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 June 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 June 30, 2000 1,000
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value,
shares outstanding and privately
held by CILCORP Inc. at June 30, 2000 13,563,871
1
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED JUNE 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 21-34
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 35
Item 5: Other Information 35
Item 6: Exhibits and Reports on Form 8-K 35
Signatures
2
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
June 30, December 31,
2000 1999
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 4,252 $ 11,220
Receivables, less reserves of
$1,260 and $1,296 64,848 60,072
Accrued unbilled revenue 26,585 35,526
Fuel, at average cost 14,029 14,392
Materials and supplies, at
average cost 16,839 16,165
Gas in underground storage, at
average cost 14,391 21,196
FAC underrecoveries 5,135 12,024
Prepayments and other 13,078 8,946
---------- ----------
Total current assets 159,157 179,541
---------- ----------
Investments and other property:
Investment in leveraged leases 140,132 143,697
Cash surrender value of company-owned
life insurance, net of related
policy loans of $57,520 and $53,558 2,656 3,106
Other investments 23,827 24,113
---------- ----------
Total investments and other
property 166,615 170,916
---------- ----------
Property, plant and equipment:
Utility plant, at original cost
Electric 631,948 624,889
Gas 210,746 208,520
---------- ----------
842,694 833,409
Less - accumulated provision for
depreciation 39,763 8,898
---------- ----------
802,931 824,511
Construction work in progress 50,034 38,068
Other, net of depreciation 220 298
---------- ----------
Total property, plant and
equipment 853,185 862,877
---------- ----------
Other assets
Goodwill, net of accumulated
amortization of $10,026 and $2,881 564,160 569,983
Other 60,803 47,636
---------- ----------
Total other assets 624,963 617,619
---------- ----------
Total assets $1,803,920 $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>
June 30, December 31,
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ -- $ 30,000
Notes payable 99,700 91,900
Accounts payable 51,498 41,429
Accrued taxes 7,350 14,670
Accrued interest 16,887 18,296
PGA overrecoveries 2,465 127
Other 3,560 5,742
---------- ----------
Total current liabilities 181,460 202,164
---------- ----------
Long-term debt 738,457 730,434
---------- ----------
Deferred credits and other
liabilities:
Accumulated deferred income taxes 239,414 237,557
Regulatory liability of regulated
subsidiary 22,453 31,367
Deferred investment tax credits 16,975 17,791
Other 74,372 77,432
---------- ----------
Total deferred credits and
other liabilities 353,214 364,147
---------- ----------
Preferred stock of subsidiary 66,120 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 (4,164) (745)
---------- ----------
Total stockholders' equity 464,669 468,088
---------- ----------
Commitments and contingencies
Total liabilities and
stockholders' equity $1,803,920 $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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenue:
CILCO Electric $ 94,920 |$ 88,044 $181,246 |$169,006
CILCO Gas 32,810 | 25,569 102,954 | 102,366
CILCO Other 10,469 | 916 18,853 | 1,842
Other businesses 5,434 | 5,738 11,703 | 15,291
-------- |-------- -------- |--------
Total 143,633 | 120,267 314,756 | 288,505
-------- |-------- -------- |--------
Operating expenses: | |
Fuel for generation and | |
purchased power 49,419 | 27,638 88,672 | 58,343
Gas purchased for resale 20,499 | 14,234 63,562 | 65,005
Other operations and maintenance 29,305 | 42,591 56,605 | 72,564
Depreciation and amortization 21,281 | 16,160 42,302 | 34,481
Taxes, other than income taxes 8,598 | 9,349 20,578 | 20,916
-------- |-------- -------- |--------
Total 129,102 | 109,972 271,719 | 251,309
-------- |-------- -------- |--------
Fixed charges and other: | |
Interest expense 17,243 | 7,128 34,586 | 14,340
Preferred stock dividends of | |
subsidiary 1,058 | 773 1,898 | 1,570
Allowance for funds used | |
during construction (99) | (15) (202) | (26)
Other 246 | 259 521 | 506
-------- |-------- -------- |--------
Total 18,448 | 8,145 36,803 | 16,390
-------- |-------- -------- |--------
Income (loss) from continuing | |
oper. before income taxes (3,917) | 2,150 6,234 | 20,806
Income taxes (988) | 1,066 3,454 | 7,115
-------- |-------- -------- |--------
Net income (loss) from | |
continuing operations (2,929) | 1,084 2,780 | 13,691
Loss from operations of | |
discontinued business, net of | |
tax of $(266) and $(221) -- | (435) -- | (407)
