<PAGE>
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 Quarterly Period Ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Transition Period From to
Commission file number 1-3672.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Illinois 37-0211380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
607 East Adams Street, Springfield, Illinois 62739
(Address of principal executive offices and Zip Code)
Registrant's telephone number,
including area code: (217) 523-3600
Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X. No .
Shares outstanding of each of registrant's classes of common stock as of July
31, 1999: Common Stock, no par value, held by Ameren Corporation (parent
company of Registrant) - 25,452,373
<PAGE>
Central Illinois Public Service Company
Index
Page No.
Part I Financial Information (Unaudited)
Management's Discussion and Analysis 2
Quantitative and Qualitative Disclosures
About Market Risk 6
Balance Sheet
- June 30, 1999 and December 31, 1998 8
Statement of Income
- Three months, six months and 12 months ended
June 30, 1999 and 1998 9
Statement of Cash Flows
- Six months ended June 30, 1999 and 1998 10
Notes to Financial Statements 11
Part II Other Information 14
<PAGE>
PART I. FINANCIAL INFORMATION (UNAUDITED)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Central Illinois Public Service Company (AmerenCIPS or the Registrant) is a
subsidiary of Ameren Corporation (Ameren), a holding company registered under
the Public Utility Holding Company Act of 1935 (PUHCA). In December 1997, Union
Electric Company (AmerenUE) and CIPSCO Incorporated (CIPSCO) combined to form
Ameren, with AmerenUE and CIPSCO's subsidiaries, the Registrant and CIPSCO
Investment Company (CIC), becoming wholly-owned subsidiaries of Ameren (the
Merger).
The following discussion and analysis should be read in conjunction with the
Notes to Financial Statements beginning on page 11, and the Management's
Discussion and Analysis of Financial Condition and Results of Operations (MD&A),
the Audited Financial Statements and the Notes to Financial Statements appearing
in the Registrant's 1998 Form 10-K.
RESULTS OF OPERATIONS
Earnings
Second quarter 1999 earnings of $20 million increased $1 million from 1998's
second quarter earnings. Earnings for the six months ended June 30, 1999
increased $3 million from the year-ago period to $33 million. Earnings for the
12 months ended June 30, 1999 were $80 million, a $40 million increase from the
preceding 12-month period. Excluding the extraordinary charge recorded in the
fourth quarter of 1997 to write off the generation-related regulatory assets and
liabilities of the Registrant's retail electric business, earnings for the
12-month period ended June 30, 1998 were $65 million.
Earnings fluctuated due to many conditions, primarily: weather variations,
electric rate reductions, competitive market forces, sales growth, fluctuating
operating costs, merger-related expenses, changes in interest expense, changes
in income and property taxes, a charge for a targeted employee separation plan
and an extraordinary charge, as noted above.
The significant items affecting revenues, costs and earnings during the
three-month, six-month and 12-month periods ended June 30, 1999 and 1998 are
detailed below.
Electric Operations
Electric Operating Revenues Variations for periods ended June 30, 1999
from comparable prior-year periods
- --------------------------------------------------------------------------------
(Millions of Dollars) Three Months Six Months Twelve Months
- --------------------------------------------------------------------------------
Rate variations $ (3) $ (6) $ (11)
Effect of abnormal weather (15) (14) (9)
Growth and other 7 7 6
Interchange sales 22 30 40
- --------------------------------------------------------------------------------
$ 11 $ 17 $ 26
- --------------------------------------------------------------------------------
Electric revenues for the three months and six months ended June 30, 1999,
increased $11 million and $17 million, respectively, compared to the comparable
year-ago periods primarily due to increases in interchange sales of 43 percent
and 53 percent, respectively, due to strong marketing efforts. These increases
were partially offset by decreases in native sales during the three month and
six month periods of 10 percent and 5 percent, respectively, primarily due to
milder weather. In addition, electric revenues were reduced as a result of a
residential rate decrease (see Note 5 under Notes to Financial Statements for
further information).
-2-
<PAGE>
Electric revenues for the 12 months ended June 30, 1999, increased $26 million
compared to the prior 12-month period, primarily driven by a 31 percent increase
in interchange sales, due to strong marketing efforts. This increase was
partially offset by a 1 percent decline in native sales. In addition, electric
revenues were reduced as a result of a residential rate decrease (see Note 5
under to Notes to Financial Statements for further information).
Fuel and Purchased Power
Variations for periods ended June 30, 1999
from comparable prior-year periods
- --------------------------------------------------------------------------------
(Millions of Dollars) Three Months Six Months Twelve Months
- --------------------------------------------------------------------------------
Fuel:
Variation in generation $ (4) $ 8 $ (3)
Price (7) (12) (18)
Generation efficiencies and other 2 (2) (7)
Purchased power variation 14 16 26
- --------------------------------------------------------------------------------
$ 5 $ 10 $ (2)
- --------------------------------------------------------------------------------
Fuel and purchased power costs for the three months and six months ended June
30, 1999, increased $5 million and $10 million, respectively, versus the
prior-year periods, primarily due to an overall net increase in generation and
purchased power resulting from higher sales volume, partially offset by lower
fuel prices. The $2 million decrease in fuel and purchased power costs for the
12 months ended June 30, 1999 versus the prior-year period was primarily the
result of lower fuel prices, partially offset by increased purchased power
resulting from higher sales volume.
