,435
Gas in underground storage, at
average cost 24,651 20,494
Prepayments and other 24,786 7,646
---------- ----------
Total current assets 173,937 232,562
---------- ----------
Investments and other property:
Investment in leveraged leases 143,498 146,977
Cash surrender value of company-owned
life insurance, net of related
policy loans of $53,404 and $48,132 2,431 2,655
Other investments 21,130 16,882
---------- ----------
Total investments and other
property 167,059 166,514
---------- ----------
Property, plant and equipment:
Utility plant, at original cost
Electric 1,247,238 1,237,885
Gas 421,281 417,585
---------- ----------
1,668,519 1,655,470
Less - accumulated provision for
depreciation 859,460 812,630
---------- ----------
809,059 842,840
Construction work in progress 53,463 30,075
Other, net of depreciation 340 7,755
---------- ----------
Total property, plant and
equipment 862,862 880,670
---------- ----------
Other assets 30,622 33,194
---------- ----------
Total assets $1,234,480 $1,312,940
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
3
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 43,000 $ 13,027
Notes payable 102,600 96,200
Accounts payable 44,020 128,845
Accrued taxes 14,286 8,262
Accrued interest 5,211 9,994
FAC/PGA over-recoveries 4 304
Other 4,461 14,316
---------- ----------
Total current liabilities 213,582 270,948
---------- ----------
Long-term debt 257,181 288,135
---------- ----------
Deferred credits and other
liabilities:
Accumulated deferred income taxes 231,781 239,305
Regulatory liability of regulated
subsidiary 38,780 46,346
Deferred investment tax credits 18,206 19,450
Other 86,589 47,098
---------- ----------
Total deferred credits and
other liabilities 375,356 352,199
---------- ----------
Preferred stock of subsidiary 66,120 66,120
---------- ----------
Stockholders' equity:
Common stock, no par value;
authorized 50,000,000 shares -
outstanding 13,625,680 shares 192,853 192,853
Retained earnings 130,233 143,530
Accumulated other comprehensive
income (845) (845)
---------- ----------
Total stockholders' equity 322,241 335,538
---------- ----------
Total liabilities and
stockholders' equity $1,234,480 $1,312,940
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
4
<PAGE>
<TABLE>
CILCORP INC AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)*
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue:
Electric utility $130,034 $115,236 $299,040 $282,718
Gas utility 21,511 21,270 123,877 119,482
Other businesses 3,986 4,390 21,119 14,772
-------- -------- -------- --------
Total 155,531 140,896 444,036 416,972
-------- -------- -------- --------
Operating expenses:
Fuel for generation and
purchased power 52,699 36,456 109,882 94,785
Gas purchased for resale 10,252 10,855 75,257 70,880
Other operations and maintenance 62,675 29,797 136,399 91,798
Depreciation and amortization 16,686 16,573 51,167 48,539
Taxes, other than income taxes 9,868 9,771 30,784 29,076
-------- -------- -------- --------
Total 152,180 103,452 403,489 335,078
-------- -------- -------- --------
Fixed charges and other:
Interest expense 6,999 7,309 21,339 21,934
Preferred stock dividends of
subsidiary 802 797 2,372 2,396
Allowance for funds used
during construction (48) (14) (74) (20)
Other 202 333 708 745
-------- -------- -------- --------
Total 7,955 8,425 24,345 25,055
-------- -------- -------- --------
(Loss) income from continuing
operations before income taxes (4,604) 29,019 16,202 56,839
Income taxes (2,247) 10,982 4,868 19,751
-------- -------- -------- --------
Net (loss) income from
continuing operations (2,357) 18,037 11,334 37,088
Loss from operations of
discontinued business, net of
tax of $(2,353), $(221),
and $(10,220) -- (3,620) (407) (15,665)
Gain on sale of assets of
discontinued business, net of
tax of $5,425 -- 8,252 -- 8,252
-------- -------- -------- --------
Net (loss) income $ (2,357)$ 22,669 $ 10,927 $ 29,675
======== ======== ======== ========
5
Average common shares outstanding -
basic 13,614 13,611 13,612 13,611
======== ======== ======== ========
Earnings per common share - basic
Continuing operations $ (.18)$ 1.33 $ .83 $ 2.72
Discontinued operations -- .34 (.03) (.54)
-------- -------- -------- --------
Net income per common
share - basic $ (.18)$ 1.67 $ .80 $ 2.18
======== ======== ======== ========
Average common shares outstanding -
diluted 13,614 13,694 13,712 13,694
======== ======== ======== ========
Earnings per common share - diluted
Continuing operations $ (.18)$ 1.32 $ .83 $ 2.71
Discontinued operations -- .34 (.03) (.54)
-------- -------- -------- --------
Net income per common
share - diluted $ (.18)$ 1.66 $ .80 $ 2.17
======== ======== ======== ========
Dividends per common share $ .615 $ .615 $ 1.845 $ 1.845
======== ======== ======== ========
<FN>
*Except per share amounts
The accompanying notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
6
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 13,299 $ 32,071
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Non-cash lease income and investment income (4,589) (5,155)
Cash receipts in excess of debt service
on leases 8,679 6,838
Depreciation and amortization 51,167 48,539
Deferred income taxes, investment tax credit
and regulatory liability of subsidiary, net (20,383) (4,614)
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable and
accrued unbilled revenue (3,198) 19,354
(Increase) Decrease in inventories (209) 166
Decrease in accounts payable (18,586) (14,262)
Increase in accrued taxes 10,227 2,585
Increase in other assets (22,051) (6,203)
Increase (Decrease) in other liabilities 32,074 (3,630)
-------- --------
Total adjustments 33,131 43,618
-------- --------
Net cash provided by operating activities
from continuing operations 46,430 75,689
-------- --------
Net cash provided (used) by operating
activities of discontinued operations 9,877 (19,669)
-------- --------
Cash flow from operations 56,307 56,020
-------- --------
Cash flows from investing activities:
Additions to plant (39,957) (45,163)
Proceeds from sale of discontinued operations 17,376 20,000
Other (4,160) (7,297)
-------- --------
Net cash used by investing activities
from continuing operations (26,741) (32,460)
-------- --------
Net cash used by investing activities
from discontinued operations (5,083) (3,253)
-------- --------
Cash flow from investing activities (31,824) (35,713)
-------- --------
7
Cash flow from financing activities:
Increase in short-term debt 6,400 20,950
Decrease in long-term debt (981) (16,568)
Common dividends paid (25,112) (25,112)
Preferred dividends paid (2,372) (2,396)
-------- --------
Cash flow from financing activities (22,065) (23,126)
-------- --------
Net increase (decrease) in cash and
temporary cash investments: 2,418 (2,819)
Cash and temporary cash investments
at beginning of year: 1,669 10,576
-------- --------
Cash and temporary cash investments at
September 30 $ 4,087 $ 7,757
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 23,706 $ 23,769
Income taxes $ 10,828 $ 19,611
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
8
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
(Unaudited)
<S> <C> <C>
Utility plant, at original cost:
Electric $1,247,238 $1,237,885
Gas 421,281 417,585
---------- ----------
1,668,519 1,655,470
Less - accumulated provision
for depreciation 859,460 812,630
---------- ----------
809,059 842,840
Construction work in progress 53,463 30,075
Plant acquisition adjustments,
net of amortization -- 505
---------- ----------
