UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 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 March 31, 2000 1,000
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value,
shares outstanding and privately
held by CILCORP Inc. at March 31, 2000 13,563,871
1
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1: Financial Statements
CILCORP INC.
Consolidated Balance Sheets 3-4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6-7
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets 8-9
Consolidated Statements of Income 10
Consolidated Statements of Cash Flows 11-12
Statements of Segments of Business 13-14
Notes to Consolidated Financial Statements
CILCORP Inc. and Central Illinois Light Company 15-17
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
CILCORP Inc. and Central Illinois Light Company 18-30
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 31
Item 5: Other Information 31
Item 6: Exhibits and Reports on Form 8-K 31
Signatures 32-33
2
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
March 31, December 31,
2000 1999
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 4,147 $ 11,220
Receivables, less reserves of
$1,606 and $1,296 65,207 60,072
Accrued unbilled revenue 25,293 35,526
Fuel, at average cost 10,169 14,392
Materials and supplies, at
average cost 16,117 16,165
Gas in underground storage, at
average cost 7,423 21,196
FAC underrecoveries 6,883 12,024
Prepayments and other 13,015 8,946
---------- ----------
Total current assets 148,254 179,541
---------- ----------
Investments and other property:
Investment in leveraged leases 140,053 143,697
Cash surrender value of company-owned
life insurance, net of related
policy loans of $53,558 3,899 3,106
Other investments 23,802 24,113
---------- ----------
Total investments and other
property 167,754 170,916
---------- ----------
Property, plant and equipment:
Utility plant, at original cost
Electric 624,782 624,889
Gas 208,466 208,520
---------- ----------
833,248 833,409
Less - accumulated provision for
depreciation 25,945 8,898
---------- ----------
807,303 824,511
Construction work in progress 47,214 38,068
Other, net of depreciation 258 298
---------- ----------
Total property, plant and
equipment 854,775 862,877
---------- ----------
Other assets:
Goodwill, net of accumulated
amortization of $6,453 and $2,881 568,173 569,983
Other 45,841 47,636
---------- ----------
Total other assets 614,014 617,619
---------- ----------
Total assets $1,784,797 $1,830,953
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
3
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
March 31, December 31,
2000 1999
LIABILITIES AND STOCKHOLDER'S EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ -- $ 30,000
Notes payable 69,900 91,900
Accounts payable 34,706 41,429
Accrued taxes 22,720 14,670
Accrued interest 25,986 18,296
FAC/PGA overrecoveries 974 127
Other 5,589 5,742
---------- ----------
Total current liabilities 159,875 202,164
---------- ----------
Long-term debt 730,445 730,434
---------- ----------
Deferred credits and other
liabilities:
Accumulated deferred income taxes 236,594 237,557
Regulatory liability of regulated
subsidiary 26,910 31,367
Deferred investment tax credits 17,383 17,791
Other 76,772 77,432
---------- ----------
Total deferred credits and
other liabilities 357,659 364,147
---------- ----------
Preferred stock of subsidiary 66,120 66,120
---------- ----------
Stockholder's equity:
Common stock, no par value;
authorized 10,000 shares -
outstanding 1,000 shares -- --
Additional Paid-in Capital 468,833 468,833
Retained earnings 1,865 (745)
Accumulated other comprehensive
income -- --
---------- ----------
Total stockholder's equity 470,698 468,088
---------- ----------
Total liabilities and
stockholder's equity $1,784,797 $1,830,953
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
4
<TABLE>
CILCORP INC AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Revenue:
CILCO Electric $ 86,326 | $ 80,962
CILCO Gas 70,144 | 76,797
CILCO Other 8,384 | 926
Other Businesses 6,269 | 9,553
-------- | --------
Total 171,123 | 168,238
-------- | --------
Operating expenses: |
Fuel for generation and |
purchased power 39,253 | 30,705
Gas purchased for resale 43,063 | 50,771
Other operations and maintenance 27,300 | 29,973