Gas Operations
Gas revenues for the three month and six month periods ended June 30, 1999,
decreased $4 million and $2 million, respectively, compared to the year-ago
periods primarily due to decreased retail sales, partially offset by an annual
$8 million Illinois gas rate increase effective February 1999. Gas revenues for
the 12-month period ended June 30, 1999, decreased $18 million compared to the
same year-ago period primarily due to a decline in retail sales.
Gas costs for the three months and six months ended June 30, 1999, decreased $5
million and $4 million, respectively, compared to the year-ago periods due to
lower sales. Gas costs for the 12 months ended June 30, 1999, decreased $24
million compared to the year-ago period primarily due to lower sales and lower
gas prices.
Other Operating Expenses
Other operating expense variations reflected recurring factors such as growth,
inflation, labor and benefit increases.
Other operations expenses increased $5 million and $4 million, respectively, for
the three months and six months ended June 30, 1999, compared to the same
year-ago periods primarily due to increased injuries and damages expenses based
on claims experience, and expenses associated with deregulation in Illinois and
the year 2000 project. Other operations expenses increased $18 million for the
12 months ended June 30, 1999, compared to the same year-ago period, primarily
due to the charge for the targeted separation plan and increases in expenses
associated with deregulation in Illinois and the year 2000 project.
Maintenance expenses for the three months, six months and 12 months ended June
30, 1999, increased $5 million, $9 million and $3 million, respectively, from
the comparable year-ago periods due to increased scheduled power plant
maintenance.
Other Taxes
Other taxes decreased primarily due to a decrease in gross receipt taxes. This
decrease results from the restructuring of the Illinois public utility tax
whereby gross receipt taxes are no longer recorded as electric revenue and gross
receipt tax expense.
-3-
<PAGE>
Taxes
Income taxes for the six months and 12 months ended June 30, 1999, increased $2
million and $12 million, respectively, primarily due to higher pretax income.
Balance Sheet
Changes in accounts and wages payable, taxes accrued, other accruals and other
current assets resulted from the timing of various payments to taxing
authorities and suppliers. The $128 million increase in intercompany notes
payable is due to funds borrowed from a utility money pool (see Note 6 under
Notes to Financial Statements for further information).
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $80 million for the six months
ended June 30, 1999, compared to $59 million during the same 1998 period.
Cash flows used in investing activities were $62 million and $29 million for the
six months ended June 30, 1999 and 1998, respectively. Construction expenditures
for the six months ended June 30, 1999, for constructing new or improving
existing facilities were $63 million. Capital requirements for the remainder of
1999 are expected to be principally for construction expenditures.
Cash flows used in financing activities were $10 million for the six months
ended June 30, 1999, compared to $46 million during the same 1998 period. The
Registrant's principal financing activities for the quarter included the
redemption of $102 million of debt and the payment of dividends, partially
offset by the issuance of intercompany notes payable.
The Registrant plans to continue utilizing short-term debt to support normal
operations and other temporary requirements. The Registrant is authorized by the
Securities and Exchange Commission under PUHCA to have up to $250 million of
short-term unsecured debt instruments outstanding at any one time. Short-term
borrowings consist of bank loans (maturities generally on an overnight basis)
and commercial paper (maturities generally within 10 to 45 days). At June 30,
1999, the Registrant had committed bank lines of credit aggregating $30 million
(all of which were unused and available at such date) which make available
interim financing at various rates of interest based on LIBOR, the bank
certificate of deposit rate or other options. The lines of credit are renewable
annually at various dates throughout the year. At June 30, 1999, the Registrant
had no outstanding short-term borrowings other than $128 million of intercompany
notes payable.
Also, Ameren has a bank credit agreement due 2002, which permits the borrowing
of up to $200 million on a long-term basis. This credit agreement is available
to Ameren and its subsidiaries, including the Registrant. As of June 30, 1999,
$158 million was available for the Registrant's use.
RATE MATTERS
In March 1999, the Registrant filed delivery service tariffs with the Illinois
Commerce Commission (ICC) to comply with the requirements of the Electric
Service Customer Choice and Rate Relief Law of 1997. These tariffs would be used
by electric customers who choose to purchase their power from an alternate
supplier. Hearings were conducted in June 1999, and a hearing examiner's
proposed order was issued in July. The ICC is required to render a decision on
the delivery services tariffs by September 1, 1999.
See Note 5 under Notes to Financial Statements for further discussion of Rate
Matters.
ELECTRIC INDUSTRY RESTRUCTURING
In December 1997, the Governor of Illinois signed the Electric Service Customer
Choice and Rate Relief Law of 1997 (the Law) providing for electric utility
restructuring in Illinois. This legislation introduces competition into the
supply of electric energy in Illinois.
One of the major provisions of the Law includes the phasing-in through 2002 of
retail direct access, which allows customers to choose their electric supplier.
The phase-in of retail direct access begins on October 1, 1999, with large
commercial and industrial customers principally comprising the initial group.
The customers in this group
-4-
<PAGE>
represent approximately 24 percent of the Registrant's total sales. Retail
direct access will be offered to the remaining commercial and industrial
customers on December 31, 2000, and to residential customers on May 1, 2002.
