-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CvOabcSP7s5wtaOTB5VHZQeFss0TZeNW0r7hxKZGqwh8CksBztPmKiahJPwdkpsZ BrbUvXfzPV6dMbqKWANpqg== 0000762129-00-000005.txt : 20000920 0000762129-00-000005.hdr.sgml : 20000920 ACCESSION NUMBER: 0000762129-00-000005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CILCORP INC CENTRAL INDEX KEY: 0000762129 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 371169387 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08946 FILM NUMBER: 584152 BUSINESS ADDRESS: STREET 1: 300 HAMILTON BLVD STE 300 CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096758810 MAIL ADDRESS: STREET 1: 300 LIBERTY STREET STREET 2: STE 300 CITY: PEORIA STATE: IL ZIP: 61602 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL ILLINOIS LIGHT CO CENTRAL INDEX KEY: 0000018651 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 370211050 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-02732 FILM NUMBER: 584153 BUSINESS ADDRESS: STREET 1: 300 LIBERTY ST CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096758810 MAIL ADDRESS: STREET 1: 300 LIBERTY STREET CITY: PEORIA STATE: IL ZIP: 61602 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from ........ to ........ Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. 1-8946 CILCORP Inc. 37-1169387 (An Illinois Corporation) 300 Liberty Street Peoria, Illinois 61602 (309) 675-8826 1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050 (An Illinois Corporation) 300 Liberty Street Peoria, Illinois 61602 (309) 675-8826 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class so registered on which registered CILCORP Inc. 8.700% Senior Notes due 2009 CILCORP Inc. 9.375% Senior Bonds due 2029 CILCO Preferred Stock, Cumulative $100 par, 4 1/2% series New York Securities registered pursuant to Section 12(g) of the Act: None 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X 1 At March 15, 2000, there was no voting stock of CILCORP Inc. (CILCORP) held by nonaffiliates. On that date, 1,000 common shares (no par value) were outstanding and privately held, beneficially and of record, by The AES Corporation. At March 15, 2000, the aggregate market value of the voting stock of Central Illinois Light Company (CILCO) held by nonaffiliates was approximately $56 million. The voting stock of CILCO consists of its common and preferred stock. On that date, 13,563,871 shares of CILCO's common stock, no par value, were issued and outstanding and privately held, beneficially and of record, by CILCORP Inc. DOCUMENT INCORPORATED BY REFERENCE Central Illinois Light Company's Proxy Statement, to be filed not later than April 17, 2000, in connection with its Annual Meeting to be held on May 23, 2000, is incorporated by reference into Part I and Part III hereof. 2 CILCORP INC. and Central Illinois Light Company 1999 Form 10-K Annual Report This combined Form 10-K is filed separately by CILCORP Inc. and Central Illinois Light Company (CILCO). Information herein relating to each individual registrant is filed by such registrant on its own behalf. Accordingly, except for its subsidiaries, CILCO makes no representation as to information relating to any other subsidiary of CILCORP Inc. Table of Contents Page ---- Glossary 5-6 Part I Item 1. Business The Company and its Subsidiaries 7-8 Business of CILCO 9 Electric Service 9 Gas Service 9-10 Regulation 10 Electric Fuel and Purchased Gas Adjustment Clauses 10 Fuel Supply - Coal 10-11 Natural Gas Supply 11 Financing and Capital Expenditures Programs 11-12 Environmental Matters 12 Significant Customer 12 Franchises 12 Competition 12 People 12 Union Contracts 12 Business of QST 13 Other Businesses 13 CIM 13 CVI 13 Year 2000 14 Item 2. Properties 14 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Executive Officers of the Registrant 16-18 3 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 19 Item 6. Selected Financial Data 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 21-50 Item 8. Financial Statements and Supplementary Data 51-114 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 114 Part III Item 10. Directors and Executive Officers of the Registrants 115-116 Item 11. Executive Compensation 117-125 Item 12. Security Ownership of Certain Beneficial Owners and Management 125 Item 13. Certain Relationships and Related Transactions 126 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 127-130 4 GLOSSARY OF TERMS When used herein, the following terms have the meanings indicated. AES -- The AES Corporation, parent of CILCORP Inc. upon completion of acquisition on October 18, 1999. AFUDC -- Allowance for Funds Used During Construction BTU -- British Thermal Unit. The quantity of heat required to raise the temperature of one pound of water one degree Fahrenheit. Bcf -- Billion cubic feet CAA -- Clean Air Act Caterpillar -- Caterpillar Inc., CILCO's largest industrial customer CECO -- CILCO Energy Corporation, a wholly-owned subsidiary of CILCO CEDCO -- CILCO Exploration and Development Company, a wholly-owned subsidiary of CILCO CESI -- CILCORP Energy Services Inc. CILCO -- Central Illinois Light Company CIM -- CILCORP Investment Management Inc. CIPS -- AmerenCIPS, formerly Central Illinois Public Service Company CLM -- CILCORP Lease Management Inc. Company -- CILCORP Inc. and subsidiaries Cooling Degree Day -- The measure of the extent to which the average of high and low temperatures for a day rises above 65 degrees Fahrenheit (annual degree days above historic average indicate warmer than average temperatures); the historic average provided by The National Weather Service for 30-year period. CVI -- CILCORP Ventures Inc. DSM -- Demand Side Management. The process of helping customers control how they use energy resources. FAC -- Fuel Adjustment Clause FASB -- Financial Accounting Standards Board FERC -- Federal Energy Regulatory Commission Heating Degree Day -- The measure of the extent to which the average of high and low temperatures for a day falls below 65 degrees Fahrenheit (annual degree days above historic average indicates cooler than average temperatures); the historic average provided by The National Weather Service for 30-year period. 5 ICC -- Illinois Commerce Commission IEPA -- Illinois Environmental Protection Agency KW -- Kilowatt, a thousand watts kWh -- Kilowatt-hour, one thousand watts used for one hour (unit of work) MAIN -- Mid-America Interconnected Network. One of nine regions that make up the North American Electric Reliability Council. Its purpose is to ensure the Midwest region of the United States will meet its load responsibility. MCF -- One thousand cubic feet MW -- Megawatt, a million watts MWG -- Midwest Grain Products, Inc. OSHA -- Occupational Safety and Health Act PGA -- Purchased Gas Adjustment Pre-merger Period -- January 1, 1999, through October 18, 1999 Post-merger Period -- October 19, 1999, through December 31, 1999 QST -- QST Enterprises Inc. QST Communications -- QST Communications Inc. QST Energy -- QST Energy Inc. QST Environmental -- QST Environmental Inc. QST Trading -- QST Energy Trading Inc. SFAS -- Statement of Financial Accounting Standards Therm -- Unit of measurement for natural gas; a therm is equal to one hundred cubic feet (volume); a therm is also equal to 100,000 BTUs (energy). USEPA -- U.S. Environmental Protection Agency 6 PART I Item 1. Business THE COMPANY AND ITS SUBSIDIARIES CILCORP Inc. (CILCORP or the Company) was incorporated as a holding company in the state of Illinois in 1985. The financial condition and results from continuing operations of CILCORP primarily reflect the operations of Central Illinois Light Company (CILCO), the Company's principal business subsidiary. In the fourth quarter of 1998, the operations of CILCORP first-tier subsidiary QST Enterprises Inc. (QST) and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices Inc.) were discontinued (see Management's Discussion and Analysis) and, therefore, are being reported as discontinued operations in the financial statements. The Company also has two other first-tier subsidiaries, CILCORP Investment Management Inc. (CIM) and CILCORP Ventures Inc. (CVI), whose operations, combined with those of ESE Land Corporation, CILCORP Infraservices Inc., and the holding company itself (Holding Company), are collectively referred to herein as Other Businesses. CILCORP owns 100% of the common stock of all of its subsidiaries. On November 23, 1998, the Company announced that The AES Corporation (AES) had offered to buy 100% of the Company's outstanding common stock for $65 per share, subject to CILCORP shareholder approval and various regulatory approvals. AES completed the acquisition of the Company on October 18, 1999. Refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for discussion regarding this transaction and its effect on the separation and comparability of 1999 financial information presented in this document. CILCO is engaged in the generation, transmission, distribution and sale of electric energy in an area of approximately 3,700 square miles in central and east-central Illinois, and the purchase, distribution, transportation and sale of natural gas in an area of approximately 4,500 square miles in central and east- central Illinois. CILCO has two wholly-owned subsidiaries, CILCO Exploration and Development Company (CEDCO) and CILCO Energy Corporation (CECO). CEDCO was formed to engage in the exploration and development of gas, oil, coal and other mineral resources. CECO was formed to research and develop new sources of energy, including the conversion of coal and other minerals into gas. The operations of these subsidiaries are not currently significant. QST, formed in December 1995, provided energy and energy-related services to a broad spectrum of retail and wholesale customers through its subsidiary, QST Energy Inc. (QST Energy). QST Energy has one wholly-owned subsidiary - QST Energy Trading Inc. (QST Trading), which purchased and sold energy in the wholesale market. QST provided fiber optic telecommunications services through another wholly-owned subsidiary, QST Communications Inc. (QST Communications), which it sold in August 1998. QST provided engineering and environmental consulting services through wholly-owned subsidiary QST Environmental. During the fourth quarter of 1997, QST Environmental completed the sale of substantially all of the assets of one of its subsidiaries, ESE Land, for cash and non-controlling membership interests in the acquiring companies. In the fourth quarter of 1998, the Company decided to sell its 100% ownership interest in QST Environmental, and on May 7, 1999, QST agreed to sell all the outstanding common stock of QST Environmental to MACTEC, Inc. for approximately $18 million in cash. The sale was effective on June 24, 1999. In the fourth quarter of 1998, QST decided to discontinue its energy operations and report their results as discontinued. Refer to the caption "QST Enterprises Discontinued Operations" of Item 7. Management's Discussion 7 and Analysis of Financial Condition and Results of Operations and to "Note 14 - QST Enterprises Discontinued Operations" of Item 8. Financial Statements and Supplementary Data. CIM manages the Company's investment portfolio. CIM holds eight leveraged lease investments through three wholly-owned subsidiaries: CILCORP Lease Management Inc., which was formed in 1985, and CIM Leasing Inc. and CIM Air Leasing Inc., which were both formed in 1993. CIM's other wholly-owned subsidiary is CIM Energy Investments Inc., which was formed in 1989 to invest in non-regulated, independent power production facilities (see Other Businesses). CIM also directly owns limited partnership interests in affordable housing portfolios. CVI primarily invests in ventures in energy-related products and services. CVI has an 80% interest in the Agricultural Research and Development Corporation and has one wholly-owned subsidiary, CILCORP Energy Services Inc. (CESI). CESI was formed to pursue energy-related opportunities in the non-regulated market. CESI's primary business is gas management services (including commodity purchasing for gas management customers). The following table summarizes the relative contribution of each business group to consolidated assets at December 31, 1999, and to revenue and net income for the periods January 1, 1999, through October 18, 1999, and October 19, 1999, through December 31, 1999.
Assets Revenue Net Income (Loss) at Oct. 19 Jan. 1 Oct. 19 Jan. 1 Dec 31, to Dec. to Oct. to Dec. to Oct. 1999 31, 1999 18, 1999 31, 1999 18, 1999 (In thousands) CILCO $1,056,280 $117,968 | $441,130 $ 7,364 | $ 8,677 Other Businesses 754,377 2,621 | 19,131 (7,896)| (7,990) ---------- -------- | -------- ------- | ------- Total Continuing | Operations (532)| 687 | QST Discontinued | Operations (213)| (407) ------ | ------- Net Income $ (745)| $ 280 ====== | =======
CILCORP is an intrastate exempt holding company under Section 3(a)(1) of the Public Utility Holding Company Act of 1935 (PUHCA). Federal legislation dealing with the restructuring of the electric utility industry, including repeal of PUHCA, has been introduced in both Houses of Congress. Repeal of PUHCA would, among other things, remove certain presently applicable restrictions to the merger or combination of non-contiguous electric and natural gas utility holding companies. The Company cannot predict whether or when any of these proposals might be enacted at the federal level or the ultimate effect on the Company. 8 BUSINESS OF CILCO CILCO was incorporated under the laws of Illinois in 1913. CILCO's principal business is the generation, transmission, distribution and sale of electric energy in an area of approximately 3,700 square miles in central and east-central Illinois, and the purchase, distribution, transportation and sale of natural gas in an area of approximately 4,500 square miles in central and east-central Illinois. CILCO is continuing to experience, in varying degrees, the impact of developments common to the electric and gas industries. These include increased competition in wholesale markets and the prospect of competition in retail markets, changes in regulation and legislation affecting utilities, uncertainties as to the future demand for electricity and natural gas, structural and competitive changes in the markets for these commodities, the high cost of compliance with environmental and safety laws and regulations and uncertainties in regulatory and political processes. At the same time, CILCO has sought to provide reliable service at reasonable rates for its customers and a fair return for its investors. Refer to the caption "Competition" of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. ELECTRIC SERVICE CILCO furnishes electric service to retail customers in 136 Illinois communities (including Peoria, East Peoria, Pekin, Lincoln and Morton). At December 31, 1999, CILCO had approximately 190,000 retail electric customers. CILCO owns and operates two coal-fired base load generating plants, a natural gas-fired cogeneration plant, and two natural gas combustion turbine generators which are used for peaking service. The 1999 system peak demand was 1,235 MW on July 21, 1999. This was a new all-time system peak demand. The system peak demand for 2000 is estimated to be 1,243 MW with a planned reserve margin of approximately 16%. The planned reserve margin takes into account 150 MW of firm purchased power (see CILCORP Note 7 - Commitments and Contingencies) and 88 MW of interruptible industrial load and other related Demand Side Management (DSM) programs. CILCO's planned reserve margin is designed to comply with planning reserve margin requirements established by the Mid-America Interconnected Network (MAIN), of which CILCO is a member. Studies conducted by CILCO indicate that it has sufficient base load generating capacity and purchased capacity to provide an adequate and reliable supply of electricity to satisfy base load demand. CILCO is interconnected with AmerenCIPS (CIPS), formerly Central Illinois Public Service Company, Commonwealth Edison Company, Illinois Power Company and the Springfield City Water, Light and Power Department to provide for the interchange of electric energy on an emergency and mutual help basis. GAS SERVICE CILCO provides gas service to customers in 128 Illinois communities (including Peoria, East Peoria, Pekin, Lincoln and Springfield). At December 31, 1999, CILCO had approximately 196,000 gas customers, including 115 industrial, commercial and residential gas transportation customers that purchase gas directly from suppliers for transportation through CILCO's system. For further discussion of gas transportation, refer to the caption "CILCO Gas Operations" of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 CILCO's all-time maximum daily send-out of 443,167 MCF occurred on January 15, 1972. The 1999 peak day send-out of 391,056 MCF occurred on January 4, 1999. CILCO has been able to meet all of its existing customer requirements during the 1999-2000 heating season. CILCO believes that its present and planned supplies of gas will continue to be sufficient to serve all of its existing customer requirements during the 2000-2001 heating season. REGULATION CILCO is a public utility under the laws of the State of Illinois and is subject to the jurisdiction of the ICC. The ICC has general power of supervision and regulation with respect to services and facilities, rates and charges, classification of accounts, valuations of property, determination of depreciation rates, construction, contracts with any affiliated interest, the issuance of stock and evidences of indebtedness and various other matters. In Illinois, 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. The ICC's supervision and regulatory oversight of certain transactions by electric utilities is reduced or suspended during the mandatory transition period (which terminates on January 1, 2005) and, for certain non-utility transactions, is permanently eliminated under the Customer Choice Law. Refer to the caption "Competition" of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. With respect to certain electric matters, CILCO is subject to regulation by the FERC. CILCO is exempt from the provisions of the Natural Gas Act, but is affected by orders, rules and regulations issued by the FERC with respect to certain gas matters. ELECTRIC FUEL AND PURCHASED GAS ADJUSTMENT CLAUSES CILCO's tariffs provide for adjustments to its electric rates through the fuel adjustment clause (FAC) to recover the cost of energy purchased from other suppliers and to reflect increases or decreases in the cost of fuel used in its generating stations. The transportation costs of coal are not included in the FAC, but are collected through base rates. CILCO's current tariffs also provide for adjustments to its gas rates through the purchased gas adjustment clause (PGA) to reflect increases or decreases in the cost of natural gas purchased for sale to customers. FUEL SUPPLY - COAL Substantially all of CILCO's electric generation capacity is coal- fired. Approximately 2.7 million tons of coal were burned during 1999. Existing coal contracts with suppliers in Illinois are expected to supply 100% of the 2000 requirements. During the years 1999, 1998, and 1997, the average cost per ton of coal burned, including transportation, was $32.41, $33.56, and $34.01, respectively. The cost of coal burned per million BTU's was $1.49, $1.54, and $1.56, respectively (see Electric Fuel and Purchased Gas Adjustment Clauses). CILCO has a long-term contract with Freeman United Coal Mining Company (Freeman) for the purchase of high-sulfur, Illinois coal used predominantly at the Duck Creek Station. The contract gives CILCO the flexibility to purchase between 500,000 and 1,000,000 tons annually. Under the terms of the contract, CILCO's obligation to purchase coal extends through 2010; however, Freeman has the option of terminating the contract with two years' notice. The contract requires CILCO to pay all variable coal production costs on tons purchased and certain fixed costs not affected by the volume purchased. On August 8, 1997, CILCO filed a demand for arbitration with Freeman alleging that Freeman has 10 failed to keep and perform its prudent mining obligations as required by the parties' contract. The relief sought by CILCO through this arbitration includes damages and confirmation of CILCO's termination rights under this contract. CILCO and Freemen have agreed to continue operating under the present contract until a ruling on CILCO's claims is reached by the arbitrators, which is expected early in the third quarter of 2000. CILCO cannot at this time predict the ultimate outcome of this dispute or whether its resolution will have a material impact on CILCO's operating results. NATURAL GAS SUPPLY During 1999, CILCO continued to maintain a widely diversified and flexible natural gas supply portfolio. This portfolio is structured around firm and interruptible gas transportation service provided by five interstate pipeline suppliers and firm and interruptible gas purchase arrangements of varying terms made directly with approximately 30 gas suppliers. Reliability is enhanced through natural gas injections and withdrawals at CILCO's two natural gas storage fields and contracted storage facilities. The supply and pipeline capacity portfolio continues to provide reliable supplies at prevailing market prices. CILCO believes that its present and planned supply of gas will continue to be sufficient to serve all of its present and projected firm customer requirements. During 1999, CILCO purchased and delivered approximately 38,318,400 MCF of natural gas at a cost of approximately $106 million, or an average cost of $2.77 per MCF. The average cost per MCF of natural gas purchased and delivered was $2.67 in 1998 and $3.03 in 1997 (see Electric Fuel and Purchased Gas Adjustment Clauses). FINANCING AND CAPITAL EXPENDITURES PROGRAMS CILCO's ongoing capital expenditures program is designed to maintain reliable electric and gas service and to meet the anticipated demands of its customers. Capital expenditures for 2000 are estimated to be $53.6 million, including pollution control expenditures of $1.3 million. Expenditures include $36.9 million for the electric business, $11.1 million for the gas business and $5.6 million for general and miscellaneous purposes. Electric expenditures include $17.9 million for additions and modifications to generating facilities and the installation of diesel powered generation modules at two CILCO substations. Transmission and distribution system additions and improvements are expected to total $18.9 million. Gas expenditures are primarily for additions, replacements and improvements to existing facilities. Anticipated gas and electric capital expenditures for 2001-2004 are $230 million. The estimates for 2000 capital expenditures include $2.7 million for information technology projects. CILCO's short-term debt increased to $46.9 million at December 31, 1999, from $40.6 million at December 31, 1998. CILCO retired $30.0 million of medium-term notes in February 2000 and $10.65 million of medium-term notes in June 1998. CILCO is considering the redemption of $25 million of auction rate preferred stock in June 2000. In 1999, CILCO paid three regular quarterly dividends and one prorated quarterly dividend to CILCORP totaling $29.8 million. As part of the acquisition of CILCORP by AES, CILCO received $27 million of additional paid-in capital from CILCORP in the fourth quarter of 1999. CILCO used the funds to retire commercial paper during the fourth quarter of 1999. In 1998, CILCO paid $20 million of dividends to CILCORP in addition to regular quarterly dividends. At December 31, 1999, CILCO had bank lines of credit aggregating $55 million, all of which were unused, except in support of commercial paper issuance. In the third quarter of 1999, CILCO issued commercial paper to cover purchases of additional electricity to meet increased consumer demand due to abnormally warm weather conditions. (See 11 Results of Operations - Electric Operations.) Refer to the caption "Capital Resources and Liquidity - CILCO" of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. CILCO expects to continue to support commercial paper issuance with its bank lines during 2000. It expects to finance its 2000 capital expenditures primarily with funds provided by operating activities. CILCO is currently considering various options to refinance its medium-term notes, which matured in February 2000, and the redemption of the auction rate preferred stock. Future funds provided by operations may be affected by the deregulation of the electric and natural gas utility industries. ENVIRONMENTAL MATTERS Refer to the caption "Environmental Matters" of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. SIGNIFICANT CUSTOMER Caterpillar Inc. is CILCO's largest industrial customer. Gas revenues, electric revenues, and sales of other services to Caterpillar were 7.2%, 7.6%, and 7.5% of CILCO's total revenue for 1999, 1998 and 1997, respectively. Sales to Caterpillar from all continuing CILCORP subsidiaries represent 8.1%, 8.6%, and 7.6% of CILCORP consolidated operating revenue from continuing operations for 1999, 1998, and 1997, respectively. See CILCO's Consolidated Statements of Segments of Business under Item 8. Financial Statements and Supplementary Data. FRANCHISES CILCO negotiates franchise agreements which authorize it to provide utility services to the communities in its service area. The franchises are for various terms, usually 10 to 25 years. Based on past experience, CILCO anticipates that, as franchises expire, new franchises will be granted in the normal course of business. COMPETITION Refer to the caption "Competition" of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. PEOPLE The number of full-time and part-time people at CILCO as of December 31, 1999, was 1,013. Of these, 374 gas and electric field people were represented by Local 51 of the International Brotherhood of Electrical Workers (IBEW), and 177 power plant people were represented by Local 8 of the National Conference of Firemen and Oilers (NCF&O). UNION CONTRACTS The IBEW ratified its current agreement on October 10, 1997. Its contract expires on July 1, 2000. The NCF&O ratified its current contract with the Company on October 23, 1998. The NCF&O contract expires on July 1, 2001. 12 BUSINESS OF QST QST Enterprises Inc. (QST) was formed in December 1995. Through its wholly-owned subsidiary, QST Energy, QST provided a portfolio of non-regulated, energy-related products and services including wholesale and retail sales of electricity and natural gas in markets that are open to competition. QST and QST Energy ceased operations during the fourth quarter of 1998, except for fulfillment of contractual obligations for 1999 and beyond, and recorded loss provisions for the discontinued energy operations. The results of QST and its past and present subsidiaries are shown as discontinued operations in the statements of income for the periods January 1, 1999, through October 18, 1999, October 19, 1999, through December 31, 1999, and prior periods. QST sold its wholly-owned environmental services subsidiary, QST Environmental, in June 1999, and its fiber optic-based telecommunications subsidiary, QST Communications, in August 1998. OTHER BUSINESSES CIM The investment portfolio of CIM at December 31, 1999, and December 31, 1998, is shown in the following table:
Type of Investment At December 31 1999 1998 (In thousands) Investment in leveraged leases $143,697 $146,977 Cash and temporary cash investments 158 71 Investment in Energy Investors Fund 1,181 1,510 Investment in affordable housing funds 12,409 13,821 Other 125 120 -------- -------- Total $157,570 $162,499 ======== ========
At December 31, 1999, CIM held equity investments in eight leveraged leases through its wholly-owned subsidiaries, CILCORP Lease Management Inc. (CLM), CIM Air Leasing Inc. and CIM Leasing Inc. According to the terms of some of the lease agreements, under certain circumstances, subsidiaries of CIM may be obligated to incur additional non-recourse debt to finance the cost of certain alterations, additions, or improvements required by the lessees. CIM, through its wholly-owned subsidiary, CIM Energy Investments Inc., has a net investment of $1,181,000 in the Energy Investors Fund, L.P.(Fund), representing a 2.5% interest in the Fund at December 31, 1999. The Fund invests in non-regulated, non- utility facilities for the production of electricity or thermal energy. The equity method of accounting is used for this investment. CIM is a limited partner in eight affordable housing portfolios. The ownership interests in these partnerships ranged from 3% to 10% at December 31, 1999. The equity method of accounting is used for these investments. CVI CVI's net investment in CESI, its wholly-owned subsidiary, is approximately $836,000. CESI's primary business is gas management services (including commodity purchasing for gas management customers). 13 YEAR 2000 Refer to the caption "Year 2000" of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 2. Properties CILCO CILCO owns and operates two coal-fired generating plants, a cogeneration plant and two combustion turbine-generators. These facilities had an available summer capability of 1,146 MW in 1999. The two combustion turbine generators have a summer rating of 30 MW (15 MW each) and are used during peak periods. They typically operate less than 100 hours per year. The cogeneration plant, which became operational during 1995, produces steam heat for Midwest Grain Products, Inc. (MWG) and also generates electricity for distribution to CILCO's customers. This turbine- generator has an available summer capability of 10 MW. These facilities will be supplemented by 26 MW of electric power capacity provided by 16 diesel-fueled power modules to be placed in service in 2000. The major generating facilities of CILCO (representing 96.0% of CILCO's available summer generating capability projected for 2000), all of which are fueled with coal, are as follows:
Available Summer Capability (MW) Station & Unit Installed Actual 1999 Duck Creek Unit 1 1976 366 E. D. Edwards Unit 1 1960 117 Unit 2 1968 262 Unit 3 1972 361
CILCO's transmission system includes approximately 285 circuit miles operating at 138,000 volts, 48 circuit miles operating at 345,000 volts and 16 principal substations with an installed capacity of 2,150,000 kilovolt-amperes. The electric distribution system includes approximately 6,223 miles of overhead pole and tower lines and 2,096 miles of underground distribution cables. The distribution system also includes approximately 105 substations with an installed capacity of 1,665,885 kilovolt-amperes. The gas system includes approximately 3,581 miles of transmission and distribution mains. CILCO has an underground gas storage facility located about ten miles southwest of Peoria near Glasford, Illinois. The facility has a present recoverable capacity of approximately 4.5 Bcf. An additional storage facility near Lincoln, Illinois, has a present recoverable capacity of approximately 5.2 Bcf. 14 Item 3. Legal Proceedings Reference is made to the captions "Fuel Supply - Coal" of Item 1. Business, "Environmental Matters" of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and to "Note 7 - Commitments and Contingencies" of Item 8. Financial Statements and Supplementary Data for certain pending legal proceedings and/or proceedings known to be contemplated by governmental authorities. In February 1999, QST Energy notified two of its California commercial customers that they were in default of their contracts with QST Energy as a result of not paying QST Energy for energy delivered. QST Energy filed two suits in the U.S. District Court, Central District of Illinois, seeking payment. In March, the customers filed a suit in California Superior Court, Alameda County, California, alleging that QST Energy was in breach of the contract. This suit was subsequently removed to U.S. District Court, Northern District of California. QST Energy has moved to dismiss this suit filed in California as duplicative of the suits pending in Illinois, and the customers similarly filed motions to dismiss the suits pending in Illinois. These motions are still pending. The parties have commenced discovery. 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 December 31, 1999, for these two customers, totaled $15.4 million, excluding interest of approximately $1.3 million. Under the terms of the contracts, QST Energy has terminated delivery of electricity to the two customers. 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 disclosed or referred to in this section, in the opinion of management, all such claims currently pending will not result in a material adverse effect on the financial position and results of operations of the Company. Risk of loss is mitigated, in some cases, by insurance or contractual or statutory indemnification. The Company has established appropriate reserves for potential losses. Item 4. Submission of Matters to a Vote of Security Holders CILCORP There were no matters submitted to a vote of security holders during the periods October 1, 1999, through October 18, 1999, and October 19, 1999, through December 31, 1999. CILCO There were no matters submitted to a vote of security holders during the fourth quarter of 1999. 15
Executive Officers of CILCORP Age as of Positions Held During Initial Name 3/31/00 Past Five Years Effective Date (1) Paul D. Stinson (2) 43 President October 18, 1999 Scott A. Cisel (3) 46 Vice President October 18, 1999 James L. Luckey, III (4) 39 Vice President December 17, 1999 Greg T. Russell (5) 35 Vice President December 17, 1999 Robert J. Sprowls (6) 42 Vice President October 18, 1999 Thomas D. Hutchinson (7) 45 Controller and Chief Financial Officer October 18, 1999 Thomas S. Romanowski (8) 50 Treasurer October 18, 1999 John G. Sahn (9) 53 Secretary October 18, 1999 Notes: (1)The term of each executive officer extends until the next succeeding organizational meeting of Directors or until their successors are elected and shall qualify. (2)Mr. Stinson is also a Vice President of the Company's parent, The AES Corporation, and President of Central Illinois Light Company (CILCO). Mr. Stinson is manager of the new AES Great Plains Group formed in the Central United States in 1999. From 1997 to 1999, he was manager of AES's Silk Road Group, where he was responsible for business development and operations for the countries which comprise the former Soviet Union. In 1993, Mr. Stinson became Plant Manager of the 700 megawatt Medway Power Station in the United Kingdom. Mr. Stinson has been with AES since 1986. (3)Mr. Cisel also serves as Vice President of CILCO. He was elected CILCO Vice President - Sales and Marketing on April 1, 1995, and on November 9, 1995, he became responsible for federal and state government and regulatory activities. He is currently Vice President and Leader of CILCO's Sales and Marketing Business Unit. (4)Mr. Luckey also serves as a Vice President of CILCO. Mr. Luckey was elected CILCO Vice President on December 17, 1999, and has been Plant Manager of CILCO's Duck Creek Power Generation Facility since January 2000. Prior to coming to CILCO, Mr. Luckey worked with CILCO's parent company, The AES Corporation, at AES Thames generating plant. (5)Mr. Russell also serves as a Vice President of CILCO. Mr. Russell came to CILCO in June 1999 to become a Team Leader at CILCO's Edwards Power Plant. On December 17, 1999, he was elected CILCO Vice President and in January, 2000, Mr. Russell became manager of CILCO's Indian Trails Cogeneration Facility. Prior to coming to CILCO, Mr. Russell worked with 16 CILCO's parent company, The AES Corporation, at AES Southington, AES Barry Operations and AES Thames. (6)Mr. Sprowls is also a Vice President of CILCO. Mr. Sprowls is currently Vice President and Leader of CILCO's Energy Delivery Business Unit. He was previously CILCO's Chief Financial Officer from August 17, 1998 to October 18, 1999. He was Senior Vice President and Chief Financial Officer of QST Enterprises Inc. from April 22, 1997 to August 17, 1998, and Vice President from August 19, 1996 to April 22, 1997. Mr. Sprowls was Vice President of CILCO from April 1, 1995 to January 29, 1996, and served from October 1, 1990, to October 25, 1995, as Treasurer of CILCORP. (7)Mr. Hutchinson also served as Controller of the Company from February 1, 1988 until April 1, 1995. He began serving as Controller again, effective January 20, 1997, and continues in that capacity along with serving as Chief Financial Officer. He served as CILCO Director - Competitive Strategy from April 1, 1995 to January 1, 1996. From January 1, 1996 to January 20, 1997, Mr. Hutchinson served as Director of Planning and Administration of QST Enterprises Inc. Mr. Hutchinson also serves as CILCO's Controller and Chief Financial Officer. (8)Mr. Romanowski also serves as Treasurer of CILCO. He was Vice President of CILCO from October 1, 1986 until October 18, 1999. (9)Mr. Sahn served as Vice President, General Counsel and Secretary from March 1, 1994 until August 17, 1998, when he became Vice President, Secretary and Treasurer.
Executive Officers of CILCO Age as of Positions Held During Initial Name 3/31/00 Past Five Years Effective Date (1) Paul D. Stinson (2) 43 President October 18, 1999 Jerry Cagle 49 Vice President October 18, 1999 Scott A. Cisel (3) 46 Vice President April 1, 1995 James L. Luckey, III (4) 39 Vice President December 17, 1999 Greg T. Russell (5) 35 Vice President December 17, 1999 Robert J. Sprowls (6) 42 Vice President October 18, 1999 Thomas D. Hutchinson (7) 45 Controller and Chief Financial Officer October 18, 1999 Thomas S. Romanowski (8) 50 Treasurer October 18, 1999 Craig W. Stensland (9) 40 Secretary March 15, 2000 17 Notes: (1)The term of each executive officer extends until the next succeeding organizational meeting of Directors or until their successors are elected and shall qualify. (2)Mr. Stinson is a Vice President of CILCORP Inc.'s parent, The AES Corporation, and President of CILCORP Inc. (3)Mr. Cisel also serves as a Vice President of CILCORP. (4)Mr. Luckey also serves as a Vice President of CILCORP. (5)Mr. Russell also serves as a Vice President of CILCORP. (6)Mr. Sprowls also serves as a Vice President of CILCORP. Mr. Sprowls served as CILCO's Chief Financial Officer from August 17, 1998, to October 18, 1999. He was Senior Vice President and Chief Financial Officer of QST Enterprises Inc. from April 22, 1997, to August 17, 1998, and Vice President from August 19, 1996, to April 22, 1997. Mr. Sprowls was Vice President of the Company from April 1, 1995, to January 29, 1996, and served from October 1, 1990, to October 25, 1995, as Treasurer of CILCORP. (7)Mr. Hutchinson served as Controller of CILCO from January 20, 1997, until he began his current position as Controller and Chief Financial Officer on October 18, 1999. He also serves as Controller and Chief Financial Officer of CILCORP. Mr. Hutchinson was CILCORP's Controller from February 1, 1988, to April 1, 1995, and again from January 20, 1997, until he became Controller and Chief Financial Officer. He served as CILCO's Director - Competitive Strategy from April 1, 1995, to December 31, 1995, and as Director of Planning and Administration of QST Enterprises Inc. from January 1, 1996, to January 20, 1997. (8)Mr. Romanowski also serves as Treasurer of CILCORP. Mr. Romanowski was a Vice President of CILCO from October 1, 1986, to October 18, 1999. (9)Mr. Stensland served as a Principal Attorney for CILCORP and CILCO from May 22, 1991, to March 15, 2000.
18 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters CILCORP The Company's common stock is not traded on any market. At December 31, 1999, there were 10,000 authorized, no par value, shares of the Company's common stock. One thousand of those shares were issued, and outstanding and privately held, beneficially and of record, by The AES Corporation. CILCO CILCO's common stock is not traded on any market. As of March 10, 2000, 13,563,871 shares of CILCO's Common Stock, no par value, were issued, and outstanding and privately held, beneficially and of record, by CILCORP Inc. CILCO's requirement for retained earnings before common stock dividends may be paid is described in Note 12 of CILCO's Notes to the Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data. 19 Item 6. Selected Financial Data CILCORP INC. Selected Financial Data
For the Periods Ended Oct. 19 Jan. 1 to to Dec. 31, Oct 18, December 31 1999 1999 1998 1997 1996 1995 (In thousands except ratios) Revenue $ 120,589 |$ 460,261 $ 559,168 $ 558,259 $ 527,060 $ 482,642 | Net income | available | for common | stockholders (745)| 280 16,310 16,395 27,943 38,582 Total assets 1,830,953 | 1,312,940 1,334,819 1,285,693 1,279,303 Long-term debt 730,434 | 285,552 298,528 320,666 344,113 Ratio of | earnings to | fixed charges 0.9 | 1.0 2.4 2.7 2.5 2.5
Central Illinois Light Company Selected Financial Data
For the Years Ended December 31 1999 1998 1997 1996 1995 (In thousands except ratios) Electric and Gas Revenue $ 553,474 $ 532,336 $ 546,854 $ 518,555 $ 477,744 Net income available for common stockholders 16,041 41,041 50,251 41,939 39,099 Total assets 1,056,280 1,024,428 1,022,655 1,036,169 1,063,223 Long-term debt 237,934 267,884 267,836 278,439 298,397 Ratio of earnings to fixed charges 1.9 3.4 3.5 3.4 3.3
20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 1999 and prior years, the financial condition and operating results of CILCORP Inc. and its subsidiaries (the Company) primarily reflected the operations of Central Illinois Light Company (CILCO), QST Enterprises Inc. (QST), and their subsidiaries. On November 23, 1998, the Company announced that The AES Corporation (AES) had offered to buy 100% of the Company's outstanding common stock for $65 per share, subject to CILCORP shareholder approval and various regulatory approvals. The Federal Trade Commission granted approval of CILCORP's merger with AES under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 on February 22, 1999. On March 10, 1999, the Illinois Commerce Commission issued its approval. The merger was approved by CILCORP shareholders at a special meeting on May 20, 1999. The FERC issued an order to CILCO and AES approving the transaction on June 16, 1999. The SEC staff approved AES' application for an exemption under Section 3(a)(5) of the Public Utility Holding Company Act on August 20, 1999. AES completed the acquisition of the Company on October 18, 1999. To complete the merger, approximately $886 million was raised through a combination of additional paid-in capital contributed by AES and the offering of senior notes and bonds assumed by CILCORP. The approximately $886 million was used to purchase 13,625,680 shares of CILCORP's common stock. AES has 100% ownership of the 1,000 CILCORP common shares currently issued and outstanding. Financial results reflect application of the purchase method of accounting to the merger. Under this method, the purchase price is allocated to the fair market value of the assets acquired and the liabilities assumed. Any excess purchase price over the fair value of the assets acquired and the liabilities assumed is allocated to goodwill. As a result, CILCORP recorded purchase accounting fair value adjustments to 1) adjust plant to its net fair value, 2) adjust pension and other post-retirement liabilities, and 3) record goodwill. Of these adjustments, the primary effect of purchase accounting was to record approximately $573 million of goodwill which will be amortized over 40 years. The adjustments are reflected on CILCORP's financial statements as of the merger date, but were not "pushed down" to CILCORP's subsidiaries. Accordingly, CILCORP's post- merger financial statements reflect a new basis of accounting, and separate financial statements are presented for pre-merger and post-merger periods, separated by a heavy black line. For discussion throughout this document, for categories and segments substantially unaffected by the merger and with no pre-merger or post-merger accounting events, the 1999 pre-merger and post- merger periods have been combined for comparison in total to 1998. In late 1998, in light of the pending acquisition and after reviewing its business plans, the Company decided to sell its 100% ownership interest in QST Environmental Inc. (QST Environmental), a first-tier subsidiary of QST that 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. QST previously sold another of its subsidiaries, QST Communications Inc., in August 1998. In June 1998, QST Energy Inc. (QST Energy), another first-tier subsidiary of QST, incurred a material loss related to wholesale electricity contracts, triggered by an unprecedented increase in short-term wholesale electricity prices. QST Energy closed its electric and gas non-retail positions and, in 21 the fourth quarter of 1998, closed its Houston energy trading office and transferred its Pennsylvania retail electric and gas customers to other marketers. QST Energy has since discontinued providing electricity to its remaining non-Illinois commercial customers. Due to uncertainties related to electric deregulation across the country, the illiquidity of certain energy markets, and the Company's acquisition by AES, the Company intends to focus on the opportunities in the Illinois energy market resulting from the deregulation of electricity under the Electric Service Customer Choice and Rate Relief Law of 1997 (see Management's Discussion and Analysis of Financial Condition and Results of Operations - 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 Enterprises and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices Inc.) as discontinued operations (see Management's Discussion and Analysis of Financial Condition and Results of Operations - QST Discontinued Operations). During the fourth quarter of 1997, QST Environmental sold substantially all of the assets of ESE Land Corporation (ESE Land), its wholly-owned subsidiary that acquired environmentally impaired property for remediation and resale, for cash and non-controlling membership interests in the acquiring companies. 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. 22 OVERVIEW Contributions to the Company's earnings for the last three calendar years are shown below. (Following the Company's acquisition by AES, presentation of earnings per share is no longer meaningful, as no common shares are publicly held.)