Total utility plant 862,522 873,420
---------- ----------
Other property and investments:
Cash surrender value of company-owned
life insurance (net of related
policy loans of $53,404 and $48,132) 2,431 2,655
Other 1,211 1,176
---------- ----------
Total other property and
investments 3,642 3,831
---------- ----------
Current assets:
Cash and temporary cash investments 2,999 1,362
Receivables, less reserves of
$1,698 and $1,106 37,933 35,767
Accrued unbilled revenue 28,662 31,315
Fuel, at average cost 7,666 13,431
Materials and supplies,
at average cost 16,892 15,062
Gas in underground storage,
at average cost 24,571 20,494
Prepaid taxes 1,578 2,265
Other 24,743 6,626
---------- ----------
Total current assets 145,044 126,322
---------- ----------
Deferred debits:
Unamortized loss on reacquired debt 3,021 3,261
Unamortized debt expense 1,734 1,852
Prepaid pension cost 417 417
Other 19,741 15,325
---------- ----------
Total deferred debits 24,913 20,855
---------- ----------
Total assets $1,036,121 $1,024,428
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
9
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
CAPITALIZATION AND LIABILITIES 1999 1998
(Unaudited)
<S> <C> <C>
Capitalization:
Common stockholder's equity:
Common stock, no par value;
authorized 20,000,000 shares;
outstanding 13,563,871 shares $ 185,661 $ 185,661
Retained earnings 123,683 135,315
Accumulated other comprehensive income (845) (845)
---------- ----------
Total common stockholder's equity 308,499 320,131
Preferred stock without mandatory
redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt 237,921 267,884
---------- ----------
Total capitalization 612,540 654,135
---------- ----------
Current liabilities:
Current maturities of long-term debt 30,000 --
Notes payable 57,600 40,600
Accounts payable 38,785 53,260
Accrued taxes 16,135 7,303
Accrued interest 5,361 9,394
FAC/PGA over-recoveries 4 304
Level payment plan -- 1,519
Other 4,391 5,261
---------- ----------
Total current liabilities 152,276 117,641
---------- ----------
Deferred credits and other
liabilities:
Accumulated deferred income taxes 129,670 141,746
Regulatory liability 38,779 46,346
Deferred investment tax credit 18,206 19,450
Capital lease obligation 1,317 1,703
Other 83,333 43,407
---------- ----------
Total deferred credits and
other liabilities 271,305 252,652
---------- ----------
Total capitalization and
liabilities $1,036,121 $1,024,428
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
10
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Income
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Operating revenue:
Electric $130,034 $115,236 $299,040 $282,718
Gas 21,511 21,270 123,877 119,482
-------- -------- -------- --------
Total operating revenues 151,545 136,506 422,917 402,200
-------- -------- -------- --------
Operating expenses:
Cost of fuel 8,594 25,625 53,855 71,102
Cost of gas 9,305 9,139 65,123 63,295
Purchased power 44,105 10,831 56,027 23,683
Other operations and maintenance 57,149 27,949 122,749 85,642
Depreciation and amortization 16,571 16,344 50,532 47,853
Income taxes (98) 12,046 9,261 23,872
Other taxes 9,856 9,757 30,755 29,021
-------- -------- -------- --------
Total operating expenses 145,482 111,691 388,302 344,468
-------- -------- -------- --------
Operating income 6,063 24,815 34,615 57,732
-------- -------- -------- --------
Other income and deductions:
Cost of equity funds capitalized -- -- -- --
Company-owned life insurance, net (202) (333) (708) (745)
Other, net (342) 302 (726) 278
-------- -------- -------- --------
Total other income and
(deductions) (544) (31) (1,434) (467)
-------- -------- -------- --------
Income before interest expense 5,519 24,784 33,181 57,265
-------- -------- -------- --------
Interest expenses:
Interest on long-term debt 4,808 4,808 14,425 14,690
Cost of borrowed funds
capitalized (48) (14) (74) (20)
Other 1,098 926 2,979 2,286
-------- -------- -------- --------
Total interest expense 5,858 5,720 17,330 16,956
-------- -------- -------- --------
Net (loss) income before preferred
dividends (339) 19,064 15,851 40,309
-------- -------- -------- --------
Dividends on preferred stock 802 797 2,372 2,396
-------- -------- -------- --------
Net (loss) income available for
common stock $ (1,141)$ 18,267 $ 13,479 $ 37,913
======== ======== ======== ========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
11
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1999 1998
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 15,851 $ 40,309
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 51,037 48,386
Deferred income taxes, investment tax
credit and regulatory liability, net (20,888) (5,883)
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable (2,165) 8,843
(Increase) Decrease in fuel, materials and supplies,
and gas in underground storage (143) 357
Decrease in unbilled revenue 2,653 11,060
Decrease in accounts payable (14,474) (4,615)
Increase (decrease) in accrued taxes and interest 4,799 (523)
Capital lease payments 484 484
Increase in other current assets (17,429) (4,967)
Decrease in other current liabilities (2,690) (3,710)
Increase in other non-current assets (2,541) (2,132)
Increase in other non-current liabilities 39,809 3,291
-------- --------
Net cash provided by operating activities 54,303 90,900
-------- --------
Cash flows from investing activities:
Capital expenditures (39,275) (45,155)
Cost of equity funds capitalized -- --
Other (2,423) (3,687)
-------- --------
Net cash used in investing activities (41,698) (48,842)
-------- --------
Cash flow from financing activities:
Common dividends paid (25,112) (45,112)
Preferred dividends paid (2,372) (2,396)
Payments on capital lease obligation (484) (484)
Increase in short-term borrowing 17,000 16,600
Long-term debt retired -- (10,650)
-------- --------
Net cash used in financing activities (10,968) (42,042)
-------- --------
Net increase in cash and temporary
cash investments 1,637 16
Cash and temporary cash investments at
beginning of year 1,362 698
-------- --------
Cash and temporary cash investments at
September 30 $ 2,999 $ 714
======== ========
12
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest (net of cost of borrowed
funds capitalized) $ 21,802 $ 21,623
Income taxes $ 19,308 $ 28,655
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
13
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Three Months Ended September 30, 1999
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Oper. Totals
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $130,034 $ 21,511 $ 1,025 $ 2,885 $ -- $155,455
Interest income -- -- 34 42 -- 76
-------- -------- ------- ------- ------- --------
Total 130,034 21,511 1,059 2,927 -- 155,531
-------- -------- ------- ------- ------- --------
Operating
expenses 100,227 28,782 2,266 4,219 -- 135,494
Depreciation
and amort. 11,799 4,772 72 43 -- 16,686
-------- -------- ------- ------- ------- --------
Total 112,026 33,554 2,338 4,262 -- 152,180
-------- -------- ------- ------- ------- --------
Interest exp. 4,228 1,678 -- 1,093 -- 6,999
Preferred
stock div. -- -- 802 -- -- 802
Fixed charges
& other exp. (47) (1) 202 -- -- 154
-------- -------- ------- ------- ------- --------
Total 4,181 1,677 1,004 1,093 -- 7,955
-------- -------- ------- ------- ------- --------
Income from
continuing
oper. before
income taxes 13,827 (13,720) (2,283) (2,428) -- (4,604)
Income taxes 5,285 (5,383) (937) (1,212) -- (2,247)
-------- -------- ------- ------- ------- --------
Net income
from cont.
