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, 2000
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) 677-5230
1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050
(An Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 677-5230
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 and privately
held by The AES Corporation
at September 30, 2000 1,000
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value,
shares outstanding and privately
held by CILCORP Inc. at September 30, 2000 13,563,871
1
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
CILCORP INC.
Consolidated Balance Sheets 3-5
Consolidated Statements of Operations 6
Consolidated Statements of Cash Flows 7-8
Statements of Segments of Business 9-12
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets 13-14
Consolidated Statements of Income 15
Consolidated Statements of Cash Flows 16-17
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 36
Item 5: Other Information 36
Item 6: Exhibits and Reports on Form 8-K 36
Signatures
2
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
2000 1999
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 15,948 $ 11,220
Receivables, less reserves of
$1,090 and $1,296 73,417 60,072
Accrued unbilled revenue 21,917 35,526
Fuel, at average cost 15,123 14,392
Materials and supplies, at
average cost 16,943 16,165
Gas in underground storage, at
average cost 31,580 21,196
FAC underrecoveries 1,865 12,024
Prepayments and other 10,501 8,946
---------- ----------
Total current assets 187,294 179,541
---------- ----------
Investments and other property:
Investment in leveraged leases 140,796 143,697
Cash surrender value of company-owned
life insurance, net of related
policy loans of $58,454 and $53,558 2,589 3,106
Other investments 23,462 24,113
---------- ----------
Total investments and other
property 166,847 170,916
---------- ----------
Property, plant and equipment:
Utility plant, at original cost
Electric 670,958 624,889
Gas 214,808 208,520
---------- ----------
885,766 833,409
Less - accumulated provision for
depreciation 56,414 8,898
---------- ----------
829,352 824,511
Construction work in progress 54,110 38,068
Other, net of depreciation 182 298
---------- ----------
Total property, plant and
equipment 883,644 862,877
---------- ----------
Other assets
Goodwill, net of accumulated
amortization of $13,598 and $2,881 599,228 569,983
Other 74,515 47,636
---------- ----------
Total other assets 673,743 617,619
---------- ----------
Total assets $1,911,528 $1,830,953
========== ==========
3
<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 Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 8,500 $ 30,000
Notes payable 121,200 91,900
Accounts payable 81,294 41,429
Accrued taxes 11,028 14,670
Accrued interest 24,280 18,296
PGA overrecoveries 117 127
Other 4,527 5,742
---------- ----------
Total current liabilities 250,946 202,164
---------- ----------
Long-term debt 729,969 730,434
---------- ----------
Deferred credits and other
liabilities:
Accumulated deferred income taxes 204,999 237,557
Regulatory liability of regulated
subsidiary 17,996 31,367
Deferred investment tax credits 16,567 17,791
Freeman contract liability 110,107 --
Other 73,482 77,432
---------- ----------
Total deferred credits and
other liabilities 423,151 364,147
---------- ----------
Preferred stock of subsidiary 41,120 66,120
---------- ----------
Stockholders' equity:
Common stock, no par value;
authorized 10,000 shares -
outstanding 1,000 shares -- --
Additional Paid-in Capital 468,833 468,833
Retained deficit (2,491) (745)
---------- ----------
Total stockholders' equity 466,342 468,088
---------- ----------
Commitments and contingencies
Total liabilities and
stockholders' equity $1,911,528 $1,830,953
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
5
<PAGE>
<TABLE>
CILCORP INC AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenue:
CILCO Electric $128,420 |$130,034 $309,666 |$299,040
CILCO Gas 26,201 | 21,511 129,155 | 123,877
CILCO Other 17,725 | 1,059 36,578 | 2,901
Other businesses 7,549 | 2,927 19,252 | 18,218
-------- |-------- -------- |--------
Total 179,895 | 155,531 494,651 | 444,036
-------- |-------- -------- |--------
Operating expenses: | |
Fuel for generation and | |
purchased power 74,309 | 53,822 162,981 | 112,165
Gas purchased for resale 18,689 | 10,252 82,251 | 75,257
Other operations and maintenance 28,152 | 61,552 84,757 | 134,116
Depreciation and amortization 21,398 | 16,686 63,700 | 51,167
Taxes, other than income taxes 9,895 | 9,868 30,473 | 30,784
-------- |-------- -------- |--------
Total 152,443 | 152,180 424,162 | 403,489
-------- |-------- -------- |--------
Fixed charges and other: | |
Interest expense 18,092 | 6,999 52,678 | 21,339
Preferred stock dividends of | |
subsidiary 539 | 802 2,437 | 2,372
Allowance for funds used | |
during construction (136) | (48) (338) | (74)
Other 246 | 202 767 | 708
-------- |-------- -------- |--------
Total 18,741 | 7,955 55,544 | 24,345
-------- |-------- -------- |--------
Income (loss) from continuing | |
operations before income taxes 8,711 | (4,604) 14,945 | 16,202
Income taxes 3,937 | (2,247) 7,391 | 4,868
-------- |-------- -------- |--------
Net income (loss) from | |
continuing operations 4,774 | (2,357) 7,554 | 11,334
Loss from operations of | |
discontinued business, net of | |
tax of $(221) -- | -- -- | (407)
-------- |-------- -------- |--------
Net income (loss) $ 4,774 |$ (2,357)$ 7,554 |$ 10,927
======== |======== ======== |========
<FN>
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,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 9,991 |$ 13,299
-------- |--------
Adjustments to reconcile net income to net |
cash provided by operating activities: |
Non-cash lease income and investment income (6,490) | (4,589)
Cash receipts in excess of debt service |
on leases 9,719 | 8,679
Depreciation and amortization 63,700 | 51,167
Deferred income taxes, investment tax credit |
and regulatory liability of subsidiary, net (10,734) | (20,383)
Changes in operating assets and liabilities: |
(Increase) decrease in accounts receivable and |
accrued unbilled revenue 7,842 | (3,198)
(Increase) in inventories (11,893) | (209)
Increase (decrease) in accounts payable 31,997 | (18,586)
(Decrease) increase in accrued taxes (297) | 10,227
(Increase) in other assets (15,821) | (22,051)
Increase in other liabilities 808 | 32,074
-------- |--------
Total adjustments 68,831 | 33,131
-------- |--------
Net cash provided by operating activities |
from continuing operations 78,822 | 46,430