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 CILCO (excluding Extraordinary | Item) $ 7,364 | $ 8,677 $ 41,041 $ 46,151 CILCO Extraordinary Item -- | -- -- 4,100 Other Businesses (7,896) | (7,990) (2,823) (2,442) QST Enterprises Discontinued | Operations (213) | (407) (21,908) (31,414) ------- | ------- -------- -------- Net Income $ (745) | $ 280 $ 16,310 $ 16,395 ======= | ======= ======== ========
CILCO's earnings decreased by 61% in 1999, primarily due to approximately $22.7 million of after-tax costs associated with Voluntary Early Retirement Programs offered in the second and third quarters of 1999 (see Voluntary Early Retirement Programs). Also contributing to the earnings decrease were the costs of non- regulated service programs. Electric gross margin remained relatively constant in 1999. Total cooling degree days were 15% lower in 1999, despite the extremely warm weather in July which resulted in greater demands for electricity. Gas gross margin increased 3% in 1999 due to a 7% increase in heating degree days. CILCO's earnings, excluding the extraordinary item, decreased by 11% in 1998 primarily due to increased power plant maintenance expense, repairs to the electric distribution system resulting from a severe storm in June 1998, higher gas maintenance expenses, and higher information technology costs. Electric gross margin increased by 5% as a result of warmer than normal summer weather. However, this increase was partially offset by a 9% decrease in gas gross margin due to warmer than normal weather during the heating season. CILCO's 1997 earnings included a credit of $4.1 million for an after-tax extraordinary item related to the write-off of regulatory assets and liabilities associated with electric generating plant (see CILCO Note 1). Other Businesses' results for the period October 19, 1999, through December 31, 1999, were negatively impacted by increased interest expense due to new debt issued by the Holding Company to fund the AES acquisition of CILCORP and by increased goodwill amortization. Other Businesses' results for the period January 1, 1999, through October 18, 1999, were negatively impacted by merger-related expenses incurred by CILCORP, including transaction fees, legal fees, and expenses related to the Shareholder Return Incentive Compensation Plan (see CILCORP Note 15). Other Businesses' results for 1998 were approximately the same as 1997. CIM realized a gain from the refinancing of a leveraged lease investment and also shared in the after-tax gain resulting from the sale of facilities of the Energy Investors Fund, L.P., in which CIM has a 2.5% interest. These items were offset by reduced income from CIM's affordable housing investments and costs incurred by the Holding Company related to the AES transaction. 23 QST Enterprises' (excluding QST Environmental) financial results for the period from January 1, 1999, through October 18, 1999, were reflected in the discontinued operations liability which was accrued at the end of 1998, resulting in no net income or loss. Results from October 19, 1999, through December 31, 1999, are shown as a loss for that period. QST Environmental's operating results (prior to its sale in June 1999) are included in the January 1 through October 18 loss from operations of discontinued businesses. An unprecedented short-term increase in wholesale electricity prices during June 1998 contributed to a $10.6 million reduction in QST's electric gross margin in the second quarter of 1998. QST Energy's electric gross margin for 1998 was $(14.3) million compared to $(.8) million in 1997. In addition, as a result of discontinuing its operations at December 31, 1998, QST Energy adjusted to market value its future contractual commitments to sell electricity and natural gas, resulting in a $5.2 million pre- tax charge against income. Additional losses were recognized in 1998 related to the disposal of QST assets, termination of leases and other agreements, severance costs, and estimated operating expenses which were incurred as QST exited the non-Illinois markets. In August 1998, QST sold its 100% interest in QST Communications, realizing an after-tax gain of $8.3 million, partially offset by the $.7 million 1998 loss from discontinued operations prior to the sale. In 1997, $22.6 million of goodwill related to QST Environmental was written off (see CILCORP Note 1). The results of QST Environmental were adversely affected in 1998 by continued losses at its laboratory operations and by the estimated loss from the discontinuance of the business. The loss includes estimated severance costs and other closing costs related to laboratory and other operations which were being discontinued. These amounts were partially offset by approximately $.6 million earned at its consulting business. Return on average common equity for the period October 19, 1999, through December 31, 1999, was (.2)% and for the period January 1, 1999, through October 18, 1999, was .1%, compared to 4.7% in 1998, and 4.5% in 1997. Excluding discontinued operations and extraordinary items, return on average common equity was .2% for the period January 1, 1999, through October 18, 1999, and (.1)% for the period October 19, 1999, through December 31, 1999, compared to 9.8% in 1998, and 11.5% in 1997. The ratio of common equity to total capitalization, including short-term debt at December 31, was 34% in 1999, 42% in 1998, and 44% in 1997. The fixed charge coverage ratio from continuing operations was .9 for October 19, 1999 through December 31, 1999, 1.0 for January 1, 1999, through October 18, 1999, 2.4 in 1998, and 2.7 in 1997. Inflation may have a significant impact on the Company's future operations and its ability to contain costs. To help protect CILCO from the effects of inflation, substantially all electric and gas sales rates include a fuel adjustment clause (FAC) or a purchased gas adjustment (PGA) to provide for changes in electric fuel costs, excluding coal transportation, and changes in the cost of natural gas. Over the past five years, the annual rate of inflation, as measured by the Consumer Price Index, has ranged from 1.6% to 2.9%. 24 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 9 to the Consolidated Financial Statements. Some important factors could cause actual results or outcomes to differ materially from those expressed or implied in MD&A. The business and profitability of CILCORP and its subsidiaries are influenced by economic and geographic factors, including ongoing changes in environmental laws and weather conditions; the extent and pace of development of competition for retail and wholesale energy customers; changes in technology; 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 protection 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. 25 CAPITAL RESOURCES AND LIQUIDITY The Company believes that internal and external sources of capital which are or are expected to be available to the Holding Company and its subsidiaries will be adequate to fund its capital expenditures, pay its financial obligations, meet working capital needs and retire or refinance debt as it matures. THE COMPANY CILCORP is currently authorized by its Board of Directors to borrow up to $60 million on a short-term basis and had $60 million of committed bank lines at the end of 1999 and 1998. At December 31, 1999, $45 million of the lines were used, compared to $55.6 million in use at December 31, 1998. 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 year-end. With the issuance of the senior notes in October 1999, the Company may no longer issue debt under its medium-term note program. CILCO In 1999, CILCO spent $55.1 million for capital additions and improvements, consisting primarily of replacements and improvements to the existing electric transmission and distribution and natural gas distribution systems and information technology projects. Estimated 2000 and 2001 capital expenditures are $53.6 million and $55.9 million, respectively. The 2000 expenditures include $18.8 million for electric energy supply and transmission projects, $.7 million for gas supply and transmission projects, $28.4 million for electric and gas distribution systems improvements, and $2.7 million for information technology projects. Actual capital expenditures may vary from these estimates due to a number of factors, including changes in costs of labor, equipment, capital, environmental regulations, and load growth estimates. CILCO's short-term debt increased to $46.9 million at December 31, 1999, from $40.6 million at December 31, 1998. CILCO retired $30.0 million of medium-term notes in February 2000 and $10.65 million of medium-term notes in June 1998. CILCO is considering the redemption of $25 million of auction rate preferred stock in June 2000. In 1999, CILCO paid three regular quarterly dividends and one prorated quarterly dividend to CILCORP totaling $29.8 million. As part of the acquisition of CILCORP by AES, CILCO received $27 million of additional paid-in capital from CILCORP in the fourth quarter of 1999. CILCO used the funds to retire commercial paper during the fourth quarter of 1999. 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 December 31, 1999, committed bank lines of credit totaled $55 million, all of which were unused except in support of commercial paper issuance. 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 26 by operations. CILCO is currently considering various options to refinance the matured medium-term notes and the redemption of the auction rate preferred stock. Future funds provided by operations may be affected by the deregulation of the electric and natural gas utility industries (see Competition). CIM CIM had outstanding debt of $31.4 million and $37.7 million (all to the Holding Company) at the end of 1999 and 1998, respectively. During 1998 and prior years, CIM committed to invest $16.6 million in affordable housing funds. Through December 31, 1999, CIM has paid $15.3 million to fund these commitments, $1.3 million of which was paid during 1999. CIM expects to pay approximately $.5 million of the remaining $1.3 million commitment in 2000, and lesser amounts in each year thereafter through 2006. CIM funded these commitments with cash borrowed from the Holding Company. CIM expects to finance its capital needs during 2000 with a combination of funds generated internally and with funds provided by the Holding Company. YEAR 2000 The Company completed its effort to make sure its computer systems and operations function properly in the year 2000, including the leap year period present in 2000. The Company experienced no significant Year 2000 (Y2K) problems during the transition from December 31, 1999 to January 1, 2000, or at February 29, 2000. CILCO began evaluating its information technology systems in 1996. Systems were reviewed and a schedule was developed for the analysis of all computer application code and for the replacement or modification of those systems that were identified as obsolete and/or having potential Y2K issues. Replacement of several major computer systems with Y2K issues began in 1997. A Y2K team was established in March 1998, consisting of personnel from each operating division of CILCO. In conjunction with the formation of the team, an outside firm specializing in Y2K projects was retained to assist CILCO with its overall Y2K project plans. CILCO also worked with an independent audit team to evaluate the status of the Y2K project. The project was divided into three phases, as follows: Phase I tasks included an inventory of all present systems for embedded chips having potential Y2K issues, contacting all manufacturers of embedded chip devices for the Y2K status of these devices, identifying and surveying all critical suppliers, and conducting an inventory of all information technology hardware and software for analysis of Y2K problems. Phase I was completed in August 1998. Phase II included the Y2K compliance testing of all suspect embedded chip devices identified in Phase I in the power plants, service centers, and business offices. In addition, two separate groups of outside consultants evaluated all mainframe application code to identify specific instances of date problems in each application program for systems that were not replaced. Phase II was completed in December 1999. Phase III included the upgrade/replacement and re-testing of embedded chip devices found not to be Y2K compliant in Phase II, the completion of mainframe computer operating software upgrades to the current Y2K compliant versions, and defining Y2K contingency plans for each business unit. Computer application code that was determined to have Y2K date related problems during Phase II was corrected. Testing of all applications that had undergone Y2K 27 upgrades/modifications, testing of operating system software, and development and testing of contingency plans were also included. Systems identified as critical to the continued provision of utility service were of particular focus during the testing portion of Phase III. These critical systems were generating station equipment, electric transmission and distribution control systems, gas delivery control systems, and telecommunications systems. Phase III included the final documentation effort and the testing for the leap year period present in 2000. Less than the previously estimated $2 million was spent for embedded chip analysis, vendor management, application code scanning, remediation, testing, and contingency planning at CILCO. Approximately $30.7 million was spent prior to the year 2000 for system replacements or hardware upgrades initiated for business purposes other than solely Y2K compliance, in line with 1999 projections. The 2000 budget for completion of Y2K work is approximately $165,000. CILCO worked both internally and with utility industry groups, including the Mid-America Interconnected Network (MAIN) and the North American Electric Reliability Council (NERC), to identify and plan for risks associated with the Y2K issue. These groups modeled potential worst case scenarios even though the probability of extreme disruptions due to Y2K issues was considered extremely low. CILCO participated in the NERC industry-wide drills during September 1999, without incident. CILCO also followed the contingency planning process recognized by MAIN and NERC. The Company was able to adequately address Y2K issues, as discussed above, through a combination of modifications to certain existing programs and systems, the replacement of others with new software that was Y2K compliant, and the development of contingency plans. The modifications and conversions were made in a timely manner, resulting in no material Y2K impact on the Company's operations. COMPETITION CILCO, as a regulated public utility, has an obligation to provide service to retail customers within its defined service territory; thus, CILCO had not generally been in competition with other public utilities for retail electric or gas customers in these areas. However, the passage of the Electric Service Customer Choice and Rate Relief Law of 1997 (Customer Choice Law) began a transition process to a fully competitive market for electricity in Illinois. In addition, electricity and natural gas compete with other forms of energy available to customers. For example, within the City of Springfield, CILCO's natural gas business competes with the City's municipal electric system to provide customer energy needs. Primarily as a result of the Customer Choice Law, the electric industry in Illinois will change significantly during the coming years at both the wholesale and retail levels. Large industrial customers and customers representing one-third of remaining non-residential kWh sales had the ability to choose their electric supplier beginning October 1, 1999, and all other non- residential customers will have choice no later than December 31, 2000. Residential electric customers will be able to choose their electric supplier on May 1, 2002. If a customer chooses to leave its present electricity supplier, that utility will collect a fee for delivering power and may assess an additional transition charge on the customer. This collection methodology must be filed and approved by the Illinois Commerce Commission (ICC) and is designed to help utilities recover a portion of the costs of past investments made under a regulated system. The transition charge will reduce a customer's economic 28 incentive to switch suppliers. Transition charges may be collected through 2006 (2008 upon the ICC's finding that a utility's financial condition is impaired and the utility meets other requirements specified in the Customer Choice Law). On March 9, 2000, CILCO filed with the ICC revised tariff sheets eliminating the collection of the customer transition charge effective March 17, 2000. At a March 15, 2000 hearing, the ICC approved CILCO's revised tariffs, thereby eliminating the collection of any customer transition charge. CILCO cannot re- establish the collection of a transition charge until it files and the ICC approves revised tariff sheets that reinstate a transition charge. The Customer Choice Law also requires electric base rate reductions that vary by utility. CILCO reduced its residential base rates by 2% in August 1998 and must reduce base rates by an additional 2% in October 2000 and 1% in October 2002. Also, CILCO's return on common equity will, in general, be capped (the Equity Cap) at an index (a 12-month average yield for 30 year U.S. Treasury bonds plus 8% for calendar years 1998 and 1999 and a 12 month-average yield for U.S. Treasury bonds plus 9% for calendar years 2000 through 2004) plus 1.5 percentage points. If CILCO's two-year average return on common equity exceeds the two-year average of the Equity Cap, fifty percent of the earnings in excess of the average Equity Cap must be refunded to customers in the following year. On June 30, 1999, Senate Bill 24 (a clarification and technical correction of the Customer Choice Law) was signed into law. This law allows certain utilities, including CILCO, to increase the Equity Cap by an additional 2% over the Equity Cap provided under the Customer Choice Law, for the period 2000 through 2004. The increase in the Equity Cap is allowed in exchange for these utilities offering choice of electricity suppliers to selected manufacturing customers on June 1, 2000, and to the remaining manufacturing customers on October 1, 2000, earlier than previously allowed under the Customer Choice Law. Utilities selecting this option also waive the right to seek a two-year extension on the collection of transition charges. CILCO intends to notify customers that selected manufacturing operations will be 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 will become deregulated and competitive. As a result, the accounting principles applicable to rate- regulated enterprises will no longer apply to the electric generation portion of CILCO's business (see CILCO Note 1). Also, the cost of any assets for which recovery is impaired by the transition to a competitive marketplace must be written off. CILCO does not believe its electric generating asset values to be impaired. Its ability to keep total production costs competitive in a deregulated market will determine whether and to what extent the value of these assets may be impaired in the future. 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 29 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. ENVIRONMENTAL MATTERS The acid rain provisions of the Clean Air Act Amendments of 1990 (Amendments) require additional sulfur dioxide (SO2) and nitrogen oxide (NOx) emission reductions at CILCO's generating facilities. CILCO's facilities were exempt from Phase I of the Amendments due to previous emission reductions, but are subject to Phase II of the Amendments, which require further emission reductions beginning in the year 2000. The U.S. Environmental Protection Agency (USEPA) has issued a State Implementation Plan (SIP) Call to Illinois under Title I of the Amendments requiring additional NOx emission reductions from CILCO's coal-fired power plants beginning May 2003 to reduce the long-range transport of emissions. Each of CILCO's generating units would be allowed a targeted amount of NOx emissions during the peak ozone months of May through September. This SIP Call is currently being litigated. The Illinois Environmental Protection Agency (IEPA) must adopt rules implementing this new requirement pending the outcome of the litigation. Under a related state initiative, IEPA is developing rules in 2000 which will require NOx emission reductions comparable to the USEPA SIP Call. This rulemaking will meet state obligations for SIP compliance in areas of the state that do not attain air quality standards. CILCO's capital expenditures to meet the NOx emission requirements could total $69 million by 2003. CILCO's near-term compliance strategy is being implemented based upon regulations issued under the Amendments. CILCO continues to monitor regulatory actions and develop compliance strategies to minimize any financial impact. Due to the deregulation of the electric industry resulting from the Customer Choice Law, recovery of compliance costs in the future will depend upon the number of retail customers CILCO serves and the marketability of the power it generates in a competitive environment. CILCO's present environmental compliance strategy includes use of an existing SO2 scrubber, fuel blending and SO2 allowance purchases to meet Phase II SO2 emissions targets, and combustion control modifications to meet Phase II NOx emissions targets. The USEPA established SO2 emission allowance reserves for power plants in Phase II. Allowances are transferable to third parties at market prices. The cost of purchased SO2 allowances may be recovered from customers through the fuel adjustment clause and has been incorporated into the fuel purchase program. CILCO is purchasing additional allowances to meet its annual SO2 tonnage cap. Under this strategy, CILCO's generating units will not require additional SO2 scrubbers, but will require some fuel blending. 30 CILCO is currently in the process of investigating and implementing potential beneficial re-use for ash (a coal combustion by-product) generated at both its coal-fired generating stations. Providing alternate uses for the ash will allow CILCO to avoid potential costs associated with the construction of additional facilities to store and manage this by- product. Various initiatives are being discussed both in the United States and worldwide to reduce so-called "greenhouse gases" such as carbon dioxide and other by-products of burning fossil fuels. Reductions of emissions below historical levels could require significant capital outlays or material increases in annual operating expenses. Neither CILCORP, CILCO, nor any of their affiliates has been identified as a potentially responsible party under federal or state environmental laws governing waste storage or disposal. CILCO continues to investigate and/or monitor four former gas manufacturing plant sites located within its present gas service territory. The purpose of these studies is to determine if waste materials, principally coal tar, are present, whether such waste materials constitute an environmental or health risk and if CILCO is responsible for the remediation of any remaining waste materials at those sites. Remediation work at one of the four sites was substantially completed in 1991. Based on the operation of a groundwater collection system and other controls, CILCO received a "No Further Remediation" letter for this site in 1999. A remedial action plan for the second site was determined during 1997 and site remediation was completed in 1998. CILCO also received a "No Further Remediation" letter for the second site. An environmental site assessment and an investigative sampling plan of the third site were completed in 1999. Further work on the third site is planned for 2000. CILCO has not determined the ultimate extent of its liability for, or the ultimate cost of any remediation of, the remaining two sites, pending further studies. In 1999, CILCO spent approximately $1.5 million for former gas manufacturing plant site monitoring, legal fees and feasibility studies and has received some recovery from insurance settlements. A $1.2 million liability is recorded on the Balance Sheet, representing its minimum obligation expected for coal tar investigation and remediation. Coal tar remediation costs incurred through December 1999, less amounts recovered from customers, have been deferred as a regulatory asset of $174,000 on the Balance Sheet. Through December 31, 1999, CILCO has recovered approximately $6.9 million in coal tar remediation costs from its customers through a gas rate rider approved by the ICC. Currently, that rider allows recovery of prudently incurred coal tar remediation costs in the year that the expenditures occur. Under these circumstances, management believes that the cost of coal tar remediation will not have a material adverse effect on CILCO's financial position or results of operations. MARKET RISK SENSITIVE INSTRUMENTS CILCORP is exposed to non-trading risks through its daily business activities. These non-trading activities may include the market or commodity price risk related to CILCO's retail tariff activity and CILCORP's non-regulated commodity marketing activities. The majority of CILCORP's energy sales at the end of 1999 were to CILCO retail customers in Illinois under tariffs regulated by the ICC. Although the Illinois retail electric market is becoming deregulated (see Item 1. Business of CILCO - Regulation and Item 7. Management's Discussion and Analysis of 31 Financial Condition and Results of Operations - 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. At December 31, 1999, QST's non-Illinois electric operations and gas trading activities have been accounted for as discontinued operations (see Management's Discussion and Analysis of Financial Condition and Results of Operations - QST Enterprises Discontinued Operations). The market risk inherent in the activities of CILCORP (exclusive of regulated Illinois tariff customers) is the potential loss arising from adverse changes in natural gas and electric commodity prices relative to the physical and financial positions that the Company maintains. The prices of natural gas and electricity are subject to fluctuations resulting from changes in supply and demand. At December 31, 1999, CILCORP engaged in deregulated electric retail and natural gas sales in Illinois, including wholesale power purchases and sales to utilize its electric generating capability. These deregulated activities had net open market price risk positions of approximately 52,256 MWh of electricity and .17 Bcf of natural gas. A market price sensitivity of 10% applied to these positions is not material to the Company. At December 31, 1999, QST's discontinued operations had no net open market price risk in electricity. See CILCORP Note 9 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 In April 1999, CILCO offered Voluntary Early Retirement Programs to employees in its electric power generation area, including employees represented by the National Conference of Firemen and Oilers Local 8. A total of 86 of the 117 eligible employees accepted the offer to retire under the programs, effective as early as June 1, 1999. These programs resulted in an after-tax charge to earnings of approximately $6.1 million in the second quarter of 1999. In June 1999, the Company offered a similar Voluntary Early Retirement Program to the management and office and technical employees not previously included in the program offered in April. A total of 141 of the 156 eligible employees accepted the offer to retire under this program, effective as early as October 1, 1999. These programs resulted in an after-tax charge to earnings of approximately $16.6 million in the third quarter of 1999. 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 32 contracts) as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the derivative's fair value are to be recognized currently in earnings, unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains or losses to offset related results of the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 cannot be applied retroactively. SFAS 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts. With respect to hybrid instruments, a company may elect to apply SFAS 133, as amended, to (1) all hybrid contracts, (2) only those hybrid instruments that were issued, acquired, or substantively modified after December 31, 1997, or (3) only those hybrid instruments that were issued, acquired, or substantively modified after December 31, 1998. The fair value of these derivatives would be recognized as assets or liabilities on the balance sheet, consistent with the current accounting treatment for certain freestanding derivatives. The Company has not yet quantified the other effects on the financial statements of adopting SFAS 133. The final adoption could increase volatility in earnings and other comprehensive income. CILCORP continues to analyze the effects of adoption of the rules promulgated by SFAS 133. The Company is in the process of preparing a comprehensive inventory of all derivatives that will be subject to disclosure under SFAS 133 and developing procedures for the determination and valuation of hedge relationships that may exist, and their effectiveness. 33 RESULTS OF OPERATIONS - CILCORP INC. AND SUBSIDIARIES CILCO ELECTRIC OPERATIONS The following table summarizes electric operating revenue and expenses by component.
Components of Electric Income Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Revenue: Electric retail $63,740 |$287,768 $341,143 $318,130 Sales for resale 1,866 | 19,340 18,866 19,966 ------- |-------- -------- -------- Total revenue 65,606 | 307,108 360,009 338,096 ------- |-------- -------- -------- Cost of sales: | Cost of fuel 20,798 | 56,950 94,490 92,230 Purchased power expense 3,012 | 57,239 29,568 22,851 Revenue taxes 3,324 | 15,406 18,581 15,388 ------- |-------- -------- -------- Total cost of sales 27,134 | 129,595 142,639 130,469 ------- |-------- -------- -------- Gross margin 38,472 | 177,513 217,370 207,627 ------- |-------- -------- -------- Operating expenses: | Operation and maintenance | expenses 17,146 | 94,395 84,502 78,648 Depreciation and amortization 9,202 | 37,868 46,017 43,858 Other taxes 2,164 | 8,063 8,660 8,583 ------- |-------- -------- -------- Total operating expenses 28,512 | 140,326 139,179 131,089 ------- |-------- -------- -------- Fixed charges and other: | Cost of equity funds | capitalized -- | -- -- (35) Interest on long-term debt 2,777 | 10,995 13,921 14,317 Cost of borrowed funds | capitalized (71) | (86) (34) (99) Other interest 685 | 2,286 2,340 1,875 ------- |-------- -------- -------- Total 3,391 | 13,195 16,227 16,058 ------- |-------- -------- -------- Income before taxes 6,569 | 23,992 61,964 60,480 Income taxes 2,071 | 8,369 21,645 21,901 ------- |-------- -------- -------- Electric income $ 4,498 |$ 15,623 $ 40,319 $ 38,579 ======= |======== ======== ========
Electric gross margin declined slightly while retail kilowatt- hour (kWh) sales increased 2% in 1999. Residential sales remained relatively constant while commercial sales increased 2%. Cooling degree days were 15% lower in 1999 than in 1998. Although total cooling degree days were lower in 1999, extremely warm weather in July 1999 resulted in greater demands for electricity. Industrial sales volumes increased 5% compared to 1998. 34 Industrial sales were favorably impacted by customers returning to retail supply due to the completion of CILCO's Power Quest pilot program. Electric gross margin increased 5% in 1998 and retail kWh sales increased 6%. Residential sales volumes increased 4% while commercial sales volumes increased 6%. Cooling degree days were 28% higher in 1998 than in 1997. Industrial sales volumes increased 8% compared to 1997. Sales for resale increased 12% in 1999 due to increased sales volumes resulting from higher available capacity and increased prices per kWh due to industry-wide demand in July. Sales for resale decreased 6% in 1998 as a result of lower available capacity for bulk sales due to unscheduled generating station outages. 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. In 1999, 67% of CILCO's total operating revenue was derived from the sale of electricity. Approximately 36% of electric revenue resulted from residential sales, 31% from commercial sales, 25% from industrial sales, 6% from sales for resale and 2% from other sales. Electric sales, particularly residential and commercial sales during the summer months, fluctuate based on weather conditions. The electric operating revenues of CILCO were derived from the following sources:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Residential $22,909 |$110,396 $133,687 $125,071 Commercial 22,708 | 94,336 111,830 103,747 Industrial 17,018 | 78,114 87,895 82,318 Sales for resale 1,866 | 19,340 18,866 19,966 Street lighting 305 | 1,111 1,385 1,343 Other revenue 800 | 3,811 6,346 5,651 ------- |-------- -------- -------- Total electric revenue $65,606 |$307,108 $360,009 $338,096 ======= |======== ======== ========
The overall level of business activity in CILCO's service territory and weather conditions are expected to continue to be the primary factors affecting electric sales in the near term. CILCO's electric sales will also be affected in the long term by deregulation and increased competition in the electric utility industry. Purchased power increased 104% in 1999. As a result of abnormally warm weather during July 1999, CILCO incurred $33 million of generation and purchased power costs which are subject to recovery from customers through the fuel adjustment clause (FAC). Of this amount, $10 million was recovered in July and $23 million remained unrecovered at the end of July. CILCO's FAC allows it to pass on to customers the cost of unrecovered fuel and purchased power costs in the next calculated month's FAC factor. In this instance, on September 1, 1999, the Illinois Commerce Commission (ICC) approved a request 35 by CILCO to charge certain customers over a 12-month period (without interest), beginning in September 1999. In addition, to avoid the potential loss of purchased power cost recovery from customers eligible to choose their electricity supplier on October 1, 1999, CILCO requested and received ICC permission to charge the larger industrial and commercial customers their share of this underrecovery in a single month. These customers may elect to pay over a period of up to 12 months after making appropriate arrangements with CILCO. Also, under the FAC, the underrecovered costs of fuel and purchased power for a particular month are both treated as adjustments to cost of fuel expense; thus, the cost of fuel decreased in 1999 compared to 1998. At December 31, 1999, underrecovered fuel and purchased power costs, including the unbilled portion of the July purchased power, totaled $12 million. The ICC will conduct its routine review of the FAC in early 2000 and will determine the prudency of CILCO's electricity purchases. Any amount of the additional $23 million of electricity purchases ultimately determined to be imprudent by the ICC would not be recoverable from CILCO's customers, and therefore would be expensed by CILCO on its income statement. CILCO currently believes these costs to be recoverable through the FAC. A significant disallowance of these costs by the ICC would be material to CILCO's results of operations. Electric operations and maintenance expenses increased 32% in 1999 compared to 1998. The increases were mainly due to a $10.1 million second quarter charge and an $18.4 million third quarter charge to pension and benefits expense as a result of the Voluntary Early Retirement Programs offered to Management, Office and Technical (MOT) employees and to employees in CILCO's electric power generation area (see Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Voluntary Early Retirement Programs). Electric operations and maintenance expenses increased 7% in 1998 primarily due to increases in generation expenses arising from outages at CILCO's E. D. Edwards facility, and increased electric distribution overhead line maintenance expense due to a severe storm in June, which, at its peak, affected power delivery to approximately half of CILCO's electric customers. Also contributing to the increases were higher information technology costs. The increases were partially offset by lower outside service costs and decreases in the actuarially-determined costs for pensions and post-employment benefits. The increase in depreciation and amortization expense in 1999 and 1998 reflects additions and replacements of utility plant at costs in excess of the original cost of the property retired and increased amortization associated with the implementation of new computer systems. Fixed charges and other expenses increased 2% in 1999 compared to 1998. The decrease in taxes in 1999 was primarily due to lower pre-tax income as a result of pension and benefit expenses relating to the Voluntary Early Retirement Programs. 36 CILCO GAS OPERATIONS The following table summarizes gas operating revenue and expenses by component.
Components of Gas Income Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Revenue: Sale of gas $48,750 |$126,845 $166,416 $202,274 Transportation services 1,110 | 4,055 5,911 6,484 ------- |-------- -------- -------- Total revenue 49,860 | 130,900 172,327 208,758 ------- |-------- -------- -------- Cost of sales: | Cost of gas 30,237 | 69,056 93,586 123,531 Revenue taxes 1,608 | 6,592 7,921 7,079 ------- |-------- -------- -------- Total cost of sales 31,845 | 75,648 101,507 130,610 ------- |-------- -------- -------- Gross margin 18,015 | 55,252 70,820 78,148 ------- |-------- -------- -------- Operating expenses: | Operation and maintenance | expenses 6,259 | 36,085 34,205 31,185 Depreciation and amortization 3,745 | 15,871 19,256 17,647 Other taxes 666 | 2,442 2,747 3,225 ------- |-------- -------- -------- Total operating expenses 10,670 | 54,398 56,208 52,057 ------- |-------- -------- -------- Fixed charges and other: | Cost of equity funds | capitalized -- | -- -- -- Interest on long-term debt 1,101 | 4,361 5,577 5,707 Cost of borrowed funds | capitalized -- | (1) -- -- Other interest 272 | 907 937 747 ------- |-------- -------- -------- Total 1,373 | 5,267 6,514 6,454 ------- |-------- -------- -------- Income before taxes 5,972 | (4,413) 8,098 19,637 Income taxes 2,402 | (1,566) 3,443 7,416 ------- |-------- -------- -------- Gas income $ 3,570 |$ (2,847) $ 4,655 $ 12,221 ======= |======== ======== ========
Gas gross margin increased 3% in 1999 compared to 1998. Residential sales volumes increased 10%. Commercial sales volumes remained relatively constant. Heating degree days were 7% higher in 1999 than in 1998. Gas gross margin decreased 9% in 1998 compared to 1997. Residential and commercial sales volumes decreased 17% and 12%, respectively, primarily due to warmer weather during the heating season. Heating degree days were 19% lower in 1998 than in 1997. 37 Revenue from gas transportation services decreased 13% in 1999 and 9% in 1998, while the volume of gas transported decreased 8% in 1999 and 2% in 1998. The decreases were primarily due to reduced industrial and residential gas transportation sales in 1999, and reduced commercial gas transportation sales in 1998. In 1999, 33% of CILCO's total operating revenue was derived from the sale or transportation of natural gas. Approximately 60% of gas revenue resulted from residential sales, 25% from commercial sales, 5% from industrial sales, 3% from transportation and 7% from other sales. Gas sales, particularly residential and commercial sales during the winter months, fluctuate based on weather conditions. The gas operating revenues of CILCO were derived from the following sources:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Residential $31,553 | $ 77,823 $100,010 $124,440 Commercial 12,071 | 32,461 42,713 51,204 Industrial 2,330 | 6,489 6,627 8,276 Transportation of gas 1,110 | 4,055 5,911 6,484 Other revenue 2,796 | 10,072 17,066 18,354 ------- | -------- -------- -------- Total gas revenue $49,860 | $130,900 $172,327 $208,758 ======= | ======== ======== ========
The overall level of business activity in CILCO's service territory and weather conditions are expected 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. The cost of gas increased 6% in 1999 primarily due to increased gas sales and higher natural gas prices. The cost of gas decreased 24% in 1998, primarily due to decreased gas sales and lower natural gas prices. These changes were passed through to customers via the PGA. Gas operations and maintenance expenses increased 24% in 1999 and 10% in 1998. The 1999 increase was mainly due to a $9.1 million charge to pension and benefits expense in the third quarter as a result of the Voluntary Early Retirement Program offered to MOT employees (see Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Voluntary Early Retirement Programs). The increase for 1998 was due to higher maintenance and information technology costs, partially offset by lower outside service costs and decreases in the actuarially-determined costs for pension and post-employment benefits. The increase in depreciation and amortization expenses in 1999 and 1998 reflect additions and replacements of utility plant at costs in excess of the original cost of the property retired. Fixed charges and other expenses increased 2% in 1999, compared to 1998. The decrease in income taxes in 1999 was due to lower pre-tax operating income as a result of pension and benefit expenses relating to the Voluntary Early Retirement Program. 38 CILCO OTHER The following table summarizes other income and deductions:
Components of Other Income and Deductions Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Revenue $ 2,430 |$ 2,969 $ 1,864 $ 272 Expense (2,185) | (4,807) (1,711) (619) ------- |------- ------- ------- Gross margin 245 | (1,838) 153 (347) ------- |------- ------- ------- | Other income and deductions: | Interest income 72 | 153 251 266 Amortization -- | (505) (713) (713) Operating expenses (654) | (928) (2,025) (2,497) Other taxes (1) | (3) (8) (14) Preferred stock dividends (558) | (2,650) (3,194) (3,216) Other (274) | (763) (1,013) (1,177) ------- |------- ------- ------- Total other income | and deductions (1,415) | (4,696) (6,702) (7,351) ------- |------- ------- ------- Income (loss) before taxes (1,170) | (6,534) (6,549) (7,698) ------- |------- ------- ------- | Income taxes (benefit) (466) | (2,435) (2,616) (3,049) ------- |------- ------- ------- | Other income (loss) $ (704) |$(4,099) $(3,933) $(4,649) ======= |======= ======= =======
Gross margin decreased in 1999 due to costs of non-regulated service programs. These include start-up costs for the energy consulting and performance audit programs as well as on-going costs for the outdoor lighting program. The margin on non- regulated electricity sales in Illinois, outside of CILCO's service territory, remained relatively constant. 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. 39 OTHER BUSINESSES The following table summarizes Other Businesses' revenue and expenses. Other Businesses' results include income earned and expenses incurred at the Holding Company, CIM, and CVI.