-------- |-------- -------- |--------
Net income (loss) $ (2,929) |$ 649 $ 2,780 |$ 13,284
======== |======== ======== |========
<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>
Six Months Ended
June 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 4,678 |$ 15,261
-------- |--------
Adjustments to reconcile net income to net |
cash provided by operating activities: |
Non-cash lease income and investment income (4,598) | (3,299)
Cash receipts in excess of debt service |
on leases 8,315 | 7,326
Depreciation and amortization 42,302 | 34,481
Deferred income taxes, investment tax credit |
and regulatory liability of subsidiary, net (7,873) | (8,748)
Changes in operating assets and liabilities: |
Decrease in accounts receivable and |
accrued unbilled revenue 6,606 | 7,719
Decrease in inventories 6,493 | 11,374
Increase (decrease) in accounts payable 11,356 | (20,337)
(Decrease) increase in accrued taxes (10,913) | 934
(Increase) decrease in other assets (11,732) | 1,700
(Decrease) increase in other liabilities (4,314) | 8,339
-------- |--------
Total adjustments 35,642 | 39,489
-------- |--------
Net cash provided by operating activities |
from continuing operations 40,320 | 54,750
-------- |--------
Net cash provided (used) by operating |
activities of discontinued operations (134) | 8,112
-------- |--------
Cash flow from operations 40,186 | 62,862
-------- |--------
Cash flows from investing activities: |
Additions to plant (23,831) | (27,311)
Proceeds from sale of discontinued operations -- | 17,376
Other (1,025) | (4,012)
-------- |--------
Net cash used by investing activities |
from continuing operations (24,856) | (13,947)
-------- |--------
Net cash used by investing activities |
from discontinued operations -- | (4,838)
-------- |--------
Cash flow from investing activities (24,856) | (18,785)
-------- |--------
7
Cash flow from financing activities:
Net increase (decrease) in short-term debt 7,800 | (22,900)
Net decrease in long-term debt (22,000) | (994)
Common dividends paid (6,200) | (16,741)
Preferred dividends paid (1,898) | (1,570)
-------- |--------
Cash flow from financing activities (22,298) | (42,205)
-------- |--------
Net increase (decrease) in cash and |
temporary cash investments: (6,968) | 1,872
Cash and temporary cash investments |
at beginning of year: 11,220 | 1,669
-------- |--------
Cash and temporary cash investments at |
June 30 $ 4,252 |$ 3,541
======== |========
Supplemental disclosures of cash flow |
information: |
|
Cash paid during the period for: |
|
Interest $ 36,479 |$ 13,832
|
Income taxes $ 15,950 |$ 10,872
<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 June 30, 2000
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operatns. Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 94,920 $ 32,810 $10,443 $ 5,395 $ $ 143,568
Interest income -- -- 26 39 -- 65
-------- -------- ------- --------- -------- ----------
Total 94,920 32,810 10,469 5,434 -- 143,633
-------- -------- ------- --------- -------- ----------
Operating
expenses 64,832 26,772 12,021 4,196 -- 107,821
Depreciation and
amortization 12,372 5,296 -- 3,613 -- 21,281
-------- -------- ------- --------- -------- ----------
Total 77,204 32,068 12,021 7,809 -- 129,102
-------- -------- ------- --------- -------- ----------
Interest expense 3,818 1,529 -- 11,896 -- 17,243
Preferred stock
dividends -- -- 1,058 -- -- 1,058
Fixed charges &
other expenses (99) -- 246 -- -- 147
-------- -------- ------- --------- -------- ----------
Total 3,719 1,529 1,304 11,896 -- 18,448
-------- -------- ------- --------- -------- ----------
Income from
continuing
oper. before
income taxes 13,997 (787) (2,856) (14,271) -- (3,917)
Income taxes 4,961 (303) (1,011) (4,635) -- (988)
-------- -------- ------- --------- -------- ----------
Net income from
continuing
operations 9,036 (484) (1,845) (9,636) -- (2,929)
Effect of
discontinued
operations -- -- -- -- -- --
-------- -------- ------- --------- -------- ----------
Segment net
income $ 9,036 $ (484)$(1,845) $ (9,636)$ -- $ (2,929)
======== ======== ======= ========= ======== ==========
</TABLE>
9
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Three Months Ended June 30, 1999
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operatns. Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 88,044 $ 25,569 $ 881 $ 5,711 $ $ 120,205
Interest income -- -- 35 27 -- 62
-------- -------- ------- --------- -------- ----------
Total 88,044 25,569 916 5,738 -- 120,267
-------- -------- ------- --------- -------- ----------
Operating
expenses 64,159 21,321 1,573 6,759 -- 93,812
Depreciation and
amortization 11,354 4,547 216 43 -- 16,160
-------- -------- ------- --------- -------- ----------