Depreciation and amortization 21,021 | 18,321
Taxes, other than income taxes 11,980 | 11,567
-------- | --------
Total 142,617 | 141,337
-------- | --------
Fixed charges and other: |
Interest expense 17,343 | 7,212
Preferred stock dividends of |
subsidiary 840 | 797
Allowance for funds used |
during construction (103)| (11)
Other 275 | 247
-------- | --------
Total 18,355 | 8,245
-------- | --------
Income from continuing operations |
before income taxes 10,151 | 18,656
Income taxes 4,442 | 6,049
-------- | --------
Net income from |
continuing operations 5,709 | 12,607
Income from operations of |
discontinued business, net of |
tax of $45 -- | 28
-------- | --------
Net income $ 5,709 | $ 12,635
======== | ========
<FN>
The accompanying notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
5
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 6,549 |$ 13,405
-------- |--------
Adjustments to reconcile net income to net |
cash provided by operating activities: |
Non-cash lease income and investment income (3,088)| (1,633)
Cash receipts in excess of debt service |
on leases 6,959 | 1,466
Depreciation and amortization 21,021 | 18,321
Deferred income taxes, investment tax credit |
and regulatory liability of subsidiary, net (5,828)| (3,639)
Changes in operating assets and liabilities: |
Decrease in accounts receivable and |
accrued unbilled revenue 5,098 | 2,924
Decrease in inventories 18,044 | 16,832
Decrease in accounts payable (6,723)| (22,789)
Increase in accrued taxes 8,050 | 9,239
Decrease in other assets 1,105 | 4,602
Increase (decrease) in other liabilities 7,724 | (3,232)
-------- |--------
Total adjustments 52,362 | 22,091
-------- |--------
Net cash provided by operating activities |
from continuing operations 58,911 | 35,496
-------- |--------
Net cash provided (used) by operating |
activities of discontinued operations -- | 391
-------- |--------
Cash flow from operations 58,911 | 35,887
-------- |--------
Cash flows from investing activities: |
Additions to plant (9,557)| (10,497)
Other (487)| 1,400
-------- |--------
Net cash used by investing activities |
from continuing operations (10,044)| (9,097)
-------- |--------
Net cash used by investing activities |
from discontinued operations -- | (395)
-------- |--------
Cash flow from investing activities (10,044)| (9,492)
-------- |--------
6
Cash flow from financing activities: |
Net decrease in short-term debt (22,000)| (15,500)
Decrease in long-term debt (30,000)| (585)
Common dividends paid (3,100)| (8,371)
Preferred dividends paid (840)| (797)
-------- |--------
Net cash used by financing activities |
from continuing operations (55,940)| (25,253)
-------- |--------
Net cash used by financing activities |
from discontinued operations -- | (7)
-------- |--------
Cash flow from financing activities (55,940)| (25,260)
-------- |--------
Net (decrease) increase in cash and |
temporary cash investments: (7,073)| 1,135
Cash and temporary cash investments |
at beginning of year: 11,220 | 1,669
-------- |--------
Cash and temporary cash investments at |
March 31 $ 4,147 |$ 2,804
======== |========
Supplemental disclosures of cash flow |
information: |
|
Cash paid during the period for: |
|
Interest $ 10,304 |$ 9,030
|
Income taxes $ 2,663 |$ 3,967
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
7
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
(Unaudited)
<S> <C> <C>
Utility plant, at original cost:
Electric $1,263,082 $1,263,190
Gas 431,833 431,887
---------- ----------
1,694,915 1,695,077
Less - accumulated provision
for depreciation 887,612 870,566
---------- ----------
807,303 824,511
Construction work in progress 47,214 38,068
---------- ----------
Total utility plant 854,517 862,579
---------- ----------
Other property and investments:
Cash surrender value of company-owned
life insurance (net of related
policy loans of $53,558) 3,899 3,106
Other 1,183 1,179
---------- ----------
Total other property and
investments 5,082 4,285
---------- ----------
Current assets:
Cash and temporary cash investments 1,653 8,548
Receivables, less reserves of
$1,606 and $1,296 48,445 42,410
Accrued unbilled revenue 24,655 35,071
Fuel, at average cost 10,169 14,392
Materials and supplies,
at average cost 16,086 15,967