Components of Other Businesses Net Loss Oct. 19 to Jan. 1 to Dec. 31 Oct. 18 1999 1999 1998 1997 (In thousands) Revenue: Leveraged lease revenue $ 1,258 |$ 5,504 $11,002 $ 6,539 Interest income 21 | 99 75 58 Other revenue 1,342 | 13,528 13,640 4,270 -------- |-------- ------- ------- Total revenue 2,621 | 19,131 24,717 10,867 -------- |-------- ------- ------- Expenses: | Gas purchased for resale 2,310 | 10,712 12,502 2,446 Operating expenses 738 | 15,413 11,071 10,146 Depreciation and amortization 2,916 | 139 202 207 Interest expense 9,504 | 4,080 6,482 4,403 Other taxes 7 | 32 56 26 -------- |-------- ------- ------- Total expenses 15,475 | 30,376 30,313 17,228 -------- |-------- ------- ------- Loss before income taxes (12,854) | (11,245) (5,596) (6,361) Income taxes (4,958) | (3,255) (2,773) (3,919) -------- |-------- ------- ------- Other businesses net loss $ (7,896) |$ (7,990) $(2,823) $(2,442) ======== |======== ======= =======
Leveraged lease revenue decreased in 1999, compared to 1998, due to a $3.9 million pre-tax gain in 1998 resulting from CIM's refinancing of a leveraged lease investment. The income tax expense related to leveraged lease income was $2.5 million, $4.4 million, and $2.4 million for 1999, 1998, and 1997, respectively. Other revenue was favorably affected by revenue from CILCORP Infraservices Inc. partially offset by lower earnings from CIM Energy Investments Inc.'s (CEII) investments in the Energy Investors Fund, L.P., and decreased gas marketing revenue. CEII, a subsidiary of CIM, holds a 2.5% limited partnership interest in this fund, which invests in non-regulated, non-utility, facilities for the production of electricity or thermal energy. CIM's total initial investment in this fund was $5 million. Interest expense was adversely affected during the October 19 through December 31, 1999, period by the senior notes and bonds issued to acquire CILCORP. Depreciation and amortization expense was higher during this period due to $2.9 million amortization of goodwill resulting from AES' acquisition price in excess of the fair value of CILCORP's assets and liabilities. 40 Operating expenses increased in 1999 during the period of January 1 through October 18, compared to 1998, primarily due to $5.1 million of merger transaction expenses and $4.9 million of CILCORP Shareholder Return Incentive Compensation Plan expenses at the Holding Company (see CILCORP Note 15). The income tax benefit was impacted during the October 19 through December 31 period due to lower net income resulting from acquisition debt interest expense. The income tax benefit increased in 1999 during the January 1 through October 18 period, compared to 1998, due to lower net income related to the merger transaction costs. 41 QST ENTERPRISES DISCONTINUED OPERATIONS Due to uncertainties related to energy deregulation across the country, the illiquidity of certain energy markets and the Company's acquisition by AES, the Company is now focusing on the opportunities in the Illinois energy market resulting from the deregulation of electricity under the Electric Service Customer Choice and Rate Relief Law of 1997 (see Management's Discussion and Analysis - Illinois Electric Deregulation). As a result of this decision, QST Enterprises Inc. and QST Energy ceased operations during the fourth quarter of 1998, except for fulfillment of contractual commitments for 1999 and beyond, and recorded loss provisions for the discontinued energy operations. The results of QST and its past and present subsidiaries - QST Communications, QST Environmental and QST Energy - are reported in 1999 and prior periods as discontinued operations. The tables below show the components of the discontinued operations. Loss from operations of discontinued businesses, net of tax:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 QST Communications, net of tax of | $(463) and $(576) $ -- | $ -- $ (704) $ (876) QST Enterprises (excluding QST | Environmental and QST | Communications), net of tax of | $(140), $(15,331) and $(5,893) (213) | -- (23,369) (8,967) QST Environmental, net of tax of | $(221), $(484) and $(829) -- | (407) (952) (24,283) ----- | ----- -------- -------- $(213) | $(407) $(25,025) $(34,126) ===== | ===== ======== ========
Estimated (loss) realized gain on sale/disposal of assets of discontinued businesses, net of tax:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 QST Enterprises (excluding QST | Environmental), net of tax of | $4,640 $ -- | $ -- $ 7,057 $ -- QST Environmental, net of tax | of $(2,626) and $1,889 -- | -- (3,940) 2,712 ---- | ---- ------- ------- $ -- | $ -- $ 3,117 $ 2,712 ==== | ==== ======= =======
42 QST Enterprises' (excluding QST Environmental) financial results for the period from January 1, 1999, through October 18, 1999, were reflected in the discontinued operations liability which was accrued at the end of 1998, resulting in no net income or loss. Results from October 19, 1999, through December 31, 1999, were in excess of the liability and are shown as a loss for that period. In August 1998, QST Enterprises sold its wholly-owned fiber optic- based telecommunications subsidiary, QST Communications, to McLeod USA for $20 million cash and McLeod stock options then valued at $5.5 million, resulting in an after-tax gain of approximately $8.3 million which is included in the second table above. Operating losses incurred by QST Communications prior to the sale are shown in the first table. The gain from the sale of QST Communications is partially offset by the estimated loss on discontinuance of QST Energy. In June 1999, QST Enterprises sold the outstanding common stock of QST Environmental to MACTEC, Inc. for approximately $18 million in cash. ESE Land and its subsidiaries were not included in this sale and, therefore, QST Environmental's investment in ESE Land was transferred to QST Enterprises Inc. prior to the sale. No after-tax gain or loss was realized from the sale. QST Environmental's operating results through May 30, 1999, are included in the January 1 through October 18 loss from operations of discontinued businesses. In February 1999, QST Energy notified two of its California commercial customers that they were in default of their contracts with QST Energy as a result of not paying QST Energy for energy delivered. QST Energy filed two suits in the U.S. District Court, Central District of Illinois, seeking payment. In March, the customers filed a suit in California Superior Court, Alameda County, California, alleging that QST Energy was in breach of the contract. This suit was subsequently removed to U.S. District Court, Northern District of California. QST Energy has moved to dismiss this suit filed in California as duplicative of the suits pending in Illinois, and the customers similarly filed motions to dismiss the suits pending in Illinois. QST Energy cannot predict the ultimate outcome of this matter, but intends to vigorously pursue its claims to collect all amounts due from the customers. The accounts receivable reflected in CILCORP's consolidated balance sheet at December 31, 1999, for these two customers, totaled $15.4 million, excluding interest of approximately $1.3 million. Under the terms of the contracts, QST Energy has terminated delivery of electricity to the two customers. In June 1999, QST Energy agreed to pay $3 million to the remaining California commercial customers to discontinue electricity service. These payments, as well as losses on energy sales during 1999 (primarily electricity to the California commercial customers) were included in QST's estimate for loss related to discontinued operations recorded in December 1998. The 1998 loss from operations of QST Enterprises (excluding QST Environmental and QST Communications) shown in the first table primarily results from energy trading operations, negative electric margin generated by QST Energy's commercial customers, and the marking to market at December 31, 1998, of QST's contractual commitments to supply electricity or natural gas to customers after 1998. Other factors affecting the 1998 loss were an unprecedented sudden increase in wholesale electricity prices during June 1998 and increased administrative and general costs. As shown in the second table above, QST Environmental recorded an after-tax charge to income of $3.9 million in 1998 to record estimated losses related to the sale or discontinuance of its business, including estimated losses related to assets and obligations, such as the laboratories, not integral to the environmental consulting business activities sold in 1999. QST 43 Environmental's 1998 loss from operations of discontinued businesses, as shown in the first table, resulted primarily from losses at its analytical laboratory operations, partially offset by approximately $.6 million earned by its consulting business. An after-tax gain of $2.7 million from the sale of the discontinued operations of QST Environmental's subsidiary, ESE Land, is shown for 1997 in the second table above. 44 RESULTS OF OPERATIONS - CENTRAL ILLINOIS LIGHT COMPANY CILCO ELECTRIC OPERATIONS The following table summarizes electric operating revenue and expenses by component.
Components of Electric Income 1999 1998 1997 (In thousands) Revenue: Electric retail $351,508 $341,143 $318,130 Sales for resale 21,206 18,866 19,966 -------- -------- -------- Total revenue 372,714 360,009 338,096 -------- -------- -------- Cost of sales: Cost of fuel 77,748 94,490 92,230 Purchased power expense 60,251 29,568 22,851 Revenue taxes 18,730 18,581 15,388 -------- -------- -------- Total cost of sales 156,729 142,639 130,469 -------- -------- -------- Gross margin 215,985 217,370 207,627 -------- -------- -------- Operating expenses: Operation & maintenance expenses 111,541 84,502 78,648 Depreciation and amortization 47,070 46,017 43,858 Other taxes 10,227 8,660 8,583 -------- -------- -------- Total operating expenses 168,838 139,179 131,089 -------- -------- -------- Fixed charges and other: Cost of equity funds capitalized -- -- (35) Interest on long-term debt 13,772 13,921 14,317 Cost of borrowed funds capitalized (157) (34) (99) Other interest 2,971 2,340 1,875 -------- -------- -------- Total 16,586 16,227 16,058 -------- -------- -------- Income before taxes 30,561 61,964 60,480 Income taxes 10,440 21,645 21,901 -------- -------- -------- Electric income $ 20,121 $ 40,319 $ 38,579 ======== ======== ========
Electric gross margin declined slightly while retail kilowatt hour (kWh) sales increased 2% in 1999 compared to 1998. Residential sales remained relatively constant while commercial sales increased 2%. Cooling degree days were 15% lower in 1999 than in 1998. Although total cooling degree days were lower in 1999, extremely warm weather in July 1999 resulted in greater demand for electricity. Industrial sales volumes increased 5% compared to 1998. Industrial sales were favorably impacted by customers returning to retail supply due to the completion of CILCO's Power Quest pilot program. Electric gross margin increased 5% in 1998 and retail kWh sales increased 6%. Residential sales volumes increased 4% while commercial sales volumes 45 increased 6%. Cooling degree days were 28% higher in 1998 than in 1997. Industrial sales volumes increased 8% compared to 1997. Sales for resale increased 12% in 1999 due to increased sales volumes resulting from higher available capacity and increased prices per kWh due to higher industry-wide demand in July. Sales for resale decreased 6% in 1998 as a result of lower available capacity for bulk sales due to unscheduled generating station outages. Sales for resale vary based on the energy requirements of native load customers, neighboring utilities and power marketers, CILCO's available capacity for bulk power sales, and the price of power available for sale. CILCO's activity in the sales for resale and purchased power markets will continue to increase as a result of retail deregulation in the Illinois market. The overall level of business activity in CILCO's service territory and weather conditions are expected to continue to be the primary factors affecting electric sales in the near term. CILCO's electric sales will also be affected in the long term by deregulation and increased competition in the electric utility industry. Purchased power increased 104% in 1999. As a result of abnormally warm weather during July 1999, CILCO incurred $33 million of generation and purchased power costs which are subject to recovery from customers through the fuel adjustment clause (FAC). Of this amount, $10 million was recovered in July and $23 million remained unrecovered at the end of July. CILCO's FAC allows it to pass on to customers the cost of unrecovered fuel and purchased power costs in the next calculated month's FAC factor. In this instance, on September 1, 1999, the ICC approved a request by CILCO to charge certain customers over a 12-month period (without interest), beginning in September 1999. In addition, to avoid the potential loss of purchased power cost recovery from customers eligible to choose their electricity supplier on October 1, 1999, CILCO requested and received ICC permission to charge the larger industrial and commercial customers their share of this underrecovery in a single month. These customers may elect to pay over a period of up to 12 months after making appropriate arrangements with CILCO. Also, under the FAC, the underrecovered costs of fuel and purchased power for a particular month are both treated as adjustments to cost of fuel expense; thus, the cost of fuel decreased in 1999 compared to 1998. At December 31, 1999, underrecovered fuel and purchased power costs, including the unbilled portion of the July purchased power, totaled $12 million. The ICC will conduct its routine review of the FAC in 2000 and will determine the prudency of CILCO's electricity purchases. Any amount of the additional $23 million of electricity purchases ultimately determined to be imprudent by the ICC would not be recoverable from CILCO's customers, and therefore would be expensed by CILCO on its income statement. CILCO currently believes these costs to be recoverable through the FAC. A significant disallowance of these costs by the ICC would be material to CILCO's results of operations. Electric operations and maintenance expenses increased 32% in 1999 compared to 1998. The increases were mainly due to a $10.1 million second quarter charge and an $18.4 million third quarter charge to pension and benefits expense as a result of the Voluntary Early Retirement Programs offered to Management, Office and Technical (MOT) employees and to employees in CILCO's electric power generation area (see Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Voluntary Early Retirement Programs). Electric operations and maintenance expenses increased 7% in 1998 primarily due to increases in generation expenses arising from outages at CILCO's E. D. Edwards facility, and increased electric distribution overhead line maintenance expense due to a severe storm in June, which, at its peak, affected power delivery to approximately half of CILCO's electric customers. 46 Also contributing to the increases were higher information technology costs. The increases were partially offset by lower outside service costs and decreases in the actuarially-determined costs for pensions and post-employment benefits. The increase in depreciation and amortization expense in 1999 and 1998 reflects additions and replacements of utility plant at costs in excess of the original cost of the property retired and increased amortization associated with the implementation of new computer systems. Fixed charges and other expenses increased 2% in 1999 compared to 1998. The decrease in income taxes in 1999 was primarily due to lower pre-tax income as a result of pension and benefit expenses relating to the Voluntary Early Retirement Programs. 47 CILCO GAS OPERATIONS The following table summarizes gas operating revenue and expenses by component.
Components of Gas Income 1999 1998 1997 (In thousands) Revenue: Sale of gas $175,595 $166,416 $202,274 Transportation services 5,165 5,911 6,484 -------- -------- -------- Total revenue 180,760 172,327 208,758 -------- -------- -------- Cost of sales: Cost of gas 99,293 93,586 123,531 Revenue taxes 8,200 7,921 7,079 -------- -------- -------- Total cost of sales 107,493 101,507 130,610 -------- -------- -------- Gross margin 73,267 70,820 78,148 -------- -------- -------- Operating expenses: Operation & maintenance expenses 42,344 34,205 31,185 Depreciation and amortization 19,616 19,256 17,647 Other taxes 3,108 2,747 3,225 -------- -------- -------- Total operating expenses 65,068 56,208 52,057 -------- -------- -------- Fixed charges and other: Interest on long-term debt 5,462 5,577 5,707 Cost of borrowed funds capitalized (1) -- -- Other interest 1,179 937 747 -------- -------- -------- Total 6,640 6,514 6,454 -------- -------- -------- Income before taxes 1,559 8,098 19,637 Income taxes 836 3,443 7,416 -------- -------- -------- Gas income $ 723 $ 4,655 $ 12,221 ======== ======== ========
Gas gross margin increased 3% in 1999 compared to 1998. Residential sales volumes increased 10%. Commercial sales volumes remained relatively constant. Heating degree days were 7% higher in 1999 than in 1998. Gas gross margin decreased 9% in 1998 compared to 1997. Residential and commercial sales volumes decreased 17% and 12%, respectively, primarily due to warmer weather during the heating season. Heating degree days were 19% lower in 1998 than in 1997. Revenue from gas transportation services decreased 13% in 1999 and 9% in 1998, while the volume of gas transported decreased 8% in 1999 and 2% in 1998. The decreases were primarily due to reduced industrial and residential gas transportation sales in 1999, and reduced commercial gas transportation sales in 1998. 48 The overall level of business activity in CILCO's service territory and weather conditions are expected 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. The cost of gas increased 6% in 1999 primarily due to increased gas sales and higher natural gas prices. The cost of gas decreased 24% in 1998, primarily due to decreased gas sales and lower natural gas prices. These changes were passed through to customers via the PGA. Gas operations and maintenance expenses increased 24% in 1999 and 10% in 1998. The 1999 increase was mainly due to a $9.1 million charge to pension and benefits expense in the third quarter as a result of the Voluntary Early Retirement Program offered to MOT employees (see Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Voluntary Early Retirement Programs). The increase for 1998 was due to higher maintenance and information technology costs, partially offset by lower outside service costs and decreases in the actuarially-determined costs for pension and post-employment benefits. The increase in depreciation and amortization expenses in 1999 and 1998 reflect additions and replacements of utility plant at costs in excess of the original cost of the property retired. Fixed charges and other expenses increased 2% in 1999, compared to 1998. The decrease in income taxes in 1999 was due to lower pre-tax operating income as a result of pension and benefit expenses relating to the Voluntary Early Retirement Program. 49 CILCO OTHER The following table summarizes other income and deductions:
Components of Other Income and Deductions 1999 1998 1997 (In thousands) Revenue $ 5,399 $ 1,864 $ 272 Expense (6,992) (1,711) (619) ------- ------- ------- Gross margin (1,593) 153 (347) ------- ------- ------- Other income and deductions: Interest income 225 251 266 Amortization (505) (713) (713) Operating expenses (1,582) (2,025) (2,497) Other taxes (4) (8) (14) Preferred stock dividends (3,208) (3,194) (3,216) Other (1,037) (1,013) (1,177) ------- ------- ------- Total other income & deductions (6,111) (6,702) (7,351) ------- ------- ------- Income (loss) before taxes (7,704) (6,549) (7,698) ------- ------- ------- Income taxes (benefit) (2,901) (2,616) (3,049) ------- ------- ------- Other income (loss) $(4,803) $(3,933) $(4,649) ======= ======= =======
Gross margin decreased in 1999 due to costs of non-regulated service programs. Theses include start-up costs for the energy consulting and performance audit programs as well as on-going costs for the outdoor lighting program. The margin on non- regulated electricity sales in Illinois, outside of CILCO's service territory, remained relatively constant. 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. 50 Item 8. Financial Statements and Supplementary Data Index to Financial Statements: Page ---- CILCORP Management's Report 52 Report of Independent Public Accountants 53 Consolidated Statements of Income 54-55 Consolidated Balance Sheets 56-57 Consolidated Statements of Cash Flows 58-59 Statements of Segments of Business 60-63 Consolidated Statements of Stockholders' Equity 64-65 Notes to Consolidated Financial Statements 66-87 CILCO Management's Report 88 Report of Independent Public Accountants 89 Consolidated Statements of Income 90 Consolidated Balance Sheets 91-92 Consolidated Statements of Cash Flows 93-94 Statements of Segments of Business 95-97 Consolidated Statements of Retained Earnings 98 Notes to Consolidated Financial Statements 99-114 51 MANAGEMENT'S REPORT Management has prepared the accompanying financial statements and notes for CILCORP Inc. and its consolidated subsidiaries in accordance with generally accepted accounting principles. Estimates and judgments used in developing these statements are the responsibility of management. Financial data presented throughout this report is consistent with these statements. CILCORP Inc. maintains a system of internal accounting controls which management believes is adequate to provide reasonable assurance as to the integrity of accounting records and the protection of assets. Such controls include established policies and procedures and the selection and training of qualified personnel. The financial statements have been audited by CILCORP's independent public accountants, Arthur Andersen LLP. Their audit was conducted in accordance with generally accepted auditing standards and included an assessment of selected internal accounting controls only to determine the scope of their audit procedures. The report of the independent public accountants is contained in this Form 10-K annual report. P. D. Stinson President T. D. Hutchinson Controller and Chief Financial Officer 52 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors of CILCORP Inc.: We have audited the accompanying consolidated balance sheets of CILCORP Inc. (an Illinois corporation) and subsidiaries as of December 31, 1999, and 1998, and the related consolidated statements of income, cash flows, stockholders' equity and segments of business for the periods October 19, 1999, through December 31, 1999, and January 1, 1999, through October 18, 1999, and the years ended December 31, 1998 and 1997. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CILCORP Inc. and subsidiaries as of December 31, 1999, and 1998, and the results of their operations and their cash flows for the periods October 19, 1999, through December 31, 1999, and January 1, 1999, through October 18, 1999, and the years ended December 31, 1998 and 1997, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedules listed in Item 14(a)2 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois January 28, 2000 53 CILCORP Inc. and Subsidiaries Consolidated Statements of Income
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Revenue: CILCO Electric $ 65,606 |$307,108 $360,009 $338,096 CILCO Gas 49,860 | 130,900 172,327 208,758 CILCO Other 2,502 | 3,122 2,115 538 Other Businesses 2,621 | 19,131 24,717 10,867 -------- |-------- -------- -------- Total 120,589 | 460,261 559,168 558,259 -------- |-------- -------- -------- Operating Expenses: | Fuel for Generation and | Purchased Power 23,810 | 114,189 124,058 115,081 Gas Purchased for Resale 32,547 | 79,768 106,088 125,977 Other Operations and Maintenance 26,982 | 151,628 133,514 123,095 Depreciation and Amortization 15,863 | 54,383 66,188 62,425 State and Local Revenue Taxes 4,932 | 21,998 26,502 22,467 Other Taxes 2,838 | 10,540 11,471 11,848 -------- |-------- -------- ------- Total 106,972 | 432,506 467,821 460,893 -------- |-------- -------- ------- Fixed Charges and Other: | Interest Expense 14,339 | 22,629 29,257 27,049 Preferred Stock Dividends | of Subsidiary 558 | 2,650 3,194 3,216 Allowance for Funds Used During | Construction (71) | (87) (34) (134) Other 274 | 763 1,013 1,177 -------- |-------- -------- -------- Total 15,100 | 25,955 33,430 31,308 -------- |-------- -------- -------- Income from Continuing Operations | Before Income Taxes (1,483) | 1,800 57,917 66,058 Income Taxes (951) | 1,113 19,699 22,349 -------- |-------- -------- -------- Net Income from Continuing | Operations Before | Extraordinary Item (532) | 687 38,218 43,709 Loss from Operations of | Discontinued Businesses, Net of | Tax of $(140), $(221), $(16,278) | and $(7,298) (213) | (407) (25,025) (34,126) Gain on Sale/Disposal of Assets | of Discontinued Businesses, Net | of Tax of $2,014 and $1,889 -- | -- 3,117 2,712 Extraordinary Item -- | -- -- 4,100 -------- |-------- -------- -------- Net Income $ (745) |$ 280 $ 16,310 $ 16,395 | Other Comprehensive Income -- | -- (169) (317) -------- |-------- -------- -------- Comprehensive Income $ (745) |$ 280 $ 16,141 $ 16,078 ======== |======== ======== ======== 54 The accompanying Notes to Financial Statements are an integral part of these statements.
55 CILCORP Inc. and Subsidiaries Consolidated Balance Sheets
Assets (As of December 31) 1999 1998 (In thousands) Current Assets: Cash and Temporary Cash Investments $ 11,220 | $ 1,669 Receivables, Less Reserves | of $1,296 and $3,411 60,072 | 134,548 Accrued Unbilled Revenue 35,526 | 39,339 Fuel, at Average Cost 14,392 | 13,431 Materials and Supplies, at Average Cost 16,165 | 15,435 Gas in Underground Storage, at Avg. Cost 21,196 | 20,494 FAC Underrecoveries 12,024 | -- Prepayments and Other 8,946 | 7,646 ---------- | ---------- Total Current Assets 179,541 | 232,562 ---------- | ---------- Investments and Other Property: | Investment in Leveraged Leases 143,697 | 146,977 Other Investments 27,219 | 25,037 ---------- | ---------- Total Investments and Other Property 170,916 | 172,014 ---------- | ---------- Property, Plant and Equipment: | Utility Plant, at Original Cost | Electric 624,889 | 1,237,885 Gas 208,520 | 417,585 ---------- | ---------- 833,409 | 1,655,470 Less-Accumulated Provision for Depr. 8,898 | 812,630 ---------- | ---------- 824,511 | 842,840 Construction Work in Progress 38,068 | 30,075 Other, Net of Depreciation 298 | 7,755 ---------- | ---------- Total Property, Plant and Equipment 862,877 | 880,670 ---------- | ---------- Other Assets: | Goodwill, Net of Accumulated | Amortization of $2,881 569,983 | -- Other 47,636 | 27,694 ---------- | ---------- Total Other Assets 617,619 | 27,694 ---------- | ---------- | Total Assets $1,830,953 | $1,312,940 ========== | ========== The accompanying Notes to Financial Statements are an integral part of these balance sheets.
56 CILCORP Inc. and Subsidiaries Consolidated Balance Sheets
Liabilities and Stockholders' Equity (As of December 31) 1999 1998 (In thousands) Current Liabilities: Current Portion of Long-Term Debt $ 30,000 |$ 13,027 Notes Payable 91,900 | 96,200 Accounts Payable 41,429 | 128,845 Accrued Taxes 14,670 | 8,262 Accrued Interest 18,296 | 9,994 FAC/PGA Overrecoveries 127 | 304 Other 5,742 | 14,316 ---------- |---------- Total Current Liabilities 202,164 | 270,948 ---------- |---------- Long-Term Debt 730,434 | 285,552 ---------- |---------- Deferred Credits and Other Liabilities: | Deferred Income Taxes 237,557 | 239,305 Regulatory Liab. of Regulated Sub. 31,367 | 46,346 Deferred Investment Tax Credit 17,791 | 19,450 Other 77,432 | 49,681 ---------- |---------- Total Deferred Credits 364,147 | 354,782 ---------- |---------- Preferred Stock of Subsidiary 66,120 | 66,120 ---------- |---------- Stockholders' Equity: | Common Stock, no par value; | Authorized 10,000 and | 50,000,000 shares - Outstanding 1,000 | and 13,610,680 shares -- | 192,853 Additional Paid-in Capital 468,833 | -- Retained Earnings (745) | 143,530 Accumulated Other Comprehensive Income -- | (845) ---------- |---------- Total Stockholders' Equity 468,088 | 335,538 ---------- |---------- Total Liabilities and | Stockholders' Equity $1,830,953 |$1,312,940 ========== |========== The accompanying Notes to Financial Statements are an integral part of these balance sheets.
57 CILCORP Inc. and Subsidiaries Consolidated Statements of Cash Flows
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Cash Flows from Operating Activities: Net Income from Continuing | Operations Before Preferred | Dividends $ 26 | $ 3,337 $ 41,412 $ 46,925 --------- | -------- -------- -------- | Adjustments to Reconcile Net Income | to Net Cash Provided by Operating | Activities: | Non-Cash Income (996) | (4,830) (6,150) (4,102) Cash Receipts in Excess of Debt | Service on Leases 1,099 | 8,943 5,518 -- Depreciation and Amortization 15,863 | 54,383 66,188 62,416 Deferred Income Taxes, | Investment Tax Credit and | Regulatory Liability of | Subsidiary, Net (1,445) | (20,419) (7,742) (3,342) Changes in Operating Assets and | Liabilities: | Decrease (Increase) in Accounts | Receivable and Accrued | Unbilled Revenue (16,488) | 10,527 5,418 (74) (Increase) Decrease in | Inventories 2,379 | (4,873) (5,093) 3,294 Increase (Decrease) in Accounts | Payable (13,300) | (6,276) 12,938 (1,961) Increase in Accrued Taxes 2,749 | 8,372 46 3,893 (Increase) Decrease in Other | Assets (10,619) | (29,807) 2,019 (17,027) Increase (Decrease)in Other | Liabilities 3 | 36,076 (197) (9,039) --------- | -------- -------- -------- Total Adjustments (20,755) | 52,096 72,945 34,058 --------- | -------- -------- -------- Net Cash Provided by Operating | Activities (20,729) | 55,433 114,357 80,983 Net Cash Provided by (Used in) | Operating Activities of | Discontinued Operations (447) | 10,187 (30,123) 10,031 --------- | -------- -------- -------- Cash Flow from Operations (21,176) | 65,620 84,234 91,014 --------- | -------- -------- -------- 58 Cash Flows from Investing | Activities: | Additions to Plant (9,662) | (45,473) (67,112) (55,055) Purchase of Long-Term Investments -- | -- -- (6,933) Other (1,120) | (2,454) (6,703) (1,242) --------- | -------- -------- -------- Net Cash Used in Investing | Activities (10,782) | (47,927) (73,815) (63,230) Net Cash Provided by (Used in) | Investing Activities of | Discontinued Operations -- | 17,376 9,107 3,310 --------- | -------- -------- -------- Cash Flow from Investing | Activities (10,782) | (30,551) (64,708) (59,920) --------- | -------- -------- -------- Cash Flows from Financing | Activities: | Net Increase (Decrease) in | Short-Term Debt (10,177) | 5,877 34,050 34,250 Net Increase (Decrease) in | Long-Term Debt 461,577 | (980) (25,807) (22,954) Common Dividends Paid -- | (29,813) (33,482) (33,482) Preferred Dividends Paid (836) | (2,372) (3,194) (3,216) Common Stock Issued (Redeemed) (885,669) | -- -- -- Additional Paid-in Capital 468,833 | -- -- -- --------- | -------- -------- -------- Net Cash Provided by (Used in) | Financing Activities of | Continuing Operations 33,728 | (27,288) (28,433) (25,402) Net Cash Provided by (Used in) | Financing Activities of | Discontinued Operations -- | -- -- (57) --------- | -------- -------- -------- Net Cash Used in Financing | Activities 33,728 | (27,288) (28,433) (25,459) --------- | -------- -------- -------- Net Increase (Decrease) in Cash | and Temporary Cash Investments 1,770 | 7,781 (8,907) 5,635 Cash and Temp. Cash Investments | at Beginning of Period 9,450 | 1,669 10,576 4,941 --------- | -------- -------- -------- Cash and Temporary Cash | Investments at End of Period $ 11,220 | $ 9,450 $ 1,669 $ 10,576 ========= | ======== ======== ======== The accompanying Notes to Financial Statements are an integral part of these statements.
59 CILCORP Inc. and Subsidiaries Statements of Segments of Business
October 19 to December 31, 1999 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $ 65,606 $ 49,860 $ 2,430 $ 2,600 $ -- $ 120,496 Interest income -- -- 72 21 -- 93 -------- -------- -------- ---------- -------- ---------- Total 65,606 49,860 2,502 2,621 -- 120,589 -------- -------- -------- ---------- -------- ---------- Operating Expenses 46,444 38,770 2,840 3,055 -- 91,109 Depreciation and Amortization 9,202 3,745 -- 2,916 -- 15,863 -------- -------- -------- ---------- -------- ---------- Total 55,646 42,515 2,840 5,971 -- 106,972 -------- -------- -------- ---------- -------- ---------- Interest expense 3,462 1,373 -- 9,504 -- 14,339 Preferred stock Dividends -- -- 558 -- -- 558 Fixed charges and other expenses (71) -- 274 -- -- 203 -------- -------- -------- ---------- -------- ---------- Total 3,391 1,373 832 9,504 -- 15,100 -------- -------- -------- ---------- -------- ---------- Income from continuing oper. before income taxes 6,569 5,972 (1,170) (12,854) -- (1,483) Income taxes 2,071 2,402 (466) (4,958) -- (951) -------- -------- -------- ---------- -------- ---------- Net income from continuing operations 4,498 3,570 (704) (7,896) -- (532) Effect of discontinued operations -- -- -- -- (213) (213) -------- -------- -------- ---------- -------- ---------- Segment net income $ 4,498 $ 3,570 $ (704) $ (7,896) $ (213) $ (745) ======== ======== ======== ========== ======== ========== Capital expenditures $ 7,071 $ 2,591 $ -- $ -- $ -- $ 9,662 Revenue from major customer Caterpillar Inc. $ 7,423 $ 251 $ 231 $ 649 $ -- $ 8,554 Segment assets $754,961 $290,107 $ 5,048 $1,177,144 $ 29,542 $2,256,802 Consolidation adjustments (2,121) (825) -- (422,767) (136) (425,849) -------- -------- -------- ---------- -------- ---------- Total assets $752,840 $289,282 $ 5,048 $ 754,377 $ 29,406 $1,830,953 ======== ======== ======== ========== ======== ==========
60
January 1 to October 18, 1999 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $307,108 $130,900 $ 2,969 $ 19,032 $ -- $ 460,009 Interest income -- -- 153 99 -- 252 -------- -------- -------- ---------- -------- ---------- Total 307,108 130,900 3,122 19,131 -- 460,261 -------- -------- -------- ---------- -------- ---------- Operating Expenses 232,053 114,175 5,738 26,157 -- 378,123 Depreciation and Amortization 37,868 15,871 505 139 -- 54,383 -------- -------- ------- --------- -------- ---------- Total 269,921 130,046 6,243 26,296 -- 432,506 -------- -------- ------- --------- -------- ---------- Interest expense 13,281 5,268 -- 4,080 -- 22,629 Preferred stock Dividends -- -- 2,650 -- -- 2,650 Fixed charges and other expenses (86) (1) 763 -- -- 676 -------- -------- ------- --------- -------- ---------- Total 13,195 5,267 3,413 4,080 -- 25,955 -------- -------- ------- --------- -------- ---------- Income from continuing oper. before income taxes 23,992 (4,413) (6,534) (11,245) -- 1,800 Income taxes 8,369 (1,566) (2,435) (3,255) -- 1,113 -------- -------- ------- --------- -------- ---------- Net income from continuing operations 15,623 (2,847) (4,099) (7,990) -- 687 Effect of discontinued operations -- -- -- -- (407) (407) -------- -------- ------- --------- -------- ---------- Segment net income $ 15,623 $ (2,847) $(4,099) $ (7,990) $ (407) $ 280 ======== ======== ======= ========== ======== ========== Capital expenditures $ 31,914 $ 13,559 $ -- $ -- $ -- $ 45,473 Revenue from major customer Caterpillar Inc. $ 31,335 $ 868 $ 282 $ 6,284 $ -- $ 38,769 Segment assets $743,441 $281,241 $ 4,512 $ 572,250 $ 32,666 $1,634,110 Consolidation adjustments 2,678 1,042 -- (403,852) (136) (400,268) -------- -------- ------- ---------- -------- ---------- Total assets $746,119 $282,283 $ 4,512 $ 168,398 $ 32,530 $1,233,842 ======== ======== ======= ========== ======== ==========
61
1998 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $360,009 $172,327 $ 1,864 $ 24,642 $ -- $ 558,842 Interest income -- -- 251 75 -- 326 -------- -------- ------- --------- ---------- ---------- Total 360,009 172,327 2,115 24,717 -- 559,168 -------- -------- ------- --------- ---------- ---------- Operating expenses 235,801 138,459 3,744 23,629 -- 401,633 Depreciation and amortization 46,017 19,256 713 202 -- 66,188 -------- -------- ------- --------- ---------- ---------- Total 281,818 157,715 4,457 23,831 -- 467,821 -------- -------- ------- --------- ---------- ---------- Interest expense 16,261 6,514 -- 6,482 -- 29,257 Preferred stock dividends -- -- 3,194 -- -- 3,194 Fixed charges and other expenses (34) -- 1,013 -- -- 979 -------- -------- ------- --------- ---------- ---------- Total 16,227 6,514 4,207 6,482 -- 33,430 -------- -------- ------- --------- ---------- ---------- Income from continuing oper. before income taxes 61,964 8,098 (6,549) (5,596) -- 57,917 Income taxes 21,645 3,443 (2,616) (2,773) -- 19,699 -------- -------- ------- --------- ---------- ---------- Net income from continuing operations 40,319 4,655 (3,933) (2,823) -- 38,218 Effect of discontinued operations -- -- -- -- (21,908) (21,908) -------- -------- ------- --------- ---------- ---------- Segment net income $ 40,319 $ 4,655 $(3,933) $ (2,823) $ (21,908) $ 16,310 ======== ======== ======= ========= ========== ========== Capital expenditures $ 44,213 $ 22,889 $ -- $ 10 $ 8,916 $ 76,028 Revenue from major customer Caterpillar Inc. $ 39,354 $ 948 $ 88 $ 7,669 $ -- $ 48,059 Segment assets $733,805 $283,286 $ 5,072 $ 594,734 $ 121,647 $1,738,544 Consolidation adjustments (1,304) (507) -- (423,789) (4) (425,604) -------- -------- ------- --------- ---------- ---------- Total assets $732,501 $282,779 $ 5,072 $ 170,945 $ 121,643 $1,312,940 ======== ======== ======= ========= ========== ==========
62
1997 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $338,096 $208,758 $ 272 $ 10,809 $ -- $ 557,935 Interest income -- -- 266 58 -- 324 -------- -------- ------- --------- -------- ----------- Total 338,096 208,758 538 10,867 -- 558,259 -------- -------- ------- --------- -------- ----------- Operating expenses 217,700 165,020 3,130 12,618 -- 398,468 Depreciation and amortization 43,858 17,647 713 207 -- 62,425 -------- -------- ------- --------- -------- ----------- Total 261,558 182,667 3,843 12,825 -- 460,893 -------- -------- ------- --------- -------- ----------- Interest expense 16,192 6,454 -- 4,403 -- 27,049 Preferred stock dividends -- -- 3,216 -- -- 3,216 Fixed charges and other expenses (134) -- 1,177 -- -- 1,043 -------- -------- ------- --------- -------- ----------- Total 16,058 6,454 4,393 4,403 -- 31,308 -------- -------- ------- --------- -------- ----------- Income from continuing oper. before income taxes 60,480 19,637 (7,698) (6,361) -- 66,058 Income taxes 21,901 7,416 (3,049) (3,919) -- 22,349 -------- -------- ------- --------- -------- ----------- Net income from cont. oper. before extraord. item 38,579 12,221 (4,649) (2,442) -- 43,709 Effect of discontinued operations and extraord. item 4,100 -- -- -- (31,414) (27,314) -------- -------- ------- --------- -------- ----------- Segment net income $ 42,679 $ 12,221 $(4,649) $ (2,442) $(31,414) $ 16,395 ======== ======== ======= ========= ======== =========== Capital expenditures $ 35,196 $ 19,830 $ -- $ 29 $ 6,188 $ 61,243 Revenue from major customer Caterpillar Inc. $ 40,106 $ 934 $ -- $ 1,208 $ -- $ 42,248 Segment assets $724,869 $290,958 $ 5,639 $ 606,786 $144,412 $ 1,772,664 Consolidation adjustments (1,070) (416) -- (436,345) (14) (437,845) -------- -------- ------- --------- -------- ----------- Total assets $723,799 $290,542 $ 5,639 $ 170,441 $144,398 $ 1,334,819 ======== ======== ======= ========= ======== ===========
63 CILCORP Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity
Other Add'l Compre- Common Stock Paid in Retained hensive Shares Amount Capital Earnings Income Total (In thousands except share amounts) Balance 12/31/96 13,610,680 $ 190,760 $ 0 $ 177,804 $(359) $368,205 CILCORP Shareholder Return Incentive Compensatio 1,807 1,807 Cash Dividend Declared on Common Stock ($2.46/share) (33,482) (33,482) Additional Minimum Liability of Non-Qualified Pension Plan 12/31/97, net of $(208) taxes (317) (317) Other (15) (15) Net Income 16,395 16,395 ---------- --------- ---------- -------- ----- -------- Balance 12/31/97 13,610,680 $ 192,567 $ 0 $160,702 $(676) $352,593 Cash Dividend Declared on Common Stock ($2.46/share) (33,482) (33,482) Additional Minimum Liability of Non-Qualified Pension Plan 12/31/98, net of $(111) taxes (169) (169) Other 286 286 Net Income 16,310 16,310 ---------- --------- ---------- -------- ----- -------- Balance 12/31/98 13,610,680 $ 192,853 $ 0 $143,530 $(845) $335,538 CILCORP Shareholder Return Incentive Compensation 15,000 -- -- Shares Forfeited (1,842) (1,842) Cash Dividend Declared on Common Stock ($2.46/share) (29,813) (29,813) Other 662 662 Net Income 280 280 ---------- --------- ---------- -------- ----- -------- Balance 10/18/99 13,625,680 $ 191,011 $ 0 $114,659 $(845) $304,825 ========== ========= ========== ======== ===== ======== 64 - - - - -------------------------------------------------------------------------------- Balance 10/18/99 13,625,680 $ 191,011 $ 0 $114,659 $(845) $304,825 AES Acquisition (13,625,680) (191,011) 463,000 (114,659) 845 158,175 AES Equity Contribution 5,833 5,833 Net Income (745) (745) ---------- --------- ---------- -------- ----- -------- Balance 12/31/99 0 $ 0 $ 468,833 $ (745) $ 0 $468,088 ========== ========= ========== ======== ===== ======== The accompanying Notes to Financial Statements are an integral part of these statements.