operations 8,542 (8,337) (1,346) (1,216) -- (2,357)
-------- -------- ------- ------- ------- --------
Effect of
discontinued
operations -- -- -- -- -- --
-------- -------- ------- ------- ------- --------
Segment net
income $ 8,542 $ (8,337)$(1,346)$(1,216) $ -- $ (2,357)
======== ======== ======= ======= ======= ========
14
<PAGE>
</TABLE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Three Months Ended September 30, 1998
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Oper. Totals
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $115,236 $21,270 $ 658 $3,674 $ -- $140,838
Interest income -- -- 47 11 -- 58
-------- ------- ------- ------ ------ --------
Total 115,236 21,270 705 3,685 -- 140,896
-------- ------- ------- ------ ------ --------
Operating
expenses 64,231 19,070 745 2,833 -- 86,879
Depreciation
and amort. 11,567 4,777 178 51 -- 16,573
-------- ------- ------- ------ ------ --------
Total 75,798 23,847 923 2,884 -- 103,452
-------- ------- ------- ------ ------ --------
Interest exp. 4,099 1,635 -- 1,575 -- 7,309
Preferred
stock div. -- -- 797 -- -- 797
Fixed charges
& other exp. (14) -- 333 -- -- 319
-------- ------- ------- ------ ------ --------
Total 4,085 1,635 1,130 1,575 -- 8,425
-------- ------- ------- ------ ------ --------
Income from
continuing
oper. before
income taxes 35,353 (4,212) (1,348) (774) -- 29,019
Income taxes 13,700 (1,654) (520) (544) -- 10,982
-------- ------- ------- ------ ------ --------
Net income
from cont.
operations 21,653 (2,558) (828) (230) -- 18,037
-------- ------- ------- ------ ------ --------
Effect of
discontinued
operations -- -- -- -- 4,632 4,632
-------- ------- ------- ------ ------ --------
Segment net
income $ 21,653 $(2,558) $ (828)$ (230) $4,632 $ 22,669
======== ======= ======= ====== ====== ========
</TABLE>
15
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Nine Months Ended September 30, 1999
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Oper. Totals
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $299,040 $123,877 $ 2,754 $18,120 $ -- $443,791
Interest income -- -- 147 98 -- 245
-------- -------- ------- ------- ------ --------
Total 299,040 123,877 2,901 18,218 -- 444,036
-------- -------- ------- ------- ------ --------
Operating
expenses 220,714 107,795 5,427 18,386 -- 352,322
Depreciation
and amort. 35,585 14,947 504 131 -- 51,167
-------- -------- ------- ------- ------ --------
Total 256,299 122,742 5,931 18,517 -- 403,489
-------- -------- ------- ------- ------ --------
Interest exp. 12,461 4,943 -- 3,935 -- 21,339
Preferred
stock div. -- -- 2,372 -- -- 2,372
Fixed charges
& other exp. (73) (1) 708 -- -- 634
-------- -------- ------- ------- ------ --------
Total 12,388 4,942 3,080 3,935 -- 24,345
-------- -------- ------- ------- ------ --------
Income from
continuing
oper. before
income taxes 30,353 (3,807) (6,110) (4,234) -- 16,202
Income taxes 10,600 (1,339) (2,304) (2,089) -- 4,868
-------- -------- ------- ------- ------ --------
Net income
from cont.
operations 19,753 (2,468) (3,806) (2,145) -- 11,334
-------- -------- ------- ------- ------ --------
Effect of
discontinued
operations -- -- -- -- (407) (407)
-------- -------- ------- ------- ------ --------
Segment net
income $ 19,753 $ (2,468)$(3,806)$(2,145) $ (407) $ 10,927
======== ======== ======= ======= ====== ========
</TABLE>
16
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Nine Months Ended September 30, 1998
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Oper. Totals
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $282,718 $119,482 $ 1,013 $13,454 $ -- $416,667
Interest income -- -- 238 67 -- 305
-------- -------- ------- ------- ------- --------
Total 282,718 119,482 1,251 13,521 -- 416,972
-------- -------- ------- ------- ------- --------
Operating
expenses 176,857 95,886 2,298 11,498 -- 286,539
Depreciation
and amort. 34,003 13,850 534 152 -- 48,539
-------- -------- ------- ------- ------- --------
Total 210,860 109,736 2,832 11,650 -- 335,078
-------- -------- ------- ------- ------- --------
Interest exp. 12,137 4,839 -- 4,958 -- 21,934
Preferred
stock div. -- -- 2,396 -- -- 2,396
Fixed charges
& other exp. (20) -- 745 -- -- 725
-------- -------- ------- ------- ------- --------
Total 12,117 4,839 3,141 4,958 -- 25,055
-------- -------- ------- ------- ------- --------
Income from
continuing
oper. before
income taxes 59,741 4,907 (4,722) (3,087) -- 56,839
Income taxes 21,881 1,991 (1,859) (2,262) -- 19,751
-------- -------- ------- ------- ------- --------
Net income
from cont.
operations 37,860 2,916 (2,863) (825) -- 37,088
-------- -------- ------- ------- ------- --------
Effect of
discontinued
operations -- -- -- -- (7,413) (7,413)
-------- -------- ------- ------- ------- --------
Segment net
income $ 37,860 $ 2,916 $(2,863)$ (825) $(7,413) $ 29,675
======== ======== ======= ======= ======= ========
</TABLE>
17
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 the Holding Company), Central Illinois Light Company
(CILCO), QST Enterprises Inc. (QST) and its subsidiaries (QST
Environmental Inc., QST Energy Inc. (QST Energy) and CILCORP
Infraservices Inc.) and CILCORP's other subsidiaries (collectively,
the Company) after elimination of significant intercompany
transactions. The consolidated financial statements of CILCO include
the accounts of CILCO and its subsidiaries, CILCO Exploration and
Development Company and CILCO Energy Corporation. CILCORP owns
directly or indirectly 100% of the common stock of its first-tier
subsidiaries. In the fourth quarter of 1998, the operations of QST
and its subsidiaries (excluding ESE Land Corporation and CILCORP
Infraservices Inc. - see Management's Discussion and Analysis) were
discontinued and, therefore, are being reported as discontinued
operations in the financial statements. QST completed the sale of
subsidiary QST Environmental Inc. in the second quarter of 1999 (see
Results of Operations - QST Enterprises Discontinued Operations).
Prior year amounts have been reclassified on a basis consistent with
the 1999 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 1998 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 the investigations 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 nine months ended September 30, 1999, CILCO paid
approximately $804,000 to outside parties for former gas
manufacturing plant site monitoring, remediation and legal fees, and
expects to spend approximately $200,000 during the remainder of 1999.
A $1.2 million liability is recorded on the Balance Sheets,
representing its minimum obligation expected for coal tar
investigation and remediation. Coal tar remediation costs incurred
through September 1999, less amounts recovered from customers, have
been deferred as a regulatory asset of $659,000 on the Balance
Sheets.
Through September 30, 1999, CILCO has recovered approximately
$6.6 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
18
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.
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 provided for a minimum contract
delivery rate from CIPS of 90 MW until the contract expired in May
1998.
In March 1995, CILCO and CIPS amended a limited-term power agreement
reached in November 1992. This agreement provided for CILCO to
purchase 150 MW of CIPS' capacity from June 1998 through May 2002,
and 50 MW from June 2002 through May 2009.
In May 1999, a settlement was reached between CILCO and CIPS
regarding disputed issues pertaining to these capacity and energy
agreements. The settlement amends the previous agreements to
provide for 100 MW of capacity and firm energy for the months of
June through September for the years 2000 through 2003 and
additionally provides for 100 MW of firm energy for the month of
January in each of those years. There are no commitments to
purchase capacity or energy beyond those dates. The agreements
provide specific prices for on-peak and off-peak energy, which
eliminates the ambiguity that arose under the old agreements due to
the use of pricing queues. Under the settlement, CILCO will have no
capacity payment obligations to CIPS for February through December
1999, resulting in 1999 capacity reservation savings of
approximately $6 million. The settlement also obligates both
parties to withdraw from regulatory action pertaining to related
contract issues. CIPS and CILCO are currently preparing the
settlement document filing for approval by the FERC.