Gas in underground storage,
at average cost 7,423 21,196
Prepaid taxes 6,365 6,165
FAC underrecoveries 6,883 12,024
Other 12,927 8,854
---------- ----------
Total current assets 134,606 164,627
---------- ----------
Deferred debits:
Unamortized loss on reacquired debt 2,874 2,941
Unamortized debt expense 1,518 1,552
Prepaid pension cost 308 259
Other 16,790 20,037
---------- ----------
Total deferred debits 21,490 24,789
---------- ----------
Total assets $1,015,695 $1,056,280
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
8
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
March 31, 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 135,567 121,564
Accumulated other comprehensive income (60) (60)
---------- ----------
Total common stockholder's equity 348,168 334,165
Preferred stock without mandatory
redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt 237,945 237,934
---------- ----------
Total capitalization 652,233 638,219
---------- ----------
Current liabilities:
Current maturities of long-term debt -- 30,000
Notes payable 29,900 46,900
Accounts payable 29,251 35,859
Accrued taxes 29,744 25,520
Accrued interest 6,839 9,485
FAC/PGA overrecoveries 974 127
Level payment plan -- 956
Other 5,517 4,714
---------- ----------
Total current liabilities 102,225 153,561
---------- ----------
Deferred credits and other
liabilities:
Accumulated deferred income taxes 137,938 136,077
Regulatory liability 26,910 31,367
Deferred investment tax credit 17,383 17,792
Capital lease obligation 1,046 1,183
Other 77,960 78,081
---------- ----------
Total deferred credits and
other liabilities 261,237 264,500
---------- ----------
Total capitalization and
liabilities $1,015,695 $1,056,280
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these Balance Sheets.
</TABLE>
9
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Income
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Operating revenue:
Electric $ 86,326 |$ 80,962
Gas 70,144 | 76,797
-------- |--------
Total operating revenues 156,470 | 157,759
-------- |--------
Operating expenses: |
Cost of fuel 28,999 | 24,231
Cost of gas 40,932 | 44,687
Purchased power 2,899 | 5,839
Other operations and maintenance 25,863 | 27,702
Depreciation and amortization 17,409 | 18,060
Income taxes 8,582 | 6,895
Other taxes 11,867 | 11,561
-------- |--------
Total operating expenses 136,551 | 138,975
-------- |--------
Operating income 19,919 | 18,784
-------- |--------
Other income and deductions: |
Company-owned life insurance, net (275)| (247)
Other, net 608 | (228)
-------- |--------
Total other income and |
(deductions) 333 | (475)
-------- |--------
Income before interest expense 20,252 | 18,309
-------- |--------
Interest expenses: |
Interest on long-term debt 4,531 | 4,808
Allowance for funds used during |
construction - debt (103)| (11)
Other 981 | 1,005
-------- |--------
Total interest expense 5,409 | 5,802
-------- |--------
Net income before preferred dividends 14,843 | 12,507
-------- |--------
Dividends on preferred stock 840 | 797
-------- |--------
Net income available for |
common stock $ 14,003 |$ 11,710
======== |========
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
10
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 14,843 |$ 12,507
|
Adjustments to reconcile net income to |
cash provided by operating activities: |
Depreciation and amortization 17,409 | 18,276
Deferred income taxes, investment tax |
credit and regulatory liability, net (3,005)| (2,529)
Changes in operating assets and liabilities: |
Increase in accounts receivable (6,035)| (8,226)
Decrease in fuel, materials and supplies, |
and gas in underground storage 17,878 | 16,753
Decrease in accrued unbilled revenue 10,416 | 5,869
Decrease in accounts payable (6,608)| (13,185)
Increase in accrued taxes and |
interest 1,577 | 5,229
Capital lease payments 161 | 161
Decrease in other current assets 867 | 2,654
Increase (decrease) in other current |
liabilities 694 | (446)
Decrease in other non-current assets 3,299 | 3,655
Increase in other non-current liabilities 203 | 399
-------- |--------
Net cash provided by operating activities 51,699 | 41,117
-------- |--------
Cash flows from investing activities: |
Capital expenditures (9,557)| (10,087)
Other (1,036)| (1,329)
-------- |--------