-------- |--------
Net cash provided (used) by operating |
activities of discontinued operations (188) | 9,877
-------- |--------
Cash flow from operations 78,634 | 56,307
-------- |--------
Cash flows from investing activities: |
Additions to plant (43,211) | (39,957)
Proceeds from sale of discontinued operations -- | 17,376
Other (1,258) | (4,160)
-------- |--------
Net cash used by investing activities |
from continuing operations (44,469) | (26,741)
-------- |--------
Net cash used by investing activities |
from discontinued operations -- | (5,083)
-------- |--------
Cash flow from investing activities (44,469) | (31,824)
-------- |--------
7
Cash flow from financing activities:
Net increase in short-term debt 37,800 | 6,400
Net decrease in long-term debt (30,500) | (981)
Net decrease in preferred stock (25,000) | --
Common dividends paid (9,300) | (25,112)
Preferred dividends paid (2,437) | (2,372)
-------- |--------
Cash flow from financing activities (29,437) | (22,065)
-------- |--------
Net increase (decrease) in cash and |
temporary cash investments: 4,728 | 2,418
Cash and temporary cash investments |
at beginning of year: 11,220 | 1,669
-------- |--------
Cash and temporary cash investments at |
September 30 $ 15,948 |$ 4,087
======== |========
Supplemental disclosures of cash flow |
information: |
|
Cash paid during the period for: |
|
Interest $ 46,643 |$ 23,706
|
Income taxes $ 21,058 |$ 10,828
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
8
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Three Months Ended September 30, 2000
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operatns. Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $128,420 $ 26,201 $17,615 $ 7,516 $ -- $ 179,752
Interest income -- -- 110 33 -- 143
-------- -------- ------- --------- -------- ----------
Total 128,420 26,201 17,725 7,549 -- 179,895
-------- -------- ------- --------- -------- ----------
Operating
expenses 83,607 22,614 20,933 3,891 -- 131,045
Depreciation and
amortization 12,449 5,337 -- 3,612 -- 21,398
-------- -------- ------- --------- -------- ----------
Total 96,056 27,951 20,933 7,503 -- 152,443
-------- -------- ------- --------- -------- ----------
Interest expense 4,433 1,727 -- 11,932 -- 18,092
Preferred stock
dividends -- -- 539 -- -- 539
Fixed charges and
other expenses (136) -- 246 -- -- 110
-------- -------- ------- --------- -------- ----------
Total 4,297 1,727 785 11,932 -- 18,741
-------- -------- ------- --------- -------- ----------
Income from
continuing
oper. before
income taxes 28,067 (3,477) (3,993) (11,886) -- 8,711
Income taxes 10,535 (1,376) (1,711) (3,511) -- 3,937
-------- -------- ------- --------- -------- ----------
Segment net
income $ 17,532 $ (2,101)$(2,282) $ (8,375)$ -- $ 4,774
======== ======== ======= ========= ======== ==========
</TABLE>
9
<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 Operatns. Total
(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
amortization 11,799 4,772 72 43 -- 16,686
-------- -------- ------- --------- ------- -----------
Total 112,026 33,554 2,338 4,262 -- 152,180
-------- -------- ------- --------- ------- -----------
Interest expense 4,228 1,678 -- 1,093 -- 6,999
Preferred stock
dividends -- -- 802 -- -- 802
Fixed charges and
other expenses (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)
-------- -------- ------- --------- ------- -----------
Segment net
income $ 8,542 $ (8,337)$(1,346) $ (1,216)$ -- $ (2,357)
======== ======== ======= ========= ======= ===========
</TABLE>
10
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Nine Months Ended September 30, 2000
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operatns. Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $309,666 $129,155 $36,399 $ 19,126 $ -- $ 494,346
Interest income -- -- 179 126 -- 305
-------- -------- ------- --------- -------- ----------
Total 309,666 129,155 36,578 19,252 -- 494,651
-------- -------- ------- --------- -------- ----------
Operating
expenses 206,238 102,147 41,084 10,993 -- 360,462
Depreciation and
amortization 37,022 15,841 -- 10,837 -- 63,700
-------- -------- ------- --------- -------- ----------
Total 243,260 117,988 41,084 21,830 -- 424,162
-------- -------- ------- --------- -------- ----------
Interest expense 12,186 4,833 -- 35,659 -- 52,678
Preferred stock
dividends -- -- 2,437 -- -- 2,437
Fixed charges and
other expenses (338) -- 767 -- -- 429
-------- -------- ------- --------- -------- ----------
Total 11,848 4,833 3,204 35,659 -- 55,544
-------- -------- ------- --------- -------- ----------
Income from
continuing
oper. before
income taxes 54,558 6,334 (7,710) (38,237) -- 14,945
Income taxes 19,856 2,543 (3,076) (11,932) -- 7,391
-------- -------- ------- --------- -------- ----------
Segment net
income $ 34,702 $ 3,791 $(4,634) $ (26,305)$ -- $ 7,554
======== ======== ======= ========= ======== ==========
</TABLE>
11
<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 Operatns. Total
(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
amortization 35,585 14,947 504 131 -- 51,167
-------- -------- ------- --------- -------- ----------
Total 256,299 122,742 5,931 18,517 -- 403,489
-------- -------- ------- --------- -------- ----------
Interest expense 12,461 4,943 -- 3,935 -- 21,339
Preferred stock
dividends -- -- 2,372 -- -- 2,372
Fixed charges and
other expenses (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
continuing
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>
12
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
(Unaudited)
<S> <C> <C>
Utility plant, at original cost:
Electric $1,280,853 $1,263,190
Gas 438,174 431,887
---------- ----------
1,719,027 1,695,077
Less - accumulated provision
for depreciation 918,081 870,566
---------- ----------
800,946 824,511
Construction work in progress 54,110 38,068
---------- ----------
Total utility plant 855,056 862,579
---------- ----------
Other property and investments:
Cash surrender value of company-owned
life insurance (net of related
policy loans of $58,454 and $53,558) 2,589 3,106
Other 1,200 1,179
---------- ----------
Total other property and
investments 3,789 4,285
---------- ----------
Current assets:
Cash and temporary cash investments 14,000 8,548
Receivables, less reserves of
$1,090 and $1,296 51,461 42,410
Accrued unbilled revenue 20,104 35,071
Fuel, at average cost 15,123 14,392
Materials and supplies,
at average cost 16,020 15,967
Gas in underground storage,
at average cost 31,580 21,196
Prepaid taxes 6,865 6,165
FAC underrecoveries 1,865 12,024