In conjunction with another provision of the Law, in July 1999, AmerenCIPS filed
a notice with the ICC that it intends to transfer AmerenCIPS' generating
facilities (all in Illinois) to a new unregulated subsidiary of Ameren. The
formation of the new generating subsidiary, as well as the transfer of
AmerenCIPS' generating assets and liabilities (at historical net book value) and
certain power sales contracts, will be subject to regulatory proceedings.
Regulatory approvals are required from the ICC, the Federal Energy Regulatory
Commission, and the Missouri Public Service Commission. The generating
subsidiary will include eight new combustion turbine generators being acquired
by Ameren in addition to the AmerenCIPS facilities. The new subsidiary is
expected to be operational sometime in 2000, subject to the outcome of these
regulatory proceedings.
Once the transfer is completed, a power supply agreement would be in place
between the new generating company and a nonregulated marketing subsidiary for
all generation. The marketing subsidiary would have a power supply agreement
with AmerenCIPS to supply them sufficient generation to meet native load
requirements over the term of the agreement. Power will continue to be jointly
dispatched between AmerenUE, AmerenCIPS and the new generating subsidiary.
The proposed transfer of generating assets and liabilities had no effect on the
Registrant's financial statements as of June 30, 1999.
YEAR 2000 ISSUE
The Year 2000 Issue relates to how dates are stored and used in computer
systems, applications, and embedded systems. As the century date change occurs,
certain date-sensitive systems need to be able to recognize the year as 2000 and
not as 1900. This inability to recognize and properly treat the year as 2000 may
cause these systems to process critical financial and operational information
incorrectly. The Registrant's primary concern is the potential for any
interruption in providing electric and gas service to customers, as well as the
potential inability to process critical financial and operational information on
a timely basis, including billing its customers, if appropriate steps are not
taken to address this issue. Management has developed a Year 2000 plan (Plan)
covering Ameren, including AmerenCIPS, and Ameren's Board of Directors has been
briefed about the Year 2000 Issue and how it may affect the Registrant.
Ameren's Plan to resolve the Year 2000 Issue involves three phases: assessment,
planning, and implementation/ testing. Implementation of the Plan is directly
supervised by each area's responsible Vice President. A Year 2000 Project
Director coordinates the implementation of the Plan among functional teams who
are addressing issues specific to a particular area, such as nuclear and
non-nuclear generation facilities, energy management systems, gas distribution,
etc. Ameren has also engaged certain outside consultants, technicians and other
external resources to aid in formulating and implementing the Plan.
Ameren has completed its assessment phase, which included analyzing
date-sensitive electronic hardware, software applications and embedded systems
and has developed a compliance plan to address issues that were identified. Many
of the major corporate computer systems at Ameren are relatively new and
therefore are either Year 2000 compliant or only require minor modifications.
Also, several of the operating hardware and embedded systems (i.e.,
microprocessor chips) use analog rather than digital technology and thus are
unaffected by the two-digit date issue. In addition, Ameren has contacted
hundreds of vendors and suppliers to verify compliance.
Ameren has also completed its planning phase. Items that have been identified
for remediation have been prioritized into groups based on their significance to
Ameren's operations. The implementation/testing phase for all
components/applications is approximately 87 percent complete as of June 30,
1999. Ameren expects to complete remediation of its significant
components/applications by the end of the third quarter 1999.
With respect to third parties, for areas that interface directly with
significant vendors, Ameren has inventoried vendors and major suppliers and is
currently assessing their Year 2000 readiness through surveys, websites and
personal contact. Ameren plans to follow up with major suppliers and vendors and
verify Year 2000 compliance, where appropriate. Ameren has also queried its
health insurance providers. To date, Ameren is not aware of any problems that
would materially impact its financial condition, results of operations or
liquidity. However, neither Ameren nor the Registrant has the means of ensuring
that these parties will be Year 2000 compliant. The inability of those parties
to complete their Year 2000 resolution process could materially impact Ameren
and the Registrant.
-5-
<PAGE>
Ameren is also addressing the impact of electric power grid problems that may
occur outside of its own electric system. Ameren has started Year 2000 electric
power grid impact planning through the system's various electric interconnection
affiliations and is working with the Mid-American Interchange Network (MAIN) to
begin planning Year 2000 operational preparedness and restoration scenarios. As
of July 1, 1999 (the latest information available), MAIN had completed its
assessment and planning phases and was 99 percent complete with its
implementation/ testing phase. In addition, Ameren provides monthly status
reports to the North American Electric Reliability Council (NERC) to assist them
in assessing Year 2000 readiness of the regional electric grid. As of July 1,
1999 (the latest information available), NERC had completed its assessment and
planning phases and was 98 percent complete with its implementation/testing
phase. The Registrant participated in a Year 2000 drill conducted by NERC in
April 1999. The drill focused on the testing of the backup systems of voice and
data communications needed to operate the electric power grids in the event of a
partial communication loss. The results of the drill at Ameren were successful.
Additional drills are planned. Through the Electric Power Research Institute
(EPRI), an industry-wide effort has been established to deal with Year 2000
problems affecting digital systems and equipment used by the nation's electric
power companies. Under this effort, participating utilities are working together
to assess specific vendors' system problems and test plans. The assessment will
be shared by the industry as a whole to facilitate Year 2000 problem solving.