Total 75,513 25,868 1,789 6,802 -- 109,972
-------- -------- ------- --------- -------- ----------
Interest expense 4,082 1,603 -- 1,443 -- 7,128
Preferred stock
dividends -- -- 773 -- -- 773
Fixed charges &
other expenses (15) -- 259 -- -- 244
-------- -------- ------- --------- -------- ----------
Total 4,067 1,603 1,032 1,443 -- 8,145
-------- -------- ------- --------- -------- ----------
Income from
continuing
oper. before
income taxes 8,464 (1,902) (1,905) (2,507) -- 2,150
Income taxes 3,167 (703) (717) (681) -- 1,066
-------- -------- ------- --------- -------- ----------
Net income from
continuing
operations 5,297 (1,199) (1,188) (1,826) -- 1,084
-------- -------- ------- --------- -------- ----------
Effect of
discontinued
operations -- -- -- -- (435) (435)
-------- -------- ------- --------- -------- ----------
Segment net
income $ 5,297 $ (1,199)$(1,188) $ (1,826)$ (435)$ 649
======== ======== ======= ========= ======== ==========
</TABLE>
10
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Six Months Ended June 30, 2000
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operatns. Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $181,246 $102,954 $18,784 $ 11,610 $ $ 314,594
Interest income -- -- 69 93 -- 162
-------- -------- ------- --------- -------- ----------
Total 181,246 102,954 18,853 11,703 -- 314,756
-------- -------- ------- --------- -------- ----------
Operating
expenses 122,631 79,533 20,151 7,102 -- 229,417
Depreciation and
amortization 24,573 10,504 -- 7,225 -- 42,302
-------- -------- ------- --------- -------- ----------
Total 147,204 90,037 20,151 14,327 -- 271,719
-------- -------- ------- --------- -------- ----------
Interest expense 7,753 3,106 -- 23,727 -- 34,586
Preferred stock
dividends -- -- 1,898 -- -- 1,898
Fixed charges &
other expenses (202) -- 521 -- -- 319
-------- -------- ------- --------- -------- ----------
Total 7,551 3,106 2,419 23,727 -- 36,803
-------- -------- ------- --------- -------- ----------
Income from
continuing
oper. before
income taxes 26,491 9,811 (3,717) (26,351) -- 6,234
Income taxes 9,321 3,919 (1,365) (8,421) -- 3,454
-------- -------- ------- --------- -------- ----------
Net income from
continuing
operations 17,170 5,892 (2,352) (17,930) -- 2,780
Effect of
discontinued
operations -- -- -- -- -- --
-------- -------- ------- --------- -------- ----------
Segment net
income $ 17,170 $ 5,892 $(2,352) $ (17,930)$ -- $ 2,780
======== ======== ======= ========= ======== ==========
</TABLE>
11
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
Six Months Ended June 30, 1999
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operatns. Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $169,006 $102,366 $ 1,729 $ 15,235 $ $ 288,336
Interest income -- -- 113 56 -- 169
-------- -------- ------- --------- -------- ----------
Total 169,006 102,366 1,842 15,291 -- 288,505
-------- -------- ------- --------- -------- ----------
Operating
expenses 120,487 79,013 3,161 14,167 -- 216,828
Depreciation and
amortization 23,786 10,175 432 88 -- 34,481
-------- -------- ------- --------- -------- ----------
Total 144,273 89,188 3,593 14,255 -- 251,309
-------- -------- ------- --------- -------- ----------
Interest expense 8,233 3,265 -- 2,842 -- 14,340
Preferred stock
dividends -- -- 1,570 -- -- 1,570
Fixed charges &
other expenses (26) -- 506 -- -- 480
-------- -------- ------- --------- -------- ----------
Total 8,207 3,265 2,076 2,842 -- 16,390
-------- -------- ------- --------- -------- ----------
Income from
continuing
oper. before
income taxes 16,526 9,913 (3,827) (1,806) -- 20,806
Income taxes 5,315 4,044 (1,367) (877) -- 7,115
-------- -------- ------- --------- -------- ----------
Net income from
continuing
operations 11,211 5,869 (2,460) (929) -- 13,691
Effect of
discontinued
operations -- -- -- -- (407) (407)
-------- -------- ------- --------- -------- ----------
Segment net
income $ 11,211 $ 5,869 $(2,460) $ (929)$ (407)$ 13,284
======== ======== ======= ========= ======== ==========
</TABLE>
12
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
(Unaudited)
<S> <C> <C>
Utility plant, at original cost:
Electric $1,270,248 $1,263,190
Gas 434,113 431,887
---------- ----------
1,704,361 1,695,077
Less - accumulated provision
for depreciation 901,430 870,566
---------- ----------
802,931 824,511
Construction work in progress 50,034 38,068
---------- ----------
Total utility plant 852,965 862,579
---------- ----------
Other property and investments:
Cash surrender value of company-owned
life insurance (net of related
policy loans of $57,520 and $53,558) 2,656 3,106
Other 1,192 1,179
---------- ----------
Total other property and