Other 10,433 8,854
---------- ----------
Total current assets 167,451 164,627
---------- ----------
Deferred debits:
Unamortized loss on reacquired debt 2,752 2,941
Unamortized debt expense 1,458 1,552
Prepaid pension cost 308 259
Other 18,169 20,037
---------- ----------
Total deferred debits 22,687 24,789
---------- ----------
Total assets $1,048,983 $1,056,280
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
13
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
CAPITALIZATION AND LIABILITIES 2000 1999
(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
Additional Paid-in Capital 27,000 27,000
Retained earnings 139,424 121,564
Accumulated other comprehensive income (60) (60)
---------- ----------
Total common stockholder's equity 352,025 334,165
Preferred stock without mandatory
redemption 19,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt 245,969 237,934
---------- ----------
Total capitalization 639,114 638,219
---------- ----------
Current liabilities:
Current maturities of long-term debt -- 30,000
Notes payable 75,200 46,900
Accounts payable 49,954 35,859
Accrued taxes 23,715 25,520
Accrued interest 4,742 9,485
PGA overrecoveries 117 127
Level payment plan -- 956
Other 4,454 4,714
---------- ----------
Total current liabilities 158,182 153,561
---------- ----------
Deferred credits and other
liabilities:
Accumulated deferred income taxes 141,655 136,077
Regulatory liability 17,996 31,367
Deferred investment tax credit 16,567 17,792
Capital lease obligation 763 1,183
Other 74,706 78,081
---------- ----------
Total deferred credits and
other liabilities 251,687 264,500
---------- ----------
Total capitalization and
liabilities $1,048,983 $1,056,280
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
14
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Income
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Operating revenue:
Electric $128,420 $130,034 $309,666 $299,040
Gas 26,201 21,511 129,155 123,877
-------- -------- -------- --------
Total operating revenues 154,621 151,545 438,821 422,917
-------- -------- -------- --------
Operating expenses:
Cost of fuel 32,039 8,594 84,186 53,855
Cost of gas 13,887 9,305 72,293 65,123
Purchased power 24,312 44,105 42,211 56,027
Other operations and maintenance 26,099 57,149 79,355 122,749
Depreciation and amortization 17,786 16,571 52,863 50,532
Income taxes 9,159 (98) 22,399 9,261
Other taxes 9,884 9,856 30,340 30,755
-------- -------- -------- --------
Total operating expenses 133,166 145,482 383,647 388,302
-------- -------- -------- --------
Operating income 21,455 6,063 55,174 34,615
-------- -------- -------- --------
Other income and deductions:
Company-owned life insurance, net (246) (202) (767) (708)
Other, net (1,497) (342) (1,430) (726)
-------- -------- -------- --------
Total other income and
(deductions) (1,743) (544) (2,197) (1,434)
-------- -------- -------- --------
Income before interest expense 19,712 5,519 52,977 33,181
-------- -------- -------- --------
Interest expenses:
Interest on long-term debt 4,328 4,808 13,188 14,425
Cost of borrowed funds
capitalized (136) (48) (338) (74)
Other 1,832 1,098 3,831 2,979
-------- -------- -------- --------
Total interest expense 6,024 5,858 16,681 17,330
-------- -------- -------- --------
Net income before preferred
dividends 13,688 (339) 36,296 15,851
-------- -------- -------- --------
Dividends on preferred stock 539 802 2,437 2,372
-------- -------- -------- --------
Net income available for
common stock $ 13,149 $ (1,141) $ 33,859 $ 13,479
======== ======== ======== ========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
15
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
2000 1999
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 36,296 $ 15,851
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 52,863 51,037
Deferred income taxes, investment tax
credit and regulatory liability, net (9,018) (20,888)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (9,051) (2,165)
(Increase) in fuel, materials and supplies,
and gas in underground storage (11,167) (143)
Decrease in unbilled revenue 14,967 2,653
Increase (decrease) in accounts payable 14,094 (14,474)
(Decrease) increase in accrued taxes and interest (6,549) 4,799
Capital lease payments 484 484
Decrease (increase) in other current assets 7,879 (17,429)
(Decrease) in other current liabilities (1,225) (2,690)
Increase (decrease) in other non-current assets 3,167 (2,541)
(Decrease) increase in other non-current liab. (3,236) 39,809
-------- --------
Net cash provided by operating activities 89,504 54,303
-------- --------
Cash flows from investing activities:
Capital expenditures (43,211) (39,275)
Cost of equity funds capitalized -- --
Other (3,220) (2,423)
-------- --------
Net cash used in investing activities (46,431) (41,698)
-------- --------
Cash flow from financing activities:
Common dividends paid (16,000) (25,112)
Preferred dividends paid (2,437) (2,372)
Payments on capital lease obligation (484) (484)
Increase (decrease) in short-term borrowing 28,300 17,000
Long-term debt retired (30,000) --
Long-term debt issued 8,000 --
Preferred stock retired (25,000) --
-------- --------
Net cash used in financing activities (37,621) (10,968)
-------- --------
Net increase in cash and temporary
cash investments 5,452 1,637
Cash and temporary cash investments at
beginning of year 8,548 1,362
-------- --------
Cash and temporary cash investments at
September 30 $ 14,000 $ 2,999
======== ========
16
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest (net of cost of borrowed
funds capitalized) $ 22,150 $ 21,802
Income taxes $ 30,391 $ 19,308
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
</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 Environmental), QST Energy Inc. (QST Energy),
and CILCORP Infraservices Inc. (CILCORP Infraservices), 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 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 in the second
quarter of 1999. Prior year amounts have been reclassified on a basis
consistent with the 2000 presentation.
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. AES completed the acquisition of the
Company on October 18, 1999.
Approximately $886 million was required to complete the merger, which
involved the purchase of 13,625,680 shares of CILCORP's common stock.
Currently, there are 10,000 authorized shares of CILCORP common
stock, 1,000 of which are issued. AES owns 100% of the 1,000 issued
shares.
The merger was accounted for using the purchase method of accounting.