NOTE 4. QST Enterprises Discontinued Operations
(See Management's Discussion and Analysis of Financial Condition and
Results of Operations - QST Enterprises Discontinued Operations.)
NOTE 5. Financial Instruments and Price Risk Management
CILCORP utilizes commodity futures contracts, options and swaps in
the normal course of its natural gas and electric business
activities. Gains and losses arising from derivative financial
instrument transactions which hedge the impact of fluctuations in
energy prices are recognized in income concurrent with the related
purchases and sales of the commodity. If a derivative financial
instrument contract is terminated because it is probable that a
transaction or forecasted transaction will not occur, any gain or
loss as of such date is immediately recognized. If a derivative
financial instrument contract is terminated early for other economic
reasons, any gain or loss as of the termination date is deferred and
recorded concurrently with the related purchase and sale of natural
gas or electricity. CILCORP is subject to commodity price risk for
deregulated sales to the extent that energy is sold under firm price
commitments. Due to market conditions, at times CILCORP may have
unmatched commitments to purchase and sell energy on a price and
quantity basis. Physical and derivative financial instruments give
rise to market risk, which represents the potential loss that can be
caused by a change in the market value of a particular commitment.
Market risks are actively monitored to ensure compliance with the
Company's risk management policies, including limits to the Company's
total net exposure at any time.
19
The net gain reflected in operating results from derivative financial
instruments was approximately $705,000 for the third quarter 1999.
As of September 30, 1999, CILCORP had fixed-price derivative
financial instruments representing hedges of natural gas purchases of
.3 Bcf and natural gas sales of 1.0 Bcf for commitments through
September 2000. The net deferred gain and carrying amount on these
fixed-price derivatives at September 30, 1999, was approximately
$422,000. At September 30, 1999, CILCORP had open positions in
derivative financial instruments used to hedge basis of .4 Bcf for
commitments through March 2000. The net deferred loss on these basis
derivatives at September 30, 1999, was approximately $7,000. As of
September 30, 1999, CILCORP had fixed-price derivative financial
instruments representing hedges of electricity purchases of
83,904 MWh for commitments through August 2000. The net deferred
loss and carrying amount on these fixed-price derivatives at
September 30, 1999, was approximately $1,851,400.
NOTE 6. 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 dilutive potential result from Award Agreements entered into
pursuant to the CILCORP Shareholder Return Incentive Compensation
Plan.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
(In thousands)
<S> (C> <C>
Income available to common shareholders $10,927 $29,675
Weighted average number of common shares
used in Basic Earnings Per Share 13,612 13,611
Weighted number of dilutive potential common
shares used in Diluted Earnings Per Share 100 83
</TABLE>
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In 1998 and prior years, the financial condition and operating
results of CILCORP Inc. and its subsidiaries (the Company) primarily
reflected the operations of Central Illinois Light Company (CILCO),
QST Enterprises Inc. (QST), and their subsidiaries. On November 23,
1998, the Company announced that The AES Corporation (AES) had
offered to buy 100% of the Company's outstanding common stock for $65
per share, subject to CILCORP shareholder approval and various
regulatory approvals. The Federal Trade Commission granted approval
of CILCORP's merger with AES under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 on February 22, 1999. On March 10, 1999,
the Illinois Commerce Commission issued its approval. The merger was
approved by CILCORP shareholders at a special meeting on May 20,
1999. The FERC issued an order to CILCORP approving the transaction
on June 16, 1999. The SEC staff approved AES' application for an
exemption under Section 3(a)(5) of the Public Utility Holding Company
Act on August 20, 1999. AES completed the acquisition of the Company
on October 18, 1999.
In conjunction with the merger with AES and as part of a continuing
effort to better position itself for competition in the energy
services industry, in April and June 1999, CILCO offered Voluntary
Early Retirement Programs to certain of its employees. These
programs resulted in after-tax charges to earnings of approximately
$22.7 million in 1999. (See Item 5: Other Information - Voluntary
Early Retirement Programs.)
In late 1998, in light of the pending acquisition and after reviewing
its business plans, the Company decided to sell its 100% ownership
interest in QST Environmental Inc. (QST Environmental), a first-tier
subsidiary of QST that provides environmental consulting and
engineering services. On May 7, 1999, QST agreed to sell all the
outstanding common stock of QST Environmental to MACTEC, Inc. for
approximately $18 million in cash. The sale was effective on
June 24, 1999. QST had sold another of its subsidiaries, QST
Communications Inc., in August 1998.
In June 1998, QST Energy Inc. (QST Energy), another first-tier
subsidiary of QST, incurred a material loss related to wholesale
electricity contracts, triggered by an unprecedented increase in
short-term wholesale electricity prices. QST Energy closed its
electric and gas non-retail positions and, in the fourth quarter of
1998, closed its Houston energy trading office and transferred its
Pennsylvania retail electric and gas customers to other marketers.
QST Energy has since discontinued providing electricity to its
remaining non-Illinois commercial customers.
Due to uncertainties related to electric deregulation across the
country, the illiquidity of certain energy markets, and the Company's
acquisition by AES, the Company intends to focus on the opportunities
in the Illinois energy market resulting from the deregulation of
electricity under the Electric Service Customer Choice and Rate
Relief Law of 1997 (see Item 5: Other Information - Illinois
Electric Deregulation). This law will enable CILCO, the Company's
regulated public utility that generates and distributes electricity
and purchases, transports and distributes natural gas, to serve
Illinois electric customers outside its traditional Central Illinois
service territory. As a result of these events, the Company is
reporting the results of QST Enterprises and its subsidiaries
(excluding ESE Land Corporation and CILCORP Infraservices Inc.) as
discontinued operations (see Results of Operations - QST Enterprises
Discontinued Operations).
21
The Other Businesses segment includes the operations of the holding
company itself (Holding Company), its investment subsidiary, CILCORP
Investment Management Inc. (CIM), CILCORP Ventures Inc. (CVI) and
CILCORP Infraservices Inc. which provides utility infrastructure
operation and maintenance services.
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 expressed or implied in MD&A. The
business and profitability of CILCORP and its subsidiaries are
influenced by economic and geographic factors, including ongoing
changes in environmental laws and weather conditions; the extent and
pace of development of competition for retail and wholesale energy
customers; changes in technology; third party compliance with Year
2000 requirements; the inability to identify and remediate or replace
embedded computer chips in affected equipment; pricing and
transportation of commodities; market supply and demand for energy
and energy derivative financial instruments; inflation; capital
market conditions; environmental protection and compliance costs.
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 and
increasing wholesale and retail competition in the electric and gas
business affect its earnings. 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. CILCORP and its subsidiaries undertake
no obligation to publicly update or revise any forward-looking
statements, whether as a result of changes in actual results,
assumptions or other factors.
Capital Resources & Liquidity
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 fund its capital
expenditures, pay its financial obligations, meet working capital
needs and retire or refinance debt as it matures.
The AES Corporation (AES) completed the acquisition of CILCORP and
its subsidiaries on October 18, 1999, for an aggregate purchase price
of approximately $886 million. An AES subsidiary, Midwest Energy,
Inc. (Midwest), simultaneously completed the offering of $475 million
of senior notes and bonds ($225 million of 8.7% Senior Notes due 2009
and $250 million of 9.375% Senior Bonds due 2029) to finance part of
the purchase price for the acquisition. Pursuant to the merger
agreement, Midwest merged with and into CILCORP and CILCORP survived
the merger as a wholly-owned subsidiary of AES. The remaining cash
required to complete the acquisition was provided by AES.