investments 3,848 4,285
---------- ----------
Current assets:
Cash and temporary cash investments 2,830 8,548
Receivables, less reserves of
$1,260 and $1,296 45,583 42,410
Accrued unbilled revenue 25,069 35,071
Fuel, at average cost 14,029 14,392
Materials and supplies,
at average cost 16,464 15,967
Gas in underground storage,
at average cost 14,391 21,196
Prepaid taxes 6,778 6,165
FAC underrecoveries 5,135 12,024
Other 13,000 8,854
---------- ----------
Total current assets 143,279 164,627
---------- ----------
Deferred debits:
Unamortized loss on reacquired debt 2,813 2,941
Unamortized debt expense 1,488 1,552
Prepaid pension cost 308 259
Other 26,974 20,037
---------- ----------
Total deferred debits 31,583 24,789
---------- ----------
Total assets $1,031,675 $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>
June 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 126,275 121,564
Accumulated other comprehensive income (60) (60)
---------- ----------
Total common stockholder's equity 338,876 334,165
Preferred stock without mandatory
redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt 245,957 237,934
---------- ----------
Total capitalization 650,953 638,219
---------- ----------
Current liabilities:
Current maturities of long-term debt -- 30,000
Notes payable 56,700 46,900
Accounts payable 40,859 35,859
Accrued taxes 13,449 25,520
Accrued interest 7,802 9,485
PGA overrecoveries 2,465 127
Level payment plan 1 956
Other 3,487 4,714
---------- ----------
Total current liabilities 124,763 153,561
---------- ----------
Deferred credits and other
liabilities:
Accumulated deferred income taxes 139,795 136,077
Regulatory liability 22,453 31,367
Deferred investment tax credit 16,975 17,792
Capital lease obligation 906 1,183
Other 75,830 78,081
---------- ----------
Total deferred credits and
other liabilities 255,959 264,500
---------- ----------
Total capitalization and
liabilities $1,031,675 $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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Operating revenue:
Electric $ 94,920 |$ 88,044 $181,246 |$169,006
Gas 32,810 | 25,569 102,954 | 102,366
-------- |-------- -------- |--------
Total operating revenues 127,730 | 113,613 284,200 | 271,372
-------- |-------- -------- |--------
Operating expenses: | |
Cost of fuel 23,148 | 21,030 52,147 | 45,261
Cost of gas 17,474 | 11,131 58,406 | 55,818
Purchased power 15,000 | 6,083 17,899 | 11,922
Other operations and maintenance 27,393 | 37,898 53,256 | 65,600
Depreciation and amortization 17,668 | 15,901 35,077 | 33,961
Income taxes 4,658 | 2,464 13,240 | 9,359
Other taxes 8,589 | 9,338 20,456 | 20,899
-------- |-------- -------- |--------
Total operating expenses 113,930 | 103,845 250,481 | 242,820
-------- |-------- -------- |--------
Operating income 13,800 | 9,768 33,719 | 28,552
-------- |-------- -------- |--------
Other income and deductions: | |
Company-owned life insurance, net (246)| (259) (521)| (506)
Other, net (541)| (156) 67 | (384)
-------- |-------- -------- |--------
Total other income and | |
(deductions) (787)| (415) (454)| (890)
-------- |-------- -------- |--------
Income before interest expense 13,013 | 9,353 33,265 | 27,662
-------- |-------- -------- |--------
Interest expenses: | |
Interest on long-term debt 4,329 | 4,809 8,860 | 9,617
Cost of borrowed funds | |
capitalized (99)| (15) (202)| (26)
Other 1,018 | 876 1,999 | 1,881
-------- |-------- -------- |--------
Total interest expense 5,248 | 5,670 10,657 | 11,472
-------- |-------- -------- |--------
Net income before preferred | |
dividends 7,765 | 3,683 22,608 | 16,190
-------- |-------- -------- |--------
Dividends on preferred stock 1,058 | 773 1,898 | 1,570
-------- |-------- -------- |--------
Net income available for | |
common stock $ 6,707 |$ 2,910 $ 20,710 |$ 14,620
======== |======== ======== |========
<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>
Six Months Ended
June 30,
2000 1999
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 22,608 |$ 16,190
|
Adjustments to reconcile net income to |
cash provided by operating activities: |
Depreciation and amortization 35,077 | 34,394
Deferred income taxes, investment tax |
credit and regulatory liability, net (6,013) | (8,240)
Changes in operating assets and liabilities: |
(Increase) decrease in accounts receivable (3,173) | 2,593
Decrease in fuel, materials and supplies, |
and gas in underground storage 6,672 | 11,437
Decrease in unbilled revenue 10,001 | 3,778
Increase (decrease) in accounts payable 4,999 | (18,302)
(Decrease) increase in accrued taxes and interest (13,755) | 537
Capital lease payments 323 | 323
Decrease (increase) in other current assets 2,130 | (6,842)