Under this method, the purchase price was allocated to the fair
market value of the assets acquired and the liabilities assumed. The
excess of the purchase price over the fair value of the net assets
acquired of approximately $573 million was recorded as goodwill at
CILCORP and is being amortized over 40 years. This initial
allocation of the purchase price at October 18, 1999, was based on
preliminary estimates made by the Company. During 2000, adjustments
were made to the purchase price allocation as additional information
became available to finalize the allocation previously based upon
preliminary estimates. The primary effect of these adjustments was
to increase goodwill by approximately $40 million and to record a
liability of approximately $110 million for an out-of-market long-
term coal contract (offset by deferred taxes of approximately $44
million and net customer contract intangibles of approximately $17
million). Changes to the Company's estimates after October 2000, if
any, will be recorded in results of operations.
Following the acquisition, results of operations for CILCORP Inc. are
presented for the periods before and after the acquisition, separated
by a heavy black line.
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 1999 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.
18
NOTE 2. Contingencies
Union Contracts
On August 3, 2000, CILCO and the International Brotherhood of
Electrical Workers Local 51 (IBEW) agreed to extend the existing
contract through July 1, 2002. The contract provides for 3% wage
increases in each of the two years of the extension, retroactive to
July 1, 2000. The IBEW represents 379 CILCO gas and electric
department people. The National Conference of Firemen and Oilers
Local 8 (NCF&O) ratified its current contract with the Company on
October 23, 1998. The current contract expires on July 1, 2001. The
NCF&O represents 176 CILCO power plant people.
NOTE 3. Accounting for Price Risk Management Activities
CILCORP utilizes commodity futures contracts, options and swaps in
the normal course of its natural gas and electric business activities
to reduce market risk associated with fluctuations in the price of
natural gas and electricity. 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 and 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.
The net gain/loss reflected in operating results from derivative
financial instruments for the quarter ended September 30, 2000, was a
$235,058 gain for natural gas and a $569,701 gain for electricity.
The gain for electricity reflects a correction of a purchase
accounting adjustment for the mark-to-market loss on open electricity
futures positions as of October 18, 1999, the date of acquisition of
CILCORP by AES. The purchase accounting adjustment was a $1.8
million credit related to electricity futures that settled in the
second and third quarters of 2000.
As of September 30, 2000, CILCORP had fixed-price derivative
financial instruments representing hedges of natural gas purchases of
.22 Bcf and natural gas sales of .88 Bcf for commitments through June
2001. The net deferred gain and carrying amount on these fixed-price
derivatives at September 30, 2000, was approximately $447,000.
As of September 30, 2000, CILCORP had no fixed-price derivative
financial instruments representing hedges of electricity.
NOTE 4. Impact of Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133). In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an amendment of FASB
Statement No. 133" (SFAS 137). SFAS 137 amends SFAS 133 to require
implementation of SFAS 133 for all fiscal quarters of fiscal years
beginning after June 15, 2000. The statement establishes accounting
and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives
19
(including certain derivative instruments embedded in other
contracts) as either assets or liabilities on the balance sheet and
measure those instruments at fair value. Changes in the
derivative's fair value are to be recognized currently in earnings,
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains or
losses to offset related results of the hedged item in the income
statement and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive
hedge accounting.
In June 2000, the FASB issued Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - an amendment of FASB Statement No.
133" (SFAS 138). This amendment to SFAS 133 includes expansion of
the normal purchases and sales exception to most contracts for which
physical delivery of the assets being sold or purchased is probable.
This amendment has substantially reduced the scope of SFAS 133
implementation efforts by the Company. Based on the Company's
understanding of the amended normal purchases and sales exception,
it has not expected SFAS 133 to have a significant impact on its
financial position or results of operations. Recently, however, a
number of issues have arisen in the industry with regard to whether
or not certain power contracts fall within the scope of SFAS 133.
These issues are expected to be addressed by the SFAS 133 task force
of the FASB during the fourth quarter of 2000. The Company will
continue SFAS 133 implementation efforts during the last quarter of
2000, including monitoring developments regarding the recent SFAS
133 scope issues discussed above.
The Company has no interest rate or foreign currency derivative
positions as of September 30, 2000.
The Company uses derivatives such as commodity futures, options, and
swaps in the normal course of its natural gas and electric business
activities to reduce market risk. Final adoption of SFAS 133 and the
corresponding amendment under SFAS 138 could increase volatility in
earnings and other comprehensive income. As a result of preliminary
assessment, the Company expects the majority of its derivatives as of
September 30, 2000, to qualify for hedge accounting. The ineffective
portion of hedges for future purchases of natural gas is immaterial
as of September 30, 2000, and is expected to remain immaterial at the
date of adoption, January 1, 2001. See Note 3 for the mark-to-market
gain or loss that would appear in current operating income if the
SFAS 133 requirements for hedge accounting are not met.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CILCORP Inc. (CILCORP) is a wholly-owned subsidiary of The AES
Corporation (AES). The financial condition and operating results of
CILCORP Inc. and its subsidiaries (the Company) primarily reflect the
operations of subsidiary Central Illinois Light Company (CILCO). On
November 23, 1998, the Company announced that 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. AES completed the acquisition of the Company on
October 18, 1999.
To complete the merger, approximately $886 million was raised
through a combination of additional paid-in capital contributed by
AES and the offering of senior notes and bonds assumed by CILCORP.
The approximately $886 million was used to purchase 13,625,680
shares of CILCORP's common stock. AES has 100% ownership of the
1,000 CILCORP common shares currently issued and outstanding.
Financial results reflect application of the purchase method of
accounting to the merger. Under this method, the purchase price is
allocated to the fair market value of the assets acquired and the
liabilities assumed. Any excess of the purchase price over the
fair value of the net assets acquired is allocated to goodwill. As
a result, CILCORP recorded purchase accounting fair value
adjustments to plant in service, pension and other post-retirement
liabilities, an out-of-market long-term coal contract, and other
balance sheet items. After reflecting these adjustments, the
Company also recorded goodwill. See Note 1 to the Consolidated
Financial Statements for further discussion related to purchase
accounting. The adjustments are reflected on CILCORP's financial
statements. Accordingly, CILCORP's post-merger financial statements
reflect a new basis of accounting, and separate financial statements
are presented for pre-merger and post-merger periods, separated by a
heavy black line. For discussion throughout this document, pre-
merger and post-merger activity unaffected by the merger is
compared. See "Overview" for a discussion of operating effects of
the merger.
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 Enterprises Inc. (QST) that provided 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 completed
on June 24, 1999.