22
In conjunction with the transaction, several rating agencies reviewed
and revised the credit ratings of CILCORP and CILCO securities and
commercial paper as follows:
From To
Moody's
CILCORP (Midwest) Senior Notes & Bonds N/A Baa2
CILCORP Unsecured Medium-Term Notes A1 Baa2
CILCO Secured Debt Aa2 A2
CILCO Preferred Stock Aa3 A3
CILCO Commercial Paper P-1 P-1
Standard & Poor's
CILCORP (Midwest) Senior Notes & Bonds N/A BB+
CILCO Secured Debt AA- BBB-
CILCO Preferred Stock A BB
Duff & Phelps
CILCORP (Midwest) Senior Notes & Bonds N/A BBB
CILCORP Unsecured Medium-Term Notes N/A BBB
CILCO Secured Debt N/A A+
CILCO Preferred Stock N/A A-
CILCO Commercial Paper N/A D-1
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
September 30, 1999, CILCORP had committed bank lines of credit of
$60 million, of which $45 million was used. The Company had
$30.5 million of medium-term notes outstanding at September 30, 1999.
CILCO
Capital expenditures totaled $39.3 million for the nine months ended
September 30, 1999. Capital expenditures are anticipated to be
approximately $17.2 million for the remainder of 1999 and are
currently estimated to be $44.9 million in 2000. Included in 1999
and 2000 capital expenditures are $11.8 million and $2.5 million,
respectively, for information technology projects.
CILCO retired $10.65 million of medium-term notes in June 1998.
CILCO does not plan to issue long-term debt during the remainder of
1999. CILCO intends to finance its 1999 and 2000 capital
expenditures with funds provided by operations.
As of September 30, 1999, CILCO had committed bank lines of credit
aggregating $65 million. CILCO uses these lines of credit to support
issuance of short-term commercial paper. CILCO had $57.6 million of
commercial paper outstanding at September 30, 1999, and expects to
issue commercial paper periodically throughout the remainder of 1999.
CILCO issued commercial paper in the third quarter of 1999 to cover
purchases of additional electricity to meet increased consumer demand
due to abnormally warm weather conditions. (See Results of
Operations - CILCO Electric Operations.) CILCO plans to use
approximately $27 million of the proceeds from the issuance of
Midwest debt and capital provided by AES to CILCORP to retire
commercial paper in the fourth quarter of 1999.
23
CIM
At September 30, 1999, CIM had $32 million of outstanding debt owing
to CILCORP. During 1997 and prior years, CIM committed to invest
$16.6 million in affordable housing tax credit funds. Through
September 30, 1999, approximately $14.9 million of these commitments
had been funded. CIM expects to contribute approximately
$.7 million in cash for these investments during the remainder of
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 1999 with a combination of funds
generated internally and funds provided by CILCORP.
CVI
At September 30, 1999, CVI had outstanding debt of $.3 million,
borrowed from CILCORP. CVI expects to finance its activities and
working capital needs during the remainder of 1999 with a combination
of funds generated internally and with funds provided by CILCORP.
24
Year 2000
The Company is continuing its progress toward making its computer
systems and operations ready for the year 2000. CILCO began
evaluating its information technology systems in 1996. Systems were
reviewed and a schedule was developed for the analysis of all
computer application code and for the replacement or modification of
those systems that were identified as obsolete and/or having
potential Year 2000 (Y2K) issues. Replacement of several major
computer systems with Y2K issues began in 1997. A Y2K team was
established in March 1998, consisting of personnel from each
operating division of CILCO. In conjunction with the formation of
the Y2K team, an outside firm specializing in Y2K projects was
retained to assist CILCO with its overall Y2K project plans. CILCO
has also worked with an independent audit team to evaluate the status
of the Y2K project. The project was divided into three phases, as
follows:
Phase I tasks included an inventory of all present systems for
embedded chips having potential Y2K issues, contacting all
manufacturers of embedded chip devices for the Y2K status of these
devices, identifying and surveying all critical suppliers, and
conducting an inventory of all information technology hardware and
software for analysis of Y2K problems. Phase I was completed in
August 1998.
Phase II is essentially complete. This phase includes Y2K compliance
testing of all suspect embedded chip devices identified in Phase I in
the power plants, service centers, and business offices. In
addition, two separate groups of outside consultants evaluated all
mainframe application code to identify specific instances of date
problems in each application program for systems that are not being
replaced. Phase II has been completed except for the testing of
approximately 1% of non-critical embedded chip devices associated
with power plant operations. This testing will occur during the
first part of the fourth quarter of 1999.
Phase III is also nearly complete and includes the
upgrade/replacement and re-testing of embedded chip devices found not
to be Y2K compliant during Phase II. This phase includes completion
of mainframe computer operating software upgrades to current Y2K
compliant versions and defining Y2K contingency plans for each
business unit. Computer application code that was determined to have
Y2K date related problems during Phase II will be corrected. Testing
of all applications which have undergone Y2K upgrades/modifications,
testing of operating system software, and development and testing of
contingency plans through simulation or actual tests, where
practical, will complete Phase III, which was completed for all
mission critical systems in October 1999. Systems identified as
critical to the continued provision of utility services were of
particular focus during the testing portion of Phase III. These
critical systems are generating station equipment, electric
transmission and distribution control systems, gas delivery control
systems, and telecommunications systems.
An estimated $2 million will have been spent for embedded chip
analysis, vendor management, application code scanning, remediation,
testing and contingency planning at CILCO. Approximately
$30.7 million will have been spent prior to the year 2000 for system
replacements or hardware upgrades initiated for business purposes
other than solely for Y2K compliance.
CILCO is working both internally and with utility industry groups,
including the Mid-America Interconnected Network (MAIN) and the North
American Electric Reliability Council (NERC), to identify and plan
for all identified risks associated with the Y2K issue. While these
groups are modeling potential worst
case scenarios, the probability of extreme disruptions due to Y2K
issues is
25
considered extremely low. CILCO's Y2K team has identified the most
likely worst
case scenario to be an interruption in service by a critical
supplier. Consequently, alternate sources for supplies have been
identified and the need for CILCO to stock additional inventories of
critical items is being evaluated.
CILCO is also following the contingency planning process recognized
by MAIN and NERC. Accordingly, CILCO has established a Y2K
contingency planning team that has received training in contingency
planning techniques and goals. The team is collecting data and
contingency planning began in March 1999. Within this structure,
CILCO submitted and received approval from MAIN of its final
contingency plans. This contingency planning process is expected to
continue through the fourth quarter of 1999. CILCO also participated in
the NERC industry-wide drills during September 1999.
The Company currently believes it will be able to adequately address
Y2K issues, as discussed above, through a combination of
modifications of certain existing programs and systems, the
replacement of others with new software that is Y2K compliant, and
the development of contingency plans. If such modifications and
conversions are not made, however, or are not made in a timely
manner, the Y2K issue could have a material impact on the Company's
operations. In addition, management cannot predict the nature or
impact on operations of third-party noncompliance with Y2K
requirements beyond the assurances given during critical vendor
assessments.
Price Risk Management
The majority of CILCORP's energy sales at the end of the third
quarter 1999 were to CILCO retail customers in Illinois under tariffs
regulated by the ICC. Although the Illinois retail electric market
is becoming deregulated (see Illinois Electric Deregulation),
prudently incurred costs of fuel used to generate electricity,
purchased power costs and gas purchased for resale may be recovered
from retail customers that purchase energy through regulated tariffs.