Increase (decrease) in other current liabilities 157 | (2,377)
Increase (decrease) in other non-current assets (6,083) | 4,425
(Decrease) increase in other non-current liab. (1,746) | 11,829
-------- |--------
Net cash provided by operating activities 51,197 | 49,745
-------- |--------
Cash flows from investing activities: |
Capital expenditures (23,831) | (26,587)
Cost of equity funds capitalized -- | --
Other (2,664) | (678)
-------- |--------
Net cash used in investing activities (26,495) | (27,265)
-------- |--------
Cash flow from financing activities: |
Common dividends paid (16,000) | (16,741)
Preferred dividends paid (1,897) | (1,570)
Payments on capital lease obligation (323) | (323)
Increase (decrease) in short-term borrowing 9,800 | (1,300)
Long-term debt retired (30,000) | --
Long-term debt issued 8,000 | --
-------- |--------
Net cash used in financing activities (30,420) | (19,934)
-------- |--------
Net increase in cash and temporary |
cash investments (5,718) | 2,546
|
Cash and temporary cash investments at |
beginning of year 8,548 | 1,362
-------- |--------
Cash and temporary cash investments at |
June 30 $ 2,830 |$ 3,908
======== |========
16
Supplemental disclosures of cash |
flow information: |
|
Cash paid during the period for: |
|
Interest (net of cost of borrowed |
funds capitalized) $ 13,211 |$ 12,397
|
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 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. 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
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 approximately 376 CILCO gas and
electric department people. The National Conference of Firemen and
18
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 171 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 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. 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 quarter ended June 30, 2000, was a
$76,160 gain for natural gas and a $1.2 million loss for electricity.
As of June 30, 2000, CILCORP had fixed-price derivative financial
instruments representing hedges of natural gas purchases of .19 Bcf
and natural gas sales of .51 Bcf for commitments through June 2001.
The net deferred loss and carrying amount on these fixed-price
derivatives at June 30, 2000, was approximately $1,000.
As of June 30, 2000, CILCORP had fixed-price derivative financial
instruments representing hedges of electricity sales of 34,592
megawatts for commitments through August 2000. The net deferred loss
and carrying amount on these fixed-price derivatives at June 30,
2000, was approximately $2.0 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
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
19
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.
The FASB issued an amendment to SFAS 133 on June 15, 2000, that
expands the normal purchase and normal sales exception. This
amendment may place the majority of the Company's normal physical
energy purchases and sales outside the scope of the statement. In
addition, the Company holds no interest rate or foreign currency
swap positions as of June 30, 2000. The Company does utilize
commodity futures contracts, options and swaps in the normal course
of its natural gas and electric business activities to reduce market
or price risk. See Note 3 for the mark-to-market gain or loss, as
of June 30, 2000, that would appear in current operating income if
the SFAS 133 requirements for hedge accounting are not met. The
Company believes that it has implemented procedures to formally
designate and document hedge relationships in accordance with the
hedge accounting provisions of SFAS 133.
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. The allocation of the purchase price is based
on preliminary estimates and is subject to change. 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 is being 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.
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 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.
21
Overview
The Company's earnings decreased by approximately 80% for the six
months ended June 30, 2000, compared to the same period in 1999.
This decrease was due primarily to approximately $7.1 million in
goodwill amortization and $21.5 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 June 30, 2000, CILCORP
had committed bank lines of credit of $60 million, of which $43
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.
The Company had $17.5 million of medium-term notes outstanding at
June 30, 2000. With the issuance of the senior notes in October
1999, the Company can no longer issue debt under its medium-term note
program.