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 Competition). 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 customers outside its traditional Central Illinois
service territory. As a result of these events, the Company reported
the results of QST and its subsidiaries (excluding CILCORP
Infraservices Inc. and residual interests in ESE Land Corporation) as
discontinued operations (see Results of Operations - QST Enterprises
Discontinued Operations).
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.
Overview
The Company's earnings decreased by approximately 33% for the nine
months ended September 30, 2000, compared to the same period in 1999.
This decrease was due
21
primarily to approximately $10.7 million in goodwill amortization and
$32.3 million in increased interest expense due to debt issued to
fund the AES acquisition of CILCORP. These increased costs were
partially offset by decreased payroll and related expenses following
the Voluntary Early Retirement Programs. (For further discussion,
refer to "Results of Operations".)
Forward-Looking Information
Forward-looking information is included in Management's Discussion
and Analysis of Financial Condition and Results of Operations (MD&A).
Certain material contingencies are also described in Note 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; weather conditions;
the extent and pace of development of competition for retail and
wholesale energy customers; changes in technology; changes in company-
wide operation and plant availability compared to our historical
performance and changes in our historical operating cost structure,
including changes in various costs and expenses; pricing and
transportation of commodities; market supply and demand for energy
and energy derivative financial instruments; inflation; capital
market conditions; and environmental laws and compliance costs.
Prevailing governmental policies, statutory changes, and regulatory
actions with respect to rates, tariffs, 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.
CILCORP
CILCORP is currently authorized by its Board of Directors to borrow
up to $60 million on a short-term basis. On September 30, 2000,
CILCORP had committed bank lines of credit of $60 million, of which
$46 million was used.
In October 1999, CILCORP issued $225 million of 8.7% senior notes
(due 2009) and $250 million of 9.375% senior notes (due 2029). Along
with equity funds provided by AES, the proceeds of the notes were
used by AES to acquire all outstanding shares of CILCORP common stock
for approximately $886 million, to pay transaction costs related to
the acquisition, and to retire short-term debt.
CILCORP had $17.5 million of medium-term notes outstanding at
September 30, 2000. With the issuance of the senior notes in October
1999, CILCORP can no longer issue debt under its medium-term note
program.
CILCO
Capital expenditures totaled $43.2 million for the nine months ended
September 30, 2000. Capital expenditures are anticipated to be
approximately $10.4 million for the remainder of 2000 and are
currently estimated to be $50.1 million in 2001.
22
CILCO retired $30 million of medium-term notes in February 2000. In
April 2000, CILCO incurred a total of $8 million in bank debt to
finance two power module projects. CILCO redeemed $25 million of
auction rate preferred stock in July 2000. CILCO expects to issue
commercial paper periodically during 2000, and is currently
authorized by its Board of Directors to issue up to $100 million of
short-term debt. At September 30, 2000, committed bank lines of
credit totaled $100 million, all of which were unused except in
support of commercial paper issuance. CILCO had $75.2 million of
commercial paper outstanding at September 30, 2000. During 2000,
CILCO expects to continue to support commercial paper issuance with
its bank lines of credit. CILCO plans to finance its 2000 and 2001
capital expenditures primarily with funds provided by operations.
CILCO is currently considering various options to refinance the
matured medium-term notes and auction rate preferred stock. Future
funds provided by operations may be affected by the deregulation of
the electric and natural gas utility industries (see Competition).
CIM
At September 30, 2000, CIM had $23.3 million of outstanding debt
owing to CILCORP.
CIM committed to invest $16.6 million in affordable housing projects.
Through September 30, 2000, CIM has paid $15.8 million to fund these
commitments, $.5 million of which was paid during 2000. CIM expects
to pay the approximately $.8 million remaining commitment in lesser
amounts in each year through 2006. CIM does not plan to make
additional investments beyond its current affordable housing
commitments. CIM funds its commitments with cash borrowed from the
Holding Company.
CVI
At September 30, 2000, CVI had outstanding debt of $1.3 million,
borrowed from CILCORP.
23
COMPETITION
CILCO, as a regulated public utility, has an obligation to provide
service to
retail customers within its defined service territory; thus, CILCO had
not generally been in competition with other public utilities for
retail electric or gas customers in these areas. However, the passage
of the Electric Service Customer Choice and Rate Relief Law of 1997
(Customer Choice Law) began a transition process to a fully
competitive market for electricity in Illinois. In addition,
electricity and natural gas compete with other forms of energy
available to customers.
Primarily as a result of the Customer Choice Law, the electric
industry in Illinois will change significantly during the coming
years at both the wholesale and retail levels. Large industrial
customers and customers representing one-third of remaining
non-residential kWh sales had the ability to choose their electric
supplier beginning October 1, 1999, and all other non-residential
customers will have choice no later than December 31, 2000.
Residential electric customers will be able to choose their electric
supplier on May 1, 2002.
If a customer chooses to leave its present electricity supplier, that
utility will collect a fee for delivering power and may assess an
additional transition charge on the customer. This collection
methodology must be filed and approved by the Illinois Commerce
Commission (ICC) and is designed to help utilities recover a portion
of the costs of past investments made under a regulated system. The
transition charge will reduce a customer's economic incentive to
switch suppliers. Transition charges may be collected through 2006
(2008 upon the ICC's finding that a utility's financial condition is
impaired and the utility meets other requirements specified in the
Customer Choice Law).
On March 9, 2000, CILCO filed with the ICC revised tariff sheets
eliminating the potential collection of the customer transition
charge effective March 17, 2000. At a March 15, 2000, hearing, the
ICC approved CILCO's revised tariffs, thereby eliminating the
potential for CILCO to collect a customer transition charge. CILCO
cannot re-establish the collection of a transition charge until it
files and the ICC approves revised tariff sheets that reinstate a
transition charge.
On July 31, 2000, CILCO filed a proposal with the ICC seeking
approval to eliminate its fuel adjustment clause (FAC) and recover
the cost of fuel and purchased energy through a fixed charge included
in base rates. CILCO's proposal is based on forecasted coal and
energy costs. If approved, CILCO's customers will not experience
energy price volatility created by market prices. The ICC must rule
on this proposal within 240 days of the July 31, 2000, filing date.
This filing is possible as a result of the Customer Choice Law. If
the FAC is eliminated, CILCO may not seek reinstatement of its fuel
adjustment clause for five years. CILCO is currently considering
actions it may take, such as various hedging programs, to protect
itself from volatility in its electricity supply costs which could
result absent the fuel adjustment clause.