In addressing the Year 2000 Issue, Ameren will incur internal labor costs as
well as external consulting and other expenses related to infrastructure
enhancements necessary to prepare for the new century. Ameren estimates that its
external costs (consulting fees and related costs) for addressing the Year 2000
Issue will range from $10 million to $15 million. As of June 30, 1999, Ameren
had expended approximately $7 million. Ameren's plans to complete Year 2000
modifications are based on management's best estimates, which are derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
Ameren believes that, with appropriate modifications to existing computer
systems/components, updates by vendors and trading partners, and conversion to
new software and hardware in the ordinary course of business, the Year 2000
Issue will not pose significant operational problems for the Registrant.
However, if such conversions are not completed in a proper and timely manner by
all affected parties, the Year 2000 Issue could result in material adverse
operational and financial consequences to the Registrant, and there can be no
assurance that Ameren's efforts, or those of vendors and trading partners,
interconnection affiliates, NERC or EPRI to address the Year 2000 Issue will be
successful. Ameren is in the process of developing contingency plans to address
potential risks, including risks of vendor/trading partners noncompliance, as
well as noncompliance of any of the Registrant's material operating systems. The
first operational contingency plan addressing power grid issues was completed
during the first quarter of 1999. Contingency plans related to the business
areas were completed in July 1999. At this time, the Registrant is unable to
predict the ultimate impact, if any, of the Year 2000 Issue on the Registrant's
financial condition, results of operations or liquidity; however, the impact
could be material.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates and
equity prices. The following discussion of the Registrant's risk management
activities includes "forward-looking" statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the "forward-looking" statements. The Registrant handles market risks in
accordance with established policies, which may include entering into various
derivative transactions. In the normal course of business, the Registrant also
faces risks that are either non-financial or non-quantifiable. Such risks
principally include credit risk and legal risk and are not represented in the
following analysis.
Interest Rate Risk
The Registrant is exposed to market risk through changes in interest rates
through its issuance of both long-term and short-term variable-rate debt,
fixed-rate debt, commercial paper and auction market preferred stock. The
Registrant manages its interest rate exposure by controlling the amount of these
instruments it holds within its total capitalization portfolio and by monitoring
the effects of market changes in interest rates.
If interest rates increase 1 percent in 2000 as compared to 1999, the
Registrant's interest expense would increase and net income would decrease by
approximately $1 million. This amount has been determined using the assumptions
that the Registrant's outstanding variable rate debt, commercial paper and
auction market preferred stock as of June 30, 1999, continued to be outstanding
throughout 2000, and that the average interest rates for these instruments
-6-
<PAGE>
increased 1 percent over 1999. The model does not consider the effects of the
reduced level of overall economic activity that would exist in such an
environment. In the event of a significant change in interest rates, management
would likely take actions to further mitigate its exposure to this market risk.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no change in the
Registrant's financial structure.
Commodity Price Risk
The Registrant is exposed to changes in market prices for natural gas and fuel
and purchased power. With regard to its natural gas utility business, the
Registrant's exposure to changing market prices is in large part mitigated by
the fact that the Registrant has a Purchased Gas Adjustment Clause (PGA) in
place. The PGA allows the Registrant to pass on to its customers its prudently
incurred costs of natural gas.
Since the Registrant does not have a provision similar to the PGA for its
electric operations, the Registrant has entered into several long-term contracts
with various suppliers to purchase coal to manage its exposure to fuel prices.
With regard to the Registrant's exposure to commodity risk for purchased power,
Ameren has established a subsidiary, AmerenEnergy, Inc., whose primary
responsibility includes managing market risks associated with the changing
market prices for purchased power for the Registrant.
AmerenEnergy utilizes several techniques to mitigate its market risk for
purchased power, including utilizing derivative financial instruments. A
derivative is a contract whose value is dependent on or derived from the value
of some underlying asset. The derivative financial instruments that AmerenEnergy
is allowed to utilize (which include forward contracts and futures contracts)
are dictated by a risk management policy, which has been reviewed with the
Auditing Committee of Ameren's Board of Directors. Compliance with the risk
management policy is the responsibility of a risk management steering committee,
consisting of Ameren officers and an independent risk management officer at
AmerenEnergy.
As of June 30, 1999, the fair value of derivative financial instruments exposed
to commodity price risk was immaterial. The Registrant expects an increase in
the derivative financial instruments used to manage risk in 1999 due to expected
growth at AmerenEnergy.
ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires recognition of all derivatives on the balance sheet measured at fair
value. In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," which delayed the effective date of SFAS 133 to all fiscal
quarters of all fiscal years beginning after June 15, 2000. Earlier application
is still encouraged. At this time, the Registrant is unable to determine the
impact of SFAS 133 on its financial position or results of operations upon
adoption; however, SFAS 133 could increase the volatility of the Registrant's
future earnings.
SAFE HARBOR STATEMENT
Statements made in this Form 10-Q which are not based on historical facts, are
forward-looking and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
forward-looking statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions,
financial performance and the Year 2000 Issue. In connection with the "Safe
Harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Registrant is providing this cautionary statement to identify important factors
that could cause actual results to differ materially from those anticipated.
Factors include, but are not limited to, the effects of regulatory actions;
changes in laws and other governmental actions; competition; future market
prices for fuel and purchased power, electricity, and natural gas, including the
use of financial instruments; average rates for electricity in the Midwest;
business and economic conditions; interest rates; weather conditions; fuel
prices and availability; generation plant performance; monetary and fiscal
policies; future wages and employee benefits costs; and legal and administrative
proceedings.