Net cash used in investing activities (10,593)| (11,416)
-------- |--------
Cash flow from financing activities: |
Common dividends paid -- | (16,741)
Preferred dividends paid (840)| (797)
Payments on capital lease obligation (161)| (161)
Decrease in short-term borrowing (17,000)| (11,800)
Decrease in long-term debt (30,000)| --
-------- |--------
Net cash used in financing activities (48,001)| (29,499)
-------- |--------
Net increase in cash and temporary |
cash investments (6,895)| 202
|
Cash and temporary cash investments at |
beginning of year 8,548 | 1,362
-------- |--------
Cash and temporary cash investments at |
March 31 $ 1,653 |$ 1,564
======== |========
11
Supplemental disclosures of cash |
flow information: |
|
Cash paid during the period for: |
|
Interest (net of cost of borrowed |
funds capitalized) $ 8,507 |$ 8,334
|
Income taxes $ 7,260 |$ 96
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
12
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Three Months Ended March 31, 2000
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operatns. Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 86,326 $ 70,144 $ 8,341 $ 6,215 $ $ 171,026
Interest income -- -- 43 54 -- 97
-------- -------- ------- --------- ------- -----------
Total 86,326 70,144 8,384 6,269 -- 171,123
-------- -------- ------- --------- ------- -----------
Operating
expenses 57,799 52,761 8,130 2,906 -- 121,596
Depreciation and
amortization 12,201 5,208 -- 3,612 -- 21,021
-------- -------- ------- --------- ------- -----------
Total 70,000 57,969 8,130 6,518 -- 142,617
-------- -------- ------- --------- ------- -----------
Interest expense 3,935 1,577 -- 11,831 -- 17,343
Preferred stock
dividends -- -- 840 -- -- 840
Fixed charges &
other expenses (103) -- 275 -- -- 172
-------- -------- ------- --------- ------- -----------
Total 3,832 1,577 1,115 11,831 -- 18,355
-------- -------- ------- --------- ------- -----------
Income from
continuing
oper. before
income taxes 12,494 10,598 (861) (12,080) -- 10,151
Income taxes 4,360 4,222 (354) (3,786) -- 4,442
-------- -------- ------- --------- ------- -----------
Net income from
continuing
operations 8,134 6,376 (507) (8,294) -- 5,709
Effect of
discontinued
operations -- -- -- -- -- --
-------- -------- ------- --------- ------- -----------
Segment net
income $ 8,134 $ 6,376 $ (507) $ (8,294)$ -- $ 5,709
======== ======== ======= ========= ======= ===========
</TABLE>
13
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Three Months Ended March 31, 1999
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operatns. Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 80,962 $ 76,797 $ 848 $ 9,524 $ -- $ 168,131
Interest income -- -- 78 29 -- 107
-------- -------- ------- --------- -------- ----------
Total 80,962 76,797 926 9,553 -- 168,238
-------- -------- ------- --------- -------- ----------
Operating
expenses 56,328 57,692 1,588 7,408 -- 123,016
Depreciation and
amortization 12,432 5,628 216 45 -- 18,321
-------- -------- ------- --------- -------- ----------
Total 68,760 63,320 1,804 7,453 -- 141,337
-------- -------- ------- --------- -------- ----------
Interest expense 4,151 1,662 -- 1,399 -- 7,212
Preferred stock
dividends -- -- 797 -- -- 797
Fixed charges &
other expenses (11) -- 247 -- -- 236
-------- -------- ------- --------- -------- ----------
Total 4,140 1,662 1,044 1,399 -- 8,245
-------- -------- ------- --------- -------- ----------
Income from
continuing
oper. before
income taxes 8,062 11,815 (1,922) 701 -- 18,656
Income taxes 2,148 4,747 (650) (196) -- 6,049
-------- -------- ------- --------- -------- ----------
Net income from
continuing
operations 5,914 7,068 (1,272) 897 -- 12,607
Effect of
discontinued
operations -- -- -- -- 28 28
-------- -------- ------- --------- -------- ----------
Segment net
income $ 5,914 $ 7,068 $(1,272) $ 897 $ 28 $ 12,635
======== ======== ======= ========= ======== ==========
</TABLE>
14
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 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 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 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 purchase price over the fair value of the assets acquired and
the liabilities assumed was allocated to goodwill at CILCORP.