The Customer Choice Law also requires electric base rate reductions
that vary by utility. CILCO reduced its residential base rates by 2%
in August 1998 and an additional 2% in October 2000. CILCO must
reduce base rates by an additional 1% in October 2002. 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.
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 selected manufacturing customers on
June 1,
24
2000, and to the remaining manufacturing customers on October 1,
2000, earlier than previously allowed under the Customer Choice Law.
Utilities selecting this
option also waive the right to seek a two-year extension on the
collection of transition charges. On April 13, 2000, CILCO filed
revised tariff sheets with the ICC to make these selected customers
eligible for choice on June 1, 2000, in order to increase the equity
cap by 2%, as outlined in Senate Bill 24.
With the enactment of the Customer Choice Law, electric generation in
Illinois is now deregulated and competitive. As a result, the
accounting principles applicable to rate-regulated enterprises will
no longer apply to the electric generation portion of CILCO's
business.
With electric choice beginning on October 1, 1999, for its industrial
customers and some of its commercial customers, CILCO has entered
into multi-year contracts with customers representing approximately
45% of total 1999 electric kWh sales to non-residential customers.
These contracts, which expire from 2001 to 2002, were designed to
capture a significant portion of the margin that the customers paid
to CILCO in the most recent twelve months.
The ultimate market price for electricity, the cost for a utility to
produce or buy electricity, and the number of customers that may be
gained or lost due to customer choice of supplier in Illinois cannot
be predicted. As a result, management cannot predict the ultimate
impact that the Customer Choice Law will have on CILCORP's financial
position or results of operation, but the effect could be
significant. However, CILCO is currently a low-cost provider of
electricity, and management will continue to position CILCO for
competition by controlling costs, maintaining good customer
relations, and developing flexibility to meet individual customer
requirements. As of September 30, 2000, all eligible electric
customers continue to purchase their electricity supply from CILCO
other than those who self-generate. CILCO has acquired approximately
750,000 megawatt hours of new retail load to be served outside its
service territory in 2000. CILCO will supply these new customers by
using its owned generation and electricity purchases from other
suppliers. CILCO has made the necessary supply and transmission
arrangements to meet customer requirements.
25
Market Risk Sensitive Instruments
CILCORP is exposed to non-trading risks through its daily business
activities. These non-trading activities may include the market or
commodity price risk related to CILCO's retail tariff activity and
CILCORP's non-regulated commodity marketing activities.
The market risk inherent in the activities of CILCORP (exclusive of
tariffed natural gas customers, and exclusive of tariffed electric
customers while the FAC is in effect) 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, 2000, CILCORP engaged in non-regulated electric retail
and natural gas sales in Illinois, including wholesale power
purchases and sales to supplement the Company's ability to generate
electricity.
As of September 30, 2000, CILCORP has contracted to sell
approximately 1.4 million MWh of electricity through July 2004 at
various fixed prices to non-regulated customers. These commitments
have a notional value of approximately $47.7 million and a mark-to-
market gain of approximately $6.7 million. CILCORP has also
contracted to purchase power at various fixed prices through December
2005. The total of fixed-price purchased power subject to market
risk is approximately 1.7 million MW, with a notional cost of
approximately $56.9 million and a mark-to-market gain of
approximately $38.4 million resulting in a fair value of
approximately $95.3 million as of September 30, 2000. Since the
majority of this power was purchased with the intent to supply non-
regulated retail customers, the sales price may not be at market and
the Company may potentially have realized gains significantly less
than the $38.4 million. Additionally, CILCORP holds net open market
price risk positions of approximately .03 Bcf of natural gas with a
mark-to-market loss of approximately $217,000. See Note 3 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 financial instrument positions held by CILCORP to the
change in price of the underlying commodity, the net effect on
CILCORP's net income resulting from the change in value of these
financial instruments is not expected to be material.
Voluntary Early Retirement Programs
CILCO offered Voluntary Early Retirement Programs in 1999 that
resulted in the retirement of 227 people and after-tax charges to
earnings of $6.1 million and $16.6 million in the second and third
quarters of 1999, respectively.
In November 2000, the Company offered a similar Voluntary Early
Retirement Program to AES CILCO people represented by International
Brotherhood of Electrical Workers Local 51 and Office and
Professional Employees' International Union Local 167. A total of 98
people are eligible to retire, and may elect, between November 6,
2000, and December 14, 2000, to accept the offer and retire as of
January 1, 2001. The Company expects to incur an after-tax charge to
earnings of up to $8 million during the fourth quarter related to
this program.
26
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, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Components of Electric 2000 1999 2000 1999
Operating Income (In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Electric retail $115,577 | $119,285 $286,161 | $280,070
Sales for resale 12,843 | 10,749 23,505 | 18,970
-------- | -------- -------- | --------
Total revenue 128,420 | 130,034 309,666 | 299,040
-------- | -------- -------- | --------
Cost of sales: | |
Cost of fuel 32,039 | 8,594 84,186 | 53,855
Purchased power 24,312 | 44,105 42,211 | 56,027
Revenue taxes 5,730 | 5,745 14,892 | 14,616
-------- | -------- -------- | --------
Total cost of sales 62,081 | 58,444 141,289 | 124,498
-------- | -------- -------- | --------
Gross margin 66,339 | 71,590 168,377 | 174,542
-------- | -------- -------- | --------
Operating expenses | |
Other operations and maintenance 19,117 | 39,364 57,961 | 88,684
Depreciation and amortization 12,449 | 11,799 37,022 | 35,585
Other taxes 2,409 | 2,419 6,988 | 7,532
-------- | -------- -------- | --------
Total operating expenses 33,975 | 53,582 101,971 | 131,801
-------- | -------- -------- | --------
Total 32,364 | 18,008 66,406 | 42,741
-------- | -------- -------- | --------
Fixed charges and other | |
Interest on long-term debt 3,117 | 3,442 9,443 | 10,328
Cost of borrowed funds capital. (136)| (47) (338)| (73)
Other interest 1,316 | 786 2,743 | 2,133
-------- | -------- -------- | --------
Total 4,297 | 4,181 11,848 | 12,388
| |
Income before income taxes 28,067 | 13,827 54,558 | 30,353
Income taxes 10,535 | 5,285 19,856 | 10,600
-------- | -------- -------- | --------
Electric income $ 17,532 | $ 8,542 $ 34,702 | $ 19,753
======== | ======== ======== | ========
</TABLE>
Electric gross margin decreased 7% for the quarter and 4% for the
nine months ended September 30, 2000, compared to the same periods in
1999, due primarily to decreased margin on sales for resale.