-7-
<PAGE>
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
BALANCE SHEET
UNAUDITED
(Thousands of Dollars, Except Shares)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
- ------ ---------- ----------
<S> <C> <C>
Property and plant, at original cost:
Electric $2,398,065 $2,381,682
Gas 263,305 259,656
---------- ----------
2,661,370 2,641,338
Less accumulated depreciation and amortization 1,229,856 1,192,108
---------- ----------
1,431,514 1,449,230
Construction work in progress 54,024 16,220
---------- ----------
Total property and plant, net 1,485,538 1,465,450
Other assets 29,472 31,904
Current assets:
Cash and cash equivalents 17,300 10,180
Accounts receivable - trade (less allowance for doubtful
accounts of $2,560 and $1,714, respectively) 50,594 44,494
Unbilled revenue 51,461 53,120
Other accounts and notes receivable 25,592 16,486
Materials and supplies, at average cost -
Fossil fuel 41,326 50,791
Other 34,702 36,047
Other 7,234 8,214
---------- ----------
Total current assets 228,209 219,332
Regulatory assets:
Deferred income taxes 23,159 24,797
Other 18,685 22,914
---------- ----------
Total regulatory assets 41,844 47,711
---------- ----------
Total Assets $1,785,063 $1,764,397
========== ==========
CAPITAL AND LIABILITIES
Capitalization:
Common stock, no par value, authorized 45,000,000 shares -
outstanding 25,452,373 shares $ 120,033 $ 120,033
Retained earnings 454,552 455,337
---------- ----------
Total common stockholders' equity 574,585 575,370
Preferred stock not subject to mandatory redemption 80,000 80,000
Long-term debt 498,547 528,446
---------- ----------
Total capitalization 1,153,132 1,183,816
Current liabilities:
Current maturity of long-term debt 35,000 60,000
Short-term debt -- 46,700
Intercompany notes payable 127,500 --
Accounts and wages payable 57,048 61,609
Accumulated deferred income taxes 22,003 21,386
Taxes accrued 18,357 13,201
Other 33,068 34,454
---------- ----------
Total current liabilities 292,976 237,350
---------- ----------
Accumulated deferred income taxes 226,904 234,119
Accumulated deferred investment tax credits 33,415 34,657
Regulatory liability 36,813 39,621
Other deferred credits and liabilities 41,823 34,834
---------- ----------
Total Capital and Liabilities $1,785,063 $1,764,397
========== ==========
</TABLE>
See Notes to Financial Statements.
-8-
<PAGE>
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF INCOME
UNAUDITED
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
OPERATING REVENUES:
<S> <C> <C> <C> <C> <C> <C>
Electric $ 200,336 $ 189,173 $ 355,576 $ 338,444 $ 739,050 $ 712,765
Gas 21,593 25,656 74,125 75,900 123,731 142,031
--------- --------- --------- --------- --------- ---------
Total operating revenues 221,929 214,829 429,701 414,344 862,781 854,796
OPERATING EXPENSES:
Operations
Fuel and purchased power 70,542 65,096 126,232 116,178 240,139 241,989
Gas 9,752 14,630 43,002 46,855 65,497 89,087
Other 45,581 40,857 85,979 82,151 183,305 164,922
--------- --------- --------- --------- --------- ---------
125,875 120,583 255,213 245,184 488,941 495,998
Maintenance 25,161 20,086 42,568 33,921 80,189 77,312
Depreciation and amortization 19,449 18,612 40,189 37,434 77,078 77,483
Income taxes 11,197 11,281 17,176 15,629 47,316 34,828
Other taxes 10,266 15,838 19,865 32,015 44,684 60,760
--------- --------- --------- --------- --------- ---------
Total operating expenses 191,948 186,400 375,011 364,183 738,208 746,381
OPERATING INCOME 29,981 28,429 54,690 50,161 124,573 108,415
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction 7 3 1 49 (32) 688
Miscellaneous, net 725 (65) 1,081 289 (163) (3,002)
--------- --------- --------- --------- --------- ---------
Total other income and deductions 732 (62) 1,082 338 (195) (2,314)
INCOME BEFORE
INTEREST CHARGES 30,713 28,367 55,772 50,499 124,378 106,101
INTEREST CHARGES:
Interest 10,343 9,271 21,158 19,703 41,494 38,632
Allowance for borrowed funds
used during construction (310) (253) (381) (671) (791) (1,275)
--------- --------- --------- --------- --------- ---------
Net interest charges 10,033 9,018 20,777 19,032 40,703 37,357
INCOME BEFORE
EXTRAORDINARY CHARGE 20,680 19,349 34,995 31,467 83,675 68,744
--------- --------- --------- --------- --------- ---------
EXTRAORDINARY CHARGE
(NET OF INCOME TAXES) -- -- -- -- -- (24,853)
--------- --------- --------- --------- --------- ---------
NET INCOME 20,680 19,349 34,995 31,467 83,675 43,891
PREFERRED STOCK DIVIDENDS 917 881 1,885 1,865 3,765 3,739
--------- --------- --------- --------- --------- ---------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS $ 19,763 $ 18,468 $ 33,110 $ 29,602 $ 79,910 $ 40,152
========= ========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
-9-
<PAGE>
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF CASH FLOWS
UNAUDITED
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---- ----
Cash Flows From Operating:
<S> <C> <C>
Net income $ 34,995 $ 31,467
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 40,189 37,434
Allowance for funds used during construction (382) (720)