22
CILCO
Capital expenditures totaled $23.8 million for the six months ended
June 30, 2000. Capital expenditures are anticipated to be
approximately $29.8 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. 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 June 30, 2000, committed bank lines of credit
totaled $100 million, all of which were unused except in support of
commercial paper issuance. CILCO had $56.7 million of commercial
paper outstanding at June 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 June 30, 2000, CIM had $24.4 million of outstanding debt owing to
CILCORP.
CIM is committed to invest $16.6 million in affordable housing funds.
Through June 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 June 30, 2000, CVI had outstanding debt of $.9 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 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.
On July 31, 2000, CILCO filed a proposal with the ICC seeking
approval to cap or "freeze" the cost of fuel contained in CILCO's
retail electricity prices for the next five years. CILCO's proposal
is based on forecasted coal and energy costs. If approved, this will
eliminate price volatility created by high market prices and bring
electric price stability for CILCO customers. 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.
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
24
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
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.
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 majority of CILCORP's energy sales for the quarter ending June
30, 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 June
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 June 30, 2000, CILCORP has contracted to sell approximately 1.4
million MWh of electricity through June 2004 at various fixed prices
to non-regulated customers. These commitments have a notional value
of approximately $49.7 million and a mark-to-market gain of
approximately $400,000. 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
1.9 million MWh, with a notional cost of approximately $68.7 million
and a mark-to-market gain of approximately $43.4 million resulting in
a fair value of approximately $112.1 million as of June 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 $43.4 million. Electric financial open
positions, used to hedge a portion of the above-mentioned purchases,
include the sale of approximately 34,592 MWh with a mark-to-market
loss of approximately $2.0 million, as of June 30, 2000.
Additionally, CILCORP holds net open market price risk positions of
approximately .65 Bcf of natural gas with a mark-to-market loss of
approximately $265,000. 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.
26
Results of Operations
CILCO Electric Operations
The following table summarizes the components of CILCO electric
operating income for the three months and six months ended June 30,
2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Components of Electric 2000 1999 2000 1999
Operating Income (In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Electric retail $ 88,557 | $ 84,089 $170,584 | $160,785
Sales for resale 6,363 | 3,955 10,662 | 8,221
-------- | -------- -------- | --------
Total revenue 94,920 | 88,044 181,246 | 169,006
-------- | -------- -------- | --------
Cost of sales: | |
Cost of fuel 23,148 | 21,030 52,147 | 45,261
Purchased power 15,000 | 6,083 17,899 | 11,922
Revenue taxes 4,377 | 4,228 9,162 | 8,871
-------- | -------- -------- | --------
Total cost of sales 42,525 | 31,341 79,208 | 66,054
-------- | -------- -------- | --------
Gross margin 52,395 | 56,703 102,038 | 102,952
-------- | -------- -------- | --------
Operating expenses | |
Other operations and maint. 20,349 | 30,070 38,844 | 49,320
Depreciation and amortization 12,372 | 11,354 24,573 | 23,786
Other taxes 1,958 | 2,748 4,579 | 5,113
-------- | -------- -------- | --------
Total operating expenses 34,679 | 44,172 67,996 | 78,219
-------- | -------- -------- | --------
Total 17,716 | 12,531 34,042 | 24,733
-------- | -------- -------- | --------
Fixed charges and other | |
Interest on long-term debt 3,091 | 3,453 6,326 | 6,886
Cost of borrowed funds capital. (99)| (15) (202)| (26)
Other interest 727 | 629 1,427 | 1,347
-------- | -------- -------- | --------
Total 3,719 | 4,067 7,551 | 8,207
| |
Income before income taxes 13,997 | 8,464 26,491 | 16,526
Income taxes 4,961 | 3,167 9,321 | 5,315
-------- | -------- -------- | --------
Electric income $ 9,036 | $ 5,297 $ 17,170 | $ 11,211
======== | ======== ======== | ========
</TABLE>
Electric gross margin decreased 8% for the quarter and 1% for the six
months ended June 30, 2000, compared to the same periods in 1999, due
primarily to increased purchased power costs. Industrial sales
decreased 9% for the quarter and 5% for the six months ended June 30,
2000, compared to the same periods in 1999. Residential sales
increased 4% for the quarter and decreased 1% for the six months
ended June 30, 2000, compared to the same periods in 1999.
Commercial sales decreased 2% for the quarter, and increased 2% for
the six months ended June 30, 2000, compared to the same periods in
1999. Retail kilowatt hour (kWh) sales decreased 3% for the quarter
and 2% for the six months ended June 30, 2000, compared to the same
periods in 1999. Cooling degree days were 18% lower for the
27
quarter and 17% lower for the six months ended June 30, 2000,
compared to the same periods in 1999.