65 CILCORP INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION 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. In the fourth quarter of 1998, the operations of QST and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices - see Management's Discussion and Analysis) were discontinued and, therefore, are being reported as discontinued operations in the financial statements. QST completed the sale of subsidiary QST Environmental in the second quarter of 1999 (see Results of Operations - QST Enterprises Discontinued Operations). Prior year amounts have been reclassified on a basis consistent with the 1999 presentation. CILCORP, a public utility holding company, is a wholly-owned subsidiary of The AES Corporation. CILCO, the Company's principal business subsidiary, is engaged in the generation, transmission, distribution and sale of electric energy in an area of approximately 3,700 square miles in central and east- central Illinois, and the purchase, distribution, transportation and sale of natural gas in an area of approximately 4,500 square miles in central and east-central Illinois. Other CILCORP first- tier subsidiaries are CILCORP Investment Management Inc. (CIM), which manages the Company's investment portfolio and CILCORP Ventures Inc. (CVI), which pursues investment opportunities in energy-related products and services. 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 period January 1, 1999, through October 18, 1999, and for the period after the acquisition of October 19, 1999, through December 31, 1999, separated by a heavy black line. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 66 See Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of Accounting Standards for a discussion of accounting pronouncements issued by the Financial Accounting Standards Board which are effective in 2000 or thereafter. REGULATION CILCO is a public utility subject to regulation by the Illinois Commerce Commission (ICC) and the Federal Energy Regulatory Commission (FERC) with respect to accounting matters, and maintains its accounts in accordance with the Uniform System of Accounts prescribed by these agencies. CILCO is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71) for certain of its regulated public utility operations. Under SFAS 71, assets and liabilities are recorded to represent probable future increases and decreases, respectively, of revenues to CILCO resulting from the ratemaking action of regulatory agencies. The Electric Service Customer Choice and Rate Relief Law of 1997 (Customer Choice Law) became effective in Illinois in December 1997. Among other provisions, this law begins a nine-year transition process to a fully competitive market for electricity in Illinois. Electric transmission and distribution activities are expected to continue to be regulated, but a customer may choose to purchase electricity from another supplier (see Item 1. Business - Competition). Due to the Customer Choice Law, CILCO's electric generation activities are no longer subject to the provisions of SFAS 71. Accordingly, regulatory assets of $1.5 million and liabilities of $5.6 million associated with electric generating plant were written-off or credited, respectively, to income in 1997 as a net $4.1 million after-tax extraordinary item. Regulatory assets included on the Consolidated Balance Sheets at December 31, 1999, and 1998, are as follows:
1999 1998 (In thousands) Included in prepayments and other: | Fuel and gas cost adjustments $15,614 | $ 4,740 Coal tar remediation cost - estimated current 720 | 609 ------- | ------- Current costs included in prepayments and | other 16,334 | 5,349 ------- | ------- Included in other assets: | Coal tar remediation cost, net of recoveries 674 | 1,281 Regulatory tax asset 7,334 | 5,723 Deferred gas costs 4,368 | 4,039 Unamortized loss on reacquired debt 2,941 | 3,261 ------- | ------- Future costs included in other assets 15,317 | 14,304 ------- | ------- Total regulatory assets $31,651 | $19,653 ======= | =======
67 Regulatory assets at December 31, 1999, are related to CILCO's regulated electric and gas distribution activities. Regulatory liabilities, consisting of deferred tax items of approximately $31.4 million and $46.3 million at December 31, 1999, and 1998, respectively, and investment tax credits of approximately $11.2 million and $12.8 million at December 31, 1999 and 1998, respectively, primarily related to CILCO's electric and gas tramsmission and distribution operations. CILCO's electric generation-related identifiable assets included in the balance sheet at December 31, 1999 were:
1999 (In thousands) Property, Plant and Equipment $ 257,449 Less: Accumulated Depreciation (3,334) --------- 254,115 Construction Work in Progress 9,215 --------- Net Property, Plant and Equipment 263,330 Fuel, at Average Cost 14,392 Materials and Supplies, at Average Cost 9,901 --------- Total Identifiable Electric Generation Assets $ 287,623 =========
Accumulated deferred income taxes and investment tax credits associated with electric generation property at December 31, 1999, were approximately $61 million and $6.8 million, respectively. OPERATING REVENUES, FUEL COSTS AND COST OF GAS Electric, gas, and non-regulated energy and energy services revenues include service provided but unbilled at year end. Substantially all electric energy rates and gas system sales rates of CILCO include a fuel adjustment clause and a purchased gas adjustment clause, respectively. These clauses provide for the recovery of changes in electric fuel costs, excluding coal transportation, and changes in the cost of gas on a current basis in billings to customers. CILCO adjusts the cost of fuel and cost of gas to recognize over or under recoveries of allowable costs. The cumulative effects are deferred on the Balance Sheets as a current asset or current liability (see Regulation, above) and adjusted by refunds or collections through future billings to customers. CONCENTRATION OF CREDIT RISK CILCO, as a public utility, must provide service to customers within its defined service territory and may not discontinue service to residential customers when certain weather conditions exist. CILCO continually reviews customers' creditworthiness and requests deposits or refunds deposits based on that review. At December 31, 1999, CILCO had net receivables of $42.4 million, of which approximately $1.2 million was due from its major customer. See CILCORP Note 13 for a discussion of receivables related to CILCORP Investment Management Inc.'s leveraged lease portfolio. 68 FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of Cash and Temporary Cash Investments, Other Investments, and Notes Payable approximates fair value. The estimated fair value of CILCO's Preferred Stock with Mandatory Redemption was $19.9 million at December 31, 1999, and $23 million at December 31, 1998, based on current market interest rates for other companies with comparable credit ratings, capital structure, and size. The estimated fair value of Long-Term Debt, including current maturities, was $755 million at December 31, 1999, and $339 million at December 31, 1998. The fair market value of these instruments was based on current market interest rates for other companies with comparable credit ratings, capital structures, and size, but does not reflect effects of regulatory treatment accorded the instruments related to the regulated portions of CILCO's business. See CILCORP Note 9 for fair value of derivative financial instruments. DEPRECIATION AND MAINTENANCE Provisions for depreciation of utility property for financial reporting purposes are based on straight-line composite rates. The annual provisions for utility plant depreciation, expressed as a percentage of average depreciable utility property, were 3.8% and 4.6% for electric and gas, respectively, for each of the last three years. Utility maintenance and repair costs are charged directly to expense. Renewals of units of property are charged to the utility plant account, and the original cost of depreciable property replaced or retired, together with the removal cost less salvage, is charged to the accumulated provision for depreciation. Non-utility property is depreciated over estimated lives ranging from 3 to 15 years. GOODWILL Utilizing purchase accounting, the excess purchase price over the fair value of the assets acquired and the liabilities assumed by AES in its acquisition of CILCORP and its subsidiaries was allocated to CILCORP goodwill. Goodwill is being amortized using the straight-line method over a 40-year period. The continuing monopoly status for electric and gas distribution and the favorable regulatory climate in Illinois resulting from the Customer Choice Law warrants the use of the maximum period for goodwill amortization. As a result of significant downsizing of QST Environmental during 1996 and 1997 and continuing overcapacity and competition in the environmental segment in the fourth quarter of 1997, the Company determined that an impairment to goodwill associated with QST Environmental existed. As a result, the Company wrote off the $22.6 million unamortized goodwill balance. In late 1998, the Company decided to sell its 100% ownership interest in QST Environmental and has classified its results as discontinued (see Results of Operations - QST Enterprises Discontinued Operations). INCOME TAXES The Company follows a policy of comprehensive interperiod income tax allocation. Investment tax credits related to utility property have been deferred and are being amortized over the estimated useful lives of the related property. CILCORP and its subsidiaries will file a consolidated federal income tax return with AES. Income taxes are allocated to the individual companies based on their respective taxable income or loss. 69 CONSOLIDATED STATEMENTS OF CASH FLOWS The Company considers all highly liquid debt instruments purchased with a remaining maturity of three months or less to be cash equivalents for purposes of the Consolidated Statements of Cash Flows. Cash paid for interest and income taxes was as follows:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Interest $5,032 | $21,412 $26,067 $28,710 Income taxes $ -- | $10,828 $19,611 $28,537
COMPANY-OWNED LIFE INSURANCE POLICIES The following amounts related to Company-owned life insurance contracts, issued by one major insurance company, are included in Other Investments:
1999 1998 (In thousands) Cash surrender value of contracts $ 56,664 | $ 50,786 Borrowings against contracts (53,558) | (48,132) -------- | -------- Net investment $ 3,106 | $ 2,654 ======== | ========
Interest expense related to borrowings against Company-owned life insurance, included in "Other" on the Consolidated Statements of Income, was $4 million, $3.6 million, and $3.5 million for 1999, 1998, and 1997, respectively. NOTE 2 - INCOME TAXES The Company uses the liability method to account for income taxes. Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Temporary differences occur because the income tax law either requires or permits certain items to be reported on the Company's income tax return in a different year than they are reported in the financial statements. CILCO has recorded a regulatory asset and liability to account for the effect of expected future regulatory actions related to unamortized investment tax credits, income tax liabilities initially recorded at tax rates in excess of current rates, the equity component of Allowance for Funds Used during Construction and other items for which deferred taxes had not previously been provided. The temporary differences related to the consolidated deferred income tax asset and liability at December 31, 1999, 1998, and 1997, were as follows: 70
December 31 1999 1998 1997 (In thousands) Deferred tax assets: Deferred tax asset $28,085 | $20,742 $18,347 Adjustment to reflect regulatory asset (7,334) | (5,723) (7,578) ------- | ------- ------- Net deferred tax asset $20,751 | $15,019 $10,769 ======= | ======= =======
December 31 1999 1998 1997 (In thousands) Deferred tax liabilities: Deferred tax liability-property $188,404 | $196,300 $207,460 Adjustment to reflect regulatory liability (31,367) | (46,346) (56,807) -------- | -------- -------- Net deferred tax liability-property 157,037 | 149,954 150,653 Deferred tax liability-leases 105,625 | 103,566 101,005 Deferred tax liability-other (4,354) | 804 124 -------- | -------- -------- Accumulated deferred income tax liability $258,308 | $254,324 $251,782 ======== | ======== ======== Accumulated deferred income tax liability, | net of deferred tax assets $237,557 | $239,305 $241,013 ======== | ======== ========
The following table reconciles the change in the accumulated deferred income tax liability to the deferred income tax expense included in the income statement:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, Dec. 31, 1999 1999 1998 (Inthousands) Net change in deferred income tax liability | per above table $ 5,731 | $ (7,479) $ (1,707) Change in tax effects of income tax related | regulatory assets and liabilities (9,024)| (7,567) (8,606) Other 1,384 | (5,171) (106) ------- | -------- -------- Deferred income tax benefit for the period (1,909)| (20,217) (10,419) Less: Deferred income tax benefit for the | period from discontinued operations -- | (830) (6,115) ------- | -------- -------- Deferred income tax benefit for the period | from continuing operations $(1,909)| $(19,387) $ (4,304) ======= | ======== ========
71 Income tax expenses were as follows:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Current income taxes | Federal $ 1,481 | $ 18,073 $ 13,731 $17,814 State (329) | 4,360 3,791 3,836 ------- | -------- -------- ------- Total current taxes 1,152 | 22,433 17,522 21,650 ------- | -------- -------- ------- Deferred income taxes, net | Property-related deferred income | taxes (3,653) | (4,150) (11,262) (841) Leveraged leases 1,271 | 500 2,602 3,040 Unbilled revenue -- | (94) (287) (885) Gas take-or-pay settlements 40 | -- 522 (339) Environmental remediation costs 196 | 8 (58) 46 Pension expenses 132 | (10,057) 869 (1,798) Other post-employment benefits | expenses 61 | (5,144) (847) (617) Customer advances (170) | 26 478 (438) Gas in underground storage 1,194 | 801 (1,681) (191) Amortization of debt discounts, | premiums and expenses 504 | (631) (790) (179) CILCO Executive Deferred | Compensation Plan (429) | (338) (671) (191) CILCORP Shareholder Return | Incentive Comp. Plan (694) | -- (717) -- QST gas derivatives mark to market -- | -- 948 -- Pension shortfall & VEBA (174) | (534) (252) 44 Other (187) | (604) 727 (677) ------- | -------- -------- ------- Total deferred income taxes, net (1,909) | (20,217) (10,419) (3,026) ------- | -------- -------- ------- Investment tax credit amortization (334) | (1,324) (1,668) (1,684) ------- | -------- -------- ------- Total income tax provisions | Before extraordinary item (1,091) | 892 5,435 16,940 Deferred taxes related to | extraordinary item -- | -- -- (5,634) ------- | -------- -------- ------- Total income tax provisions $(1,091) | $ 892 $ 5,435 $11,306 ======= | ======== ======== =======
72 Total income tax provisions are presented within the Income Statement as follows:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Income taxes from continuing | operations $ (951) | $1,113 $ 19,699 $22,349 Tax on income (loss) from | operations of discontinued | businesses (140) | (221) (16,278) (7,298) Tax on gain (loss) on | sale/disposal of discontinued | businesses -- | -- 2,014 1,889 Deferred taxes related to | extraordinary item -- | -- -- (5,634) ------- | ------ -------- ------- Total income tax provisions $(1,091) | $ 892 $ 5,435 $11,306 ======= | ====== ======== =======
The 1997 income tax provision has been reduced to reflect the crediting to income as an extraordinary item the regulatory liability related to electric generation property deferred taxes which were recorded at tax rates in excess of the current rate. Total deferred income taxes, net, includes deferred state income taxes of $324,000, $(3,395,000), $(1,635,000), and $(229,000) for the periods October 19, 1999, through December 31, 1999, and January 1, 1999, through October 18, 1999, and the years 1998 and 1997, respectively. 73 The following table represents a reconciliation of the effective tax rate with the statutory federal income tax rate.
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 Statutory federal income tax 35.0% | 35.0% 35.0% 35.0% ----- | ------ ----- ----- Amortization of property related | deferred taxes provided at tax | rates in excess of current rate (4.1) | 45.1 (8.3) (3.9) Amortization of investment tax | credit 18.2 | (113.1) (7.6) (6.1) State income taxes 6.0 | (37.4) 5.5 9.0 Goodwill amortization and write-off (55.3) | -- -- 29.2 Amortization of Lincoln acquisition | adjustment -- | 15.1 1.1 0.9 Preferred dividends of subsidiary and | other permanent differences (9.5) | 73.0 4.7 2.7 Tax provision adjustment 37.9 | 79.2 -- (1.6) Affordable housing tax credits 21.4 | (139.8) (6.1) (3.4) Corporate-owned life insurance 11.0 | (74.4) (4.2) (2.9) AES transaction costs (2.3) | 140.5 3.3 -- Lobbying expenses and nondeductible | meals (6.9) | 24.6 2.5 1.8 Taxable salvage 1.7 | 7.8 (0.6) 0.7 Other differences 6.3 | 20.6 - (0.2) ----- | ----- ----- ----- Total 24.4 | 41.2 (9.7) 26.2 ----- | ----- ----- ----- Effective income tax rate before | effect of extraordinary item 59.4 | 76.2 25.3 61.2 Tax effect of extraordinary item -- | -- - (20.4) ----- | ----- ----- ----- Effective income tax rate 59.4% | 76.2% 25.3% 40.8% ===== | ===== ===== =====
NOTE 3 - POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS In accordance with the purchase of CILCORP by AES on October 18, 1999, and as described in Management's Discussion and Analysis, CILCORP's Balance Sheet amounts were adjusted to reflect market values of the assets and liabilities, with corresponding adjustments to goodwill. Adjustments were made to the balance sheet amounts recognized for pension and postretirement health care benefit costs, resulting in a reduction of the net liability of those balance sheet amounts of $26.2 million. Following the market value adjustments, the net periodic benefit costs were actuarially calculated for the time period October 19 through December 31, 1999, and appropriately included only the components of service cost, interest cost and expected return on plan assets. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE CILCO has recorded a liability of approximately $1.3 million and $1.5 million at December 31, 1999, and 1998, respectively, for benefits other than pensions or health care provided to former or inactive employees. The liability for these benefits (primarily long-term and short-term disability payments under plans self-insured by CILCO) is actuarially determined. 74 PENSION BENEFITS Substantially all of CILCO's full-time employees are covered by trusteed, non-contributory defined benefit pension plans. Benefits under these qualified plans reflect the employee's years of service, age at retirement and maximum total compensation for any consecutive sixty-month period prior to retirement. CILCO also has an unfunded nonqualified plan for certain employees. Pension costs for the past three years were charged as follows:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Operating expenses $ (499) | $26,464 $ (893) $ 493 Utility plant and other -- | -- 6 125 ------ | ------- ------- ------- Net pension costs (income) $ (499) | $26,464 $ (887) $ 618 ====== | ======= ======= =======
The components of net periodic benefit costs follow:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 (In thousands) Service cost $ 900 |$ 3,821 $ 5,410 Interest cost 5,260 | 14,537 19,024 Expected return on plan assets (6,659) | (20,323) (25,304) Amortization of transition asset -- | (666) (888) Amortization of past service cost -- | 785 1,068 Recognized actuarial gain -- | (328) (197) Loss recognized due to curtailment and | special termination benefits -- | 28,638 -- ------- |-------- -------- Net benefit cost (income) $ (499) |$ 26,464 $ (887) ======= |======== ========
During 1999, CILCO recognized $28.6 million of net pension costs associated with additional benefits extended in connection with voluntary early retirement programs. 75 Information on the plans' funded status follows:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 (In thousands) Change in Benefit Obligations | Benefit obligation at begin. of period $ -- |$285,646 $254,929 Service cost 900 | 3,821 5,410 Interest cost 5,260 | 14,537 19,024 Acquisition 291,506 | -- -- Amendments -- | 31,774 -- Actuarial (gain) loss (9,473) | (29,792) 22,521 Benefits paid (7,040) | (14,098) (16,238) -------- |-------- -------- Benefit obligation at end of period $281,153 |$291,888 $285,646 ======== |======== ======== Change in Plan Assets | Fair value of assets at | beginning of period $ -- |$309,483 $289,091 Actual return on assets 46,713 | 11,230 36,467 Company contributions 93 | 134 163 Acquisition 306,749 | -- -- Benefits paid (7,040) | (14,098) (16,238) -------- |-------- -------- Fair value of assets at end of period $346,515 |$306,749 $309,483 ======== |======== ======== | Funded status at end of period $ 65,362 |$ 14,861 $ 23,837 Unrecognized net transition asset -- | (3,345) (4,011) Unrecognized actuarial gain (49,528) | (57,546) (35,875) Unrecognized prior service cost -- | 6,560 6,365 -------- |-------- -------- Net amount recognized $ 15,834 |$(39,470)$ (9,684) ======== |======== ======== Amounts recognized in the statement of financial position consist of: Prepaid benefit cost/(Accrued benefit liability) $ 15,834 |$(39,959)$(11,500) Intangible asset -- | 264 415 Accumulated other comprehensive income -- | 225 1,401 -------- |-------- -------- Net amount recognized $ 15,834 |$(39,470)$ (9,684) ======== |======== ======== Assumptions as of end of period | Discount rate 7.75% | 7.50% 6.75% Expected return on plan assets 9.00% | 9.00% 9.00% Rate of compensation increase 3.50% | 3.50% 3.50%
At October 18, 1999, and December 31, 1998, CILCO recognized an additional minimum liability on the Balance Sheets for a plan in which the accumulated benefit obligation exceeds the fair value of plan assets. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plan with accumulated benefit obligations in excess of plan assets were $4,481, $3,797, and $0, respectively, as of December 31, 1999; $4,615, $3,911, and $0, respectively, as of October 18, 1999; and $4,191, $3,582, and $0, respectively, as of December 31, 1998. 76 POSTRETIREMENT HEALTH CARE BENEFITS Substantially all of CILCO's full-time employees are currently covered by a trusteed, defined benefit postretirement health care plan. The plan pays stated percentages of most necessary medical expenses incurred by retirees, after subtracting payments by Medicare or other providers and after a stated deductible has been met. Participants become eligible for the benefits if they retire from CILCO after reaching age 55 with 10 or more years of service. Postretirement health care benefit costs were charged as follows:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 1997 (In thousands) Operating expenses $1,038 | $12,904 $3,904 $3,989 Utility plant and other 63 | 897 1,260 1,825 ------ | ------- ------ ------ Net postretirement health care | Benefit costs $1,101 | $13,801 $5,164 $5,814 ====== | ======= ====== ======
The components of net periodic benefit costs follow:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 (In thousands) Service cost $ 382 |$ 1,515 $ 1,417 Interest cost 1,799 | 4,635 5,371 Expected return on plan assets (1,080) | (3,409) (4,388) Amortization of transition liability -- | 2,144 2,858 Amortization of past service cost -- | -- -- Recognized actuarial gain -- | -- (94) Loss recognized due to curtailment and | special termination benefits -- | 8,916 -- ------- |------- ------- Net benefit cost $ 1,101 |$13,801 $ 5,164 ======= |======= =======
During 1999, CILCO recognized $8.9 million of net postretirement health care benefit costs associated with additional benefits extended in connection with voluntary early retirement programs. 77 Information on the plans' funded status follows:
Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, 1999 1999 1998 (In thousands) Change in Benefit Obligations | Benefit obligation at beginning of period $ -- |$ 82,316 $ 72,542 Service cost 382 | 1,515 1,417 Interest cost 1,799 | 4,635 5,371 Acquisition 98,654 | -- -- Amendments -- | 11,027 -- Actuarial (gain) loss (2,686)| 3,287 7,500 Benefits paid (1,670)| (4,032) (4,514) -------- |-------- -------- Benefit obligation at end of period $ 96,479 |$ 98,748 $ 82,316 ======== |======== ======== Change in Plan Assets | Fair value of assets at begin. of period $ -- |$ 54,393 $ 52,263 Actual return on assets 5,242 | 291 5,781 Company contributions 1,121 | 30 863 Acquisition 50,682 | -- -- Benefits paid (1,670)| (4,032) (4,514) -------- |-------- -------- Fair value of assets at end of period $ 55,375 |$ 50,682 $ 54,393 ======== |======== ======== | Funded Status at end of period $(41,104)|$(48,066)$(27,923) Unrecognized net transition liability -- | 28,153 30,297 Unrecognized actuarial (gain) loss (6,848)| 1,739 (6,777) Unrecognized prior service cost -- | -- -- -------- |-------- -------- Accrued benefit cost $(47,952)|$(18,174)$ (4,403) ======== |======== ======== Assumptions as of end of period | Discount rate 7.75% | 7.50% 6.75% Expected return on plan assets 9.00% | 9.00% 8.50%
For measurement purposes, a 7.2 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually to 5.0 percent for 2006 and remain level thereafter. 78 Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage- point change in assumed health care cost trend rates would have the following effects (in thousands):
1-Percentage-Point 1-Percentage-Point Increase Decrease ----------------------- --------------------- Oct. 19 to Jan. 1 to Oct. 19 to Jan. 1 to Dec. 31, Oct. 18, Dec.31, Oct. 18, 1999 1999 1999 1999 Effect on total of service and | | interest cost components $ 81 | $ 228 $ (98) | $ (217) Effect on postretirement benefit | | obligation $3,406 | $4,473 $(3,830) | $(3,920)
NOTE 4 - SHORT-TERM DEBT Short-term debt at December 31, 1999, consisted of $45.0 million of Holding Company bank borrowings and $46.9 million of CILCO commercial paper. Short-term debt at December 31, 1998, included $55.6 million of Holding Company bank borrowings and $40.6 million of CILCO commercial paper. The Holding Company had arrangements for bank lines of credit totaling $60 million at December 31, 1999, of which $45.0 million was used. These lines were maintained by commitment fees of 1/8 of 1% per annum in lieu of balances. CILCO had arrangements for bank lines of credit totaling $55 million, all of which were unused at December 31, 1999. These lines of credit were maintained by commitment fees of .05 of 1% per annum for $35 million and .07 of 1% per annum for $20 million in lieu of balances. These bank lines of credit support CILCO's issuance of commercial paper. 79 NOTE 5 - LONG-TERM DEBT
At December 31 1999 1998 (In thousands) CILCO first mortgage bonds | 7 1/2% series due 2007 $ 50,000 | $ 50,000 8 1/5% series due 2022 65,000 | 65,000 Medium-term notes | 6.4% series due 2000 -- | 30,000 6.82% series due 2003 25,350 | 25,350 6.13% series due 2005 16,000 | 16,000 7.8% series due 2023 10,000 | 10,000 7.73% series due 2025 20,000 | 20,000 Pollution control refunding bonds | 6.5% series F due 2010 5,000 | 5,000 6.2% series G due 2012 1,000 | 1,000 6.5% series E due 2018 14,200 | 14,200 5.9% series H due 2023 32,000 | 32,000 -------- | -------- 238,550 | 268,550 Unamortized premium and discount on | long-term debt, net (616) | (666) -------- | -------- Total CILCO $237,934 | $267,884 -------- | -------- | CILCORP Senior Notes 8.7% due 2009 225,000 | -- CILCORP Senior Bonds 9.375% due 2029 250,000 | -- CILCORP Inc. Unsecured medium-term | notes; various maturities in 2001; | interest rates ranging from 8.52% | to 9.10% 17,500 | 17,500 Other -- | 168 -------- | -------- Total long-term debt $730,434 | $285,552 ======== | ========
CILCO's first mortgage bonds are secured by a lien on substantially all of its property and franchises. Unamortized borrowing expense, premium and discount on outstanding regulated utility long-term debt are being amortized over the lives of the respective issues. Total consolidated maturities of long-term debt (exclusive of "Other") for 2001-2003 are as follows: $17.5 million in 2001, no debt due in 2002, and $25.4 million in 2003. The remaining maturities of long-term debt of $688.2 million, occur in 2004 and beyond. The 2000 and 1999 maturities of long-term borrowings have been classified as current liabilities. 80 NOTE 6 - PREFERRED STOCK PREFERRED STOCK OF SUBSIDIARY
At December 31 1999 1998 (In thousands) Preferred stock, cumulative | $100 par value, authorized 1,500,000 shares | Without mandatory redemption | 4.50% series - 111,264 shares $11,126 | $11,126 4.64% series - 79,940 shares 7,994 | 7,994 Class A, no par value, authorized | 3,500,000 shares | Flexible auction rate - 250,000 | shares (*) 25,000 | 25,000 With mandatory redemption | 5.85% series - 220,000 shares 22,000 | 22,000 ------- | ------- Total preferred stock $66,120 | $66,120 ======= | ======= (*) Dividend rates at December 31, 1999, and 1998, were 4.75% and 4.04%, respectively.
All classes of preferred stock are entitled to receive cumulative dividends and rank equally as to dividends and assets, according to their respective terms. The total annual dividend requirement for preferred stock outstanding at December 31, 1999, is $3.3 million, assuming a continuation of the auction dividend rate at December 31, 1999, for the flexible auction rate series. PREFERRED STOCK WITHOUT MANDATORY REDEMPTION The call provisions of preferred stock redeemable at CILCO's option outstanding at December 31, 1999, are as follows:
Series Callable Price Per Share (plus accrued dividends) 4.50% $110 4.64% $102 Flexible Auction Rate $100
PREFERRED STOCK WITH MANDATORY REDEMPTION CILCO's 5.85% Class A preferred stock may be redeemed in 2003 at $100 per share. A mandatory redemption fund must be established on July 1, 2003. The fund will provide for the redemption of 11,000 shares for $1.1 million on July 1 of each year through July 1, 2007. On July 1, 2008, the remaining 165,000 shares will be retired for $16.5 million. PREFERENCE STOCK OF SUBSIDIARY, CUMULATIVE No Par Value, Authorized 2,000,000 shares, of which none have been issued. 81 PREFERRED STOCK OF HOLDING COMPANY Per the Articles of Amendment to the Articles of Incorporation of CILCORP Inc., CILCORP Inc. no longer has preferred stock authorized at the Holding Company. None of the previously authorized 4,000,000, no par value, shares had been outstanding. NOTE 7 - COMMITMENTS & CONTINGENCIES CILCO's 2000 capital expenditures are estimated to be $53.6 million in connection with which CILCO has normal and customary purchase commitments at December 31, 1999. CILCO acts as a self-insurer for certain insurable risks resulting from employee health and life insurance programs. The International Brotherhood of Electrical Workers Local 51 (IBEW) ratified its current agreement on October 10, 1997. The contract expires on July 1, 2000. The IBEW represents approximately 374 CILCO gas and electric department people. The National Conference of Firemen and Oilers Local 8 (NCF&O) ratified its current contract with the Company on October 23, 1998. The current contract expires on July 1, 2001. The NCF&O represents approximately 177 CILCO power plant people. In August 1990, CILCO entered into a firm, wholesale power purchase agreement with Central Illinois Public Service Company, now AmerenCIPS (CIPS). This agreement provided for a minimum contract delivery rate from CIPS of 90 MW until the contract expired in May 1998. In March 1995, CILCO and CIPS amended a limited-term power agreement reached in November 1992. This agreement provided for CILCO to purchase 150 MW of CIPS' capacity from June 1998 through May 2002, and 50 MW from June 2002 through May 2009. In May 1999, a settlement was reached between CILCO and CIPS regarding disputed issues pertaining to these capacity and energy agreements. The settlement amended the previous agreements to provide for 100 MW of capacity and firm energy for the months of June through September for the years 2000 through 2003 and additionally provides for 100 MW of firm energy for the month of January in each of those years. There are no commitments to purchase capacity or energy beyond those dates. The agreements provide specific prices for on-peak and off-peak energy, which eliminates the ambiguity that arose under the old agreements due to the use of pricing queues. Under the settlement, CILCO had no capacity payment obligations to CIPS for February through December 1999, resulting in 1999 capacity reservation savings of approximately $6 million, compared to the previous agreement. The settlement also obligates both parties to withdraw from regulatory action pertaining to related contract issues. On November 12, 1999, the settlement document was filed with the FERC. FERC approval of the settlement was received on February 10, 2000, and CILCO is receiving power from CIPS in accordance with the terms of the agreement. Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters (regarding former gas manufacturing sites) for a discussion of that item. 82 NOTE 8 - LEASES The Company and its subsidiaries lease certain equipment, buildings and other facilities under capital and operating leases. Several of the operating leases provide that the Company pay taxes, maintenance, and other occupancy costs applicable to these premises. Minimum future rental payments under non-cancellable capital and operating leases having remaining terms in excess of one year as of December 31, 1999, are $12.3 million in total. Payments due during the years ending December 31, 2000, through December 31, 2004, are $4.8 million, $3.1 million, $2.1 million, $1.1 million and $.7 million, respectively. NOTE 9 - ACCOUNTING FOR PRICE RISK MANAGEMENT ACTIVITIES CILCORP utilizes commodity futures contracts, options and swaps in the normal course of its natural gas and electric business activities to reduce market or price risk. Gains and losses arising from derivative financial instrument transactions which hedge the impact of fluctuations in energy prices are recognized in income concurrent with the related purchases and sales of the commodity. If a derivative financial instrument contract is terminated because it is probable that a transaction or forecasted transaction will not occur, any gain or loss as of such date is immediately recognized. If a derivative financial instrument contract is terminated early for other economic reasons, any gain or loss as of the termination date is deferred and recorded concurrently with the related purchase and sale of natural gas and electricity. CILCORP is subject to commodity price risk for deregulated sales to the extent that energy is sold under firm price commitments. Due to market conditions, at times CILCORP may have unmatched commitments to purchase and sell energy on a price and quantity basis. Physical and derivative financial instruments give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular commitment. Market risks are actively monitored to ensure compliance with the Company's risk management policies, including limits to the Company's total net exposure at any time. The net gain reflected in operating results from derivative financial instruments for the period January 1, 1999, through October 18, 1999, was $577,600 for natural gas and $287,100 for electricity. The net loss reflected in operating results from derivative financial instruments for the period October 19, 1999, through December 31, 1999, was approximately $8,000 for natural gas and $0 for electricity. As of December 31, 1999, CILCORP had fixed-price derivative financial instruments representing hedges of natural gas purchases of .5 Bcf and natural gas sales of 1.0 Bcf for commitments through February 2000. The net deferred loss and carrying amount on these fixed-price derivatives at December 31, 1999, was approximately $134,000. At December 31, 1999, CILCORP had open positions in derivative financial instruments used to hedge natural gas basis of .4 Bcf for commitments through March 2000. The net deferred gain on these basis derivatives at December 31, 1999, was approximately $4,000. As of December 31, 1999, CILCORP had fixed-price derivative financial instruments representing hedges of electricity purchases of 31,648 megawatts and electricity sales of 83,904 megawatts for commitments through August 2000. The net deferred loss and carrying amount on these fixed-price derivatives at December 31, 1999, was approximately $1.2 million. 83 NOTE 10 - 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 value are to be recognized currently in earnings, unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains or losses to offset related results of the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 cannot be applied retroactively. SFAS 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts. With respect to hybrid instruments, a company may elect to apply SFAS 133, as amended, to (1) all hybrid contracts, (2) only those hybrid instruments that were issued, acquired, or substantively modified after December 31, 1997, or (3) only those hybrid instruments that were issued, acquired, or substantively modified after December 31, 1998. The fair value of these derivatives would be recognized as assets or liabilities on the balance sheet, consistent with the current accounting treatment for certain freestanding derivatives. The Company has not yet quantified the other effects on the financial statements of adopting SFAS 133. The final adoption could increase volatility in earnings and other comprehensive income. CILCORP continues to analyze the effects of adoption of the rules promulgated by SFAS 133. The Company is in the process of preparing a comprehensive inventory of all derivatives that will be subject to disclosure under SFAS 133 and developing procedures for the determination and valuation of hedge relationships that may exist, and their effectiveness. 84 NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following quarterly operating results are unaudited, but, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the Company's operating results for the periods indicated. The results of operations for each of the fiscal quarters are not necessarily comparable to, or indicative of, the results of an entire year due to the seasonal nature of the Company's business and other factors.