Deferred income taxes, net (7,768) (6,943)
Deferred investment tax credits, net (1,242) (3,049)
Changes in assets and liabilities:
Receivables, net (13,547) (4,386)
Materials and supplies 10,810 (59)
Accounts and wages payable (4,561) (29,334)
Taxes accrued 5,156 8,082
Other, net 16,135 26,461
--------- ---------
Net cash provided by operating activities 79,785 58,953
Cash Flows From Investing:
Construction expenditures (62,840) (30,166)
Allowance for funds used during construction 382 720
--------- ---------
Net cash used in investing activities (62,458) (29,446)
Cash Flows From Financing:
Dividends on common stock (34,310) (34,310)
Dividends on preferred stock (1,697) (2,080)
Redemptions -
Short-term debt (46,700) (9,866)
Long-term debt (55,000) (10,000)
Issuances -
Long-term debt -- 10,000
Intercompany notes payable 127,500 --
--------- ---------
Net cash used in financing activities (10,207) (46,256)
Net increase (decrease) in cash and cash equivalents 7,120 (16,749)
Cash and cash equivalents at beginning of year 10,180 28,140
--------- ---------
Cash and cash equivalents at end of period $ 17,300 $ 11,391
========= =========
Cash paid during the periods:
Interest (net of amount capitalized) $ 19,458 $ 19,530
Income taxes, net $ 21,805 $ 18,426
</TABLE>
See Notes to Financial Statements.
-10-
<PAGE>
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1999
Note 1 - Central Illinois Public Service Company (AmerenCIPS or the Registrant)
is a wholly-owned subsidiary of Ameren Corporation (Ameren), which is the parent
company of two utility operating companies, the Registrant and Union Electric
Company (AmerenUE). Ameren is a registered holding company under the Public
Utility Holding Company Act of 1935 (PUHCA) formed in December 1997 upon the
merger of CIPSCO Incorporated (the Registrant's former parent) and AmerenUE (the
Merger). Both Ameren Corporation and its subsidiaries are subject to the
regulatory provisions of the PUHCA. The operating companies are engaged
principally in the generation, transmission, distribution and sale of electric
energy and the purchase, distribution, transportation and sale of natural gas in
the states of Illinois and Missouri. Contracts among the companies--dealing with
jointly-owned generating facilities, interconnecting transmission lines, and the
exchange of electric power--are regulated by the Federal Energy Regulatory
Commission (FERC) or the Securities and Exchange Commission (SEC).
Administrative support services are provided to the Registrant by a separate
Ameren subsidiary, Ameren Services Company. The Registrant serves 400,000
electric and 175,000 gas customers in a 20,000 square-mile region of central and
southern Illinois.
The Registrant also has a 20% interest in Electric Energy, Inc. (EEI), which is
accounted for under the equity method of accounting. EEI owns and operates an
electric generating and transmission facility in Illinois that supplies electric
power primarily to a uranium enrichment plant located in Paducah, Kentucky.
Note 2 - Financial statement note disclosures, normally included in financial
statements prepared in conformity with generally accepted accounting principles,
have been omitted in this Form 10-Q pursuant to the Rules and Regulations of the
Securities and Exchange Commission. However, in the opinion of the Registrant,
the disclosures contained in this Form 10-Q are adequate to make the information
presented not misleading. See Notes to Financial Statements included in the 1998
Form 10-K for information relevant to the financial statements contained in this
Form 10-Q, including information as to the significant accounting policies of
the Registrant.
Note 3 - In the opinion of the Registrant the interim financial statements filed
as part of this Form 10-Q reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
periods presented. The Registrant's financial statements were prepared to permit
the information required in the Financial Data Schedule (FDS), Exhibit 27, to be
directly extracted from the filed statements. The FDS amounts correspond to or
are calculable from the amounts reported in the financial statements or notes
thereto.
Note 4 - Due to the effect of weather on sales and other factors which are
characteristic of public utility operations, financial results for the periods
ended June 30, 1999 and 1998 are not necessarily indicative of trends for any
three-month, six-month or 12-month period.
Note 5 -In conjunction with the Electric Service Customer Choice and Rate Relief
Law of 1997 (the Law), a 5 percent residential electric rate decrease for the
Registrant's electric customers was effective August 1, 1998. This rate decrease
is expected to decrease electric revenues $11 million annually, based on
estimated levels of sales and assuming normal weather conditions. The Registrant
may be subject to additional 5 percent residential electric rate decreases in
each of 2000 and 2002, to the extent its rates exceed the Midwest utility
average at that time. The Registrant's rates are currently below the Midwest
utility average.