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.
NOTE 2. Contingencies
Union Contracts
CILCO is presently in contract negotiations with one of its unions,
the International Brotherhood of Electrical Workers Local 51 (IBEW).
The contract expires on July 1, 2000. The IBEW represents
approximately 374 CILCO gas and
15
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 approximately 169 CILCO power plant people.
Other
Refer also to "Results of Operations - CILCO Electric Operations" for
a discussion of unrecovered generation and purchased power costs
incurred during July 1999, and to "Results of Operations - QST
Discontinued Operations" for details regarding accounts receivable
balances with two former customers.
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 or price risk. 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. 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.
The net gain/loss reflected in operating results from derivative
financial instruments for the period ended March 31, 2000, was a
$77,076 loss for natural gas and a $129,165 gain for electricity.
As of March 31, 2000, CILCORP had fixed-price derivative financial
instruments representing hedges of natural gas purchases of .09 Bcf
and natural gas sales of .15 Bcf for commitments through January
2001. The net deferred gain and carrying amount on these fixed-price
derivatives at March 31, 2000, was approximately $93,000. At March
31, 2000, CILCORP had no open positions in derivative financial
instruments used to hedge natural gas basis.
As of March 31, 2000, CILCORP had fixed-price derivative financial
instruments representing hedges of electricity sales of
52,256 megawatts for commitments through August 2000. The net
deferred loss and carrying amount on these fixed-price derivatives at
March 31, 2000, was approximately $1.9 million.
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" (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
16
an entity recognize all derivatives (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.
SFAS 133 cannot be applied retroactively. SFAS 133 must be applied
to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts. With respect to hybrid instruments, a
company may elect to apply SFAS 133, as amended, to (1) all hybrid
contracts, (2) only those hybrid instruments that were issued,
acquired, or substantively modified after December 31, 1997, or (3)
only those hybrid instruments that were issued, acquired, or
substantively modified after December 31, 1998.
The fair value of these derivatives would be recognized as assets or
liabilities on the balance sheet, consistent with the current
accounting treatment for certain freestanding derivatives. The
Company has not yet quantified the other effects on the financial
statements of adopting SFAS 133. The final adoption could increase
volatility in earnings and other comprehensive income. CILCORP
continues to analyze the effects of adoption of the rules
promulgated by SFAS 133. The Company is in the process of preparing
a comprehensive inventory of all derivatives that will be subject to
disclosure under SFAS 133 and developing procedures for the
determination and valuation of hedge relationships that may exist,
and their effectiveness.
17
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 purchase price over the fair value
of the assets acquired and the liabilities assumed is allocated to
goodwill. As a result, CILCORP recorded purchase accounting fair
value adjustments to 1) adjust plant to its net fair value, 2)
adjust pension and other post-retirement liabilities, and 3) record
goodwill. Of these adjustments, the primary effect of purchase
accounting was to record approximately $573 million of goodwill
which will be amortized over 40 years. The adjustments are
reflected on CILCORP's financial statements as of the merger date,
but were not "pushed down" to CILCORP's subsidiaries. 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.
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 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 is
reporting the results of QST and its subsidiaries (excluding CILCORP
Infraservices Inc. and residual interests in ESE Land Corporation) as
discontinued operations (see QST Discontinued Operations).
18
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 55% for the three
months ended March 31, 2000, compared to the same period in 1999.
This decrease was due primarily to approximately $3.6 million in
goodwill amortization and $10.8 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 March 31, 2000, CILCORP
had committed bank lines of credit of $60 million, of which $40
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.
19
The Company had $17.5 million of medium-term notes outstanding at
March 31, 2000. With the issuance of the senior notes in October
1999, the Company can no longer issue debt under its medium-term note
program.
CILCO
Capital expenditures totaled $9.6 million for the three months ended
March 31, 2000. Capital expenditures are anticipated to be
approximately $44 million for the remainder of 2000 and are currently
estimated to be $55.9 million in 2001.