1999 Jan. 1 April 1 July 1 Oct. 1 Oct. 19 For the Periods to to to to to March 31 June 30 Sept. 30 Oct.18 Dec. 31 (In thousands) Revenue $168,238 $120,267 $155,531 $ 16,225 $120,589 Income (loss) from continuing operations before income taxes 18,656 2,150 (4,604) (14,402) (1,483) Income taxes 6,049 1,066 (2,247) (3,755) (951) Net income (loss) from continuing operations 12,607 1,084 (2,357) (10,647) (532) Gain (loss) from operations of discontinued business, net of tax of $45, $(266), $(140) 28 (435) -- -- (213) Net income (loss) $ 12,635 $ 649 $ (2,357)$(10,647)$ (745) 1998 For the Three Months Ended March 31 June 30 Sept. 30 Dec. 31 Revenue $154,314 $121,762 $140,896 $142,196 Income from continuing operations before income taxes 17,566 10,254 29,019 1,078 Income taxes 6,250 2,519 10,982 (52) Net income (loss) from continuing operations 11,316 7,735 18,037 1,130 Loss from operations of discontinued business, net of tax of $(2,355), $(5,512), $(2,354), $(6,057) (3,622) (8,423) (3,620) (9,360) Gain (loss) on sale/disposal of assets of discontinued business, net of tax of $5,425, $(3,411) -- -- 8,252 (5,135) Net income (loss) $ 7,694 $ (688) $ 22,669 $(13,365)
85 NOTE 12 - RETAINED EARNINGS The Bond Indenture for CILCORP's 8.7% (due 2009) and 9.375% (due 2029) senior notes provides that CILCORP may pay dividends or make other distributions on its capital stock only if it has an assigned rating on its long-term secured debt of at least BB+ from Standard & Poor's, at least Baa2 from Moody's and at least BBB from Duff & Phelps. If the assigned ratings are lower, CILCORP must satisfy a leverage ratio and an interest coverage ratio test of .67 to 1 and 2.0 to 1, respectively. NOTE 13 - LEVERAGED LEASE INVESTMENTS The Company, through subsidiaries of CILCORP Investment Management Inc. (CIM), is a lessor in eight leveraged lease arrangements under which mining equipment, electric production facilities, warehouses, office buildings, passenger railway equipment and an aircraft are leased to third parties. The economic lives and lease terms vary with the leases. CIM's share of total equipment and facilities cost was approximately $350 million at December 31, 1999, and 1998. The cost of the equipment and facilities owned by CIM is partially financed by non-recourse debt provided by lenders who have been granted, as their sole remedy in the event of a lessee default, an assignment of rents due under the leases and a security interest in the leased property. Such debt amounted to $227 million at December 31, 1999, and $232 million at December 31, 1998. Leveraged lease residual value assumptions, which are conservative in relation to independently appraised residual values of the lease portfolio, are tested on a periodic basis. (In 1998, CIM decreased the estimated residual value of one of its leases by approximately $6.8 million to reflect current conditions in the secondary market for the asset.) CIM's net investment in leveraged leases at December 31, 1999, and 1998, is shown below:
1999 1998 (In thousands) Minimum lease payments receivable $132,255 | $142,094 Estimated residual value 87,557 | 87,557 Less: Unearned income 76,115 | 82,674 -------- | -------- Investment in lease financing receivables 143,697 | 146,977 Less: Deferred taxes arising from | leveraged leases 105,625 | 103,566 -------- | -------- Net investment in leveraged leases $ 38,072 | $ 43,411 ======== | ========
NOTE 14 - QST ENTERPRISES DISCONTINUED OPERATIONS (See Management's Discussion and Analysis of Financial Condition and Results of Operations - QST Enterprises Discontinued Operations.) 86 NOTE 15 - CILCORP SHAREHOLDER RETURN INCENTIVE COMPENSATION PLAN Under the Company's Shareholder Return Incentive Compensation Plan (the Plan), eligible key employees of the Company and its subsidiaries were entitled to receive shares of the Company's common stock based on a performance methodology established and periodically amended by the Compensation Committee of the Company's Board of Directors. During 1997, 350,000 fully-vested performance shares were distributed. Such shares were convertible into common stock with the number of shares received based upon the number of performance shares exercised multiplied by the difference between the average market price of the Company's common stock for the fifteen days prior to exercise and $36, divided by the market price of common stock at the exercise date. The compensation expense recognized under this Plan, based on the provisions of Statement of Financial Accounting Standards No. 123, (SFAS 123) was $1.8 million in 1997 when the performance shares were distributed. These shares were convertible into common stock at any time until December 31, 1998, (the Performance Period). The fair value of each performance share granted under the Plan was $5.98 - estimated using the Black-Scholes option-pricing model assuming a risk- free interest rate of 5.7%, dividend yield of 5.9%, expected life of one year and volatility of 16.1%. In 1998, the Performance Period for the originally granted performance shares was extended to December 31, 1999. No additional expense was recorded following this extension, as a revaluation of the fair value of the performance shares per the provisions of SFAS 123 yielded no material valuation difference due to the one-year extension. To the extent that the market price exceeded $56, the Plan participants were entitled to receive cash in lieu of common stock. Consequently, the Company recognized expense of $1.75 million in the fourth quarter 1998 to reflect a share price approximating $61. In August 1999, one of the Plan's participants exercised his right to convert his performance shares to common stock and received 15,000 shares of CILCORP common stock representing the difference between $56 and $36 multiplied by 42,000 performance shares divided by $56 per share, and $232,000 in cash, representing the difference between $56 and the market price at the time of exercise. Pursuant to the terms of the merger agreement, the acquisition of CILCORP Inc. by AES triggered the Company's obligation to compensate the remaining three individuals included under the Plan who had not converted their performance shares into common stock. Consequently, the Company recognized additional compensation expense of $4.9 million in 1999, prior to the acquisition date. These three individuals received or otherwise deferred compensation of $8.9 million in the fourth quarter of 1999 (including amounts expensed by the Company prior to 1999), representing the difference between $65 and $36 multiplied by the remaining 308,000 performance shares. NOTE 16 - EARNINGS PER SHARE The AES Corporation (AES) completed the acquisition of CILCORP Inc. and its subsidiaries (the Company) on October 18, 1999. As a wholly-owned subsidiary of AES, the Company will no longer present earnings per share information as part of its financial statement disclosures. 87 MANAGEMENT'S REPORT The accompanying financial statements and notes for CILCO and its consolidated subsidiaries have been prepared by management in accordance with generally accepted accounting principles. Estimates and judgments used in developing these statements are the responsibility of management. Financial data presented throughout this report is consistent with these statements. CILCO maintains a system of internal accounting controls which management believes is adequate to provide reasonable assurance as to the integrity of accounting records and the protection of assets. Such controls include established policies and procedures, a program of internal audit and the careful selection and training of qualified personnel. The financial statements have been audited by CILCO's independent public accountants, Arthur Andersen LLP. Their audit was conducted in accordance with generally accepted auditing standards and included an assessment of selected internal accounting controls only to determine the scope of their audit procedures. The report of the independent public accountants is contained in this Form 10-K annual report. P. D. Stinson President T. D. Hutchinson Controller and Chief Financial Officer 88 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors of Central Illinois Light Company: We have audited the accompanying consolidated balance sheets of Central Illinois Light Company (an Illinois corporation) and subsidiaries as of December 31, 1999, and 1998, and the related consolidated statements of income, cash flows, segments of business, and retained earnings for each of the three years in the period ended December 31, 1999. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Central Illinois Light Company and subsidiaries as of December 31, 1999, and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule listed in Item 14(a)2 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This financial statement schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Chicago, Illinois January 28, 2000 89 Central Illinois Light Company Consolidated Statements of Income
For the Years Ended December 31 1999 1998 1997 (In thousands) Operating Revenues: Electric $372,714 $360,009 $338,096 Gas 180,760 172,327 208,758 -------- -------- -------- Total Operating Revenues 553,474 532,336 546,854 -------- -------- -------- Operating Expenses: Cost of Fuel 77,748 94,490 92,230 Cost of Gas 99,293 93,586 123,531 Purchased Power 60,251 29,568 22,851 Other Operations and Maintenance 153,885 118,707 109,833 Depreciation and Amortization 66,686 65,273 61,505 Income Taxes 11,276 25,088 29,317 State and Local Taxes on Revenue 26,930 26,502 22,467 Other Taxes 13,335 11,407 11,808 -------- -------- -------- Total Operating Expenses 509,404 464,621 473,542 -------- -------- -------- Operating Income 44,070 67,715 73,312 -------- -------- -------- Other Income and Deductions: Cost of Equity Funds Capitalized -- -- 35 CILCO-owned Life Insurance, Net (1,037) (1,013) (1,177) Other, Net (558) 274 (256) -------- -------- -------- Total Other Income & (Deds.) (1,595) (739) (1,398) -------- -------- -------- Income Before Interest Expenses 42,475 66,976 71,914 -------- -------- -------- Interest Expenses: Interest on Long-term Debt 19,234 19,498 20,024 Cost of Borrowed Funds Capitalized (158) (34) (99) Other 4,150 3,277 2,622 -------- -------- -------- Total Interest Expenses 23,226 22,741 22,547 -------- -------- -------- Net Income Before Extraordinary Item & Preferred Dividends 19,249 44,235 49,367 Extraordinary Item -- -- 4,100 -------- -------- -------- Net Income Before Pref. Dividends 19,249 44,235 53,467 Dividends on Preferred Stock 3,208 3,194 3,216 -------- -------- -------- Net Inc. Available for Common Stk.$ 16,041 $ 41,041 $ 50,251 -------- -------- -------- Other Comprehensive Income 785 (169) (317) Comprehensive Income $ 16,826 $ 40,872 $ 49,934 ======== ======== ======== The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
90 Central Illinois Light Company Consolidated Balance Sheets Assets
As of December 31 1999 1998 (In thousands) Utility Plant, At Original Cost: Electric $1,263,190 $1,237,885 Gas 431,887 417,585 ---------- ---------- 1,695,077 1,655,470 Less-Accum. Provision for Depr. 870,566 812,630 ---------- ---------- 824,511 842,840 Construction Work in Progress 38,068 30,075 Plant Acquisition Adjustments, Net of Amortization -- 505 ---------- ---------- Total Utility Plant 862,579 873,420 ---------- ---------- Other Property and Investments: Cash Surrender Value of Company-owned Life Insurance (Net of Related Policy Loans of $53,558 in 1999 and $48,132 in 1998) 3,106 2,655 Other 1,179 1,176 ---------- ---------- Total Other Property and Invest. 4,285 3,831 ---------- ---------- Current Assets: Cash and Temporary Cash Investments 8,548 1,362 Receivables, Less Reserves of $1,296 and $1,106 42,410 35,767 Accrued Unbilled Revenue 35,071 31,315 Fuel, at Average Cost 14,392 13,431 Materials and Supplies, at Avg. Cost 15,967 15,062 Gas in Underground Storage, at Average Cost 21,196 20,494 Prepaid Taxes 6,165 2,265 FAC Underrecoveries 12,024 -- Other 8,854 6,626 ---------- ---------- Total Current Assets 164,627 126,322 ---------- ---------- Deferred Debits: Unamortized Loss on Reacquired Debt 2,941 3,261 Unamortized Debt Expense 1,552 1,852 Prepaid Pension Cost 259 417 Other 20,037 15,325 ---------- ---------- Total Deferred Debits 24,789 20,855 ---------- ---------- Total Assets $1,056,280 $1,024,428 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these balance sheets.
91 Central Illinois Light Company Consolidated Balance Sheets Capitalization and Liabilities
As of December 31 1999 1998 (In thousands) Capitalization: Common Shareholder'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 -- Retained Earnings 121,564 135,315 Accumulated Other Comprehensive Income (60) (845) ---------- ---------- Total Common Shareholder's Equity 334,165 320,131 Preferred Stock Without Mandatory Redemption 44,120 44,120 Preferred Stock With Mandatory Redemption 22,000 22,000 Long-term Debt 237,934 267,884 ---------- ---------- Total Capitalization 638,219 654,135 ---------- ---------- Current Liabilities: Current Maturities of Long-Term Debt 30,000 -- Notes Payable 46,900 40,600 Accounts Payable 35,859 53,260 Accrued Taxes 25,520 7,303 Accrued Interest 9,485 9,394 PGA Over-Recoveries 127 304 Level Payment Plan 956 1,519 Other 4,714 5,261 ---------- ---------- Total Current Liabilities 153,561 117,641 ---------- ---------- Deferred Liabilities and Credits: Accumulated Deferred Income Taxes 136,077 141,746 Regulatory Liability 31,367 46,346 Investment Tax Credits 17,792 19,450 Capital Lease Obligation 1,183 1,703 Other 78,081 43,407 ---------- ---------- Total Deferred Liabilities and Credits 264,500 252,652 ---------- ---------- Total Capitalization and Liabilities $1,056,280 $1,024,428 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these balance sheets.
92 Central Illinois Light Company Consolidated Statements of Cash Flows
For the Years Ended December 31 1999 1998 1997 (In thousands) Cash Flows from Operating Activities: Net Income Before Extraordinary Item And Preferred Dividends $ 19,249 $ 44,235 $ 49,367 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 67,191 65,986 62,217 Deferred Taxes, Investment Tax Credits and Regulatory Liability, Net (22,307) (7,690) (6,585) Decrease(Increase) in Accounts Receivable (6,643) 8,328 (946) (Increase)Decrease in Fuel, Materials and Supplies, and Gas in Underground Storage (2,569) (5,368) 3,372 Increase in Unbilled Revenue (3,756) (67) (369) Increase(Decrease) in Accounts Payable (17,400) 8,416 (1,282) Increase(Decrease) in Accrued Taxes and Interest 18,308 4,870 (4,947) Capital Lease Payments 645 645 645 (Increase)Decrease in Other Current Assets (18,152) (1,372) 3,331 Decrease in Other Current Liabilities (1,288) (1,627) (458) (Increase)Decrease in Other Non-Current Assets (1,913) 2,328 6,372 Increase in Other Non-Current Liabilities 34,403 3,571 1,273 -------- -------- -------- Net Cash Provided by Operating Activities 65,768 122,255 111,990 -------- -------- -------- Cash Flows from Investing Activities: Capital Expenditures (55,135) (67,102) (55,026) Cost of Equity Funds Capitalized -- -- (35) Other (3,081) (5,817) (5,950) -------- -------- -------- Net Cash Used in Investing Activities (58,216) (72,919) (61,011) -------- -------- -------- Cash Flows from Financing Activities: Common Dividends Paid (29,813) (53,483) (39,482) Preferred Dividends Paid (3,208) (3,194) (3,216) Long-Term Debt Retired -- (10,650) (20,000) Payments on Capital Lease Obligation (645) (645) (645) Increase(Decrease) in Short-Term Borrowing 6,300 19,300 11,400 Additional Paid in Capital 27,000 -- -- -------- -------- -------- Net Cash Provided from (Used in) Financing Activities (366) (48,672) (51,943) -------- -------- -------- 93 Net Increase(Decrease) in Cash and Temporary Cash Investments 7,186 664 (964) Cash and Temporary Cash Investments at Beginning of Year 1,362 698 1,662 -------- -------- -------- Cash and Temporary Cash Investments at December 31 $ 8,548 $ 1,362 $ 698 ======== ======== ======== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Period for: Interest (Net of Cost of Borrowed Funds Capitalized) $ 23,870 $ 23,200 $ 24,148 Income Taxes $ 19,308 $ 30,421 $ 37,907 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
94 Central Illinois Light Company Statements of Segments of Business
1999 CILCO CILCO CILCO Total Electric Gas Other CILCO (In thousands) Revenues $372,714 $180,760 $ 5,399 $ 558,873 Interest Income -- -- 225 225 -------- -------- ------- ---------- Total 372,714 180,760 5,624 559,098 -------- -------- ------- ---------- Operating Expenses 278,497 152,945 8,578 440,020 Depreciation and Amortization 47,070 19,616 505 67,191 -------- -------- ------- ---------- Total 325,567 172,561 9,083 507,211 -------- -------- ------- ---------- Interest Expense 16,743 6,641 -- 23,384 Preferred Stock Div. -- -- 3,208 3,208 Fixed Charges and Other Expenses (157) (1) 1,037 879 -------- -------- ------- ---------- Total 16,586 6,640 4,245 27,471 -------- -------- ------- ---------- Income from Continuing Operations Before Income Taxes 30,561 1,559 (7,704) 24,416 Income Taxes 10,440 836 (2,901) 8,375 -------- -------- ------- ---------- Segment Net Income $ 20,121 $ 723 $(4,803)$ 16,041 ======== ======== ======= ========== Capital Expenditures $ 38,985 $ 16,150 $ -- $ 55,135 Revenue from major customer Caterpillar Inc. $ 38,758 $ 1,119 $ 513 $ 40,390 Segment Assets $759,399 $291,833 $ 5,048 $1,056,280
95
1998 CILCO CILCO CILCO Total Electric Gas Other CILCO (In thousands) Revenues $360,009 $172,327 $ 1,864 $ 534,200 Interest Income -- -- 251 251 -------- -------- -------- ---------- Total 360,009 172,327 2,115 534,451 -------- -------- -------- ---------- Operating Expenses 235,801 138,459 3,744 378,004 Depreciation and Amortization 46,017 19,256 713 65,986 -------- -------- -------- ---------- Total 281,818 157,715 4,457 443,990 -------- -------- -------- ---------- Interest Expense 16,261 6,514 -- 22,775 Preferred Stock Div. -- -- 3,194 3,194 Fixed Charges and Other Expenses (34) -- 1,013 979 -------- -------- -------- ---------- Total 16,227 6,514 4,207 26,948 -------- -------- -------- ---------- Income from Continuing Operations Before Income Taxes 61,964 8,098 (6,549) 63,513 Income Taxes 21,645 3,443 (2,616) 22,472 -------- -------- -------- ---------- Segment Net Income $ 40,319 $ 4,655 $ (3,933)$ 41,041 ======== ======== ======== ========== Capital Expenditures $ 44,213 $ 22,889 $ -- $ 67,102 Revenue from major customer Caterpillar Inc. $ 39,354 $ 948 $ 88 $ 40,390 Segment Assets $735,436 $283,920 $ 5,072 $1,024,428
96
1997 CILCO CILCO CILCO Total Electric Gas Other CILCO (In thousands) Revenues $338,096 $208,758 $ 272 $ 547,126 Interest Income -- -- 266 266 -------- -------- -------- ---------- Total 338,096 208,758 538 547,392 -------- -------- -------- ---------- Operating Expenses 217,700 165,020 3,130 385,850 Depreciation and Amortization 43,858 17,647 713 62,218 -------- -------- -------- ---------- Total 261,558 182,667 3,843 448,068 -------- -------- -------- ---------- Interest Expense 16,192 6,454 -- 22,646 Preferred Stock Div. -- -- 3,216 3,216 Fixed Charges and Other Expenses (134) -- 1,177 1,043 -------- -------- -------- ---------- Total 16,058 6,454 4,393 26,905 -------- -------- -------- ---------- Income from Continuing Operations Before Income Taxes 60,480 19,637 (7,698) 72,419 Income Taxes 21,901 7,416 (3,049) 26,268 -------- -------- -------- ---------- Income from Continuing Operations before Extraordinary Item 38,579 12,221 (4,649) 46,151 Extraordinary Item 4,100 -- -- 4,100 -------- -------- -------- ---------- Segment Net Income $ 42,679 $ 12,221 $ (4,649)$ 50,251 ======== ======== ======== ========== Capital Expenditures $ 35,196 $ 19,830 $ -- $ 55,026 Revenue from major customer Caterpillar Inc. $ 40,106 $ 934 $ -- $ 41,040 Segment Assets $725,725 $291,291 $ 5,639 $1,022,655
97 Central Illinois Light Company Consolidated Statements of Retained Earnings
For the Years Ended December 31 1999 1998 1997 (In thousands) Balance Beginning of Year $134,470 $147,081 $136,629 Add: Other 20 -- -- Net Income Before Preferred Dividends 19,249 44,235 53,467 -------- -------- -------- Total 153,739 191,316 190,096 -------- -------- -------- Deduct: Cash Dividends Declared Preferred Stock $100 Par Value 4 1/2% Series 501 501 501 4.64% Series 371 371 371 5.85% Series 1,287 1,287 1,287 Auction Rate Series (rate at December 31, 1999 was 4.75%) 1,049 1,035 1,057 Common Stock, No Par Value 29,812 53,483 39,482 -------- -------- -------- Total Dividends Declared 33,020 56,677 42,698 -------- -------- -------- Additional Minimum Liability for Non-Qualified Pension Plan at December 31, 1999, 1998, and 1997 net of taxes of $516, $(111) and $(208), respectively (785) 169 317 -------- -------- -------- 32,235 56,846 43,015 -------- -------- -------- Balance End of Year $121,504 $134,470 $147,081 ======== ======== ======== The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
98 CENTRAL ILLINOIS LIGHT COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements of CILCO include the accounts of CILCO and its subsidiaries, CILCO Exploration and Development Company and CILCO Energy Corporation. CILCO is a subsidiary of CILCORP Inc. Prior year amounts have been reclassified on a basis consistent with the 1999 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REGULATION CILCO is a public utility subject to regulation by the Illinois Commerce Commission (ICC) and the Federal Energy Regulatory Commission (FERC) with respect to accounting matters, and maintains its accounts in accordance with the Uniform System of Accounts prescribed by these agencies. CILCO is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71) for certain of its regulated public utility operations. Under SFAS 71, assets and liabilities are recorded to represent probable future increases and decreases, respectively, of revenues to CILCO resulting from the ratemaking action of regulatory agencies. The Electric Service Customer Choice and Rate Relief Law of 1997 (Customer Choice Law) became effective in Illinois in December 1997. Among other provisions, this law begins a nine-year transition process to a fully competitive market for electricity in Illinois. Electric transmission and distribution activities are expected to continue to be regulated, but a customer may choose to purchase electricity from another supplier (see Item 1. Business - Competition). The Customer Choice Law contains many other provisions affecting how CILCO will or may conduct its business in the future. The Customer Choice Law also requires the ICC to promulgate rules pertaining to various matters, including accounting and recordkeeping requirements, electric reliability standards, and affiliated interest rules. CILCO will adapt its business plans to take advantage of the competitive opportunities afforded by the new law. 99 Due to the Customer Choice Law, CILCO's electric generation activities are no longer subject to the provisions of SFAS 71. Accordingly, regulatory assets of $1.5 million and liabilities of $5.6 million associated with electric generating plant were written-off or credited, respectively, to income in 1997 as a net $4.1 million after-tax extraordinary item. Regulatory assets included on the Consolidated Balance Sheets at December 31, 1999, and 1998 are as follows:
1999 1998 (In thousands) Included in prepayments and other: Fuel and gas cost adjustments $15,614 $ 4,740 Coal tar remediation cost-estimated current 720 609 ------- ------- Current costs included in prepayments and other 16,334 5,349 ------- ------- Included in other assets: Coal tar remediation cost, net of recoveries 674 1,281 Regulatory tax asset 7,334 5,723 Deferred gas costs 4,368 4,039 Unamortized loss on reacquired debt 2,941 3,261 ------- ------- Future costs included in other assets 15,317 14,304 ------- ------- Total regulatory assets $31,651 $19,653 ======= =======
Regulatory assets at December 31, 1999, are related to CILCO's regulated electric and gas distribution activities. Regulatory liabilities, consisting of deferred tax items primarily related to CILCO's electric and gas transmission and distribution operations, are approximately $31.4 million and $46.3 million at December 31, 1999, and 1998, respectively. 100 CILCO's electric generation-related identifiable assets included in the balance sheet at December 31, 1999, and 1998 were:
1999 1998 (In thousands) Property, Plant and Equipment $ 538,316 $ 537,358 Less: Accumulated Depreciation (284,201) (266,461) --------- --------- 254,115 270,897 Construction Work in Progress 9,215 3,268 --------- --------- Net Property, Plant and Equipment 263,330 274,165 Fuel, at Average Cost 14,392 13,431 Materials and Supplies, at Average Cost 9,901 9,189 --------- --------- Total Identifiable Electric Generation Assets $ 287,623 $ 296,785 ========= =========
Accumulated deferred income taxes associated with electric generation property at December 31, 1999, and 1998 were approximately $61 million and $72 million, respectively. UTILITY OPERATING REVENUES, FUEL COSTS AND COST OF GAS Electric and gas revenues include service provided but unbilled at year end. Substantially all electric energy rates and gas system sales rates of CILCO include a fuel adjustment clause and a purchased gas adjustment clause, respectively. These clauses provide for the recovery of changes in electric fuel costs, excluding coal transportation, and changes in the cost of gas on a current basis in billings to customers. CILCO adjusts the cost of fuel and cost of gas to recognize over or under recoveries of allowable costs. The cumulative effects are deferred on the Balance Sheets as a current asset or current liability (see Regulation, above) and adjusted by refunds or collections through future billings to customers. For further discussion, refer to the caption, "Electric Fuel and Purchased Gas Adjustment Clauses" of Item 1. Business. CONCENTRATION OF CREDIT RISK CILCO, as a public utility, must provide service to customers within its defined service territory and may not discontinue service to residential customers when certain weather conditions exist. CILCO continually reviews customers' creditworthiness and requests deposits or refunds deposits based on that review. At December 31, 1999, CILCO had net receivables of $42.4 million, of which approximately $1.2 million was due from its major customer. TRANSACTIONS WITH AFFILIATES CILCO, which is a subsidiary of CILCORP, incurs certain corporate expenses such as legal, shareholder and accounting fees on behalf of CILCORP and its other subsidiaries. Also, beginning in 1997, CILCO sold natural gas to its affiliate CESI, in conjunction with CESI's gas marketing program. These expenses are billed monthly to CILCORP and its other subsidiaries based on specific identification of costs, except for shareholder-related costs which are based on the relative equity percentages of CILCORP and its subsidiary 101 corporations. A return on CILCO assets used by CILCORP and its other subsidiaries is also calculated and billed monthly. Total billings to CILCORP and its other subsidiaries amounted to $14.0 million, $11.6 million, and $7.5 million in 1999, 1998, and 1997, respectively. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) The allowance, representing the cost of equity and borrowed funds used to finance construction, is capitalized as a component of the cost of utility plant. The amount of the allowance varies depending on the rate used and the size and length of the construction program. The Uniform System of Accounts defines AFUDC, a non-cash item, as the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate upon other funds when so used. On the income statement, the cost of borrowed funds capitalized is reported as a reduction of total interest expense and the cost of equity funds capitalized is reported as other income. In accordance with the FERC formula, the composite AFUDC rates used in 1999, 1998, and 1997 were 5.9%, 5.9%, and 7.2%, respectively. DEPRECIATION AND MAINTENANCE Provisions for depreciation of utility property for financial reporting purposes are based on straight-line composite rates. The annual provisions for utility plant depreciation, expressed as a percentage of average depreciable utility property, were 3.8% and 4.6% for electric and gas, respectively, for each of the last three years. Utility maintenance and repair costs are charged directly to expense. Renewals of units of property are charged to the utility plant account, and the original cost of depreciable property replaced or retired, together with the removal cost less salvage, is charged to the accumulated provision for depreciation. INCOME TAXES CILCO follows a policy of comprehensive interperiod income tax allocation. Investment tax credits related to utility property have been deferred and are being amortized over the estimated useful lives of the related property. CILCORP and its subsidiaries will file a consolidated federal income tax return with AES. Income taxes are allocated to the individual companies based on their respective taxable income or loss. CONSOLIDATED STATEMENTS OF CASH FLOWS CILCO considers all highly liquid debt instruments purchased with a remaining maturity of three months or less to be cash equivalents for purposes of the Consolidated Statements of Cash Flows. 102 CILCO-OWNED LIFE INSURANCE POLICIES The following amounts related to CILCO-owned life insurance contracts, issued by one major insurance company, are recorded on the Consolidated Balance Sheets:
1999 1998 (In thousands) Cash surrender value of contracts $ 56,664 $ 50,786 Borrowings against contracts (53,558) (48,132) -------- -------- Net investment $ 3,106 $ 2,654 ======== ========
Interest expense related to borrowings against CILCO-owned life insurance, included in CILCO-owned Life Insurance, Net on the Consolidated Statements of Income, was $4 million, $3.6 million, and $3.5 million for 1999, 1998, and 1997, respectively. 103 NOTE 2 - INCOME TAXES CILCO uses the liability method to account for income taxes. Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Temporary differences occur because the income tax law either requires or permits certain items to be reported on CILCO's income tax return in a different year than they are reported in the financial statements. CILCO has recorded a regulatory asset and liability to account for the effect of expected future regulatory actions related to unamortized investment tax credits, income tax liabilities initially recorded at tax rates in excess of current rates, the equity component of AFUDC and other items for which deferred taxes had not previously been provided. The temporary differences related to the consolidated deferred income tax asset and liability at December 31, 1999, 1998, and 1997 were as follows:
December 31 1999 1998 1997 (In thousands) Deferred Tax Assets: Deferred Tax Asset $ 26,036 $ 20,307 $ 16,752 Adjustment to reflect regulatory asset (7,334) (5,723) (7,578) -------- -------- -------- Net deferred tax asset $ 18,702 $ 14,584 $ 9,174 ======== ======== ======== Deferred Tax Liabilities: Deferred Tax Liability-property $194,267 $201,872 $205,777 Adjustment to reflect regulatory liability (31,367) (46,346) (56,807) -------- -------- -------- Net Deferred Tax Liability-property 162,900 155,526 148,970 Deferred Tax Liability-other (8,121) 804 (522) -------- -------- -------- Accumulated Deferred Income Tax Liability $154,779 $156,330 $148,448 ======== ======== ======== Accumulated Deferred Income Tax Liab., net of deferred tax assets $136,077 $141,746 $139,274 ======== ======== ========
The following table reconciles the change in the accumulated deferred income tax liability to the deferred income tax expense included in the income statement for the period: 104
December 31 1999 1998 (In thousands) Net change in deferred income tax liability per above table $ (5,669) $ 2,472 Change in tax effects of income tax related regulatory assets and liabilities (16,590) (8,606) Deferred taxes related to extraordinary item -- -- Other (516) 111 -------- -------- Deferred income tax expense (benefit) for the period $(22,775) $ (6,023) ======== ========
Income tax expenses were as follows:
Years Ended December 31 1999 1998 1997 (In thousands) Current income taxes Federal $ 29,615 $26,278 $29,244 State 5,805 6,260 6,350 -------- ------- ------- Total operating current taxes 35,420 32,538 35,594 -------- ------- ------- Deferred oper. income taxes, net Depreciation and amortization (1,089) (955) (6,080) Repair allowance (1,121) 158 1,384 Borrowed component of AFUDC (3) 37 80 Capitalized overhead costs (789) (783) (807) Removal costs (6,444) (3,189) 2,515 Gas take-or-pay settlements 40 522 (339) Gas storage field 1,996 (1,681) (191) Taxable salvage 394 599 220 Environmental remediation costs 317 55 46 Pension expense (9,925) 869 (1,798) Other (5,862) (1,415) 377 -------- ------- ------- Total operating deferred income taxes, net (22,486) (5,783) (4,593) Investment tax credit amortization (1,658) (1,667) (1,684) -------- ------- ------- Total operating income taxes 11,276 25,088 29,317 Income tax reduction for disallowed plant costs 123 133 144 Other, net (3,023) (2,749) (3,192) -------- ------- ------- Total income taxes before extraordinary item 8,376 22,472 26,269 Deferred taxes related to extraordinary item -- -- (5,634) -------- ------- ------- Total income taxes $ 8,376 $22,472 $20,635 ======== ======= =======
105 The 1997 income tax provision has been reduced to reflect the crediting to income as an extraordinary item the regulatory liability related to electric generation property deferred taxes which were recorded at tax rates in excess of the current rate (see Note 1). Total operating deferred income taxes, net, includes deferred state income taxes of $(3,162,000), $(848,000), and $(65,000) for 1999, 1998, and 1997, respectively. Other, net, includes deferred state income taxes of $(52,000), $(43,000), and $(18,000) for 1999, 1998, and 1997, respectively. The following table represents a reconciliation of the effective tax rate with the statutory federal income tax rate:
1999 1998 1997 Statutory federal income tax rate 35.0% 35.0% 35.0% ==== ==== ==== Equity component of AFUDC not subject to taxation -- -- -- Amortization of property-related deferred taxes provided at tax rates in excess of the current rate 2.8 (2.7) (1.4) Amortization of investment tax credit (6.8) (2.6) (2.4) CILCO-owned life insurance (4.4) (1.4) (1.1) State income taxes 0.7 5.2 5.0 Preferred dividends and other permanent differences 6.0 2.1 2.1 Other differences 1.0 (0.1) (0.2) ---- ---- ---- Total (0.7) 0.5 2.0 ---- ---- ---- Effective income tax rate before effect of extraordinary item 34.3 35.5 37.0 Tax effect of extraordinary item -- -- (7.9) ---- ---- ---- Effective income tax rate 34.3% 35.5% 29.1% ==== ==== ====
106 NOTE 3 - POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE CILCO has recorded a liability of approximately $1.3 million and $1.5 million at December 31, 1999, and 1998, respectively, for benefits other than pensions or health care provided to former or inactive employees. The liability for these benefits (primarily long-term and short-term disability payments under plans self-insured by CILCO) is actuarially determined. PENSION BENEFITS Substantially all of CILCO's full-time employees are covered by trusteed, non-contributory defined benefit pension plans. Benefits under these qualified plans reflect the employee's years of service, age at retirement and maximum total compensation for any consecutive sixty-month period prior to retirement. CILCO also has an unfunded nonqualified plan for certain employees. Pension costs for the past three years were charged as follows:
1999 1998 1997 (In thousands) Operating expenses $25,544 $(893) $493 Utility plant and other -- 6 125 ------- ----- ---- Net pension costs (income) $25,544 $(887) $618 ======= ===== ====
The components of net periodic benefit costs follow:
1999 1998 (In thousands) Service cost $ 4,721 $ 5,410 Interest cost 19,797 19,024 Expected return on plan assets (26,982) (25,304) Amortization of transition asset (888) (888) Amortization of past service cost 1,049 1,068 Recognized actuarial gain (791) (197) Loss recognized due to curtailment and special termination benefits 28,638 -- -------- -------- Net benefit cost (income) $ 25,544 $ (887) ======== ========
During 1999, CILCO recognized $28.6 million of net pension costs associated with additional benefits extended in connection with voluntary early retirement programs. 107 Information on the plans' funded status follows:
1999 1998 (In thousands) Change in Benefit Obligations Benefit obligation at January 1, $ 285,646 $254,929 Service cost 4,721 5,410 Interest cost 19,797 19,024 Amendments 31,774 -- Actuarial (gain) loss (39,647) 22,521 Benefits paid (21,138) (16,238) --------- -------- Benefit obligation at December 31, $ 281,153 $285,646 ========= ======== Change in Plan Assets Fair value of assets at January 1, $ 309,483 $289,091 Actual return on assets 57,943 36,467 Company contributions 227 163 Benefits paid (21,138) (16,238) --------- -------- Fair value of assets at December 31, $ 346,515 $309,483 ========= ======== Funded Status at December 31, $ 65,362 $ 23,837 Unrecognized net transition asset (3,123) (4,011) Unrecognized actuarial gain (106,991) (35,875) Unrecognized prior service cost 6,295 6,365 --------- -------- Net amount recognized $ (38,457) $ (9,684) ========= ======== Amounts recognized in the statement of financial position consist of: Accrued benefit liability $ (38,813) $(11,500) Intangible asset 257 415 Accumulated other comprehensive income 99 1,401 --------- -------- Net amount recognized $ (38,457) $ (9,684) ========= ======== Assumptions as of December 31, Discount rate 7.75% 6.75% Expected return on plan assets 9.00% 9.00% Rate of compensation increase 3.50% 3.50%
At December 31, 1999, and 1998, CILCO recognized an additional minimum liability on the Balance Sheets for a plan in which the accumulated benefit obligation exceeds the fair value of plan assets. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plan with accumulated benefit obligations in excess of plan assets were $4,481, $3,797, and $0, respectively, as of December 31, 1999, and $4,191, $3,582, and $0, respectively, as of December 31, 1998. 108 POSTRETIREMENT HEALTH CARE BENEFITS Substantially all of CILCO's full-time employees are currently covered by a trusteed, defined benefit postretirement health care plan. The plan pays stated percentages of most necessary medical expenses incurred by retirees, after subtracting payments by Medicare or other providers and after a stated deductible has been met. Participants become eligible for the benefits if they retire from CILCO after reaching age 55 with 10 or more years of service. Postretirement health care benefit costs were charged as follows:
1999 1998 1997 (In thousands) Operating expenses $14,656 $3,904 $3,989 Utility plant and other 960 1,260 1,825 ------- ------ ------ Net postretirement health care benefit costs $15,616 $5,164 $5,814 ======= ====== ======
The components of net periodic benefit costs follow:
1999 1998 (In thousands) Service cost $ 1,896 $ 1,417 Interest cost 6,434 5,371 Expected return on plan assets (4,488) (4,388) Amortization of transition liability 2,858 2,858 Amortization of past service cost -- -- Recognized actuarial gain -- (94) Loss recognized due to curtailment and special termination benefits 8,916 -- ------- ------- Net benefit cost $15,616 $ 5,164 ======= =======
During 1999, CILCO recognized $8.9 million of net postretirement health care benefit costs associated with additional benefits extended in connection with voluntary early retirement programs. 109 Information on the plans' funded status follows:
1999 1998 (In thousands) Change in Benefit Obligations Benefit obligation at January 1, $ 82,316 $ 72,542 Service cost 1,896 1,417 Interest cost 6,434 5,371 Amendments 11,027 -- Actuarial loss 508 7,500 Benefits paid (5,702) (4,514) -------- -------- Benefit obligation at December 31, $ 96,479 $ 82,316 ======== ======== Change in Plan Assets Fair value of assets at January 1, $ 54,393 $ 52,263 Actual return on assets 5,533 5,781 Company contributions 1,151 863 Benefits paid (5,702) (4,514) -------- -------- Fair value of assets at December 31, $ 55,375 $ 54,393 ======== ======== Funded Status at December 31, $(41,104) $(27,923) Unrecognized net transition liability 27,439 30,297 Unrecognized actuarial gain (5,203) (6,777) Unrecognized prior service cost -- -- -------- -------- Accrued benefit cost $(18,868) $ (4,403) ======== ======== Assumptions as of December 31, Discount rate 7.75% 6.75% Expected return on plan assets 9.00% 8.50%
For measurement purposes, a 7.2 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually to 5.0 percent for 2006 and remain level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage- point change in assumed health care cost trend rates would have the following effects (in thousands):
1-Percentage- 1-Percentage- Point Increase Point Decrease -------------- -------------- Effect on total of service and interest cost components $ 309 $ (377) Effect on postretirement benefit obligation $3,406 $(3,830)
110 NOTE 4 - SHORT-TERM DEBT CILCO had arrangements for bank lines of credit totaling $55 million at December 31, 1999, all of which were unused. These lines of credit were maintained by commitment fees of .05 of 1% per annum for $35 million and .07 of 1% per annum for $20 million in lieu of balances. These bank lines of credit support CILCO's issuance of commercial paper. Short-term borrowings consisted of commercial paper totaling $46.9 million and $40.6 million at December 31, 1999, and 1998, respectively. NOTE 5 - LONG-TERM DEBT
At December 31 1999 1998 (In thousands) First Mortgage Bonds 7 1/2% series due 2007 $ 50,000 $ 50,000 8 1/5% series due 2022 65,000 65,000 Medium-Term Notes 6.4% series due 2000 -- 30,000 6.82% series due 2003 25,350 25,350 6.13% series due 2005 16,000 16,000 7.8% series due 2023 10,000 10,000 7.73% series due 2025 20,000 20,000 Pollution Control Refunding Bonds 6.5% series F due 2010 5,000 5,000 6.2% series G due 2012 1,000 1,000 6.5% series E due 2018 14,200 14,200 5.9% series H due 2023 32,000 32,000 -------- -------- 238,550 268,550 Unamortized premium and discount on long-term debt, net (616) (666) -------- -------- Total CILCO long-term debt $237,934 $267,884 ======== ========
CILCO's first mortgage bonds are secured by a lien on substantially all of its property and franchises. Unamortized borrowing expense, premium and discount on outstanding long-term debt are being amortized over the lives of the respective issues. Scheduled maturities of long-term debt are $25.4 million for 2003 and $16 million for 2005. There are no scheduled maturities of long-term debt for 2001 or 2002. The remaining maturities of long-term debt of $197.2 million occur in 2007 and beyond. 111 NOTE 6 - PREFERRED STOCK
At December 31 1999 1998 (In thousands) Preferred stock, cumulative $100 par value, authorized 1,500,000 shares Without mandatory redemption 4.50% series - 111,264 shares $11,126 $11,126 4.64% series - 79,940 shares 7,994 7,994 Class A, no par value, authorized 3,500,000 shares Flexible auction rate - 250,000 shares (*) 25,000 25,000 With mandatory redemption 5.85% series - 220,000 shares 22,000 22,000 ------- ------- Total preferred stock $66,120 $66,120 ======= ======= (*) Dividend rates at December 31, 1999, and 1998, were 4.75% and 4.04%, respectively.