The Law also contains a provision requiring one-half of excess earnings from the
Illinois jurisdiction for the years 1998 through 2004 to be refunded to the
Registrant's customers. Excess earnings are defined as the portion of the
two-year average annual rate of return on common equity in excess of 1.5 percent
of the two-year average of an Index, as defined in the Law. The Index is defined
as the sum of the average for the twelve months ended September 30 of the
average monthly yields of the 30-year U. S. Treasury bonds plus prescribed
percentages ranging from 4 percent to 5 percent. In July 1999, Senate Bill 24
was passed which increased the prescribed percentages to 7 percent beginning in
2000. Filings must be made with the ICC on or before March 31 of each year 2000
through 2005. At this time, the Registrant is unable to determine the amount of
the credit it will be required to return to customers, if any, under the Law for
the two year period ended December 31, 1999.
-11-
<PAGE>
Note 6 - The Registrant has transactions in the normal course of business with
other Ameren subsidiaries. These transactions are primarily comprised of power
purchases and sales and services received or rendered. Intercompany receivables
included in other accounts and notes receivable were approximately $18 million
and $2 million, respectively, as of June 30, 1999 and December 31, 1998.
Intercompany payables included in accounts and wages payable totaled
approximately $12 million as of June 30, 1999 and December 31, 1998.
In March 1999, the Registrant, along with Ameren Services Company and AmerenUE,
entered into a utility money pool agreement to coordinate and provide for
certain short-term cash and working capital requirements. Borrowings under the
agreement are limited to $500 million and are due on demand or within in one
year. Interest is calculated at varying rates depending on the composition of
internal and external funds in the money pool. The money pool is administered by
Ameren Services Company. The Registrant recorded an intercompany note payable of
$128 million, representing funds borrowed from the utility money pool as of June
30, 1999.
Note 7 - Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" became effective on January 1,
1999. SOP 98-1 provides guidance on accounting for the costs of computer
software developed or obtained for internal use. Under SOP 98-1, certain costs,
may be capitalized and amortized over some future period. SOP 98-1 did not have
a material impact on the Registrant's financial position or results of
operations upon adoption.
The Emerging Issues Task Force of the Financial Accounting Standards Board
(EITF) Issue 98-10, "Accounting for Energy Trading and Risk Management
Activities" became effective on January 1, 1999. EITF 98-10 provides guidance on
the accounting for energy contracts entered into for the purchase or sale of
electricity, natural gas, capacity and transportation. The EITF reached a
consensus in EITF 98-10 that sales and purchase activities being performed need
to be classified as either trading or non-trading. Furthermore, transactions
that are determined to be trading activities would be recognized on the balance
sheet measured at fair value, with gains and losses included in earnings. EITF
98-10 includes factors or indicators to consider when determining if a
transaction is a trading or non-trading activity. Currently, AmerenEnergy, Inc.,
an energy marketing subsidiary of Ameren, enters into contracts for the sale and
purchase of energy on behalf of AmerenCIPS. These transactions are considered
non-trading activities and are accounted for using the accrual or settlement
method, which represents industry practice. Should any of AmerenEnergy's future
activities be considered material trading activities based on the indicators
provided in EITF 98-10, a change in accounting practice would be required. EITF
98-10 did not have a material impact on the Registrant's financial position or
results of operations upon adoption.
-12-
<PAGE>
Note 8 - Segment information for the three month, six month and 12 month periods
ended June 30, 1999 and 1998 is as follows:
- ------------------------------------------------------------------------
(in thousands) Electric Gas Total
- ------------------------------------------------------------------------
Three months ended June 30, 1999:
Revenues $200,336 $ 21,593 $221,929
Operating Income (Net) 28,603 1,378 29,981
- ------------------------------------------------------------------------
Three months ended June 30, 1998:
Revenues $189,173 $ 25,656 $214,829
Operating Income (Net) 27,922 507 28,429
- ------------------------------------------------------------------------
Six months ended June 30, 1999:
Revenues $355,576 $ 74,125 $429,701
Operating Income (Net) 48,419 6,271 54,690
- ------------------------------------------------------------------------
Six months ended June 30, 1998:
Revenues $338,444 $ 75,900 $414,344
Operating Income (Net) 46,926 3,235 50,161
- ------------------------------------------------------------------------
12 months ended June 30, 1999:
Revenues $739,050 $123,731 $862,781
Operating Income (Net) 116,476 8,097 124,573
- ------------------------------------------------------------------------
12 months ended June 30, 1998:
Revenues $712,765 $142,031 $854,796
Operating Income (Net) 103,091 5,324 108,415
- ------------------------------------------------------------------------
Note 9 - Certain reclassifications were made to prior-year financial statements
to conform to current-period presentation.
-13-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3. Legal Proceedings and Note 10 -
Commitments and Contingencies in the Notes to Financial Statements of the
Registrant's Form 10-K for the year ended December 31, 1998 for information
regarding unfair labor practice charges filed with the National Labor Relations
Board (NLRB) by the International Union of Operating Engineers Local 148 and the
International Brotherhood of Electrical Workers Local 702 relating to the
lockout by the Registrant of both unions during 1993. In April 1999, the unions
filed petitions for review with the U.S. Court of Appeals for the District of
Columbia Circuit of the NLRB's August 1998 decision which ruled in favor of the
Registrant and held that the lockout was lawful.
Reference is made to "Liquidity and Capital Resources" in Item 7.