Sales for resale increased 61% for the quarter and 30% for the six
months ended June 30, 2000, compared to the same periods in 1999, due
to the higher price of power available for sale during the three
months ended June 30, 2000. 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 10% for the quarter and 15% for the six
months ended June 30, 2000, compared to the same periods in 1999.
Purchased power increased 147%, and 50% for the quarter and six
months ended June 30, 2000, respectively, compared to the same
periods in 1999. The increase in purchased power was due to less
available generated power due to increased outages at the power
plants, as well as increased prices. 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. At June 30, 2000, underrecovered fuel and purchased power
costs totaled $5.1 million, including the unbilled portion of the
July 1999 purchased power cost of $1.8 million.
The ICC has begun its review of 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, and would be expensed by CILCO on its
income statement. The ICC Staff and intervenors have variously
recommended in the pending proceeding that up to $25.6 million be
refunded to CILCO's customers. CILCO disagrees with the theories of
Staff and the intervenors and continues to believe all its 1999 FAC
costs are 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 32% for the
quarter and 21% for the six months ended June 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, partially offset by increased power plant
maintenance during the first and second quarters, and increased tree
trimming, and customer billing system costs for the six months. In
1999, there was a $10.1 million charge to pension and benefits
expense as a result of the Voluntary Early Retirement Program offered
to employees in CILCO's electric power generation area.
Income taxes expense increased for the quarter and six months ended
June 30, 2000, due to increases in pre-tax operating income.
28
Fixed charges and other expenses decreased 9% for the quarter and 8%
for the six months ended June 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 six months ended June 30, 2000 and
1999.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June30,
Components of Gas 2000 1999 2000 1999
Operating Income (In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Sale of gas $ 31,667 | $ 24,400 $100,440 | $ 99,833
Transportation services 1,143 | 1,169 2,514 | 2,533
-------- | -------- -------- | --------
Total revenue 32,810 | 25,569 102,954 | 102,366
-------- | -------- -------- | --------
Cost of sales: | |
Cost of gas 17,474 | 11,131 58,406 | 55,818
Revenue taxes 1,629 | 1,577 5,260 | 5,328
-------- | -------- -------- | --------
Total cost of sales 19,103 | 12,708 63,666 | 61,146
-------- | -------- -------- | --------
Gross margin 13,707 | 12,861 39,288 | 41,220
-------- | -------- -------- | --------
Operating expenses | |
Other operations and maint. 7,044 | 7,828 14,412 | 16,280
Depreciation and amortization 5,296 | 4,547 10,504 | 10,175
Other taxes 625 | 785 1,455 | 1,587
-------- | -------- -------- | --------
Total operating expenses 12,965 | 13,160 26,371 | 28,042
-------- | -------- -------- | --------
Total 742 | (299) 12,917 | 13,178
-------- | -------- -------- | --------
Fixed charges and other | |
Interest on long-term debt 1,238 | 1,356 2,534 | 2,731
Other interest expense 291 | 247 572 | 534
-------- | -------- -------- | --------
Total 1,529 | 1,603 3,106 | 3,265
-------- | -------- -------- | --------
Income (loss) before income taxes (787)| (1,902) 9,811 | 9,913
Income taxes (303)| (703) 3,919 | 4,044
-------- | -------- -------- | --------
Gas income (loss) $ (484)| $ (1,199)$ 5,892 | $ 5,869
======== | ======== ======== | ========
</TABLE>
Gas gross margin increased 7% for the quarter, and decreased 5% for
the six months ended June 30, 2000, compared to the same periods in
1999. Residential sales volumes increased 15% for the quarter and
decreased 11% for the six months ended June 30, 2000. Commercial
sales volumes increased 15% for the quarter and decreased 5% for the
six months ended June 30, 2000. Heating degree days were 17% higher
for the quarter and 8% lower for the six months ended June 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 decreased 2% and 1% for the
quarter and six months ended June 30, 2000, respectively, while gas
transportation sales
30
volumes increased 13% for the first quarter, and 4% for the six
months ended June 30, 2000, compared to the same periods in 1999.
The cost of gas increased 57% for the quarter and 5% for the six
months ended June 30, 2000, compared to the same periods in 1999, due
to increased gas sales during the quarter and by higher natural gas
prices during the quarter and six months ended June 30, 2000. These
changes were passed through to customers via the PGA.
Gas operation and maintenance expense decreased 10% and 11%,
respectively, for the quarter and six months ended June 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.