Industrial sales remained relatively constant for the quarter and
decreased 4% for the nine months ended September 30, 2000, compared
to the same periods in 1999. Residential sales decreased 7% for the
quarter and 3% for the nine months ended September 30, 2000, compared
to the same periods in 1999. Commercial sales increased 4% for the
quarter, and 2% for the nine months ended September 30, 2000,
compared to the same periods in 1999. Retail kilowatt hour (kWh)
sales decreased 1% for the quarter and 2% for the nine months ended
September 30, 2000, compared to the same periods in 1999. Cooling
27
degree days were 9% higher for the quarter and 1% higher for the nine
months ended September 30, 2000, compared to the same periods in
1999.
Sales for resale increased 19% for the quarter and 24% for the nine
months ended September 30, 2000, compared to the same periods in
1999. 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 decreased 45% and 25% for the quarter and nine months
ended September 30, 2000, respectively, compared to the same periods
in 1999. 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 1999 and $23 million remained unrecovered at the end of July
1999. 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 ICC
approved a request by CILCO to charge certain customers over a 12-
month period (without interest), beginning in September 1999. In
addition, to avoid the potential 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 increased for the quarter and for the nine months ended
September 30, 2000 compared to the same periods in 1999.
The ICC is in the process of reviewing the FAC costs incurred during
1999 and will determine the prudency and recoverability of CILCO's
energy costs. Any amount of the 1999 FAC costs ultimately determined
to be imprudent, or otherwise not recoverable through the FAC, would
be refunded to CILCO's customers. The ICC Staff and intervenors have
variously recommended in the pending proceeding that up to $22.4
million be refunded to CILCO's customers. CILCO disagrees with the
theories of Staff and the intervenors. On November 6, 2000, the
Hearing Examiner's Proposed Order waw issued and recommended $3.4
million be refunded to CILCO's customers. A final order in this
matter will be issued by December 31, 2000. A significant
disallowance of these costs by the ICC would be material to CILCO's
results of operation as an operating expense on CILCO's income
statement.
Electric operations and maintenance expense decreased 51% for the
quarter and 35% for the nine months ended September 30, 2000,
compared to the same periods in 1999. The decrease was mainly due to
decreased pension, medical and payroll expenses due to the 1999 early
retirement programs. In 1999, there was a $10.1 million second
quarter charge and an $18.4 million third quarter charge to pension
and benefits expense as a result of the Voluntary Early Retirement
Programs offered to Management, Office and Technical employees and to
employees in CILCO's electric power generation area. The decrease
for the nine months ended was partially offset by increased power
plant maintenance and operations expenses, and increased tree
trimming expenses.
Income taxes expense increased 99% for the quarter and 87% for the
nine months ended September 30, 2000, due to increases in pre-tax
operating income.
28
Fixed charges and other expenses increased 3% for the quarter and
decreased 4% for the nine months ended September 30, 2000, compared
to the same periods in 1999.
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, 2000
and 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Components of Gas 2000 1999 2000 1999
Operating Income (In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Sale of gas $ 24,811 | $ 20,347 $125,251 | $120,180
Transportation services 1,390 | 1,164 3,904 | 3,697
-------- | -------- -------- | --------
Total revenue 26,201 | 21,511 129,155 | 123,877
-------- | -------- -------- | --------
Cost of sales: | |
Cost of gas 13,887 | 9,305 72,293 | 65,123
Revenue taxes 1,022 | 1,002 6,282 | 6,330
-------- | -------- -------- | --------
Total cost of sales 14,909 | 10,307 78,575 | 71,453
-------- | -------- -------- | --------
Gross margin 11,292 | 11,204 50,580 | 52,424
-------- | -------- -------- | --------
Operating expenses | |
Other operations and maintenance 6,982 | 17,785 21,394 | 34,065
Depreciation and amortization 5,337 | 4,772 15,841 | 14,947
Other taxes 723 | 690 2,178 | 2,277
-------- | -------- -------- | --------
Total operating expenses 13,042 | 23,247 39,413 | 51,289
-------- | -------- -------- | --------
Total (1,750)| (12,043) 11,167 | 1,135
-------- | -------- -------- | --------
Fixed charges and other | |
Interest on long-term debt 1,211 | 1,366 3,745 | 4,097
Cost of borrowed funds capital. -- | (1) -- | (1)
Other interest expense 516 | 312 1,088 | 846
-------- | -------- -------- | --------
Total 1,727 | 1,677 4,833 | 4,942
-------- | -------- -------- | --------
Income (loss) before income taxes (3,477)| (13,720) 6,334 | (3,807)
Income taxes (1,376)| (5,383) 2,543 | (1,339)
-------- | -------- -------- | --------
Gas income (loss) $ (2,101)| $ (8,337)$ 3,791 | $ (2,468)
======== | ======== ======== | ========
</TABLE>
Gas gross margin increased 1% for the quarter and decreased 4% for
the nine months ended September 30, 2000, compared to the same
periods in 1999. Residential sales volumes decreased 7% for the
quarter and 11% for the nine months ended September 30, 2000.
Commercial sales volumes increased 19% for the quarter and decreased
2% for the nine months ended September 30, 2000. Heating degree
days were 10% lower for the quarter and 8% lower for the nine months
ended September 30, 2000, compared to the same periods in 1999. 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 increased 19% and 6% for the
quarter and nine months ended September 30, 2000, respectively, while
gas transportation sales
30
volumes increased 25% for the first quarter, and 10% for the nine
months ended September 30, 2000, compared to the same periods in
1999.
The cost of gas increased 49% for the quarter and 11% for the nine
months ended September 30, 2000, compared to the same periods in
1999, mainly due to higher natural gas prices during the quarter and
nine months ended September 30, 2000. These changes were passed
through to customers via the PGA.
Gas operation and maintenance expense decreased 61% and 37%,
respectively, for the quarter and nine months ended September 30,
2000, compared to the same periods in 1999. The decreases were
primarily due to decreased pension, medical and payroll expenses due
to the 1999 early retirement programs. In 1999, there was a
$9.1 million third quarter charge to pension and benefits expense as
a result of a Voluntary Early Retirement Program offered to
Management and Office and Technical employees.