Thus, there is very limited commodity price risk associated with
CILCO's traditional regulated sales. However, as more customers in
Illinois purchase energy on a competitive basis pursuant to the
current Illinois deregulation timetable, CILCO's exposure to
commodity price risk will increase. At September 30, 1999, QST's non-
Illinois electric operations and gas trading activities have been
accounted for as discontinued operations.
The market risk inherent in the activities of CILCORP (exclusive of
regulated Illinois tariff customers) is the potential loss arising
from adverse changes in natural gas and electric commodity prices
relative to the physical and financial positions that the Company
maintains. The prices of natural gas and electricity are subject to
fluctuations resulting from changes in supply and demand. At
September 30, 1999, CILCORP engaged in deregulated electric retail
and natural gas sales in Illinois, including wholesale power
purchases and sales to utilize its electric generating capability.
These deregulated activities had no net open market price risk
positions related to electricity and had net open market price risk
positions of approximately .01 Bcf of natural gas. A market price
sensitivity of 10% applied to these positions is not material to the
Company. At September 30, 1999, QST's discontinued operations had no
net open market price risk in electricity. During the third quarter,
the remainder of QST's contracts for physical delivery were
terminated releasing QST from the obligation to deliver electricity.
At September 30, 1999, QST's only remaining forward transaction
involving electricity is a purchase of approximately 86,000 MWh at a
fixed price and an off-setting sale of those same megawatts at a
fixed price through December 31, 1999. Since the buy/sell is locked
in at a fixed price, QST's discontinued operations are not affected
by any market price sensitivity. See Note 5 for a discussion of
CILCORP's use of financial derivatives for hedging purposes. Due to
the high correlation between the changes in the value of the
26
financial instruments held by the Company to the change in price of
the underlying commodity, the net effect on the Company's net income
resulting from the change in value of these financial instruments is
not expected to be material.
Results of Operations
CILCO Electric Operations
The following table summarizes the components of CILCO electric
operating income for the three months and nine months ended
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Components of Electric Oper. Inc. 1999 1998 1999 1998
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Electric retail $119,285 $110,466 $280,070 $267,198
Sales for resale 10,749 4,770 18,970 15,520
-------- -------- -------- --------
Total revenue 130,034 115,236 299,040 282,718
-------- -------- -------- --------
Cost of sales:
Cost of fuel 8,594 25,625 53,855 71,102
Purchased power 44,105 10,831 56,027 23,683
Revenue taxes 5,745 6,006 14,616 14,384
-------- -------- -------- --------
Total cost of sales 58,444 42,462 124,498 109,169
-------- -------- -------- --------
Gross margin 71,590 72,774 174,542 173,549
-------- -------- -------- --------
Operating expenses
Other operations and maintenance 39,364 19,546 88,684 61,158
Depreciation and amortization 11,799 11,567 35,585 34,003
Other taxes 2,419 2,223 7,532 6,530
-------- -------- -------- --------
Total operating expenses 53,582 33,336 131,801 101,691
-------- -------- -------- --------
Total 18,008 39,438 42,741 71,858
-------- -------- -------- --------
Fixed charges and other
Cost of equity funds capitalized -- -- -- --
Interest on long-term debt 3,442 3,437 10,328 10,503
Cost of borrowed funds capitalized (47) (14) (73) (20)
Other interest 786 662 2,133 1,634
-------- -------- -------- --------
Total 4,181 4,085 12,388 12,117
Income before income taxes 13,827 35,353 30,353 59,741
Income taxes 5,285 13,700 10,600 21,881
-------- -------- -------- --------
Electric income $ 8,542 $ 21,653 $ 19,753 $ 37,860
======== ======== ======== ========
</TABLE>
Electric gross margin decreased 2% for the quarter and remained
relatively constant for the nine months ended September 30, 1999,
compared to the same periods in 1998. Retail kilowatt hour (KWh)
sales remained relatively constant
for the quarter and increased 4% for the nine months ended
September 30, 1999,
27
compared to the same periods in 1998. Residential sales increased 2%
for the quarter and 4% for the nine months ended September 30, 1999,
compared to the same periods in 1998. Commercial sales remained
relatively constant for the quarter and increased 4% for the nine
months ended September 30, 1999, compared to the
same periods in 1998. Cooling degree days were 16% lower for the
quarter and 15% lower for the nine months ended September 30, 1999,
compared to the same periods in 1998. Although total cooling degree
days were lower for 1999, extremely warm weather in July 1999
resulted in greater residential and commercial demand for
electricity. Cooling degree days were 27% higher in July 1999
compared to July 1998. Industrial sales remained relatively constant
for the quarter and increased 4% for the nine months ended September
30, 1999. Industrial sales were favorably impacted by customers
returning to retail supply due to the completion of CILCO's Power
Quest industrial program in April 1998.
Sales for resale increased 125% for the quarter and 22% for the nine
months ended September 30, 1999, compared to the same periods in
1998, due to increased sales volumes resulting from higher available
capacity in August and increased prices per KWh due to industry-wide
demand in July. Sales for resale vary based on the energy
requirements of native load customers, neighboring utilities and
power marketers, CILCO's available capacity for bulk power sales and
the price of power available for sale. CILCO's activity in the sales
for resale and purchased power markets will continue to increase as a
result of retail deregulation in the Illinois market.
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 will also be affected in the long term by deregulation and
increased competition in the electric utility industry.
Purchased power increased 307% for the quarter and 137% for the nine
months ended September 30, 1999, compared to the same periods in
1998. As a result of abnormally warm weather during July 1999, CILCO
incurred $33 million of generation and purchased power costs which
are subject to recovery from customers through the fuel adjustment
clause (FAC). Of this amount, $10 million was recovered in July and
$23 million remained unrecovered at the end of July. CILCO's FAC
allows it to pass on to customers the cost of unrecovered fuel and
purchased power costs in the next calculated month's FAC factor. In
this instance, on September 1, 1999, the Illinois Commerce Commission
(ICC) approved a request by CILCO to charge customers over a 12-month
period (without interest), beginning in September 1999. In addition,
to avoid the loss of purchased power cost recovery from customers
eligible to choose their electricity supplier on October 1, 1999,
CILCO requested and received ICC permission to charge the larger
industrial and commercial customers their share of this underrecovery
in a single month. These customers may elect to pay over a period of
up to 12 months after making appropriate arrangements with CILCO.
Also, under the FAC, the underrecovered costs of fuel and purchased
power for a particular month are both treated as adjustments to cost
of fuel expense; thus, the cost of fuel decreased for the quarter and
for the nine months ended September 30, 1999, compared to the same
periods in 1998.
The ICC will conduct its routine review of the FAC in early 2000 and
will determine the prudency of CILCO's electricity purchases. Any
amount of the additional $23 million of electricity purchases
ultimately determined to be imprudent by the ICC would not be
recoverable from CILCO's customers, and therefore would be expensed
by CILCO on its income statement. CILCO currently believes these
costs to be recoverable through the FAC. A significant disallowance
of these costs by the ICC would be material to CILCO's results of
operations.
28
Electric operations and maintenance expense increased 101% for the
quarter and 45% for the nine months ended September 30, 1999,
compared to the same periods in 1998. The increases were mainly due
to a $10.1 million second quarter charge and an $18.4 million third
quarter charge to pension and benefits expense as a result
of Voluntary Early Retirement Programs offered to Management, Office
and Technical (MOT) employees and to employees in CILCO's electric
power generation area (see Part II. Item 5: Other Information,
Voluntary Early Retirement Programs). Also contributing to the
increase during the quarter were increases in overhead line
maintenance and tree trimming. The increase for the nine months
ended was partially offset by lower electric distribution overhead
line maintenance due to a severe storm in June 1998.