CILCO retired $30 million of medium-term notes in February 2000.
CILCO is considering the redemption of $25 million of auction rate
preferred stock in June 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 March
31, 2000, committed bank lines of credit totaled $65 million, all of
which were unused except in support of commercial paper issuance.
CILCO had $29.9 million of commercial paper outstanding at March 31,
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 to redeem the 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 March 31, 2000, CIM had $24.6 million of outstanding debt owing to
CILCORP.
CIM is committed to invest $16.6 million in affordable housing funds.
Through March 31, 2000, CIM has paid $15.4 million to fund these
commitments, $.1 million of which was paid during 2000. CIM expects
to pay approximately $.4 million of the remaining $1.2 million
commitment in 2000, and lesser amounts in each year thereafter
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.
20
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. For example, within the City of
Springfield, CILCO's natural gas business competes with the City's
municipal electric system to provide customer energy needs.
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 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 collection
of any 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.
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 must reduce base rates by an additional 2% in
October 2000 and 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, 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.
21
With the enactment of the Customer Choice Law, electric generation in
Illinois will become 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
50% 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 December 31, 1999, 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.
22
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 majority of CILCORP's energy sales at the end of March 31, 2000,
were to CILCO retail customers in Illinois under tariffs regulated by
the ICC. Although the Illinois retail electric market is becoming
deregulated (see Competition), 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.
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 March
31, 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 March 31, 2000, CILCORP has contracted to sell approximately
616,000 MWh of electricity through May 2001 at various fixed prices
to non-regulated customers. These commitments have a notional value
of approximately $17.5 million and a mark-to-market loss of
approximately $1.9 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
1,730,800 MWh, with a notional cost of approximately $59.6 million
and a mark-to-market gain of approximately $39.3 million resulting in
a fair value of approximately $98.9 million as of March 31, 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
the market and the company may potentially have realized gains
significantly less than the $39.3 million. Electric financial open
positions, used to hedge a portion of the above-mentioned purchases,
include the sale of approximately 52,256 MWh with a mark-to-market
loss of approximately $1.9 million, as of March 31, 2000.
Additionally, CILCORP holds net open market price risk positions of
approximately .07 Bcf of natural gas with a mark-to-market gain of
approximately $13,000. 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.
23
Results of Operations
CILCO Electric Operations
The following table summarizes the components of CILCO electric
operating income for the three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Components of Electric Operating Income 2000 1999
(In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Electric retail $82,027 | $76,696
Sales for resale 4,299 | 4,266
------- | -------
Total revenue 86,326 | 80,962
------- | -------
Cost of sales: |
Cost of fuel 28,999 | 24,231
Purchased power 2,899 | 5,839
Revenue taxes 4,785 | 4,643
------- | -------
Total cost of sales 36,683 | 34,713
------- | -------
Gross margin 49,643 | 46,249
------- | -------
Operating expenses |
Other operation and maintenance 18,495 | 19,250
Depreciation and amortization 12,201 | 12,432
Other taxes 2,621 | 2,365
------- | -------
Total operating expenses 33,317 | 34,047
------- | -------
Total 16,326 | 12,202
------- | -------
Fixed charges and other |
Interest on long-term debt 3,235 | 3,433
Allowance for funds used during |
construction - debt (103)| (11)
Other interest 700 | 718
------- | -------
Total 3,832 | 4,140
|
Income before income taxes 12,494 | 8,062
Income taxes 4,360 | 2,148
------- | -------
Electric income $ 8,134 | $ 5,914
======= | =======
</TABLE>
Electric gross margin increased 7% for the three months ended
March 31, 2000, compared to the same period in 1999, due primarily to
the sales mix and to decreased purchased power demand charges.
Commercial gross margin increases were partially offset by lower
gross margin amounts for residential and industrial customers.
Commercial sales increased 5% for the three months ended March 31,
2000, compared to the same period in 1999, while residential and
industrial sales decreased 5% and 2%, respectively. Retail kilowatt
hour (kWh) sales decreased 1% for the three months ended March 31,
2000, compared to the first quarter of 1999. Heating degree days
were 11% lower for the three months ended March 31, 2000, compared to
the same period in 1999.