All classes of preferred stock are entitled to receive cumulative dividends and rank equally as to dividends and assets, according to their respective terms. The total annual dividend requirement for preferred stock outstanding at December 31, 1999, is $3.3 million, assuming a continuation of the auction dividend rate at December 31, 1999, for the flexible auction rate series. PREFERRED STOCK WITHOUT MANDATORY REDEMPTION The call provisions of preferred stock redeemable at CILCO's option outstanding at December 31, 1999, are as follows:
Series Callable Price Per Share (plus accrued dividends) 4.50% $110 4.64% $102 Flexible auction rate $100
PREFERRED STOCK WITH MANDATORY REDEMPTION CILCO's 5.85% Class A preferred stock may be redeemed in 2003 at $100 per share. A mandatory redemption fund must be established on July 1, 2003. The fund will provide for the redemption of 11,000 shares for $1.1 million on July 1 of each year through July 1, 2007. On July 1, 2008, the remaining 165,000 shares will be retired for $16.5 million. PREFERENCE STOCK, CUMULATIVE No Par Value, Authorized 2,000,000 shares, of which none have been issued. 112 NOTE 7 - COMMITMENTS & CONTINGENCIES For a discussion of CILCO commitments and contingencies, refer to Note 7 of the CILCORP Inc. Notes to the Consolidated Financial Statements contained herein. NOTE 8 - LEASES CILCO leases certain equipment, buildings and other facilities under capital and operating leases. Minimum future rental payments under non-cancellable capital and operating leases having remaining terms in excess of one year as of December 31, 1999, are $11.5 million in total. Payments due during the years ending December 31, 2000, through December 31, 2004, are $4.4 million, $2.7 million, $2.1 million, $1.1 million and $.7 million, respectively. NOTE 9 - ACCOUNTING FOR PRICE RISK MANAGEMENT ACTIVITIES CILCO utilizes commodity futures contracts, options and swaps in the normal course of its natural gas and electric business activities to reduce market or price risk. Gains and losses arising from derivative financial instrument transactions which hedge the impact of fluctuations in energy prices are recognized in income concurrent with the related purchases and sales of the commodity. If a derivative financial instrument contract is terminated because it is probable that a transaction or forecasted transaction will not occur, any gain or loss as of such date is immediately recognized. If a derivative financial instrument contract is terminated early for other economic reasons, any gain or loss as of the termination date is deferred and recorded concurrently with the related purchase and sale of natural gas and electricity. CILCO 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 CILCO 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 loss reflected in operating results from derivative financial instruments was $264,800 for gas and a gain of $287,100 for electric for the year 1999. As of December 31, 1999, CILCO had fixed-price derivative financial instruments representing hedges of natural gas purchases of .5 Bcf and natural gas sales of .3 Bcf for commitments through February 2000. The net deferred loss and carrying amount on these fixed-price derivatives at December 31, 1999, was $160,400. At December 31, 1999, CILCO had open positions in derivative financial instruments used to hedge natural gas basis of .2 Bcf for commitments through February 2000. The net deferred gain on these basis derivatives at December 31, 1999, was approximately $4,000. As of December 31, 1999, CILCO had fixed-price derivative financial instruments representing hedges of electricity purchases of 31,648 megawatts and electricity sales of 83,904 megawatts for commitments through August 2000. The net deferred loss and carrying amount on these fixed-price derivatives at December 31, 1999, was approximately $1.2 million. NOTE 10 - IMPACT OF ACCOUNTING STANDARDS For a discussion of New Accounting Pronouncements which may impact CILCO, refer to Note 10 of the CILCORP Inc. Notes to the Consolidated Financial Statements contained herein. 113 NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following quarterly operating results are unaudited, but, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of CILCO's operating results for the periods indicated. The results of operations for each of the fiscal quarters are not necessarily comparable to, or indicative of, the results of an entire year due to the seasonal nature of CILCO's business.
For the Three Months Ended March 31 June 30 Sept. 30 Dec. 31 (In thousands) 1999 Operating revenue $157,759 $113,613 $151,545 $130,557 Operating income 18,784 9,768 6,063 9,455 Net income 12,507 3,683 (339) 3,398 1998 Operating revenue $149,080 $116,614 $136,506 $130,136 Operating income 18,324 14,593 24,815 9,983 Net income 12,316 8,929 19,064 3,926
NOTE 12 - RETAINED EARNINGS CILCO's Articles of Incorporation provide that no dividends shall be paid on the common stock if, at the time of declaration, the balance of retained earnings does not equal at least two times the annual dividend requirement on all outstanding shares of preferred stock. The amount of retained earnings so required at December 31, 1999, was $6.7 million. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure CILCORP Not applicable. CILCO Not applicable. 114 PART III Item 10. Directors and Executive Officers of the Registrant CILCORP CILCORP Directors Mark A. Ferrucci Director of CILCORP since 1999 Mr. Ferrucci is 47 years old and graduated from Delaware Technical and Community College in 1973 with a major in Accounting. He is employed by The Corporation Trust Company in Wilmington, Delaware, where he prepares and files charter documents for corporations in the State of Delaware and throughout the United States. Mr. Ferrucci is also responsible for maintaining the good standing of corporations, including preparing and filing their annual reports and franchise tax returns as well as other corporate functions. Mr. Ferrucci has been with the Corporation Trust Company since 1977. CILCORP's bylaws require that one of its directors be independent and not be affiliated with The AES Corporation. The AES Corporation has an agreement with The Corporation Trust Company to provide such an independent director, and Mr. Ferrucci provides CILCORP its independent director. Mr. Ferrucci also is a director of other publicly traded companies, including public utilities. Paul D. Stinson Director of CILCORP since 1999 Mr. Stinson is 43 years old and received a B.S. degree in Chemical Engineering from Texas A&M University in 1979. He joined The AES Corporation in 1986. In 1993, Mr. Stinson became plant manager of the 700 megawatt Medway Power Station in England. In 1997, he became manager of AES's Silk Road Group where he was responsible for business development and operations in the countries of the former Soviet Union. In April 1999, Mr. Stinson became manager of the new AES Great Plains Group formed in the Central United States. Also in 1999, Mr. Stinson assumed the responsibilities of president and director of both CILCORP and CILCO. Thomas A. Tribone Director of CILCORP since 1999 Mr. Tribone is 47 years old and is currently executive vice president of The AES Corporation, which is CILCORP's parent company. Prior to his election as executive vice president in 1998, he had been senior vice president of AES since 1990. Mr. Tribone leads AES Americas, a group responsible for power marketing, project development, construction and plant operations in the northern portions of South America including much of Brazil. From 1987 to 1990 he served as vice president for project development, and from 1985 to 1987 he served as project director of AES Shady Point. CILCORP Officers The information required by Item 10 relating to CILCORP officers is set forth in Item 4, Executive Officers of CILCORP, in this 10-K. 115 CILCO The information required by Item 10 relating to directors is set forth in CILCO's definitive proxy statement for its 2000 Annual Meeting of Stockholders, to be filed soon with the Commission pursuant to Regulation 14A. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors" of such proxy statement. Information required by Item 10 relating to executive officers of CILCO is set forth under a separate caption in Part I hereof. 116 Item 11. Executive Compensation CILCORP Executive Compensation The following table sets forth the annual and long-term compensation earned for the years 1999, 1998 and 1997 for the former Chairman and Chief Executive Officer, the current President, two highly compensated executive officers and two former executive officers of the Company: SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Other Securities All Annual Underlying LTIP Other Name and Comp. Options Payouts Comp. Principal Position Year Salary($) Bonus($) ($) (#)(1) ($)(2) ($)(3) - - - - ------------------ ---- --------- -------- --- ----- ------ ------ Paul D. Stinson (4) 1999 185,000 175,000 71,892 7,369 -- 15,966 President 1998 -- -- -- -- -- -- 1997 -- -- -- -- -- -- Scott A. Cisel (5) 1999 135,954 53,394 -- 1,318 -- 55,736 Vice President 1998 133,000 65,208 -- -- -- 5,749 1997 131,375 -- -- -- 92,513 5,491 Robert J. Sprowls 1999 150,997 57,661 -- 1,867 -- 57,625 Vice President (6) 1998 150,177 100,000 -- -- -- 8,985 1997 135,916 65,000 -- -- 61,428 8,369 Robert O. Viets (7) 1999 491,460 84,795 -- -- -- 6,097,871 Former Chairman, 1998 432,292 -- -- -- 251,345 42,334 President and Chief 1997 406,423 -- -- -- 61,272 37,817 Executive Officer William M. Shay (8) 1999 215,867 42,488 -- -- -- 1,745,957 Former Senior Vice 1998 217,458 -- -- -- 203,651 29,856 President 1997 207,737 -- -- -- 66,497 26,844 James F. Vergon (9) 1999 212,387 42,488 -- -- -- 1,731,456 Former Senior Vice 1998 210,002 -- -- -- 197,664 18,506 President 1997 207,738 -- -- -- 65,616 16,831
(1) The number of options shown as compensation as of December 31, 1999, were for services rendered for 1999. Stock options were awarded in November of 1999 to Mr. Cisel and Mr. Sprowls, and stock options were awarded to Messrs. Stinson, Cisel and Sprowls by the Compensation Committee of the AES Board of Directors in February of 2000. (2) LTIP payments reported previously include payments made to Messrs. Cisel, Sprowls, Viets, Shay and Vergon pursuant to CILCORP Inc.'s EVAr-Based Incentive Compensation Plan. For Messrs. Cisel and Sprowls, the Plan was terminated in 1997. For Messrs. Viets, Shay and Vergon, the Plan was terminated in 1998. 117 (3) For Mr. Stinson, this column reports contributions to The AES Corporation's Profit-Sharing and Stock Ownership Plan and the Employee Stock Ownership Plan of AES and allocations to AES's Supplemental Retirement Plan. Specifically, for Mr. Stinson in 1999, the amount contributed to the AES Profit-Sharing and Stock Ownership Plan and Employee Stock Ownership Plan was $8,782, and the amount allocated to the Supplemental Retirement Plan was $7,184. For Messrs. Viets, Cisel, Sprowls, Shay and Vergon, amounts shown in this column represent employer contributions to the CILCO Employees' Savings Plan and earnings on deferred compensation. For the CILCO Employees' Savings Plan, the amounts contributed in 1999 were as follows: Mr. Viets $4,800; Mr. Shay $4,800; Mr. Vergon $4,800; Mr. Sprowls $4,321; and Mr. Cisel $4,300. For Messrs. Viets, Shay and Vergon, this column also includes compensation paid or entitled to be received in 1999 from the CILCORP Shareholder Return Incentive Compensation Plan. The Plan was terminated in 1999 and all compensation from the Plan was paid pursuant to the merger agreement among The AES Corporation, CILCORP and Midwest Energy Inc. as follows: Mr. Viets $5,510,000; Mr. Shay $1,711,000; and Mr. Vergon $1,711,000. For Mr. Viets, this column also includes $536,250 paid in 1999 upon liquidation of his account under the Company's deferred compensation stock plans. For Messrs. Cisel and Sprowls, this column also includes a $50,000 payment in 1999 which was made pursuant to the merger among AES, CILCORP and Midwest Energy Inc. (4) Mr. Stinson is a vice president of The AES Corporation, which owns all the outstanding common stock of CILCORP Inc. CILCORP owns all the common stock of Central Illinois Light Company. Mr. Stinson is president of both CILCO and CILCORP. In that Mr. Stinson also provides services to The AES Corporation, his salary is allocated among CILCO, CILCORP and AES. Mr. Stinson's salary is determined by The AES Corporation. (5) Mr. Cisel is a vice president of CILCORP and a vice president of CILCO. Mr. Cisel's compensation is determined by CILCO except for Securities Underlying the Options, which is determined by The AES Corporation. (6) Mr. Sprowls is a vice president of CILCORP and is also a vice president of CILCO. Mr. Sprowls' compensation is determined by CILCO except for Securities Underlying the Options, which is determined by The AES Corporation. (7) Mr. Viets' compensation related to his position as president and chief executive officer of CILCORP. He was also chairman, president and chief executive officer of CILCO until his resignation on October 18, 1999, the effective date of the merger among The AES Corporation, CILCORP Inc. and Midwest Energy Inc. Mr. Viets retired from CILCO on November 30, 1999. (8) Mr. Shay served as senior vice president of CILCO until his resignation on October 18, 1999, the effective date of the merger among The AES Corporation, CILCORP Inc. and Midwest Energy Inc. Mr. Shay left the employment of CILCO on October 31, 1999. (9) Mr. Vergon served as senior vice president of CILCO until his resignation on October 18, 1999, the effective date of the merger among The AES Corporation, CILCORP Inc. and Midwest Energy Inc. Mr. Vergon retired from CILCO on October 31, 1999. 118 Option Grants in Last Fiscal Year The following table provides information on options granted for 1999 to the named executive officers.
% of Total Number of Options Securities Granted Underlying to all AES Exercise Options People or Base Grant Date Name and Granted for Fiscal Price Expiration Present Value Principal Position (#) (1) Year ($/Sh) Date ($) (2) - - - - ------------------ ------- ---- ---- ---- ------- Paul D. Stinson 7,369 .29% 72.63 02/04/10 350,027 Scott A. Cisel 560 .03% 57.94 11/30/09 21,706 758 .03% 72.63 02/04/10 36,005 Robert J. Sprowls 642 .03% 57.94 11/30/09 24,884 1,225 .05% 72.63 02/04/10 58,188
(1) All options are for shares of Common Stock of The AES Corporation. Options granted for services performed in 1999 were granted at the fair market value on the date of grant, and vest at the rate of 50% per year through December 2001. (2) The Black-Scholes stock option pricing model was used to value the stock options on the grant dates (February 4, 2000 and November 30, 1999). AES's assumptions under this model include an expected volatility of 46.76%, a 6.63% risk free rate of return, no dividends, and a vesting adjustment of 4.5%. The options have 10 year terms and vest at 50% per year. No adjustments were made for non-transferability or risk of forfeiture. The use of such amounts and assumptions are not intended to forecast any possible future appreciation of AES's stock price or dividend policy. 119 Aggregated Option Exercises in Last Fiscal Year, and Fiscal Year-End Option Value The following table provides information on option exercises in 1999 by the named executive officers and the value of such officers' unexercised options at December 31, 1999.
Number of Dollar Securities Value of Underlying Unexercised Unexercised In-the-Money Number of Options at Options at Shares Dollar FY-End FY-End Acquired on Value Exercisable/ Exercisable/ Exercise Realized (1) Unexercisable Unexercisable (2) -------- ------------ ------------- ----------------- Paul D. Stinson 13,814 763,454 93,695/ 5,277,382/ 11,111 449,996 Scott A. Cisel -- -- 0/ 0/ 560 9,415 Robert J. Sprowls -- -- 0/ 0/ 642 10,793
(1) The amounts in this column have been calculated based upon the difference between the fair market value of the securities underlying each stock option on the date of exercise and its exercise price. (2) The amounts in this column have been calculated based on the difference between the fair market value on December 31, 1999, of $74.75 per share for each security underlying such stock option and the per share exercise price. 120 Management Continuity Agreements The Company, with the approval of the Board of Directors, entered into management continuity agreements with Mr. Sprowls and Mr. Cisel. The agreements provide that, in the event of a change in control of CILCORP Inc. (as defined in the agreement) and a subsequent termination of employment within two years of the change in control, CILCORP Inc., or its successor, is obligated to pay termination benefits for a period of up to two years. As a result of the change in control of CILCORP Inc. pertaining to its merger with The AES Corporation on October 18, 1999, the two-year period following said change in control will expire on October 17, 2001. Termination benefits include the continuation of salary, incentive compensation and certain employee benefits. Under the agreement, compensation and benefits are payable for a period not to exceed two years and termination must be involuntary or due to material changes in the terms of employment. Certain Plans Benefit Replacement Plan. The Board of Directors has established a Benefit Replacement Plan (the "Benefit Replacement Plan"). The Benefit Replacement Plan provides for payments to participants from the Company's general funds to restore the retirement benefit under the Company's non-contributory Pension Plan for Management, Office and Technical Employees (the "Pension Plan") when such benefit is restricted by (1) the maximum defined benefit limitation of Section 415(b) of the Internal Revenue Code of 1986, as amended (the "Code"), (2) the indexed compensation limitation of Code Section 401(a)(17), and (3) participation in certain of the Company's deferred compensation plans. The Benefit Replacement Plan generally covers all Pension Plan participants affected by these restrictions and provides for payment at the times and in the forms of the Pension Plan. Pension Plan. Pension benefits are provided through the Pension Plan. Pension benefits are determined using a formula based on years of service and highest average rate of monthly earnings for any sixty consecutive month period. The normal retirement age specified in the Pension Plan is age 65. Retirement between the ages of 55 and 62 results in an appropriate reduction in pension benefits. 121 The following table shows the aggregate annual benefits payable on a straight life annuity basis upon retirement at normal retirement age under the Pension Plan and under the Benefit Replacement Plan discussed above. The amounts shown are not subject to any deduction for Social Security benefits or other offset amounts other than that for an optional survivorship provision. Pension Plan Table Years of Service
Remuneration 15 years 20 years 25 years 30 years 35 years ------------ -------- -------- -------- -------- -------- $200,000 42,750 57,000 71,250 85,500 99,750 225,000 48,096 64,128 80,160 96,192 112,224 250,000 53,442 71,250 89,064 106,878 124,692 275,000 58,781 78,375 97,969 117,563 137,156 300,000 64,128 85,500 106,878 128,250 149,628 400,000 85,500 114,000 142,500 171,000 199,500 500,000 106,878 142,500 178,128 213,715 249,378
The sum of annual and long-term compensation shown for the individuals listed in the above Summary Compensation Table is substantially compensation as covered by the Pension Plan and the Benefit Replacement Plan. At January 2000, the credited years of service under the Pension Plan for such individuals are as follows: R. O. Viets - 26 years, R. J. Sprowls - 18 years, S.A. Cisel - 25 years, W.M. Shay - 17 years, J. F. Vergon - 28 years. Mr. Stinson does not participate in the Pension Plan. Report on Executive Compensation Compensation Prior to the Merger. Prior to the closure of the merger, the compensation of the Company's chief executive officer was determined by the Board of Directors of CILCORP Inc. The compensation of all other executive officers of the Company was determined by CILCO's Board of Directors. The compensation policies with respect to the executive officers were as follows: 1. Compensation levels should be established which are internally fair and equitable, bearing in mind (a) past practices, patterns and relationships, and (b) the relationship between officer level compensation and the compensation provided for top level managers throughout the Company. 2. Compensation should be comparable and reasonable in relation to similar positions in other utility companies of like size, structure and characteristics. 3. Compensation of the executive officers should be directly related to the economic value created for shareholders. 4. A compensation program should be designed to attract and retain superior management. Pre-Merger Compensation. Robert O. Viets served as president and chief executive officer of CILCORP Inc. in addition to serving as chairman and chief executive officer of CILCO until the effective date of the Merger on October 18, 1999. His compensation in his capacities as an officer of both companies was determined by the Board of Directors of CILCORP upon recommendation of its Compensation Committee. The Board of Directors of CILCO endorsed and adopted the recommendation and determination for 1999 of 122 the CILCORP Board of Directors and its Compensation Committee whereby Mr. Viets was awarded a salary of $453,200 commencing April 1, 1999, representing an increase of 3.0% over his prior salary level. The increase was determined on the basis of the corporate-wide payroll increase authorized by the Merger Agreement among AES, CILCORP and Midwest Energy, Inc. dated as of November 22, 1998. The Agreement limited the aggregate annual increase in the payroll of CILCORP and its subsidiaries to 3%. Post-Merger Compensation. The Company's current executive officer compensation program is modeled after The AES Corporation compensation program. The guidelines for compensation of executive officers are designed by The AES Corporation (AES) to provide fair and competitive levels of total compensation while integrating pay with performance. Executive officers are evaluated annually on the basis of both individual responsibilities and contributions, as well as AES company-wide results in two related areas: (i) corporate culture (or principles) and (ii) business or functional area performance. There are three elements in AES's executive officer compensation program, which is consistent with how most people who work for AES are compensated. These elements are base salary, annual incentive compensation and stock option program. Base salary is adjusted annually to account for general economic and cost of living changes. Adjustments are also made periodically to recognize significant new or additional responsibilities of individual executive officers. The guidelines provide base salary compensation generally consistent with AES's interpretation of industry averages for individuals with similar responsibility levels. Annual incentive compensation is based upon both objective and subjective measures in the areas of corporate culture and business or functional area performance, and generally takes the form of bonuses payable after year-end. With respect to corporate culture, AES's shared principles of fairness, integrity, fun and social responsibility are integral to its operations and serve as its founding principles. These principles apply equally to the internal activities of AES as well as its external relationships. Each executive officer's individual contribution to demonstrating and nurturing these shared values is reviewed and considered as a factor in determining annual incentive compensation. Evaluations in this area are inherently subjective. The second area considered in the determination of annual incentive compensation is the individual executive officer's performance with respect to his or her related business responsibilities and/or functional area. Although all aspects of an individual's responsibilities are considered in determining annual incentive compensation, several quantitative measures of annual performance are considered significant, including operating margin improvements, operating reliability, earnings per share contributions, environmental performance, and plant and AES company-wide safety. The qualitative factors considered significant include business and project development progress, effective strategic planning and implementation, AES company-wide support, understanding of and adherence to AES's values, and community relations and people development. 123 Important strategic successes or failures can take several years to translate into objectively measurable results. Annual incentive compensation is not computed using a mathematical formula of pre-determined performance goals and objective criteria. As a result, the ultimate determination of the amount, if any, of annual incentive compensation is made at the end of each year based on a subjective evaluation of several quantitative and qualitative factors, with primary emphasis given this year to those factors listed in the preceding paragraph. There are no targeted, minimum or maximum levels of annual incentive compensation, and such compensation does not necessarily bear any consistent relationship to salary amounts or total compensation. The AES stock option program is used to reward people for the corporate responsibilities they undertake, their performance of those duties and to help them to think and act like owners. All executive officers and approximately 51% of the total people in the AES company located in the United States participate in this program. Historically, because of differing legal environments in many countries, options had been primarily granted to U.S. people. However, AES has taken steps to incorporate those people who reside outside of the United States into this program by qualifying its stock option plan in each country where AES people currently reside or work, and AES expects the total participation to increase in the future. Stock options are usually granted annually at the fair market value on the date of grant and provide vesting periods to reward people for continued service to AES. The determination of the number of options to be granted to executive officers is based upon the same factors as such officer's annual incentive compensation discussed above, with additional consideration given to the number of options previously granted. Since 1994, AES has participated in an annual survey conducted by an outside consulting firm which encompasses over 400 public companies. Based in part on the survey results, guidelines were established for suggested ranges of option grants to executive officers as well as the rest of the people at AES. Based on the survey, the guidelines were established at ranges for eligible participants between the 50th and 90th percentile of similar companies. As with annual incentive compensation, the determination of an individual's grant is subjective and, although AES has established suggested guidelines, the grants are not formula-based. Total compensation is reviewed to determine whether amounts are competitive with other companies whose operations are similar in type, size and complexity with those of AES, as well as a broad range of similarly sized companies. Comparisons are made with published amounts, where available, and, from time to time, AES also participates in various industry-sponsored compensation surveys in addition to the public-company survey described above. AES also has, in the past, engaged an independent compensation consultant to specifically review the level and appropriateness of executive officer compensation. Other than as described above, AES uses the results of surveys, when available, for informational purposes only and does not target individual elements of or total compensation to any specific range of survey results (i.e., high, low or median) other than the suggested guidelines for stock option grants as discussed in the previous paragraph. Because each individual's compensation is determined, in part, by experience and performance, actual compensation generally varies from industry averages. Executive officers also participate in AES's profit sharing plan (or deferred compensation plan for executive officers) on the same terms as all other people at AES, subject to any legal limitations on amounts that may be contributed or benefits that may be payable under the plan. Matching contributions and annual profit sharing contributions are made with the common stock of AES to further encourage long-term performance. In addition, certain individuals at AES participate in AES's supplemental retirement plan, 124 which provides supplemental retirement benefits to "highly compensated employees" (as defined in the Internal Revenue Code) of any amount which would be contributed on such individual's behalf under the profit sharing plan (or the deferred compensation plan for executive officers) but is not so contributed because of the limitations contained in the Internal Revenue Code. In most cases, AES has taken steps to qualify income paid to any officer as a deductible business expense pursuant to regulations issued by the Internal Revenue Service pursuant to Section 162(m) of the Internal Revenue Code with respect to qualifying compensation paid to executive officers in excess of $1 million. Compensation earned pursuant to the exercise of options granted under AES's former stock option plan (which was discontinued in 1991) is not considered for purposes of the $1 million aggregate limit, and exercises under the 1991 Plan are similarly excluded. AES will continue to consider the implications of qualifying all compensation as a deductible expense under Section 162 (m), but retains the discretion to pay bonuses commensurate with an executive officer's contributions to the success to AES, irrespective of whether such amounts are entirely deductible. CILCO CILCO will soon file with the Commission a definitive proxy statement pursuant to Regulation 14A. The information required by Item 11 is incorporated herein by reference to the material appearing under the caption "Executive Compensation" of such proxy statement. Item 12. Security Ownership of Certain Beneficial Owners and Management CILCORP (1)Title of class (2)Name and (3)Amount and (4)Percent of class address of nature of beneficial owner beneficial ownership Common The AES Corporation 1,000 shares* 100% 1001 North 19th St. Arlington, VA 22209 *The AES Corporation acquired all of the common stock of CILCORP in 1999. CILCO CILCO will soon file with the Commission a definitive proxy statement pursuant to Regulation 14A. The information required by Item 12 is incorporated herein by reference to the material appearing under the caption "Voting Securities and Principal Holders" of such proxy statement. 125 Item 13. Certain Relationships and Related Transactions CILCORP CILCORP Inc. (CILCORP or Company), a holding company, is the parent of its direct subsidiaries, Central Illinois Light Company (CILCO), CILCORP Investment Management Inc. (CIM), CILCORP Ventures Inc. (CVI), and QST Enterprises Inc. (QST). In the course of business, the Company carries on certain relations with affiliated companies such as shared facilities, utilization of employees and other business transactions. Central Illinois Light Company is reimbursed at cost by the Company and the other subsidiaries for any services it provides. CILCORP has been authorized by the Board of Directors to guarantee up to $30 million of obligations incurred by QST (excluding QST Environmental). Through December 31, 1999, CILCORP guaranteed $12.5 million of the obligations of QST (excluding QST Environmental). CILCORP received a fee for providing these guarantees. This guarantee expired in January 2000. CIM had outstanding debt of $31.4 million (all to the Holding Company) at the end of 1999. Through December 31, 1999, CIM has paid $15.3 million to fund affordable housing commitments, $1.3 million of which was paid during 1999. CIM funded these commitments with cash borrowed from the Holding Company. CIM has guaranteed the performance of CIM Leasing Inc., CIM Air Leasing Inc. and CLM Inc. VI (a second tier subsidiary) with respect to certain obligations arising from the leveraged lease investments held by these subsidiaries. CILCO One member of the Board of Directors of CILCORP Inc. is also a member of the Board of Directors of CILCO. The President, four of the Vice Presidents, the Controller and Chief Financial Officer, and Treasurer of CILCORP serve in the same positions as officers of CILCO. 126 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K CILCORP Page No. Form 10-K --------- (a) 1. Financial Statements The following statements are included herein: Management's Report 52 Report of Independent Public Accountants 53 Consolidated Statements of Income for the periods October 19, 1999, through December 31, 1999, and January 1, 1999, through October 18, 1999, and the years ended December 31, 1998 and 1997 54-55 Consolidated Balance Sheets as of December 31, 1999, and December 31, 1998 56-57 Consolidated Statements of Cash Flows for the periods October 19, 1999, through December 31, 1999, and January 1, 1999, through October 18, 1999, and the years ended December 31, 1998 and 1997 58-59 Consolidated Statements of Segments of Business for the periods October 19, 1999, through December 31, 1999, and January 1, 1999, through October 18, 1999, and the years ended December 31, 1998 and 1997 60-63 Consolidated Statements of Common Stockholders' Equity for the periods October 19, 1999, through December 31, 1999, and January 1, 1999, through October 18, 1999, and the years ended December 31, 1998 and 1997 64-65 Notes to the Consolidated Financial Statements 66-87 (a) 2. Financial Statement Schedules The following schedules are included herein: Schedule II - Valuation and Qualifying Accounts and Reserves 131 Schedule XIII -Investment in Leveraged Leases at December 31, 1999 133 Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. 127 (a) 3. Exhibits (3) Articles of Incorporation as amended effective November 15, 1999. (3)a By-laws as amended and restated effective October 18, 1999. * (4) Indenture, dated as of October 18, 1999, between Midwest Energy, Inc. and The Bank of New York, as Trustee; First Supplemental Indenture, dated as of October 18, 1999, between CILCORP Inc. and The Bank of New York. (Designated in registration statement Form S-4 filed by CILCORP on November 4, 1999, as exhibits 4.1 and 4.2.) **(4)a Instruments defining the rights of security holders. (10) CILCO Executive Deferral Plan. As amended effective August 15, 1999. (10)a CILCO Executive Deferral Plan II. As amended effective April 1, 1999. (10)b CILCO Benefit Replacement Plan (as amended effective August 15, 1999). *(10)c Management Continuity Agreement between CILCORP and various subsidiary officers [Designated in Form 10-K for the year ended December 31, 1998, File No. 1-8946, as Exhibit 10(h)]. *(10)d CILCO Compensation Protection Plan [Designated in Form 10-K for the year ended December 31, 1998, File No. 1-8946, as Exhibit 10(i)]. (10)e CILCO Restructured Executive Deferral Plan (approved August 15, 1999). Page No. Form 10-K ---------- (12) Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 136 (23) Consent of Arthur Andersen LLP 139 (24) Power of Attorney 140 (27) CILCORP Inc. Consolidated Financial Data Schedule (b) 3. Reports on Form 8-K A Form 8-K was filed on November 2, 1999, regarding the completion on October 18, 1999, of the merger transaction pursuant to the Agreement and Plan of Merger between CILCORP Inc. and The AES Corporation. * These exhibits have been previously filed with the Securities and Exchange Commission (SEC) as exhibits to registration statements or to other filings of CILCORP or CILCO with the SEC and are incorporated herein as exhibits by reference. The file number and exhibit number of each such exhibit (where applicable) are stated in the description of such exhibit. ** Pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, the Company has not filed as an exhibit to this Form 10-K any instrument with respect to long-term debt as the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis, but hereby agrees to furnish to the SEC on request any such instruments. 128 CILCO Page No. Form 10-K ---------- (a) 1. Financial Statements The following are included herein: Management's Report 88 Report of Independent Public Accountants 89 Consolidated Statements of Income for the three years ended December 31, 1999 90 Consolidated Balance Sheets as of December 31, 1999, and December 31, 1998 91-92 Consolidated Statements of Cash Flows for the three years ended December 31, 1999 93-94 Consolidated Statements of Segments of Business for the three years ended December 31, 1999 95-97 Consolidated Statements of Retained Earnings for the three years ended December 31, 1999 98 Notes to the Consolidated Financial Statements 99-114 (a) 2. Financial Statement Schedules The following schedule is included herein: Schedule II - Valuation and Qualifying Accounts and Reserves for the three years ended December 31, 1999 132 Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. (a) 3. Exhibits *(3) Articles of Incorporation. As amended April 28, 1998. (3) a Bylaws. As amended effective April 1, 1999. *(4) Indenture of Mortgage and Deed of Trust between Illinois Power Company and Bankers Trust Company, as Trustee, dated as of April 1, 1933, Supplemental Indenture between the same parties dated as of June 30, 1933, Supplemental Indenture between the Company and Bankers Trust Company, as Trustee, dated as of July 1, 1933 and Supplemental Indenture between the same parties dated as of January 1, 1935, securing First Mortgage Bonds, and indentures supplemental to the foregoing through November 1, 1994. (Designated in Registration No. 2-1937 as Exhibit B-1, in Registration No. 2-2093 as Exhibit B-1(a), in Form 8-K for April 1940, File No. 1- 2732-2, as Exhibit A, in Form 8-K for December 1949, File No. 1-2732-2, as Exhibit A, in Form 8-K for December 1951, File No. 1- 129 2732, as Exhibit A, in Form 8-K for July 1957, File No. 1-2732, as Exhibit A, in Form 8-K for July 1958, File No. 1- 2732, as Exhibit A, in Form 8-K for March 1960, File No. 1-2732, as Exhibit A, in Form 8-K for September 1961, File No. 1-2732, as Exhibit B, in Form 8-K for March 1963, File No. 1-2732, as Exhibit A, in Form 8-K for February 1966, File No. 1-2732, as Exhibit A, in Form 8- K for March 1967, File No. 1-2732, as Exhibit A, in Form 8-K for August 1970, File No. 1-2732, as Exhibit A, in Form 8-K for September 1971, File No. 1-2732, as Exhibit A, in Form 8-K for September 1972, File No. 1-2732, as Exhibit A, in Form 8-K for April 1974, File No. 1-2732, as Exhibit 2(b), in Form 8-K for June 1974, File No. 1- 2732, as Exhibit A, in Form 8-K for March 1975, File No. 1-2732, as Exhibit A, in Form 8-K for May 1976, File No. 1-2732, as Exhibit A, in Form 10-Q for the quarter ended June 30, 1978, File No. 1-2732, as Exhibit 2, in Form 10- K for the year ended December 31, 1982, File No. 1-2732, as Exhibit (4)(b), in Form 8-K dated January 30, 1992, File No. 1-2732, as Exhibit (4) in Form 8-K dated January 29, 1993, File No. 1-2732, as Exhibit (4) and in Form 8-K dated December 2, 1994, File No. 1-2732, as Exhibit (4).) (10) CILCO Executive Deferral Plan. As amended effective August 15, 1999. (10)a CILCO Executive Deferral Plan II. As amended effective April 1, 1999. (10)b Benefit Replacement Plan (as amended effective April 1, 1999). *(10)c Management Continuity Agreement between CILCORP and various subsidiary officers. [Designated in Form 10-K for the year ended December 31, 1998, File No. 1-2732, as Exhibit 10(g).] *(10)d CILCO Compensation Protection Plan. [Designated in Form 10-K for the year ended December 31, 1998, File No. 1-2732, as Exhibit 10(h).] (10)e CILCO Restructured Executive Deferral Plan (approved August 15, 1999). Page No. Form 10-K --------- (12) Computation of Ratio of Earnings to Fixed Charges 137 (24) Power of Attorney 141 (27) Central Illinois Light Company Financial Data Schedule (b) 3. Reports on Form 8-K None * These exhibits have been previously filed with the Securities and Exchange Commission (SEC) as exhibits to registration statements or to other filings of CILCO with the SEC and are incorporated herein as exhibits by reference. The file number and exhibit number of each such exhibit (where applicable) are stated in the description of such exhibit. 130 SCHEDULE II CILCORP INC. AND SUBSIDIARY COMPANIES Valuation and Qualifying Accounts and Reserves Periods October 19 through December 31, 1999, and January 1 through October 18, 1999, and the Years Ended December 31, 1998, and 1997 (Thousands of dollars)
Column A Column B Column C Column D Column E Additions Balance at Charged Charged Balance at Beginning to to Other End of Description of Period Income Accounts Deductions Period Period from October 19, 1999 through December 31, 1999 Accumulated Provisions Deducted from Assets- Doubtful Accounts $1,810 $ (449) $ -- $ 65 $1,296 Accumulated Provisions Not Deducted from Assets- Injuries and Damages 1,926 27 -- 555 1,398 Discontinued Operations Reserve -- 500 -- -- 500 Period from January 1, 1999 through October 18, 1999 Accumulated Provisions Deducted from Assets- Doubtful Accounts $3,411 $1,916 $ -- $3,517 $1,810 Accumulated Provisions Not Deducted from Assets- Injuries and Damages 1,602 482 -- 158 1,926 Discontinued Operations Reserve 8,581 -- -- 8,581 -- Year ended December 31, 1998 Accumulated Provisions Deducted from Assets- Doubtful Accounts $2,518 $3,356 $ -- $2,463 $3,411 Accumulated Provisions Not Deducted from Assets- Injuries and Damages 1,210 768 -- 376 1,602 Discontinued Operations Reserve -- 8,581 -- -- 8,581 Year ended December 31, 1997 Accumulated Provisions Deducted from Assets- Doubtful Accounts $2,600 $2,867 $ -- $2,949 $2,518 Accumulated Provisions Not Deducted from Assets- Injuries and Damages 1,381 814 -- 985 1,210
131 SCHEDULE II CENTRAL ILLINOIS LIGHT COMPANY Valuation and Qualifying Accounts and Reserves Years Ended December 31, 1999, 1998, and 1997 (Thousands of dollars)
Column A Column B Column C Column D Column E Additions Balance at Charged Charged Balance at Beginning to to Other End of Description of Period Income Accounts Deductions Period Year ended December 31, 1999 Accumulated Provisions Deducted from Assets- Doubtful Accounts $1,106 $1,467 $ -- $1,277 $1,296 Accumulated Provisions Not Deducted from Assets- Injuries and Damages 1,602 509 -- 713 1,398 Year ended December 31, 1998 Accumulated Provisions Deducted from Assets- Doubtful Accounts $ 703 $2,500 $ -- $2,097 $1,106 Accumulated Provisions Not Deducted from Assets- Injuries and Damages 1,210 768 -- 376 1,602 Year ended December 31, 1997 Accumulated Provisions Deducted from Assets- Doubtful Accounts $1,000 $2,438 $ -- $2,735 $ 703 Accumulated Provisions Not Deducted from Assets- Injuries and Damages 1,381 814 -- 985 1,210
132 SCHEDULE XIII CILCORP INC. AND SUBSIDIARY COMPANIES Investment in Leveraged Leases
Year Ended December 31, 1999 (Thousands of dollars) Amount Cost of each carried on lease(A) Balance Sheet(B) Office buildings $23,130 $ 63,458 Warehouses 11,746 19,855 Mining equipment 10,244 7,503 Generating stations 21,890 31,398 Passenger railway equipment 3,805 6,441 Cargo aircraft 9,583 15,042 ------- -------- Totals $80,398 $143,697 ======= ======== (A) This value is the original cost of the leveraged lease net of original nonrecourse debt. (B) The amount carried on the balance sheet includes current rents receivable and estimated residual value, net of unearned and deferred income and nonrecourse debt. The investment in leveraged leases balance does not include deferred taxes of $(105,625).