Fixed charges and other expenses increased 2% for the quarter and
nine months ended September 30, 1999, compared to the same periods in
1998.
The decrease in income taxes in 1999 was primarily due to lower pre-
tax income as a result of pension and benefit expenses relating to
the Early Retirement offers.
29
CILCO Gas Operations
The following table summarizes the components of CILCO gas operating
income for the three months and nine months ended September 30, 1999
and 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
Components of Gas Operating Income 1999 1998 1999 1998
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Sale of gas $ 20,346 $20,170 $120,177 $115,262
Transportation services 1,165 1,100 3,700 4,220
-------- ------- -------- --------
Total revenue 21,511 21,270 123,877 119,482
-------- ------- -------- --------
Cost of sales:
Cost of gas 9,305 9,139 65,123 63,295
Revenue taxes 1,002 954 6,330 6,046
-------- ------- -------- --------
Total cost of sales 10,307 10,093 71,453 69,341
-------- ------- -------- --------
Gross margin 11,204 11,177 52,424 50,141
-------- ------- -------- --------
Operating expenses
Other operations and maintenance 17,785 8,403 34,065 24,484
Depreciation and amortization 4,772 4,777 14,947 13,850
Other taxes 690 574 2,277 2,061
-------- ------- -------- --------
Total operating expenses 23,247 13,754 51,289 40,395
-------- ------- -------- --------
Total (12,043) (2,577) 1,135 9,746
-------- ------- -------- --------
Fixed charges and other
Cost of equity funds capitalized -- -- -- --
Interest on long-term debt 1,366 1,371 4,097 4,187
Cost of borrowed funds capitalized (1) 0 (1) 0
Other interest expense 312 264 846 652
-------- ------- -------- --------
Total 1,677 1,635 4,942 4,839
-------- ------- -------- --------
Income before income taxes (13,720) (4,212) (3,807) 4,907
Income taxes (5,383) (1,654) (1,339) 1,991
-------- ------- -------- --------
Gas income (loss) $ (8,337)$(2,558) $ (2,468)$ 2,916
======== ======= ======== ========
</TABLE>
Gas gross margin remained relatively constant for the quarter and
increased 5% for the nine months ended September 30, 1999, compared
to the same periods in 1998. Residential sales volumes increased 2%
for the quarter and 11% for the nine months ended September 30, 1999.
Commercial sales volumes decreased 15% for the quarter and increased
2% for the nine months ended September 30, 1999. Heating degree days
were 10% higher for the nine months ended September 30, 1999,
compared to the same period in 1998. 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.
30
Revenue from gas transportation services decreased 12% while gas
transportation sales volumes decreased 6% for the nine months ended
September 30, 1999, compared to the same period in 1998.
The cost of gas increased 2% for the quarter ended and 3% for the
nine months ended September 30, 1999, compared to the same periods in
1998, primarily due to increased gas sales and higher natural gas
prices. These costs are passed through to customers via the PGA.
Gas operations and maintenance expense increased 112% for the quarter
and 39% for the nine months ended September 30, 1999, compared to the
same periods in 1998. The increases were primarily due to a
$9.1 million charge to pension and benefits expense in the third
quarter as a result of a Voluntary Early Retirement Program offered
to MOT employees (see Part II. Item 5: Other Information, Voluntary
Early Retirement Programs).
Fixed charges and other expenses increased 3% for the quarter and
increased 2% for the nine months ended September 30, 1999, compared
to the same periods in 1998.
The decrease in income taxes in 1999 was due to lower pre-tax
operating income as a result of pension and benefit expenses relating
to the Early Retirement offer.
31
CILCO Other
The following table summarizes other income and deductions for the
three months and nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Components of CILCO Other Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 1,025 $ 658 $ 2,754 $ 1,013
Interest income 34 47 147 238
Amortization (72) (178) (504) (534)
Operating expenses (2,265) (743) (5,424) (2,292)
Other taxes (1) (2) (3) (6)
Preferred stock dividends (802) (797) (2,372) (2,396)
Other (202) (333) (708) (745)
------- ------- ------- -------
Loss before income taxes (2,283) (1,348) (6,110) (4,722)
Income tax benefit (937) (520) (2,304) (1,859)
------- ------- ------- -------
CILCO Other net loss $(1,346)$ (828) $(3,806) $(2,863)
======= ======= ======= =======
</TABLE>
Other revenues and the related operating expenses increased for the
quarter and nine months ended September 30, 1999, due to increased
nonregulated electricity sales in Illinois outside of CILCO's service
territory. These sales of electricity are to eligible customers of
other utilities' pilot programs formerly served by CILCO affiliate
QST. Expenses also increased due to start-up costs of other non-
regulated service programs such as outdoor lighting, energy
consulting, and performance audits.
32
Other Businesses Operations
The following table summarizes the components of Other Businesses net
loss for the three months and nine months ended September 30, 1999
and 1998.
<TABLE>
<CAPTION>
Components of Other Businesses Three Months Ended Nine Months Ended
Net Loss September 30, September30,
1999 1998 1999 1998
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Leveraged lease revenue $ 1,566 $1,672 $ 5,200 $ 5,344
Other revenue 1,361 2,013 13,018 8,177
------- ------ ------- -------
Total revenue 2,927 3,685 18,218 13,521
------- ------ ------- -------
Expenses:
Gas purchased for resale 947 1,716 10,134 7,585
Operating expenses 3,261 1,105 8,226 3,864
Depreciation and amortization 43 51 131 152
Interest expense 1,093 1,575 3,935 4,958
Other taxes 11 12 26 49
------- ------ ------- -------
Total expenses 5,355 4,459 22,452 16,608
------- ------ ------- -------
Loss before income taxes (2,428) (774) (4,234) (3,087)
------- ------ ------- -------
Income tax benefit (1,212) (544) (2,089) (2,262)
------- ------ ------- -------
Other Businesses net loss $(1,216) $ (230) $(2,145) $ (825)
======= ====== ======= =======
</TABLE>
Revenues decreased 21% for the three months ended September 30, 1999,
primarily due to decreased CVI gas marketing revenue, partially
offset by revenue from CILCORP Infraservices Inc. Revenues increased
35% for the nine months ended September 30, 1999, primarily due to
increased gas marketing revenue and revenue from CILCORP
Infraservices Inc.
Expenses increased 20% for the three months and 35% for the nine
months ended September 30, 1999, compared to the corresponding
periods in 1998, primarily due to $2.3 million of merger transaction
expenses and $1.4 million of incentive compensation expense at the
Holding Company, while interest expense decreased due to lower
average debt balances. Gas expense at CVI related to the gas
marketing program decreased for the quarter and increased for the
nine months ended September 30, 1999, reflecting changes in sales
volumes.
Income and other taxes increased for the nine months ended
September 30, 1999, compared to the corresponding period in 1998,
despite increased losses, reflecting the non-deductible nature of
merger transaction expenses. For the three months ended
September 30, 1999, income taxes decreased primarily due to lower pre-
tax income.
QST Enterprises Discontinued Operations
Due to uncertainties related to energy deregulation across the
country, the illiquidity of certain energy markets and the Company's
acquisition by AES, the Company is now focusing on the opportunities
in the Illinois energy market
33
resulting from the deregulation of electricity under the Electric
Service Customer Choice and Rate Relief Law of 1997 (see Management's
Discussion and Analysis - Illinois Electric Deregulation). As a
result of this decision, QST Enterprises Inc. and QST Energy ceased
operations during the fourth quarter of 1998, except for fulfillments
of contractual commitments for 1999 and beyond, and recorded loss
provisions for the discontinued energy operations.