Management's Discussion and Analysis of Financial Conditions and Results of
Operations and Note 10 - Commitments and Contingencies of the Registrant's Form
10-K for the year ended December 31, 1998 for information regarding the United
States Environmental Protection Agency's (EPA) issuance in 1997 of National
Ambient Air Quality Standards for ozone and particulate matter. In May 1997, the
United States Court of Appeals for the District of Columbia Circuit remanded the
ambient air quality standards to EPA for reconsideration. At this time, the
Registrant is unable to predict the ultimate impact of those revised air quality
standards on its future financial condition, results of operations or liquidity.
In further reference to Note 10 - Commitments and Contingencies, the Registrant
has been designated as a potentially responsible party by federal and state
environmental protection agencies at five hazardous waste sites.
ITEM 5. OTHER INFORMATION
Reference is made to Note 10 - Commitments and Contingencies in the
Notes to Financial Statements of the Registrant's Form 10-K for the year ended
December 31, 1998 for information concerning the expiration date of collective
bargaining agreements. The Registrant is engaged in labor negotiations with the
International Brotherhood of Electrical Workers and the International Union of
Operating Engineers and the collective bargaining agreements have been extended
so as to facilitate those negotiations. At this time, the Company is unable to
predict the impact of these negotiations on its future financial condition,
results of operations or cash flows.
Any stockholder proposal intended for inclusion in the proxy material
for the Registrant's 2000 annual meeting of stockholders must be received by the
Registrant by December 1, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements, 12 Months Ended June
30, 1999.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. None.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL ILLINOIS PUBLIC
SERVICE COMPANY
(Registrant)
By /s/ Warner L. Baxter
-----------------------------
Warner L. Baxter
Vice President and Controller
(Principal Accounting Officer)
Date: August 13, 1999
-15-
Exhibit 12
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
12 Months
Ended
Year Ended December 31, June 30,
-----------------------------------------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
Thousands of Dollars Except Ratios
<S> <C> <C> <C> <C> <C> <C>
Net Income $81,913 $70,631 $77,393 $38,620 $80,147 $83,675
Add- Extraordinary items net of tax - - - 24,853 - -
------- ------- ------- ------- ------- -------
Net Income from continuing operations 81,913 70,631 77,393 63,473 80,147 83,675
Taxes based on income 48,523 44,483 47,286 33,922 45,412 47,218
------- ------- ------- ------- ------- -------
Net income before income taxes 130,436 115,114 124,679 97,395 125,559 130,893
------- ------- ------- ------- ------- -------
Add- fixed charges:
Interest on long term debt 31,164 31,168 31,409 32,271 37,260 38,494
Other interest 358 853 4,636 2,875 1,647 1,823
Amortization of net debt premium,
discount, expenses and losses 1,678 1,703 1,709 1,643 1,132 1,177
------- ------- ------- ------- ------- -------
Total fixed charges 33,200 33,724 37,754 36,789 40,039 41,494
------- ------- ------- ------- ------- -------
Earnings available for fixed charges 163,636 148,838 162,433 134,184 165,598 172,387
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 4.92 4.41 4.30 3.64 4.13 4.15
======= ======= ======= ======= ======= =======
Earnings required for preferred dividends:
Preferred stock dividends 3,510 3,850 3,721 3,715 3,745 3,765
Adjustment to pre-tax basis 2,079 2,425 2,273 1,985 2,122 2,123
------- ------- ------- ------- ------- -------
5,589 6,275 5,994 5,700 5,867 5,888
Fixed charges plus preferred stock
dividend requirements 38,789 39,999 43,748 42,489 45,906 47,382
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges plus
preferred stock dividend requirement 4.21 3.72 3.71 3.15 3.60 3.63
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Exhibit 27
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
10-Q JUNE 30, 1999
FINANCIAL DATA SCHEDULE UT
PUBLIC UTILITY COMPANIES AND PUBLIC UTILITY HOLDING COMPANIES
APPENDIX E TO ITEM 601 (C) OF REGULATION S-K
(Thousands of Dollars)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,485,538
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 228,209
<TOTAL-DEFERRED-CHARGES> 29,472
<OTHER-ASSETS> 41,844
<TOTAL-ASSETS> 1,785,063
<COMMON> 120,033
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 454,552
<TOTAL-COMMON-STOCKHOLDERS-EQ> 574,585
0
80,000
<LONG-TERM-DEBT-NET> 498,547
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 35,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 596,931
<TOT-CAPITALIZATION-AND-LIAB> 1,785,063
<GROSS-OPERATING-REVENUE> 429,701
<INCOME-TAX-EXPENSE> 17,176
<OTHER-OPERATING-EXPENSES> 357,835
<TOTAL-OPERATING-EXPENSES> 375,011
<OPERATING-INCOME-LOSS> 54,690
<OTHER-INCOME-NET> 1,082
<INCOME-BEFORE-INTEREST-EXPEN> 55,772
<TOTAL-INTEREST-EXPENSE> 20,777
<NET-INCOME> 34,995
1,885
<EARNINGS-AVAILABLE-FOR-COMM> 33,110
<COMMON-STOCK-DIVIDENDS> 34,310
<TOTAL-INTEREST-ON-BONDS> 0 <F1>
<CASH-FLOW-OPERATIONS> 79,785
<EPS-BASIC> 0.00 <F2>
<EPS-DILUTED> 0.00 <F2>
<FN>
<F1> Required in fiscal year-end only.
<F2> Information not normally disclosed in financial statements and notes.
</FN>
</TABLE>