Fixed charges and other expenses increased 3% for the quarter and
decreased 2% for the nine months ended September 30, 2000, compared
to the same periods in 1999.
31
CILCO Other
The following table summarizes other income and deductions for the
three months and nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Components of CILCO Other Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 17,615 | $ 1,025 $ 36,399 | $ 2,754
Expense (20,412)| (2,018) (39,901)| (4,530)
-------- | ------- -------- | -------
Gross margin (2,797)| (993) (3,502)| (1,776)
-------- | ------- -------- | -------
| |
Other income and deductions: | |
Interest income 110 | 34 179 | 147
Amortization -- | (72) -- | (504)
Operating expenses (520)| (247) (1,180)| (894)
Other taxes (1)| (1) (3)| (3)
Preferred stock dividends (539)| (802) (2,437)| (2,372)
Other (246)| (202) (767)| (708)
-------- | ------- -------- | -------
Total other income and deductions (1,196)| (1,290) (4,208)| (4,334)
| |
Loss before income taxes (3,993)| (2,283) (7,710)| (6,110)
Income taxes (benefit) (1,711)| (937) (3,076)| (2,304)
-------- | ------- -------- | -------
Other income (loss) $ (2,282)| $(1,346) $ (4,634)| $(3,806)
======== | ======= ======== | =======
</TABLE>
The changes in gross margin for the quarter and nine months ended
September 30, 2000, compared to the same periods in 1999, are
primarily due to higher purchased power and fuel costs relative to
revenues from 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 and to other customers eligible to
choose their energy supplier under the Customer Choice Law.
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, 2000
and 1999.
<TABLE>
<CAPTION>
Components of Other Businesses Three Months Ended Nine Months Ended
Net Loss September 30, September 30,
2000 1999 2000 1999
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Leveraged lease revenue $ 2,068 |$ 1,566 $ 6,818 |$ 5,200
Interest income 33 | 42 126 | 98
Gas marketing revenue 4,890 | 833 10,283 | 11,186
Other revenue 558 | 486 2,025 | 1,734
------- |------- -------- |-------
Total revenue 7,549 | 2,927 19,252 | 18,218
------- |------- -------- |-------
Expenses: | |
Gas purchased for resale 4,802 | 947 9,958 | 10,134
Operating expenses (921)| 3,261 905 | 8,226
Depreciation and amortization 3,612 | 43 10,837 | 131
Interest expense 11,932 | 1,093 35,659 | 3,935
Other taxes 9 | 11 129 | 26
------- |------- -------- |-------
Total expenses 19,434 | 5,355 57,488 | 22,452
------- |------- -------- |-------
Loss before income taxes (11,885)| (2,428) (38,236)| (4,234)
------- |------- -------- |-------
Income tax benefit (3,511)| (1,212) (11,932)| (2,089)
------- |------- -------- |-------
Other Businesses net loss $(8,374)|$(1,216)$(26,304)|$(2,145)
======= |======= ======== |=======
</TABLE>
Leveraged lease revenues increased 31% for the nine months ended
September 30, 2000, primarily due to the renegotiation of the
Company's dragline lease and one of its building leases.
Gas marketing revenues and gas purchased for resale expense increased
for the three months ended September 30, 2000, due to increased gas
marketing sales and higher natural gas prices. Revenue and purchased
gas expense for the nine months ended September 30, 2000, were
slightly lower than the previous year due to decreased sales in the
first quarter.
Interest expense increased for the three months and nine months ended
September 30, 2000, due to interest on the senior notes issued in
October 1999 to acquire CILCORP. Depreciation and amortization is
higher due primarily to the amortization of goodwill resulting from
AES' acquisition price in excess of the fair value of CILCORP's
assets and liabilities.
Operating expenses decreased for the nine months ended September 30,
2000, compared to the corresponding period in 1999, primarily due to
1999 expenses of $2.3 million for merger transaction costs and $1.4
million for incentive compensation. In addition, operating expenses
were impacted by the effect of a purchase accounting adjustment of
$1.8 million related to a forward sale contract for electricity
entered into prior to the AES acquisition of CILCORP. See related
discussion in Note 3 to the financial statements.
33
The income tax benefit increased for the three months and nine months
ended September 30, 2000, compared to the corresponding periods in
1999, primarily due to lower net income resulting from the
acquisition debt interest expense.
34
QST Enterprises Discontinued Operations
QST Enterprises and QST Energy ceased operations during the fourth
quarter of 1998, except for fulfillment of contractual commitments
for 1999 and beyond, and recorded loss provisions in 1998 for the
discontinued energy operations.
The results of QST Enterprises and its past and present subsidiaries
- QST Environmental and QST Energy - are reported in 2000 and prior
periods as discontinued operations. The table below 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,
2000 1999 2000 1999
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
QST Enterprises (excluding QST
Environmental) $ -- |$ -- $ -- |$ --
QST Environmental, net of tax of | |
$(221) -- | -- -- | (407)
------- |------- ------- |--------
$ -- |$ -- $ -- |$ (407)
======= |======= ======= |========
</TABLE>
QST Enterprises' (excluding QST Environmental) financial results for
the periods shown were reflected in the discontinued operations
liability which was accrued at the end of 1998, resulting in no net
income or loss.
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. The two suits filed by QST Energy in the
U.S. District Court, Central District of Illinois, have now been
consolidated with the suit in the U.S. District Court, Northern
District of California. The discovery process in the suits is
ongoing. 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, 2000, for
these two customers totaled $12.8 million, excluding interest of
approximately $2.5 million. The receivable was reduced by $2.5
million in July 2000 for payments received from these customers.
Under the terms of the contracts, QST Energy has terminated delivery
of electricity to the two customers.
35
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Reference is made to "Environmental Matters" under "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 1999 Annual Report on Form 10-
K for certain pending 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
None
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial data schedules
(b) Reports on Form 8-K
None
36
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 9, 2000
R. J. Sprowls
R. J. Sprowls
Vice President
Date November 9, 2000
T. D. Hutchinson
T. D. Hutchinson
Controller and Chief
Financial Officer
37
<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 9, 2000
R. J. Sprowls
R. J. Sprowls
Vice President
Date November 9, 2000
T. D. Hutchinson
T. D. Hutchinson
Controller and Chief
Financial Officer
38