The results of QST Enterprises Inc. and its past and present
subsidiaries - QST Communications, QST Environmental and QST Energy -
are reported in 1999 and prior periods as discontinued operations.
The following table shows the components of the discontinued
operations.
Income (loss) from operations of discontinued businesses, net of tax:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
QST Communications, net of tax of
$(176) and $(463) $ -- $ (267) $ -- $ (704)
QST Enterprises (excluding QST
Environmental and QST Comm.), net
of tax of $(2,367) and $(9,866) -- (3,601) -- (15,007)
QST Environmental, net of tax of
$190, $(221) and $109 -- 248 (407) 46
------- ------- ----- --------
$ -- $(3,620) $(407)$(15,665)
======= ======= ===== ========
</TABLE>
Realized gain on sale of assets of discontinued business, net of tax:
<TABLE>
<CAPTION>
Three Months Ended Nine MonthsEnded
September 30, September 30,
1999 1998 1999 1998
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
QST Communications, net of tax of
$5,425 $ -- $8,252 $ -- $8,252
======= ====== ======= ======
</TABLE>
Financial results for the third quarter of 1999 were reflected in the
discontinued operations reserve which was accrued at the end of 1998,
resulting in no net income or loss for the quarter.
In August 1998, QST Enterprises Inc. (QST) sold its wholly-owned
fiber optic-based telecommunications subsidiary, QST Communications,
to McLeod USA for $20 million cash and McLeod USA stock options then
valued at $5.5 million, resulting in an after-tax gain of
approximately $8.3 million. Operating losses incurred by QST
Communications for the three months and nine months ended
September 30, 1998, are shown in the preceding table.
34
In June 1999, QST sold the outstanding common stock of QST
Environmental to MACTEC, Inc. for approximately $18 million in cash.
ESE Land and its subsidiaries were not included in this sale and,
therefore, QST Environmental's investment in ESE Land was transferred
to QST Enterprises Inc. prior to the sale. No after-tax gain or loss
was realized from the sale. QST Environmental's operating results
through May 30, 1999, are included in the year-to-date loss from
operations of discontinued businesses.
In February 1999, QST Energy notified two of its California
commercial customers that they were in default of their contracts
with QST Energy as a result of not paying QST Energy for energy
delivered. QST Energy filed two suits in the U.S. District Court,
Central District of Illinois, seeking payment. In March, the
customers filed a suit in California Superior Court, Alameda County,
California, alleging that QST Energy was in breach of the contract.
This suit was subsequently removed to U.S. District Court, Northern
District of California. QST Energy has moved to dismiss this suit
filed in California as duplicative of the suits pending in Illinois,
and the customers similarly filed motions to dismiss the suits
pending in Illinois. QST Energy cannot predict the ultimate outcome
of this matter, but intends to vigorously pursue its claims to
collect all amounts due from the customers. The accounts receivable
reflected in CILCORP's consolidated balance sheet at September 30,
1999, for these two customers, totaled $15.4 million. Under the
terms of the contract, QST Energy has terminated delivery of
electricity to the two customers.
In June 1999, QST Energy agreed to pay $3 million to the two
remaining California commercial customers to discontinue electricity
service. These payments, as well as losses on energy sales during
1999 (primarily electricity to the California commercial customers)
were included in QST's estimate for loss related to discontinued
operations recorded in December 1998.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Reference is made to "Environmental Matters" under "Item 1. Business"
in the Company's 1998 Annual Report on Form 10-K (the "1998 Form 10-
K") and to "Note 2. Contingencies" and "QST Enterprises Discontinued
Operations", 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 5: Other Information
Illinois Electric Deregulation
In December 1997, the Electric Service Customer Choice and Rate
Relief Law of 1997 (Customer Choice Law) became effective. The
Customer Choice Law began a nine-year transition process to a fully
competitive market for electricity in Illinois, with all customers
being able to choose their electricity supplier by May 1, 2002.
Transition charges designed to help utilities recover the cost of
past investments made under a regulated system may be collected
through 2006 (2008 upon the ICC's
35
finding that a utility's financial condition is impaired). The
Customer Choice Law also requires residential base rate reductions
which vary by utility. CILCO began its reduction in residential base
rates with an initial 2% decrease in August 1998. Also, CILCO's
return on common equity will, in general, be capped (the Equity Cap)
at an index (a 12-month average yield for 30-year U.S. Treasury bonds
plus 8% for calendar years 1998 and 1999, and a 12-month average
yield for U.S. Treasury bonds plus 9% for calendar years 2000 through
2004) plus 1.5 percentage points. If CILCO's two-year average return
on common equity exceeds the two-year average of the Equity Cap,
fifty percent of the earnings in excess of the average Equity Cap
must be refunded to customers in the following year. (Refer to the
caption "Competition" in Management's Discussion and Analysis of
Financial Condition and Results of Operations in CILCORP's 1998
Annual Report to Shareholders.)
On June 30, 1999, Senate Bill 24 (a clarification and technical
correction of the Customer Choice Law) was signed into law. This
law allows certain utilities, including CILCO, to increase the
Equity Cap by an additional 2% over the Equity Cap provided under the
Customer Choice Law, for the period 2000 through 2004. The increase
in the Equity Cap is allowed in exchange for these utilities offering
choice of electricity suppliers to certain non-residential customers
earlier than previously allowed under the Customer Choice Law and for
waiving the right to seek a two-year extension on the collection of
transition charges.
Voluntary Early Retirement Programs
In April 1999, CILCO offered Voluntary Early Retirement Programs to
employees in its electric power generation area, including employees
represented by the National Conference of Firemen and Oilers Local 8.
A total of 86 of the 117 eligible employees accepted the offer to
retire under the programs, effective as early as June 1, 1999. These
programs resulted in an after-tax charge to earnings of approximately
$6.1 million in the second quarter.
In June 1999, the Company offered a similar Voluntary Early
Retirement Program to the management and office and technical
employees not previously included in the program offered in April. A
total of 141 of the 156 eligible employees accepted the offer to
retire under this program, effective as early as October 1, 1999.
These programs resulted in an after-tax charge to earnings of
approximately $16.6 million in the third quarter.
36
Election of Officers
Officer elections, effective October 18, 1999, are as follows:
CILCORP: Paul D. Stinson President
Scott A. Cisel Vice President
Randy J. DeWulf Vice President
Mark E. Miller Vice President
Robert J. Sprowls Vice President
John G. Sahn Secretary
Thomas S. Romanowski Treasurer
Michael D. Austin Assistant Treasurer
Thomas D. Hutchinson Controller and Chief
Financial Officer
CILCO: Paul D. Stinson President
Jerry Cagle Vice President
Scott A. Cisel Vice President
Randy J. DeWulf Vice President
Mark E. Miller Vice President
Robert J. Sprowls Vice President
John G. Sahn Secretary
Thomas S. Romanowski Treasurer
Terry D. Fox Assistant Treasurer
Thomas D. Hutchinson Controller and Chief
Financial Officer
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial data schedules
(b) Reports on Form 8-K
On October 18, 1999, The AES Corporation completed its
acquisition of CILCORP Inc. through a merger transaction. A Form
8-K was filed on November 2, 1999, disclosing this change in
control of registrant.
37
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 November 15, 1999 P. D. Stinson
P. D. Stinson
President
Date November 15, 1999 T. D. Hutchinson
T. D. Hutchinson
Controller
38
<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 November 15, 1999 P. D. Stinson
P. D. Stinson
President
Date November 15, 1999 T. D. Hutchinson
T. D. Hutchinson
Controller
39
<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
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<NAME> CILCORP INC.
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<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<NAME> CENTRAL ILLINOIS LIGHT COMPANY
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