Fixed charges and other expenses decreased 5% for the quarter and six
months ended June 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 six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Components of CILCO Other Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 10,443 | $ 881 $ 18,784 | $ 1,729
Expense (11,681)| (1,311) (19,489)| (2,512)
-------- | ------- -------- | -------
Gross margin (1,238)| (430) (705)| (783)
-------- | ------- -------- | -------
| |
Other income and deductions: | |
Interest income 26 | 35 69 | 113
Amortization -- | (216) -- | (432)
Operating expenses (339)| (261) (660)| (647)
Other taxes (1)| (1) (2)| (2)
Preferred stock dividends (1,058)| (773) (1,898)| (1,570)
Other (246)| (259) (521)| (506)
-------- | ------- -------- | -------
Total other income and deductions (1,618)| (1,475) (3,012)| (3,044)
| |
Loss before income taxes (2,856)| (1,905) (3,717)| (3,827)
Income taxes (benefit) (1,011)| (717) (1,365)| (1,367)
-------- | ------- -------- | -------
Other income (loss) $ (1,845)| $(1,188)$ (2,352)| $(2,460)
======== | ======= ======== | =======
</TABLE>
The changes in gross margin for the quarter and six months ended June 30,
2000, compared to the same periods in 1999, are primarily due to
higher 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 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 six months ended June 30, 2000 and
1999.
<TABLE>
<CAPTION>
Components of Other Businesses Three Months Ended Six Months Ended
Net Loss June 30, June 30,
2000 1999 2000 1999
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Leveraged lease revenue $ 1,435 |$ 1,677 $ 4,750 |$ 3,634
Interest income 39 | 27 93 | 56
Gas marketing revenue 3,084 | 3,263 5,393 | 10,353
Other revenue 876 | 771 1,467 | 1,248
-------- |------- -------- |-------
Total revenue 5,434 | 5,738 11,703 | 15,291
-------- |------- -------- |-------
Expenses: | |
Gas purchased for resale 3,025 | 3,103 5,156 | 9,187
Operating expenses 1,163 | 3,646 1,826 | 4,965
Depreciation and amortization 3,613 | 43 7,225 | 88
Interest expense 11,896 | 1,443 23,727 | 2,842
Other taxes 8 | 10 120 | 15
-------- |------- -------- |-------
Total expenses 19,705 | 8,245 38,054 | 17,097
-------- |------- -------- |-------
Loss before income taxes (14,271)| (2,507) (26,351)| (1,806)
-------- |------- -------- |-------
Income tax benefit (4,635)| (681) (8,421)| (877)
-------- |------- -------- |-------
Other Businesses net loss $ (9,636)|$(1,826)$(17,930)|$ (929)
======== |======= ======== |=======
</TABLE>
Leveraged lease revenues increased 31% for the six months ended June
30, 2000, primarily due to the renegotiation of the Company's
dragline lease.
Gas marketing revenues and gas purchased for resale expense decreased
44% for the six months ended June 30, 2000, due to decreased gas
marketing sales.
Interest expense increased for the six months ended June 30, 2000,
due to interest on the senior notes and bonds issued in October 1999
to acquire CILCORP. Depreciation and amortization is higher due to
$7.1 million amortization of goodwill resulting from AES' acquisition
price in excess of the fair value of CILCORP's assets and
liabilities.
Operating expenses decreased 63% for the six months ended June 30,
2000, compared to the corresponding periods in 1999, primarily due to
1999 expenses of $1.8 million for merger transaction costs and $.5
million of incentive compensation.
The income tax benefit increased in the six months ended June 30,
2000, compared to the corresponding period in 1999, primarily due to
lower net income resulting from the acquisition debt interest
expense.
33
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 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
QST Enterprises (excluding QST
Environmental) $ -- |$ -- $ -- |$ --
QST Environmental, net of tax of | |
$(266) and $(221) -- | (435) -- | (407)
------- |------- ------- |--------
$ -- |$ (435)$ -- |$ (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 June 30, 2000, for these
two customers, totaled $15.3 million, excluding interest of
approximately $2.0 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.
34
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 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
A form 8-K was filed on June 30, 2000, disclosing a change in
registrant's certifying accountant for both CILCORP Inc. and
Central Illinois Light Company.
35
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 August 10, 2000
P. D. Stinson
P. D. Stinson
President
Date August 10, 2000
T. D. Hutchinson
T. D. Hutchinson
Controller and Chief
Financial Officer
36
<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 August 10, 2000
P. D. Stinson
P. D. Stinson
President
Date August 10, 2000
T. D. Hutchinson
T. D. Hutchinson
Controller and Chief
Financial Officer
37