24
Sales for resale increased 1% for the first quarter of 2000, compared
to the same period 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.
The cost of fuel increased 20% in the first quarter of 2000 compared
to the same period in 1999. Purchased power decreased 40% for the
quarter ended March 31, 2000, compared to the same period in 1999.
The May 1999 settlement with AmerenCIPS (CIPS) contributed to this
decrease through the elimination of disputed capacity reservation
obligations. CILCO incurred approximately $1.2 million of CIPS
demand charges in the first quarter of 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 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 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. At March 31, 2000, underrecovered fuel and purchased power
costs, including the unbilled portion of the July purchased power
cost, totaled $6.9 million.
The ICC will conduct its routine review of the FAC in 2000 and will
determine the prudency of CILCO's electricity purchases. Any amount
of the additional $23 million of July 1999 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
operation.
Electric operation and maintenance expense decreased 4% for the three
months ended March 31, 2000, compared to the same period in 1999.
The decrease for the quarter was mainly due to decreased pension,
medical and payroll expenses due to the 1999 early retirement
programs, partially offset by increased power plant maintenance, tree
trimming, and customer billing system costs.
Fixed charges and other expenses decreased 7% for the three months
ended March 31, 2000, compared to the same period in 1999.
25
CILCO Gas Operations
The following table summarizes the components of CILCO gas operating
income for the three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Components of Gas Operating Income 2000 1999
(In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Sale of gas $68,773 | $75,433
Transportation services 1,371 | 1,364
------- | -------
Total revenue 70,144 | 76,797
------- | -------
Cost of sales: |
Cost of gas 40,932 | 44,687
Revenue taxes 3,631 | 3,751
------- | -------
Total cost of sales 44,563 | 48,438
------- | -------
Gross margin 25,581 | 28,359
------- | -------
Operating expenses |
Other operation and maintenance 7,368 | 8,452
Depreciation and amortization 5,208 | 5,628
Other taxes 830 | 802
------- | -------
Total operating expenses 13,406 | 14,882
------- | -------
Total 12,175 | 13,477
------- | -------
Fixed charges and other |
Interest on long-term debt 1,296 | 1,375
Other interest expense 281 | 287
------- | -------
Total 1,577 | 1,662
|
Income before income taxes 10,598 | 11,815
Income taxes 4,222 | 4,747
------- | -------
Gas income $ 6,376 | $ 7,068
======= | =======
</TABLE>
Gas gross margin decreased 10% for the first quarter ended March 31,
2000, compared to the same period in 1999. Residential and
commercial sales volumes decreased 17% and 10%, respectively, for the
quarter ended March 31, 2000, primarily due to warmer weather.
Heating degree days were 11% lower for the quarter ended March 31,
2000, compared to the same period 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 1% while gas
transportation sales volumes decreased 2% for the first quarter ended
March 31, 2000, compared to the same period in 1999. Decreases in
lower margin industrial gas transportation sales were offset by
increases in higher margin commercial gas transportation sales.
26
The cost of gas decreased 8% for the quarter ended March 31, 2000,
compared to the same period in 1999, due to decreased gas sales
offset partially by higher natural gas prices. These changes were
passed through to customers via the PGA.
Gas operation and maintenance expense decreased 13% for the three
months ended March 31, 2000, compared to the same period in 1999.
The decrease for the three months ended March 31, 2000, was primarily
due to decreased pension, medical and payroll expenses due to the
1999 early retirement programs, partially offset by an increase in
customer billing system costs.
Income taxes expense decreased for the three months ended March 31,
2000, due to lower pre-tax operating income.
Fixed charges and other expenses decreased 5% for the three months
ended March 31, 2000, compared to the same period in 1999.
27
CILCO Other Operations
The following table summarizes other income and deductions for the
three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Components of Other Income Three Months Ended
and Deductions March 31,
2000 1999
(In thousands)
(Unaudited)
<S> <C> <C>
Revenue $ 8,341 | $ 848
Expense (7,808)| (1,201)
------- | -------
Gross margin 533 | (353)
------- | -------
Other income and deductions: |
Interest income 43 | 78
Amortization -- | (216)
Operating expenses (321)| (386)
Other taxes (1)| (1)
Preferred stock dividends (840)| (797)
Other (275)| (247)
------- | -------
Total other income and deductions (1,394)| (1,569)
|
Income (loss) before taxes (861)| (1,922)
Income taxes (benefit) (354)| (650)
------- | -------
Other income (loss) $ (507)| $(1,272)
======= | =======
</TABLE>
Gross margin increased for the three months ended March 31, 2000,
primarily 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 and to other customers eligible under
the Customer Choice Law.
28
Other Businesses Operations
The following table summarizes the components of Other Businesses
income (loss) for the three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Components of Other Businesses Three Months Ended
Net Income (Loss) March 31,
2000 1999
(In thousands)
(Unaudited)
<S> <C> <C>
Revenue:
Leveraged lease revenue $ 3,315 | $ 1,957
Interest income 54 | 29
Gas marketing revenue 2,309 | 7,090
Other revenue 591 | 477
------- | -------
Total revenue 6,269 | 9,553
|
Expenses: |
Gas purchased for resale 2,131 | 6,084
Operating expenses 663 | 1,319
Depreciation and amortization 3,612 | 45
Interest expense 11,831 | 1,399
Other taxes 112 | 5
------- | -------
Total expenses 18,349 | 8,852
|
Income (loss) before income taxes (12,080)| 701
Income tax benefit (3,786)| (196)
------- | -------
Other businesses net income (loss) $(8,294)| $ 897
======= | =======
</TABLE>
Leveraged lease revenues increased 69% for the three months ended
March 31, 2000, primarily due to the renegotiation of the Company's
dragline lease.
Gas marketing revenues and gas purchased for resale expense decreased
significantly due to decreased gas marketing sales.
Interest expense increased for the three months ended March 31, 2000,
due to interest on the senior notes and bonds issued in October 1999
to acquire CILCORP. Depreciation and amortization is higher due to
$3.6 million amortization of goodwill resulting from AES' acquisition
price in excess of the fair value of CILCORP's assets and
liabilities.
The income tax benefit increased in the three months ended March 31,
2000, compared to the corresponding period in 1999, primarily due to
lower net income resulting from the acquisition debt interest
expense.
29
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 for the
discontinued energy operations. The remaining loss provision at
March 31, 2000, was approximately $400,000.
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 from operations of discontinued businesses, net of tax:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
(In thousands)
(Unaudited)
<S> <C> <C>
QST Enterprises (excluding QST |
Environmental) $ --| $ --
QST Environmental, net of tax of $45 |
--| 28
-------| -------
$ --| $ 28
=======| =======
</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. 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
March 31, 2000, for these two customers, totaled $15.4 million,
excluding interest of approximately $1.6 million. Under the terms
of the contracts, QST Energy has terminated delivery of electricity
to the two customers.
30
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 (the "1999 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
None
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial data schedules
(b) Reports on Form 8-K
None
31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CILCORP Inc.
(Registrant)
Date May 10, 2000
P. D. Stinson
P. D. Stinson
President
Date May 10, 2000
T. D. Hutchinson
T. D. Hutchinson
Controller and Chief
Financial Officer
32
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL ILLINOIS LIGHT COMPANY
(Registrant)
Date May 10, 2000
P. D. Stinson
P. D. Stinson
President
Date May 10, 2000
T. D. Hutchinson
T. D. Hutchinson
Controller and Chief
Financial Officer
33
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME, STATEMENT OF CASH FLOWS AND BALANCE SHEET AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<NAME> CILCORP INC.
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<TOTAL-ASSETS> 1,784,797
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 470,698
22,000
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<LONG-TERM-DEBT-NET> 730,445
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0
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<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME, STATEMENT OF CASH FLOWS AND BALANCE SHEET AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000018651
<NAME> CENTRAL ILLINOIS LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 348,168
22,000
44,120
<LONG-TERM-DEBT-NET> 237,945
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0
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</TABLE>