133 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. CILCORP INC. March 29, 2000 By P. D. Stinson President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date (i) Principal Executive Officer and Director: P. D. Stinson President and March 29, 2000 Director (ii) and (iii) Principal Financial Officer and Controller: T. D. Hutchinson Controller and March 29, 2000 Chief Financial Officer (iv) A majority of the Directors (including the Director named above): T. A. Tribone* Director March 29, 2000 M. A. Ferrucci* Director March 29, 2000 P. D. Stinson Director March 29, 2000 *By P. D. Stinson Attorney-in-fact 134 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 LIGHT COMPANY March 29, 2000 By P. D. Stinson President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date (i) Principal Executive Officer and Director: P. D. Stinson President and March 29, 2000 Director (ii) and (iii) Principal Financial Officer and Controller: T. D. Hutchinson Controller and March 29, 2000 Chief Financial Officer (iv) A majority of the Directors (including the Director named above): J. Cagle Director March 29, 2000 S. A. Cisel Director March 29, 2000 J. L. Luckey, III Director March 29, 2000 G. T. Russell Director March 29, 2000 R. J. Sprowls Director March 29, 2000 P. D. Stinson Director March 29, 2000 135 EXHIBIT (12) CILCORP INC. AND SUBSIDIARIES Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Oct. 19 Jan. 1 to to Dec. 31, Oct. 18, Twelve Months Ended 1999 1999 1998 1997 1996 1995 (Thousands of Dollars) Earnings, as Defined: Net Income from Continuing Operations $ (532) $ 687 $38,218 $ 43,709 $37,940 $38,469 Income Taxes (951) 1,113 19,699 22,349 20,702 22,427 Interest 14,339 22,629 29,257 27,049 28,964 29,861 COLI Interest Expense 850 3,181 3,624 3,491 2,731 2,349 Interest Portion of Rentals 116 1,808 1,903 1,877 1,726 2,020 Preferred Dividends 558 2,650 3,194 3,216 3,188 3,299 ------- ------- ------- -------- ------- ------- Total Earnings, As Defined $14,380 $32,068 $95,895 $101,691 $95,251 $98,425 ======= ======= ======= ======== ======= ======= Fixed Charges, as Defined: Interest Expense $14,339 $22,629 $29,257 $ 27,049 $28,964 $29,861 Interest Expense on COLI 850 3,181 3,624 3,491 2,731 2,349 Interest Portion of Rentals 116 1,808 1,903 1,877 1,726 2,020 Tax Effected Preferred Dividends 925 4,393 5,294 5,331 5,284 5,468 ------- ------- ------- -------- ------- ------- Total Fixed Charges, as Defined $16,230 $32,011 $40,078 $ 37,748 $38,705 $39,698 ======= ======= ======= ======== ======= ======= Ratio of Earnings to Fixed Charges 0.9 1.0 2.4 2.7 2.5 2.5 === === === === === ===
136 EXHIBIT (12) CENTRAL ILLINOIS LIGHT COMPANY Computation of Ratio of Earnings to Fixed Charges
Twelve Months Ended 1999 1998 1997 1996 1995 (Thousands of Dollars) Earnings, as Defined: Net Income $19,249 $44,235 $ 53,467 $45,127 $42,398 Income Taxes 8,376 22,472 20,633 24,082 22,534 Fixed Charges, as Below 29,224 28,187 29,434 28,504 27,876 ------- ------- -------- ------- ------- Total Earnings, as Defined $56,849 $94,894 $103,534 $97,713 $92,808 ======= ======= ======== ======= ======= Fixed Charges, as Defined: Interest on COLI $ 4,031 $ 3,624 $ 3,491 $ 2,731 $ 2,349 Interest on Short-term Debt 2,015 962 281 149 744 Interest on Long-term Debt 19,234 19,498 20,024 21,012 20,242 Amortization of Debt Discount & Expense, Premium and Reacquired Loss 668 535 2,218 681 669 Miscellaneous Interest Expense 1,467 1,780 1,658 2,320 1,967 Interest Portion of Rentals 1,809 1,788 1,762 1,611 1,905 ------- ------- -------- ------- ------- Total Fixed Charges, as Defined $29,224 $28,187 $ 29,434 $28,504 $27,876 ======= ======= ======== ======= ======= Ratio of Earnings to Fixed Charges 1.9 3.4 3.5 3.4 3.3 === === === === ===
137 NOTICE Telephone: In Peoria 675-8826 Elsewhere in Illinois 1-800-322-3569 Outside Illinois 1-800-622-5514 TDD 1-309-675-8892 Or you can write to us at: CILCORP Inc. Attn: Craig Stensland 300 Liberty Street Peoria, IL 61602 138 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports, dated January 28, 2000, included in this Form 10-K, into CILCORP Inc.'s previously filed Registration Statements File No. 33-45318, 33-51241, and 33- 62105. ARTHUR ANDERSEN LLP Chicago, Illinois March 29, 2000 139 EXHIBIT 24 CILCORP Inc. Power of Attorney ------------------------- We hereby make, constitute and appoint Paul D. Stinson, Robert J. Sprowls, John G. Sahn and Craig W. Stensland and any one of you our true and lawful attorney for each of us and in each of our names, places or steads, both in our individual capacities as directors and/or that of officers of CILCORP Inc., to sign and cause to be filed with the Securities and Exchange Commission CILCORP Inc.'s annual report on Form 10-K for the fiscal year ended December 31, 1999, and any appropriate amendment or amendments to said report and any necessary exhibits. The undersigned also authorize you and any one of you to sign said annual report and any amendment or amendments thereto on its behalf as attorney-in-fact for its respective officers, and to file the same as aforesaid together with any exhibits. Mark A. Ferrucci Paul D. Stinson Thomas A. Tribone 140 EXHIBIT 24 CILCO Power of Attorney ------------------------- We hereby make, constitute and appoint Paul D. Stinson, Robert J. Sprowls, John G. Sahn and Craig W. Stensland and any one of you our true and lawful attorney for each of us and in each of our names, places or steads, both in our individual capacities as directors and/or that of officers of Central Illinois Light Company (CILCO), to sign and cause to be filed with the Securities and Exchange Commission CILCO's annual report on Form 10-K for the fiscal year ended December 31, 1999, and any appropriate amendment or amendments to said report and any necessary exhibits. The undersigned, CILCO, also authorizes you and any one of you to sign said annual report and any amendment or amendments thereto on its behalf as attorney-in-fact for its respective officers, and to file the same as aforesaid together with any exhibits. Jerry D. Cagle Scott A. Cisel James L. Luckey, III Greg T. Russell Robert J. Sprowls Paul D. Stinson 141 EX-3 2 File Number 5370-721-1 State of Illinois Office of The Secretary of State WHEREAS, ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF CILCORP INC. INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF ILLINOIS, IN FORCE JULY 1, A.D. 1984. Now Therefore, I, Jesse White, Secretary of State of the State of Illinois, by virtue of the powers vested in me by law, do hereby issue this certificate and attach hereto a copy of the Application of the aforesaid corporation. In Testimony Whereof, I hereto set my hand and cause to be affixed the Great Seal of the State of Illinois, at the City of Springfield, this 15th day of November A.D. 1999 and of the Independence of the United States the two hundred and 24th. /s/Jesse White Secretary of State Form BCA-10.30 ARTICLES OF AMENDMENT File # (Rev. Jan. 1999) Jesse White Secretary of State Department of Business Services Springfield, IL 62756 Telephone (217) 782-1832 Remit payment in check or money order, payable to "Secretary of State." The filing fee for restated articles of amendment - $100.00 http://www.sos-state.il.us Submit In Duplicate This space for use by Secretary of State Date Franchise Tax $ Filing Fee* $25.00 Penalty $ Approved: 1. CORPORATE NAME: CILCORP Inc. 2. MANNER OF ADOPTION OF AMENDMENT: The following amendment of the Articles of Incorporation was adopted on October 18 1999 in the manner indicated below. By the shareholders, in accordance with Sections 10.20 and 7.10, a resolution of the board of directors having been duly adopted and submitted to the shareholders. A consent in writing has been signed by all the shareholders entitled to vote on this amendment. 3. TEXT OF AMENDMENT: a.When amendment effects a name change, insert the new corporate name below. Use Page 2 for all others amendments. Article 1: The name of the corporation is: No change All changes other than name, include on page 2 (over) Text of Amendment b.(If amendment affects the corporate purpose, the amended purpose is required to be set forth in its entirety. If there is not sufficient space to do so, add one or more sheets of this size.) 1. Article Four shall be amended and restated in its entirety as follows: ARTICLE FOUR "The authorized shares shall consist of 10,000 shares of common stock, without par value." 2.Article Six shall be amended and restated in its entirety as follows: ARTICLE SIX "The number of directors of the corporation shall be such number as may from time to time be fixed by or pursuant to the By-laws." 4.The manner, if not set forth in Article 3b, in which any exchange, reclassification or cancellation of issued shares or a reduction of the number of authorized shares of any class below the number of issued shares of that class, provided for or affected by this amendment, is as follows: (If not applicable, insert "No change") No change. 5.(a) The manner, if not set forth in Article 3b, in which said amendment effects a change in the amount of paid-in capital (Paid-in capital replaces the terms Stated Capital and Paid-in Surplus and is equal to the total of these accounts) is as follows: (If not applicable, insert "No change") No change. (b) The amount of paid-in capital (Paid-in Capital replaces the terms Stated Capital and Paid-in Surplus and is equal to the total of these accounts) as changed by this amendment is as follows: (If not applicable, insert "No change") No change. (Complete either Item 6 or 7 below. ALL signatures must be in BLACK INK.) 6.The undersigned corporation has caused this statement to be signed by its duly authorized officers, each of whom affirms under penalties of perjury, that the facts stated herein are true. Dated November 1, 1999 CILCORP Inc. (Month & Day) (Exact Name of Corporation at date of execution) Attested by: /s/John G. Sahn by: /s/Robert J. Sprowls Secretary Vice President EX-3 3 -1- BY-LAWS OF CILCORP INC. AMENDED AND RESTATED AS OF OCTOBER 18, 1999 ARTICLE I. OFFICES Section 1. The registered office of the Corporation required by the Illinois Business Corporation Act of 1983, as amended (the "Act"), to be maintained in the State of Illinois shall be in the City of Chicago, County of Cook, State of Illinois. The Corporation may also have offices at such other places both within and without the State of Illinois as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II. SHAREHOLDERS Section 1. Time and Place of Meetings. All meetings of the shareholders for the election of directors or for any other purpose shall be held at such time and place, within or without the State of Illinois, as shall be designated by the Board of Directors. In the absence of a designation of a place for any such meeting by the Board of Directors, each such meeting shall be held at the principal office of the Corporation. Section 2. Annual Meetings. An annual meeting of shareholders shall be held for the purpose of electing directors and transacting such other business as may properly be brought before the meeting. The date of the annual meeting shall be determined by the Board of Directors. Section 3. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by law, may be called by the Chief Executive Officer, by the President, by the Chairman of the Board, by a majority of the Board of Directors, or by the holders of not less than twenty percent of the outstanding shares entitled to vote on the matter for which the meeting is called by written request executed by such holders and delivered to the President or the Secretary of the Corporation. Section 4. Notice of Meetings. Written notice of each meeting of the shareholders stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty nor more than sixty days before the date of the meeting, either personally or by mail, by the President, or by the Secretary at the direction of the President or the person or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Any shareholder entitled to receive notice may waive notice of any meeting by a writing executed and delivered to the Corporation either before or after the meeting. Attendance of a shareholder at any meeting shall constitute a waiver of notice of such meeting, unless the shareholder attends such meeting for the express purpose of objecting to the holding of such meeting because proper notice was not given and at the beginning of such meeting records such objection with the person acting as secretary of the meeting and does not thereafter vote on any action taken at the meeting. Section 5. Quorum. The holders of record of a majority of the shares issued and outstanding and entitled to vote thereat, represented in person or by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business, except as otherwise provided by the Act or by the Articles of Incorporation. If a quorum is not represented, the holders of record of the shares represented in person or by proxy at the meeting and entitled to vote thereat shall have power, by the affirmative vote of the holders of a majority of such shares, to adjourn the meeting to another time and/or place, without notice other than announcement at the meeting, except as hereinafter provided, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Withdrawal of shareholders from any meeting shall not cause the failure of a duly constituted quorum at such meeting. Section 6. Voting. At all meetings of the shareholders, each shareholder shall be entitled to vote, in person or by proxy, each share owned by such shareholder of record on the record date for the meeting. Each outstanding share shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, unless otherwise provided in the Act or in the Articles of Incorporation. When a quorum is present at any meeting, the affirmative vote of the holders of record of a majority of the shares having voting power represented in person or by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the Act or of the Articles of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. A shareholder who is in attendance at a meeting of shareholders in person or by proxy, but who abstains from the vote on any matter, shall not be deemed to be represented at such meeting for purposes of the preceding sentence with respect to such vote, but shall be deemed to be represented at such meeting for all other purposes. Section 7. Informal Action by Shareholders. Unless otherwise provided by the Act or by the Articles of Incorporation, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by (a) the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting, provided, that (i) at least five days prior to the execution of the consent a notice in writing is delivered to all of the shareholders entitled to vote with respect to the subject matter thereof, and (ii) those shareholders who have not consented in writing are notified in writing of the taking of the corporate action promptly after the effective date of such action; or (b) all of the shareholders entitled to vote with respect to the subject matter thereof. Section 8. Proxies. At all meetings of shareholders, a shareholder may vote in person or vote by proxy which is executed by the shareholder or his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary or other person authorized to tabulate votes at any time prior to the commencement of the meeting. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy. ARTICLE III. DIRECTORS Section 1. General Powers. The business and affairs of the Corporation shall be managed and controlled by or under the direction of its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Articles of Incorporation or by these By-laws directed or required to be exercised or done by the shareholders. Section 2. Number, Qualification and Tenure. The Board of Directors of the Corporation shall consist of not less than three (3) members and not more than twelve (12) members, as may be determined by the Board of Directors from time to time. Within the limits above specified, the number of directors shall be determined from time to time by resolution of the Board of Directors. The directors shall be elected at the annual meeting of the shareholders, except as provided in the Articles of Incorporation or Section 3 of this Article, and each director elected shall hold office until his successor is elected and qualified or until his earlier death, termination, resignation or removal from office. Any decrease in the number of directors shall not have the effect of shortening the term of any incumbent director. Section 3. Vacancies and Newly Created Directorships. Vacancies and newly created directorships resulting from any increase in the number of directors may be filled by the appointment of a majority of the directors then in office though less than a quorum, and each director so appointed shall hold office until the next annual meeting of shareholders and until his successor is elected and qualified or until the earlier death, termination, resignation or removal from office of such director. Section 4. Independent Director. (a) The Corporation shall have at all times one indi vidual who is an Independent Director (as defined below). If the Independent Director resigns, dies or becomes incapacitated, or such position is otherwise vacant, no action requiring the unanimous affirmative vote of the directors shall be taken until a successor Independent Director is appointed and qualified and approves such action. (b) Notwithstanding any other provision of these By-laws and any provision of law that otherwise so empowers the Corporation, the Corporation shall not, without the prior unanimous consent of the Board of Directors, including the Independent Director, do any of the following: (i) make a general assignment for the benefit of creditors; (ii) file a voluntary petition in bankruptcy; (iii) file a petition or answer seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation; (iv) file an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any proceeding seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, or the entry of any order appointing a trustee, liquidator or receiver of it or of its assets or any substantial portion thereof; or (v) seek, consent to or acquiesce in the appointment of a trustee, receiver or liquidator of it or of all or any substantial part of its assets. With regard to any action contemplated by the preceding sentence, or with regard to any action taken or determination made at any time when the Corporation is insolvent, each director will owe its primary fiduciary duty to the Corporation (including the creditors of the Corporation). (c) For purposes of these By-laws of the Corporation, "Independent Director" shall mean, with respect to the Corporation, a director who is not, and within the last five years was not (except solely by virtue of such person's serving as, or affiliation with any other person serving as, an independent director of The AES Corporation ("Parent") or any of its affiliates, (i) a stockholder, member, partner, director, officer, employee, affiliate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit in any form whatever from, or any person that has provid ed any service in any form whatever to, or any major creditor (or any affiliate of any major creditor) of, the Parent or any of its affiliates, or (ii) any person owning beneficially, directly or indirectly, any outstanding shares of common stock, any limited liability corporation interests or any partnership interests, as applicable, of the Parent or any of its affiliates, or of any major creditor (or any affiliate of any major creditor) of any of the foregoing, or a stockholder, member, partner, director, offi cer, employee, affiliate, customer, supplier, creditor or inde pendent contractor of, or any person that has received any bene fit in any form whatever from, or any person that has provided any service in any form whatever to, such beneficial owner or any of such beneficial owner's affiliates, or (iii) a member of the immediate family of any person described above; provided that the indirect or beneficial ownership of stock through a mutual fund or similar diversified investment vehicle with respect to which the owner does not have discretion or control over the investments held by such diversified investment vehicle shall not preclude such owner from being an Independent Director. For purposes of this definition, "major creditor" shall mean a natural person or business entity to which the Parent or any of its affiliates has outstanding indebtedness for borrowed money or credit on open account in a sum sufficiently large as would reasonably be expected to influence the judgment of the proposed Independent Director adversely to the interests of the Corporation when the interests of that person or entity are adverse to those of the Corporation. Section 5. Directors' Duties. The directors, including the Independent Director, will act in good faith in accordance with the terms of the organizational documents and applicable law, and make decisions with respect to the business and operations of the Corporation independent of, and not dictated by, the Parent, or any other affiliate thereof, and any director shall bear a fiduciary duty to the Corporation (including its creditors). Section 6. Place of Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Illinois. Section 7. Meetings. The Board of Directors shall hold a regular meeting, to be known as the annual meeting, immediately following each annual meeting of the shareholders without any notice being given. Other regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may designate from time to time. No notice of regular meetings need be given, other than by announcement at the immediately preceding regular meeting. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board or a majority of the Board of Directors. Notice of any special meeting of the Board shall be given at least two days prior thereto, either in writing, or telephonically if confirmed promptly in writing, to each director at the address shown for such director on the records of the Corporation. Section 8. Waiver of Notice; Business and Purpose. Notice of any meeting of the Board of Directors may be waived in writing signed by the person or persons entitled to such notice either before or after the time of the meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened and at the beginning of such meeting records such objection with the person acting as secretary of the meeting and does not thereafter vote on any action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in the notice or waiver of notice of such meeting, unless specifically required by the Act. Section 9. Quorum and Voting. At all meetings of the Board of Directors a majority of the total number of directors then in office shall constitute a quorum for the transaction of business. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting without notice other than announcement at the meeting, to any other date, time and place until a quorum shall be present. The act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, unless the act of a greater number is required by the Act or by the Articles of Incorporation. Withdrawal of directors from any meeting shall not cause the failure of a duly constituted quorum at such meeting. A director who is in attendance at a meeting of the Board of Directors but who abstains from the vote on any matter by announcing his abstention to the person acting as secretary of the meeting and not voting on such matter shall not be deemed to be present at such meeting for purposes of the preceding sentence or Section 15 of this Article with respect to such vote, but shall be deemed to be present at such meeting for all other purposes. Section 10. Organization. The Chairman of the Board, if elected, shall act as chairman at all meetings of the Board of Directors. If the Chairman of the Board is not elected or if elected, is not present, the Vice Chairman, if any, or, if no such Vice Chairman is present, a director chosen by a majority of the directors present, shall act as chairman at such meeting of the Board of Directors. Section 11. Committees. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate two or more directors to constitute an Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may create one or more other committees and appoint two or more directors to serve on such committee or committees. Each director appointed to serve on any such committee shall serve, unless the resolution designating the respective committee is sooner amended or rescinded by the Board of Directors, until the next annual meeting of the Board or until his respective successor is designated. The Board of Directors, by resolution adopted by a majority of the whole Board, may also designate additional directors as alternate members of any committee to serve as members of such committee in the place and stead of any regular member or members thereof who may be unable to attend a meeting or otherwise unavailable to act as a member of such committee. In the absence or disqualification of a member and all alternate members designated to serve in the place and stead of such member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in the place and stead of such absent or disqualified member. The Executive Committee may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation between the meetings of the Board of Directors, and any other committee may exercise the power and authority of the Board of Directors to the extent specified by the resolution designating such committee, or the Articles of Incorporation or these By-laws; provided, however, that no committee may take any action that is expressly required by the Act or the Articles of Incorporation or these By-laws to be taken by the Board of Directors and not by a committee thereof. Each committee shall keep a record of its acts and proceedings, which shall form a part of the records of the Corporation in the custody of the Secretary, and all actions of each committee shall be reported to the Board of Directors at the next meeting of the Board. Meetings of committees may be called at any time by the Chairman of the Board, if any, or the chairman of the respective committee. A majority of the members of the committee shall constitute a quorum for the transaction of business and, except as expressly limited by this section, the act of a majority of the members present at any meeting at which there is a quorum shall be the act of such committee. Except as expressly provided in this section or in the resolution designating the committee, a majority of the members of any such committee may select its chairman, fix its rules of procedure, fix the time and place of its meetings and specify what notice of meetings, if any, shall be given. Section 12. Action without Meeting. Unless otherwise specifically prohibited by the Articles of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting, if all members of the Board of Directors or such committee, as the case may be, execute a consent thereto in writing setting forth the action so taken, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. Section 13. Attendance by Telephone. Members of the Board of Directors or any committee thereof may participate in and act at any meeting of the Board of Directors or such committee, as the case may be, through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meeting shall constitute attendance and presence in person at the meeting of the person or persons so participating. Section 14. Compensation. By resolution of the Board of Directors, irrespective of any personal interest of any of the members thereof, the directors may be paid their reasonable expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at meetings or a stated salary as directors, payable in cash or securities. These payments shall not preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 15. Presumption of Assent. A director who is present at a meeting of the Board of Directors or any committee thereof when corporate action is taken shall be deemed to have assented to the action taken unless: (1) he objects at the beginning of the meeting to holding such meeting or transacting business at such meeting; (2) his dissent from the action taken is entered in the minutes of such meeting; or (3) he delivers written notice of his dissent to the person acting as the secretary of the meeting before the adjournment thereof or forwards such dissent by registered or certified mail to the Secretary immediately after the adjournment of such meeting. The right of dissent is not available to a director who votes in favor of the action taken. ARTICLE IV. OFFICERS Section 1. Enumeration. The officers of the Corporation shall be chosen by the Board of Directors and shall include a President and a Secretary. The Board of Directors may also elect a Chairman of the Board, a Vice Chairman, one or more Vice Presidents, a Treasurer, one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents as it may deem appropriate. Any number of offices may be held by the same person. Section 2. Term of Office. The officers of the Corporation shall be elected at the annual meeting of the Board of Directors and shall hold office until their successors are elected and qualified or until their earlier death, termination, resignation or removal from office. Any officer or agent of the Corporation may be removed, with or without cause, by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Any vacancy in any office because of death, resignation, termination, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. Section 3. Chief Executive Officer. The Chief Executive Officer of the Corporation, if elected, shall have general supervision, direction and control of the business and affairs of the Corporation, subject to the control of the Board of Directors, and shall have such other functions, authority and duties as customarily appertain to the office of the chief executive officer of a business corporation or as may be prescribed by the Board of Directors. Section 4. President. During any period when there shall be an office of Chief Executive Officer, the President shall be the chief operating officer of the Corporation and shall have such functions, authority and duties as may be prescribed by the Board of Directors or the Chief Executive Officer. During any period when there shall not be an office of Chief Executive Officer, the President shall be the chief executive officer of the Corporation, and, as such, shall have the functions, authority and duties provided for the Chief Executive Officer. Section 5. Vice President. The Vice President or, if there shall be more than one, each Vice President, in the absence of the President or in the event of the President's inability or refusal to act (and if there be no Chief Executive Officer), shall have the authority to perform the duties of the President, subject to such limitations thereon as may be imposed by the Board of Directors, and such other duties as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer or the President. Section 6. Secretary. The Secretary shall: (a) keep a record of all proceedings of the shareholders, the Board of Directors and any committees thereof in one of more books provided for that purpose; (b) give, or cause to be given, all notices that are required by law or these By-laws to be given by the Secretary; (c) be custodian of the corporate records and, if the Corporation has a corporate seal, of the seal of the Corporation; (d) have authority to affix the seal of the Corporation to all instruments the execution of which requires such seal and to attest such affixing of the seal; (e) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (f) sign, with the Chief Executive Officer, if any, or President or any Vice President, or any other officer thereunto authorized by the Board of Directors, any certificates for shares of the Corporation, or any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed by the signature of more than one officer; (g) have general charge of the share transfer books of the Corporation; (h) have authority to certify as true and correct copies of the By-laws, or resolutions of the shareholders, the Board of Directors and committees thereof, and of other documents of the Corporation; and (i) in general, perform the duties incident to the office of secretary and such other duties as from time to time may be prescribed by the Board of Directors, the Chief Executive Officer or the President. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest such affixing of the seal. Section 7. Assistant Secretary. The Assistant Secretary, or if there shall be more than one, each Assistant Secretary in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, shall have the authority to perform the duties of the Secretary, subject to such limitations thereon as may be imposed by the Board of Directors, and such other duties as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer, the President or the Secretary. Section 8. Treasurer. The Treasurer shall be the principal accounting and financial officer of the Corporation. The Treasurer shall: (a) have charge of and be responsible for the maintenance of adequate books of account for the Corporation; (b) have charge and custody of all funds and securities of the Corporation, and be responsible therefor and for the receipt and disbursement thereof; and (c) perform the duties incident to the office of treasurer and such other duties as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer or the President. The Treasurer may sign with the Chief Executive Officer, if any, or the President, or any Vice President, or any other officer thereunto authorized by the Board of Directors, certificates for shares of the Corporation. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors may determine. Section 9. Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, each Assistant Treasurer, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, shall have the authority to perform the duties of the Treasurer, subject to such limitations thereon as may be imposed by the Board of Directors, and such other duties as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer, the President or the Treasurer. Section 10. Other Officers and Agents. Any officer or agent who is elected or appointed from time to time by the Board of Directors and whose duties are not specified in these By-laws shall perform such duties and have such powers as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer or the President. ARTICLE V. CERTIFICATES FOR SHARES Section 1. Form. The shares of the Corporation shall be represented by certificates; provided, however, the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation's shares shall be uncertificated shares. Each certificate for shares shall be consecutively numbered or otherwise identified. Certificates representing shares in the Corporation shall be signed by or in the name of the Corporation by the Chief Executive Officer or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation. Where a certificate is countersigned by a transfer agent, other than the Corporation or an employee of the Corporation, or by a registrar, the signatures of one or more officers of the Corporation may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were such officer, transfer agent or registrar at the date of its issue. Section 2. Transfer. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate or uncertificated shares in place of any certificate therefor issued by the Corporation to the person entitled thereto, cancel the old certificate and record the transaction in its share book. Section 3. Replacement. In case of the loss, destruction, mutilation or theft of a certificate representing shares of the Corporation, a new certificate may be issued upon the surrender of the mutilated certificate or, in the case of loss, destruction or theft of a certificate, upon satisfactory proof of such loss, destruction or theft and upon such terms as the Board of Directors may prescribe. The Board of Directors may in its discretion require the owner of the lost, destroyed or stolen certificate, or his legal representative, to give the Corporation a bond, in such sum and in such form and with such surety or sureties as it may direct, to indemnify the Corporation against any claim that may be made against it with respect to the certificate alleged to have been lost, destroyed or stolen. ARTICLE VI. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS Section 1. Third Party Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including all appeals (other than an action, suit or proceeding by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation (and the Corporation, in the discretion of the Board of Directors, may so indemnify a person by reason of the fact that he is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation, another corporation, partnership, joint venture, trust or other enterprise in any capacity), against expenses (including attorneys' fees), judgments, decrees, fines, penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe his conduct was unlawful. Section 2. Actions By or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit, including all appeals, by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation (and the Corporation, in the discretion of the Board of Directors, may so indemnify a person by reason of the fact that he is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation in any other capacity for or on behalf of the Corporation), against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the court in which such action or suit was brought, or any other court of competent jurisdiction, shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. Notwithstanding the foregoing, the Corporation shall be required to indemnify an officer or director in connection with an action, suit or proceeding initiated by such person only if such action, suit or proceeding was authorized by the Board of Directors. Section 3. Indemnity if Successful. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 or 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 4. Standard of Conduct. Except in a situation governed by Section 3 of this Article, any indemnification under Section 1 or 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or 2, as applicable, of this Article. Such determination shall be made (i) by a majority vote of directors acting at a meeting at which a quorum consisting of directors who were not parties to such action, suit or proceeding is present, or (ii) if such a quorum is not obtainable, or even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the shareholders. Section 5. Expenses. Expenses of each officer and director hereunder indemnified actually and reasonably incurred in defending a civil or criminal action, suit or proceeding or threat thereof shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of any undertaking by or on behalf of such person to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article. Such expenses incurred by employees and agents may be so paid upon receipt of the aforesaid undertaking and such other terms and conditions, if any, as the Board of Directors deems appropriate. Section 6. Nonexclusivity. The indemnification and advancement of expenses provided by, or granted pursuant to other Sections of this Article, shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may now or hereafter be entitled under any law, by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 7. Insurance. The Corporation may purchase and maintain insurance, on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of the Act. Section 8. Definitions. For purposes of this Article, references to "the Corporation" shall include, in addition to the surviving corporation, any merging corporation (including any corporation having merged with a merging corporation) absorbed in a merger which, if its separate existence had continued, would have had the power and authority to indemnify any or all of its directors, officers, employees and agents, so that any person who was a director, officer, employee or agent of such merging corporation, or was serving at the request of such merging corporation in any other capacity, shall stand in the same position under the provisions of this Article with respect to the surviving corporation as such person would have had with respect to such merging corporation if its separate existence had continued as such corporation was constituted immediately prior to such merger. For purposes of this Article, references to "other capacities" shall include serving as a trustee or agent for any employee benefit plan; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. Section 9. Reports to Shareholders. If required by the Act, the Corporation shall report any indemnity payment or advancement of expenses by the Corporation to any director, officer, employee or agent provided for in this Article to the shareholders in writing either with or before the distribution of the notice of the next shareholders' meeting. Section 10. Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction, and the remaining provisions hereof shall be liberally construed to effectuate the provisions hereof, and the invalidity of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. Section 11. Amendment. The right to indemnification conferred by this Article shall be deemed to be a contract between the Corporation and each person referred to herein until amended or repealed, but no amendment to or repeal of these provisions shall apply to or have any effect on the right to indemnification of any person with respect to any liability or alleged liability of such person for or with respect to any act or omission of such person occurring prior to such amendment or repeal. ARTICLE VII. SEPARATENESS Section 1. Funds, Assets and Accounts. The funds and other assets of the Corporation shall not be commingled with those of any other entity, and the Corporation shall maintain its accounts separate from any other person or entity. Section 2. Liability for Debts and Name. The Corporation shall not hold itself out as being liable for the debts of any other entity, and shall conduct its own business in its own name. Section 3. Action through Agents and Identity. The Corporation shall act solely in its own name and through its duly authorized directors, officers or agents in the conduct of its business, and shall conduct its business so as not to mislead others as to the identity of the entity or assets with which they are concerned. Section 4. Separate Records. The Corporation shall maintain separate records, books of account and financial statements, and shall not commingle its records and books of account with the records and books of account of any other entity. Section 5. Formalities. The Corporation shall observe in all material respects all formalities required by its organizational documents and applicable law. Section 6. Capitalization. The Corporation shall at all times ensure that its capitalization is adequate in light of its business and purpose. Section 7. Debts of Affiliates. Subject to the last sentence of this Section 7, (i) neither the Parent nor any affiliate of the Parent (other than the Corporation) shall guaranty, become liable on or hold itself out as being liable for the debts of the Corporation; (ii) the Corporation shall not guarantee or become obligated for the debts of the Parent or any affiliate thereof (other than the Corporation), or otherwise hold out its credit as being available to satisfy the obligations of the Parent or any affiliate thereof (other than the Corporation); (iii) the Corporation shall not pledge its assets for the benefit of Parent or any of its affiliates; (iv) the Corporation shall not make loans or advances to Parent or any of its affiliates, and shall not acquire obligations or securities of the Parent or any affiliate thereof (other than the Corporation), other than the settlement of purchase contracts with respect to any Premium Income Equity Securities or similar securities issued by the Corporation. Notwithstanding the foregoing, the Corporation may take any action otherwise prohibited under this Section 7 if such action is taken with respect to its own subsidiaries, and its own subsidiaries may take any action otherwise prohibited under this Section 7 if such action is taken with respect to the Corporation. Section 8. Payment of Liabilities. The Corporation shall pay its own liabilities out of its own funds. Section 9. Arm's Length Relationship with Affiliates. The Corporation shall maintain an arm's-length relationship with its affiliates. Section 10. Overhead and Office Space. The Corporation shall allocate fairly and reasonably any overhead for office space shared with the Parent or any affiliate thereof. Section 11. Separate Business Forms. The Corporation shall use its own separate stationery, invoices, checks and other business forms. Section 12. Correction of Misunderstandings. The Corporation shall correct any known misunderstanding regarding its separate identity. ARTICLE VIII. GENERAL PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall be fixed from time to time by resolution of the Board of Directors. Section 2. Corporation Seal. The corporate seal, if any, of the Corporation shall be in such form as may be approved from time to time by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 3. Notices and Mailing. Except as otherwise provided in the Act, the Articles of Incorporation or these By- laws, all notices required to be given by any provision of these By-laws shall be deemed to have been given (i) when received, if given in person, (ii) on the date of acknowledgment of receipt, if sent by telex, facsimile or other wire transmission, (iii) one day after delivery, properly addressed, to a reputable courier for same day or overnight delivery, or (iv) three days after being deposited, properly addressed, in the U.S. mail, certified or registered mail, postage prepaid. Section 4. Waiver of Notice. Whenever any notice is required to be given under the Act or the provisions of the Articles of Incorporation or these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Section 5. Interpretation. In these By-laws, unless a clear contrary intention appears, the singular number includes the plural number and vice versa, and reference to either gender includes the other gender. ARTICLE IX. AMENDMENTS Unless the power to make, alter, amend or repeal these By- laws is reserved to the shareholders by the Articles of Incorporation, these By-laws, including any By-law adopted by the shareholders, may be made, altered, amended or repealed by the shareholders or the Board of Directors, provided, that (i) the unanimous consent of the Board of Directors, including the Independent Director, shall be required to alter, amend or repeal (a) Section 4 and Section 5 of Article III hereof; (b) Article VII hereof; and (c) this Article IX; and (ii) subject to paragraph (i) above, the fact that the power to make, alter, amend or repeal these By-laws has been conferred upon the Board of Directors shall not divest the shareholders of the same powers. EX-10 4 CENTRAL ILLINOIS LIGHT COMPANY EXECUTIVE DEFERRAL PLAN (EDP) December 1, 1985 as amended February 22, 1994 January 29, 1996 August 17, 1998 April 1, 1999 August 15, 1999 ARTICLE 1 - DEFINITIONS 1 ARTICLE 2 - ELIGIBILITY 3 2.1SELECTION BY COMMITTEE 3 2.2PLAN AGREEMENT OF EXECUTIVE 3 ARTICLE 3 - DEFERRAL COMMITMENTS 3 3.1MINIMUM DEFERRAL 3 3.2MAXIMUM DEFERRAL 4 3.3SPECIAL DEFERRAL 4 3.4WITHHOLDING OF DEFERRAL AMOUNTS 4 3.5ANNUAL RATE 4 3.6DEFERRAL PERIOD 4 3.7DEFAULT 4 3.8DEFERRAL PENALTY IN THE EVENT OF DEFAULT 4 3.9NO WAIVER OF DEFAULT 4 3.10CREDITING OF DEFERRAL AMOUNTS, COMPANY CONTRIBUTIONS AND ROLLOVER ESPP AMOUNTS 5 3.11TERMINATION OF PARTICIPATION 5 ARTICLE 4 - 7TH YEAR DISTRIBUTION 5 4.17TH-YEAR DISTRIBUTION 5 4.2SUPPLEMENTAL PLAN AGREEMENTS 5 4.3HARDSHIP WITHDRAWALS 5 ARTICLE 5 - RETIREMENT BENEFIT 6 5.1RETIREMENT BENEFIT 6 5.2RATE OF INTEREST FOR RETIREMENT BENEFITS 6 5.3FORM AND COMMENCEMENT OF RETIREMENT BENEFITS 6 5.4POST-RETIREMENT PLAN AGREEMENTS 7 5.5AMOUNT OF RETIREMENT BENEFIT 7 5.6DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFITS 7 ARTICLE 6 - ROLLOVER ESPP 7 6.1PARTICIPANTS ELIGIBLE FOR ESPP ROLLOVER 7 6.2ESPP VESTING CREDIT 7 ARTICLE 7 - SURVIVOR BENEFITS 8 7.1PRE-RETIREMENT SURVIVOR BENEFIT 8 7.2AMOUNT OF SURVIVOR BENEFITS 8 7.3ELIGIBILITY REQUIREMENTS FOR SURVIVOR BENEFIT 8 7.4RESTRICTION IN THE EVENT OF SUICIDE 8 ARTICLE 8 - TERMINATION BENEFIT 9 8.1TERMINATION BENEFITS 9 8.2TERMINATION PRIOR TO 7 YEARS OF PLAN PARTICIPATION AND PRIOR TO AGE 55 9 8.3TERMINATION AFTER 7 YEARS OF PLAN PARTICIPATION AND PRIOR TO AGE 55 9 8.4INVOLUNTARY TERMINATION WITHOUT CAUSE FOLLOWING A CHANGE IN CONTROL OF CILCORP INC. 9 ARTICLE 9 - DISABILITY BENEFIT 9 9.1AMOUNT OF DISABILITY BENEFIT 9 9.2COMMENCEMENT AND TERMINATION OF DISABILITY BENEFITS 9 9.3MAXIMUM AGE FOR DISABILITY BENEFITS 9 ARTICLE 10 - BENEFICIARY DESIGNATION 9 10.1 BENEFICIARY DESIGNATION 9 10.2 CHANGE OF BENEFICIARY DESIGNATION 9 10.3 NO PARTICIPANT DESIGNATION 9 10.4 EFFECT OF PAYMENT 9 ARTICLE 11 - LEAVE OF ABSENCE 9 11.1 PAID LEAVE OF ABSENCE 9 11.2 UNPAID LEAVE OF ABSENCE 9 ARTICLE 12 - OTHER BENEFITS AND AGREEMENTS 9 12.1 COORDINATION WITH OTHER BENEFITS 9 12.2 RESTORATION OF PENSION BENEFITS 9 ARTICLE 13 - DISCONTINUANCE, AMENDMENT OR TERMINATION 9 13.1 DISCONTINUANCE 9 13.2 AMENDMENT 9 13.3 TERMINATION 9 ARTICLE 14 - MISCELLANEOUS 9 14.1 UNSECURED GENERAL CREDITOR 9 14.2 NONASSIGNABILITY 9 14.3 NOT A CONTRACT OF EMPLOYMENT 9 14.4 PROTECTIVE PROVISIONS 9 14.5 TERMS 9 14.6 CAPTIONS 9 14.7 GOVERNING LAW 9 14.8 VALIDITY 9 14.9 NOTICE 9 14.10 SUCCESSORS 9 14.11 HOSTILE TAKEOVER 9 14.12 ATTORNEY FEES 9 14.13 LATE PAYMENT PENALTY 9 14.14 INCOMPETENT 9 ARTICLE 15 - ADMINISTRATION 9 15.1 COMMITTEE/INDEPENDENT AGENT DUTIES 9 15.2 AGENTS 16 15.3 BINDING EFFECT OF DECISION 16 15.4 INDEMNITY OF COMMITTEE 16 15.5 EMPLOYER INFORMATION 16 ARTICLE 16 - REDP PARTICIPATION 16 16.1 REDP PARTICIPATION 16 EXECUTIVE DEFERRAL PLAN OF CENTRAL ILLINOIS LIGHT COMPANY Purpose The primary purpose of the Executive Deferral Plan of Central Illinois Light Company is to help attract and maintain high caliber employees in high-level management positions. Directors, executive officers of the Company and certain other key employees on the Company's management staff (i.e., elected officers, department heads, and other key employees reporting to executive officers) will be allowed to participate in the Executive Deferral Plan. Members of the management staff allowed to participate will be those key employees who, in the opinion of the administrative committee of the Executive Deferral Plan, contribute significantly to the health and well-being of the Company through their leadership and managerial talents and who occupy management positions of importance in the Company. Article 1 - Definitions For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Base Annual Salary" shall mean the yearly compensation excluding bonuses or other fees paid to a Participant for employment services rendered to the Employer, before reduction for compensation deferred pursuant to this plan. 1.2 "Beneficiary" shall mean the person or persons, or the entity designated by the Participant to receive any benefits payable under this Plan upon the death of a Participant. Any Participant's Beneficiary designation shall be made by written instrument filed with the Committee and shall become effective only when received, accepted and acknowledged in writing by the Committee. 1.3 "Committee" shall mean the administrative committee appointed to manage and administer the Plan in accordance with its provisions pursuant to Article 15. 1.4 "Company" shall mean CENTRAL ILLINOIS LIGHT COMPANY, any corporation which is, along with the Company, a member of a controlled group of corporations as described in Section 414(b) of the Internal Revenue Code of 1954, as amended, and all successor companies thereto. 1.5 "Company Contributions" shall mean such amounts, if any, that an Employer, in its sole discretion, contributed to the Plan in any year for the benefit of all or some Participants. 1.5(a) "Continuing Director" means any member of the Board of the Company or of its majority shareholder (hereinafter the "Board"), while such person is a member of the Board, who was a member of the Board prior to January 29, 1996. A "Continuing Director" also means any person who subsequently becomes a member of the Board, while such person is a member of the Board, if such person's nomination for election or election to the Board is recommended or approved by resolution of a majority of the Continuing Directors. 1.6 "Covered Salary" shall mean a Participant's Base Annual Salary and bonuses which serves as a basis for computation of the Retirement, Survivor or Termination benefits pursuant to the terms and conditions of this Plan. 1.7 "Deferral Amount" shall mean the amount of Covered Salary deferred by a Participant each year pursuant to his election in the form of a Plan Agreement. 1.8 "Deferral Period" shall mean the period during which amounts of Covered Salary are being deferred pursuant to the deferral election of the Participant as set forth in the Participant's Plan Agreement. 1.9 "Disability". A Participant shall be considered totally disabled by bodily injuries, sickness or disease for purposes of the Plan for the period, excluding any period for which he receives benefits under the Company's Sick Pay Plan, if: a. During the first two years of any period of total disability, the Participant is unable to perform the duties of his occupation; and b. During continuation of the period of total disability beyond two years, the Participant is unable to engage in any business or occupation or to perform any work for compensation, gain or profit for which he is reasonably fitted by education, training or experience. 1.10 "EDP Account" shall mean an individual account comprised of a Participant's Deferral Amounts, Rollover ESPP amounts, Company Contributions and interest credited thereon. An EDP Account shall be maintained for each Participant. A Participant's EDP Account shall be utilized solely as a device for the measurement and determination of the amounts to be paid to the Participant pursuant to this Plan. A Participant's EDP Account shall not constitute or be treated as a trust fund. 1.11 "Employer" shall mean the Company having one or more eligible Employees who have been selected by the Committee to participate. Where the context dictates, the term "Employer" as used herein refers to the particular Employer which has entered into a Plan Agreement with a specific Participant. 1.12 "Executive" shall mean directors and those persons in the regular full-time employment of the Company who are key employees and members of the management staff who are selected for participation in the Plan by the Committee. 1.12(a) "Hostile Takeover" shall mean the acquisition of beneficial ownership (determined in accordance with Rule 13(d)-3 of the Exchange Act) directly or indirectly, of more than 30% of the voting power of the outstanding stock of the Company or its majority shareholder by any person coupled with or followed by the failure of Continuing Directors to constitute a majority of the Board." 1.13 "Moody's Seasoned Corporate Bond Rate" (Moody's) is the rate published in Moody's Bond Record under the heading of "Moody's Corporate Bond Yield Averages - Av Corp." and is equal to the average corporate yield calculated for the month of November that immediately precedes the Plan Year for which the rate is to be used. 1.14 "Participant" shall mean any Executive who elects to participate in the Plan by executing a Plan Agreement. 1.15 "Plan" shall mean the Executive Deferral Plan of the Employer which shall be evidenced by this instrument and by each Plan Agreement, as amended from time to time. 1.16 "Plan Agreement" shall mean the form of written agreement, as amended from time to time, which is entered into by and between an Employer and a Participant. 1.17 "Plan Anniversary Date" shall be the last day of the Plan Year. 1.18 "Plan Year" shall mean the 12 consecutive month period commencing on December 1 and ending on the next following November 30. 1.19 "Retirement" and "Retire" shall mean severance from employment with the Employer at or after the attainment of age fifty-five (55). 1.20 "Retirement Benefit Date" shall mean the date that the Retired Participant first receives Retirement benefits under the Plan. 1.21 "Rollover ESPP" shall mean the amount credited to a Participant under the Executive Salary Protection Plan which is to be credited to the Participant's EDP Account (one-time credit equal to the present value of the ESPP benefit). 1.22 "Secondary Account Balance" shall mean the portion of the EDP Account attributable to the 5% interest credited thereon which is above Moody's and any accumulation thereon at a crediting rate of Moody's plus five percent (5%). 1.23 "Termination of Employment" shall mean the ceasing of employment with the Company, voluntarily or involuntarily, for any reason other than Retirement, Disability or death. Article 2 - Eligibility 2.1 Selection By Committee The Committee shall have the sole discretion to determine the employees of the Company who are key employees and members of the management staff who are eligible to become Participants in accordance with the purpose of the Plan. The Committee shall also have the sole discretion to determine the directors of the Company who are eligible to become Participants. The foregoing notwithstanding, participation shall be limited to those individuals who are Participants as of June 15, 1994. 2.2 Plan Agreement of Executive As a condition of participation, each Executive shall complete, execute and return to the Committee prior to the beginning of the applicable Deferral Period a Plan Agreement. Article 3 - Deferral Commitments 3.1 Minimum Deferral The Participant may defer no less than $2,000 per Plan Year. 3.2 Maximum Deferral A Participant who became eligible to participate in the Plan on or before November 30, 1989, and all directors of the Company, may defer no more than 100% of Covered Salary or board fees, as applicable. A Participant who became eligible to participate in the Plan on or after December 1, 1989 may defer no more than 15% of Covered Salary. 3.3 Special Deferral The Committee may specify the Plan Years, if any, in which each Participant may elect to defer an amount ("Special Deferral Amount") in addition to the amount or percentage of Covered Salary otherwise specified for deferral under the Plan Agreement. The Special Deferral Amount, if any, shall be set forth in the Plan Agreement of the Participant and shall be treated as a Deferral Amount under the provisions of the Plan except as otherwise provided in Sections 7.2 and 9.1. 3.4 Withholding of Deferral Amounts The amount or percentage of Covered Salary elected to be deferred pursuant to the Plan Agreement of a Participant shall be withheld over the Deferral Period in the manner set forth in the Plan Agreement of the Participant. 3.5 Annual Rate The Moody's rate for any Plan Year shall be fixed prior to the beginning of the Plan Year. Subject to the provisions and limitations of the Plan, the EDP Account will accrue annual interest at a crediting rate of Moody's plus five percent (5%) from the date of Plan inception. 3.6 Deferral Period The Deferral Period for each Participant shall be a fixed 4 year period commencing on the December 1 coincident with or next preceding the date on which the Participant's initial Deferral Amount is made to the Plan following the Participant's filing of a Plan Agreement with the Committee. 3.7 Default Default occurs when the Participant does not defer the amount of Covered Salary previously committed to the Plan under that Participant's Plan Agreement. Termination of Employment is not considered a default. A Participant who has a Termination of Employment will receive Termination Benefits, as set forth in Article 8. 3.8 Deferral Penalty In the Event of Default In the event of default by a Participant on a deferral commitment during the Deferral Period, the Participant may not defer any portion of his Covered Salary for the balance of the Plan Year in which the default occurs or for the next following Plan Year. 3.9 No Waiver of Default The Committee may not waive any default penalty set forth in Section 3.8. 3.10 Crediting of Deferral Amounts, Company Contributions and Rollover ESPP Amounts The amount or percentage of Covered Salary that a Participant elects to defer in the Plan Agreement executed by the Participant with respect to each Plan Year shall be credited by the Employer to the Participant's EDP Account throughout each Plan Year as the Participant is paid the nondeferred portion of Covered Salary for such Plan Year or on the date any lump sum Deferral Amount is contributed to the Plan. The amount or percentage of Covered Salary so credited to a Participant's EDP Account shall equal the amount deferred. The Participant shall designate in the Plan Agreement the amount or percentage of Covered Salary to be deferred. Company Contributions, if any, and Rollover ESPP amounts, if any, shall be credited to a Participant's EDP Account at the time made by the Employer. 3.11 Termination of Participation A Participant may terminate participation in the Plan at any time by giving the Employer written notice of such termination not less than 30 days prior to the anniversary date of the execution of the most recent Plan Agreement of the Participant. Benefits to a Participant who elects to terminate Plan participation shall be payable in accordance with the terms of the Plan. Article 4 - 7th Year Distribution 4.1 7th-Year Distribution Except as otherwise provided in Section 4.2, a Participant shall be paid his EDP Account, excluding that portion attributable to interest credited in excess of Moody's and any accumulation thereon, 45 days after the commencement of his seventh Plan Year of participation in the Plan. All other funds in the EDP Account will remain in the Plan until the Participant dies, incurs a Disability, Retires or incurs a Termination of Employment. 4.2 Supplemental Plan Agreements Prior to the Plan Anniversary Date preceding the Plan Year in which the 7th-Year Distribution is payable to a Participant, the Participant may enter into a Supplemental Plan Agreement ("Supplemental Plan Agreement") whereby the Participant and the Employer agree to a further deferral until retirement of all or a portion of the amount that would otherwise be payable as a 7th-Year Distribution. The Supplemental Plan Agreement must be entered into a minimum of one (1) year prior to the Plan Anniversary Date preceding the Plan Year in which the 7th-Year Distribution is payable to a Participant, must be executed by the Participant in writing in a form acceptable to the Committee, and must be returned to the Committee one (1) year prior to the beginning of the Plan Year in which the 7th-Year Distribution would otherwise be payable. If a Supplemental Plan Agreement is timely executed all funds remaining in the EDP Account will remain in the Plan until the Participant's death, disability, retirement or termination of employment. No Retired Participant shall be eligible to enter into a Supplemental Plan Agreement under this provision. 4.3 Hardship Withdrawals A Participant may make a "Hardship" withdrawal of his EDP Account balance only if: (1) the withdrawal is on account of an immediate and heavy financial need of the Participant; and (2) the withdrawal does not exceed the amount necessary to satisfy the immediate and heavy financial need. Any request for a withdrawal in accordance with this subsection 4.3 shall be in writing filed with the Committee in such form and at such time as the Committee may require. A Participant will be deemed to have a Hardship if he has an immediate and heavy financial need and if such withdrawal is for the purpose of: (1) medical expenses of the Participant, his spouse or a dependent, or (2) the prevention of the eviction from or the foreclosure on a Participant's principal residence. A distribution will be deemed not to exceed the amount necessary to meet the Participant's immediate and heavy financial need if: (a) the amount of withdrawal under this paragraph 4.3 does not exceed the amount necessary to satisfy his immediate and heavy financial need; (b) he has received all distributions and taken all loans under any tax-qualified plan of the Company; (c) his ability to make contributions to any salary deferral plan, qualified or nonqualified, is suspended for a period of 12 months following a withdrawal under this paragraph 4.3; and (d) the maximum amount of contributions the Participant may make to any salary deferral plan, qualified or nonqualified, for the Plan Year next following the Plan Year in which a Hardship withdrawal, pursuant to this paragraph 4.3 is made, is reduced by the amount of contributions, if any, the Participant made during the Plan Year in which such a withdrawal was made. Article 5 - Retirement Benefit 5.1 Retirement Benefit A Participant who Retires shall become eligible to receive, in accordance with this Article 5, Retirement benefits on the Participant's Retirement Benefit Date. Unless a Post- Retirement Plan Agreement provides otherwise, the Retirement Benefit Date of a Participant who Retires shall be the first day of the month following his Retirement. Retirement benefits may be in the form of a lump sum or an amount per month based on his EDP Account as of the Participant's Retirement Benefit Date. 5.2 Rate of Interest for Retirement Benefits The interest on the EDP Account will be based on a fixed rate which is an average of the annual Moody's Seasoned Corporate Bond Rate for a five (5) year period consisting of the Plan Year in which the Participant's Retirement Benefit Date occurs and the four (4) immediately preceding Plan Years with an additional 5% interest credited to the fixed rate. 5.3 Form and Commencement of Retirement Benefits Thirty (30) days before his Retirement the Participant must inform the Committee in writing of the form in which his Retirement benefits are to be paid, either in a lump sum or in equal monthly payments. If no election is timely made, the Plan will pay benefits in equal monthly installments. Unless otherwise provided pursuant to a Post-Retirement Plan Agreement, Retirement benefits, if a lump sum form of payment is selected, shall be paid on the first day of the month following the Participant's Retirement. If the Participant elects the monthly installment form of payment, his Retirement benefits shall commence on the first day of the month following the Retirement of the Participant and shall be paid over a period up to 120 months or a 180 or 240 month period, in equal monthly installments. Thirty (30) days before his Retirement, the Participant must inform the Committee in writing of the benefit payment period over which his monthly benefits are to be paid. If no election is timely made, the Plan will pay benefits over 240 months. 5.4 Post-Retirement Plan Agreements A Participant may enter into a Post-Retirement Plan Agreement whereby the Participant and the Employer agree to a deferral to a date certain of the payment of the Retirement benefits that would otherwise be paid under Section 5.3, the form in which the benefits are to be paid and/or, if a monthly installment form has been selected, the time period over which such benefits are to be paid. The Post-Retirement Plan Agreement must be executed by the Participant in writing in a form acceptable to the Committee and delivered to the Committee at least thirty (30) days prior to the Participant's Retirement. Retirement benefits which are deferred by reason of a Post- Retirement Plan Agreement shall be paid to the Participant in the form and on the date certain as selected by the Participant. No Participant may defer the payment of his Retirement benefits to a date beyond the later of (1) ten (10) years following the Participant's commencement of Plan participation, (2) Retirement, or (3) age 65 (age 72 in the case of a Participant who was a Director on August 20, 1993). 5.5 Amount of Retirement Benefit A Participant's Retirement benefits shall be equal to the balance of his EDP Account as of his Retirement Benefit Date, except that the amount payable from the Participant's Secondary Account Balance shall be reduced, as appropriate, in accordance with the vesting schedule set forth in Section 8.3 and fixed as of the date that a lump sum payment is made or that monthly payments commence (the Retirement Benefit Date). 5.6 Death Prior to Completion of Retirement Benefits If a Retired Participant who has elected the monthly installment form of payment dies after the commencement of Retirement benefit payments but before the applicable Retirement benefit is paid in full, the Participant's unpaid Retirement benefit payments shall continue and be paid to that Participant's Beneficiary in the same manner as selected by the Participant. If a Retired Participant dies prior to the payment of Retirement benefits, his Beneficiary shall be paid benefits in a lump sum on the first day of the month following the death of the Participant, unless the Participant had retired on or before January 1, 1995, in which case the benefit will be paid over a 240 month period. The aggregate benefits to be paid to the Participant's Beneficiary will be in an amount equal to the balance of the Participant's EDP Account as of the date of the Participant's death. Notwithstanding the foregoing, the Committee may, in its sole and absolute discretion, select a later commencement date or an alternate payment period not to exceed 120 months for the payment of benefits under this Section to any Beneficiary. Article 6 - Rollover ESPP 6.1 Participants Eligible for ESPP Rollover A Participant who had participated in the Executive Salary Protection Plan ("ESPP") shall be entitled to a Rollover ESPP only if such Participant is age 55 or older as of December 1, 1985. Each Participant who is eligible for a Rollover ESPP will be credited with such amount in his EDP Account. Individual Rollover ESPP amounts, if any, will be reported on the Participant's Plan Agreement. 6.2 ESPP Vesting Credit All Participants who had participated in the ESPP shall be credited with three additional years of Plan participation for purposes of the vesting schedule set forth in Section 8.3 but for no other purpose under the Plan. The vesting years so credited shall be in addition to actual years (and fractional years) of actual participation in the ESPP. A Participant's Rollover ESPP will at all times remain fully vested. For example, a Participant with four and one-half years in the ESPP will initially be 70% vested in his Secondary Account Balance (4 1/2 years + 3 years = 7 1/2 years = 70% vested). Article 7 - Survivor Benefits 7.1 Pre-Retirement Survivor Benefit If a Participant dies before Retirement, the Employer will pay a Survivor's Benefit to the designated Beneficiary of the Participant. 7.2 Amount of Survivor Benefits The Beneficiary eligible for a Survivor Benefit will receive in a lump sum as soon as practicable the greater of: a. The existing EDP Account balance, or b. Ten (10) times the sum of: i. the greatest Deferral Amount committed in one Plan Year by the Participant, except that only one-quarter (1/4) of any Special Deferral Amount shall be considered for this purpose, and ii. the Company Contributions made for that Plan Year, provided, however, that if a Participant failed to meet the eligibility requirement set forth in Section 7.3(b), the Beneficiary of that Participant shall be limited to the Survivor Benefit set forth in paragraph (a) of this Section 7.2. 7.3 Eligibility Requirements For Survivor Benefit The obligation of the Employer to pay the Survivor Benefit to any Beneficiary shall exist only if: a. at the time of death, the Participant was employed by the Employer, on an authorized leave of absence, or absent from employment due to Disability; b. all amounts committed for deferral under the Plan were actually deferred; c. the Participant's death was determined not to be from a bodily or mental cause or causes, the information about which was withheld, or knowingly concealed, or falsely provided by the Participant, when requested by the Employer to furnish evidence of good health; d. proof of death in such form as determined acceptable by the Committee is furnished. 7.4 Restriction in the Event of Suicide In the event of a Participant's suicide, the amount of the Survivor Benefit which the Employer shall be obligated to pay shall be limited to benefits granted more than two years prior to the date of such suicide. Article 8 - Termination Benefit 8.1 Termination Benefits If the Participant incurs a Termination of Employment prior to age 55 by means other than death or Disability, such Participant will be eligible to receive a Termination Benefit as set forth in this Article 8. 8.2 Termination Prior to 7 Years of Plan Participation and Prior to Age 55 A participant who incurs a Termination of Employment before completing 7 years of Plan participation, and prior to attaining age 55, shall be entitled to receive in a lump sum that portion of his EDP Account attributable to his Deferral Amount, his Rollover ESPP Benefit, if any, his Company Contributions, if any, and interest credited at Moody's. Such amount shall be paid to the Participant within 90 days of the date of his Termination of Employment. 8.3 Termination after 7 Years of Plan Participation and Prior to Age 55 A participant who incurs a Termination of Employment after completing 7 years of Plan participation, and prior to attaining age 55, shall receive, to the extent not otherwise distributed pursuant to Article 4, a distribution of his EDP Account, including that vested portion attributable to interest credited in excess of Moody's and any accumulation thereon, in a lump sum within 90 days of the date of his Termination of Employment. The vested portion of such Participant's Secondary Account Balance shall be determined upon his Termination of Employment in accordance with the following schedule: Percentage of Years of Plan Secondary Participation Account Balance Less than 7 years 0% 7 but less than 8 years 70% 8 but less than 9 years 80% 9 but less than 10 years 90% 10 or more years 100% 8.4 Involuntary Termination Without Cause Following A Change in Control of CILCORP Inc. a. A Participant who incurs a Termination of Employment involuntarily and other than for Cause within two years after a Change in Control of CILCORP Inc. will be eligible to make an irrevocable election to receive either a termination benefit as set forth in this Article 8 or retirement benefits as provided at Article 5, as if the Participant retired from the Company. In addition, the Participant shall, at the time of the involuntary termination, be considered to be 100% vested in the Participant's Secondary Account Balance. b. If, at the time of a Termination of Employment, a Participant elects to receive a termination benefit in the form of a lump sum payment, such payment shall be made to the Participant no earlier than 60 days from the date the Participant made an irrevocable election provided for under this Section 8.4 (a). c. The following definitions shall be applicable to the terms used in this Section 8.4: i. "Change in Control" shall be deemed to have occurred: (a) if CILCORP Inc. ("CILCORP") merges or consolidates with or into another corporation in a transaction in which neither CILCORP nor any member of a controlled group of corporations as defined in Article I, Section 1.4 is the surviving corporation; or upon a sale or other disposition of all or substantially all of CILCORP's assets to any corporation, person, other entity or group (other than to an entity whose stock is owned or controlled by CILCORP or any qualified or non-qualified plan maintained by CILCORP or an affiliate); or (b) if any corporation, person, other entity or group (other than CILCORP or any affiliate) becomes the Beneficial Owner (as defined in CILCORP's Articles of Incorporation) of 30% or more of the voting stock of CILCORP; or (c) if, during any period of two consecutive years, Continuing Directors, as hereinafter defined, cease to comprise a majority of CILCORP's Board of Directors. Continuing Directors are: (i) Members of the Board of Directors of CILCORP at the beginning of such period of two consecutive years; and (ii) Any person who subsequently becomes a member of the Board of Directors if such person's nomination for election or election to the Board of Directors of CILCORP is recommended or approved by resolution of a majority of the Continuing Directors or such person is included as a nominee in a proxy statement of CILCORP distributed when a majority of the Board of Directors of CILCORP consists of Continuing Directors. ii. "Cause" shall mean: (a) the Participant has willfully and continually failed to perform substantially his/her duties with the Company other than such failure resulting from disability (as herein defined), after a written demand for substantial performance is delivered to the Participant by his/her supervisor which specifically identifies the manner in which the supervisor believes that the Participant has not substantially performed his/her duties; or (b) the Participant's willfully engaging in illegal conduct or gross misconduct which his/her supervisor believes is materially and demonstrably injurious to the Company. For purposes of this definition, no act or failure to act on the Participant's part shall be considered "willful" unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that his/her action or omission was in the best interests of the Company. Any act or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or on the instructions of the CEO or a senior officer of the Company or based on the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Company. Article 9 - Disability Benefit 9.1 Amount of Disability Benefit If the Committee determines that a Participant has a Disability, the Participant shall be eligible to receive an annual Disability Benefit in an amount equal to one and one- half (1.5) times the greatest Deferral Amount committed under the Plan in any Plan Year prior to or coincident with the date in which benefits commence under the Sick Pay Plan of the Company, except that only one quarter (1/4) of any Special Deferral Amount shall be considered for this purpose. 9.2 Commencement and Termination of Disability Benefits Disability Benefits will be paid to a Participant who has a Disability commencing on the date immediately following the expiration of benefits to that Participant under the Sick Pay Plan of the Company. The Disability Benefits of a Participant shall continue until the earliest of: a. the date of the death of the Participant; b. the date as of which the Participant ceases to be classified as having a Disability; or c. the date the Participant attains age 65. 9.3 Maximum Age for Disability Benefits In order to be eligible to receive a Disability Benefit upon Disability as set forth in this Article 9, a Participant must first enter into a Plan Agreement prior to attaining age 60. Article 10 - Beneficiary Designation 10.1 Beneficiary Designation Each Participant shall have the right, at any time, to designate any person or persons as his Beneficiary or Beneficiaries (both principal as well as contingent). 10.2 Change of Beneficiary Designation Any Beneficiary designation may be changed by a Participant at any time by the filing in writing of such change on a form prescribed by the Committee. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. The Committee shall be entitled to rely on the last designation filed by the Participant prior to his death. 10.3 No Participant Designation If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be the surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan shall be payable to the Participant's personal representative (executor or administrator of the Participant's estate). 10.4 Effect of Payment The payment of benefits under the Plan to the deemed Beneficiary shall completely discharge the Employer's obligations under this Plan. Article 11 - Leave of Absence 11.1 Paid Leave of Absence If a Participant is authorized by the Company for any reason to take a paid leave of absence from the employment of the Company, the deferral commitments for the Deferral Period shall remain in full force and effect during such leave of absence. 11.2 Unpaid Leave of Absence If a Participant is authorized by the Company for any reason to take an unpaid leave of absence from the employment of the Company, the deferral commitments shall be suspended and shall be considered a default pursuant to Section 3.7. Article 12 - Other Benefits and Agreements 12.1 Coordination With Other Benefits The benefits provided for a Participant or for the Beneficiary of a Participant under the Plan are in addition to any other benefits to which the Participant or Beneficiary may be entitled under any other plan or program of the Employer. This Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. 12.2 Restoration of Pension Benefits The Company recognizes that amounts deferred under the Plan may not be considered as earnings for purposes of the computation of benefits under qualified plans under the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1954, as amended. Therefore, any loss of retirement benefits incurred by a Participant under the Pension Plan for Management, Office & Technical Employees of Central Illinois Light Company, as may be amended and restated from time to time (the "Pension Plan"), which result from the deferrals made under the Plan by the Participant, shall be restored by the Company upon the Retirement of a Participant or upon the Termination of Employment of a Participant prior to Retirement. Such pension restoration benefit payments may be paid from this Plan or, in the sole discretion of the Committee, may be paid through an alternate vehicle. Such pension restoration benefits shall be in an amount designed to restore the benefits, if any, that were lost under the Pension Plan due to the deferral under this Plan, and the timing and other characteristics of the pension restoration benefit payments shall coincide as closely as practicable to benefit payments which would otherwise have been made under the Pension Plan. The amount of pension restoration benefit payments provided for herein shall be calculated by professional, independent actuaries selected by the Company. Article 13 - Discontinuance, Amendment or Termination 13.1 Discontinuance The Company reserves the right to discontinue the Plan at any time. Upon discontinuance of the Plan, the Partici pants' EDP Accounts shall be paid out according to the schedules set forth in Articles 5 and 8, as applicable. The discontinuance of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan. 13.2 Amendment The Company may, at any time, amend or modify the Plan in whole or in part, provided, however, that no amendment or modification shall adversely affect any EDP Account in existence at the time the amendment or modification is made. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification. 13.3 Termination The Company reserves the right, in the event of a hostile or non-negotiated takeover or acquisition of the Company, or upon a final decision of any court or administrative agency pertaining to the income tax treatment of Plan benefits or deductions to the Company or a Participant which is deemed adverse by the Company, to terminate the Plan and to distribute the present value of the Participants' estimated future EDP Accounts, as determined by the Company, to them as soon as practicable thereafter. Article 14 - Miscellaneous 14.1 Unsecured General Creditor Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of Employer, nor shall they be Beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by the Employer ("Policies"). Such Policies or other assets of the Employer shall not be held under any trust for the benefit of Participants, their Beneficiaries, heirs, successors or assigns, or held in any way as collateral security for the fulfilling of the obligations of the Employer under this Plan. Any and all of the Employer's assets and Policies shall be, and remain, the general assets of the Employer. The Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Employer to pay money in the future. 14.2 Nonassignability Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, antici pate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 14.3 Not a Contract of Employment The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Employer and the Participant, and the Participant (or his Beneficiary) shall have no rights against the Employer except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Employer or to interfere with the right of the Employer to discipline or discharge him at any time. 14.4 Protective Provisions A Participant will cooperate with the Employer by furnishing any and all information requested by the Employer in order to facilitate the payment of benefits hereunder and by taking such physical examinations as the Employer may deem necessary and taking such other action as may be requested by the Employer. 14.5 Terms Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 14.6 Captions The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 14.7 Governing Law The provisions of this Plan shall be construed and interpreted according to the laws of the State of Illinois. 14.8 Validity In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 14.9 Notice Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to Central Illinois Light Company Executive Deferral Plan Administrative Committee 300 Liberty Street Peoria, Illinois 61602 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 14.10Successors The provisions of this Plan shall bind and inure to the benefit of the Employer and its successors and assigns. The term successors as used herein shall include any corpo rate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Employer, and successors of any such corporation or other business entity. 14.11Hostile Takeover In the event of a hostile or non-negotiated takeover or acquisition of an Employer by another corporation or entity, the benefits to all persons under the Plan may become fully vested at the option of the Employer prior to such takeover or acquisition. 14.12Attorney Fees In the event that the Company breaches any of the terms of the Plan and it is necessary for a Participant to institute court proceedings to enforce the Plan provisions, the Participant, upon prevailing, shall also recover reasonable attorney's fees and costs as damages from the Company. 14.13Late Payment Penalty In the event that the Company fails or refuses to make any of the payments to a Participant or a Beneficiary required by the Plan, after the Participant or Beneficiary has advised the Company in writing of such failure or refusal and has given the Company thirty (30) days to make such payment, the Company shall pay interest to the Participant or Beneficiary on the amount of the late payment at the rate of two times Moody's, plus 10%, from the date such payment was due until the date such payment is made by the Company. 14.14Incompetent In the event that it shall be found upon evidence satisfactory to the Committee that any Participant or Beneficiary to whom a benefit is payable under this Plan is unable to care for his affairs because of illness or accident, any payment due (unless prior claim therefor shall have been made by a duly authorized guardian or other legal representative) may be paid, upon appropriate indemnification of the Committee, to the spouse of such person or other person deemed by the Committee to have incurred expense for such Participant. Any such payment shall be a payment for the account of the Participant and shall be a complete discharge of any liability of the Plan for such payment amount. Article 15 - Administration 15.1 Committee/Independent Agent Duties This Plan shall be administered by either (1) a Committee consisting of persons appointed by the Board of Directors of the Company, or (2) an Independent Agent appointed by the Board of Directors of the Company. The Independent Agent shall be a bank, not an affiliate of the Company, having a market capitalization exceeding $100,000,000. The appointment of an Independent Agent shall be irrevocable and shall preclude further administration by a Committee provided, however, that upon resignation or removal of an Independent Agent, the Company shall appoint a successor Independent Agent who shall also satisfy the foregoing qualifications. Members of the Committee may be Participants under this Plan. The Committee or the Independent Agent, as appropriate, (the Administrator"), shall have the authority to amend, interpret and enforce all appropriate rules and regulations for the administration of the Plan and decide or resolve any and all questions including interpretations of the Plan, as may arise in connection with the Plan. 15.2 Agents In the administration of this Plan, the Administrator may, from time to time, employ agents and delegate to them such administration duties as it sees fit and may from time to time consult with counsel who may be counsel to the Employer. 15.3 Binding Effect of Decision The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having an interest in the Plan. 15.4 Indemnity of Committee/Independent Agent The Employer shall indemnify and hold harmless the members of the Committee or the Independent Agent against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members or the Independent Agent. 15.5 Employer Information To enable the Administrator to perform their functions, the Employer shall supply full and timely information to the Committee or Independent Agent on all matters relating to the Covered Salary of all Participants, the date and circumstances of the Retirement, Disability, or death or Termination of Employment of all Participants, and such other pertinent information as the Committee or Independent Agent may reasonably require. Article 16 - REDP Participation 16.1 REDP Participation Each individual who elects to participate in the Restructured Executive Deferral Plan of Central Illinois Light Company (the "REDP"), as listed in Schedule I to the REDP, shall cease to be a Participant under this Plan effective August 15, 1999. Such individual's REDP participation shall be in lieu of any benefits previously accrued under this Plan with respect to the individual. Consequently, the rights of an individual who elects to participate in the REDP and any beneficiary of such individual shall be determined solely under the provisions of the REDP and shall not be affected by any provision of this Plan. EX-10 5 CENTRAL ILLINOIS LIGHT COMPANY EXECUTIVE DEFERRAL PLAN II (EDP II) December 1, 1989 as amended January 29, 1996 August 17, 1998 April 1, 1999 ARTICLE 1 - DEFINITIONS 1 ARTICLE 2 - ELIGIBILITY 3 2.1 SELECTION BY COMMITTEE 3 2.2 PLAN AGREEMENT OF EXECUTIVE 3 ARTICLE 3 - DEFERRAL COMMITMENTS 3 3.1 MINIMUM DEFERRAL 3 3.2 MAXIMUM DEFERRAL 3 3.3 DEFERRAL ELECTION 3 3.4 CHANGING DEFERRAL ELECTION 4 3.5 WITHHOLDING OF DEFERRAL AMOUNTS 4 3.6 ANNUAL RATE 4 3.7 DEFERRAL PERIOD 4 3.8 DEFAULT 4 3.9 DEFERRAL PENALTY IN THE EVENT OF DEFAULT 4 3.10 NO WAIVER OF DEFAULT 4 3.11 CREDITING OF DEFERRAL AMOUNTS 4 ARTICLE 4 - 5TH YEAR DISTRIBUTIONS 5 4.1 5TH-YEAR DISTRIBUTION 5 ARTICLE 5 - RETIREMENT BENEFIT 5 5.1 RETIREMENT BENEFIT 5 5.2 RATE OF INTEREST FOR RETIREMENT BENEFITS 5 5.3 COMMENCEMENT OF RETIREMENT BENEFITS 5 5.4 PRE-RETIREMENT PLAN AGREEMENTS 5 5.5 AMOUNT OF RETIREMENT BENEFIT 6 5.6 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFITS 6 ARTICLE 6 - SURVIVOR BENEFITS 6 6.1 SURVIVOR BENEFIT 6 6.2 AMOUNT OF SURVIVOR BENEFITS 6 ARTICLE 7 - TERMINATION BENEFIT 6 7.1 TERMINATION BENEFITS 6 7.2 INVOLUNTARY TERMINATION WITHOUT CAUSE FOLLOWING A CHANGE IN CONTROL OF CILCORP INC. 6 ARTICLE 8 - DISABILITY BENEFIT 8 8.1 AMOUNT OF DISABILITY BENEFIT 8 ARTICLE 9 - BENEFICIARY DESIGNATION 8 9.1 BENEFICIARY DESIGNATION 8 9.2 CHANGE OF BENEFICIARY DESIGNATION 8 9.3 NO PARTICIPANT DESIGNATION 8 9.4 EFFECT OF PAYMENT 8 ARTICLE 10 - LEAVE OF ABSENCE 8 10.1 PAID LEAVE OF ABSENCE 8 10.2 UNPAID LEAVE OF ABSENCE 9 ARTICLE 11 - OTHER BENEFITS AND AGREEMENTS 9 11.1 COORDINATION WITH OTHER BENEFITS 9 11.2 RESTORATION OF PENSION BENEFITS 9 ARTICLE 12 - DISCONTINUANCE, AMENDMENT OR TERMINATION 9 12.1 DISCONTINUANCE 9 12.2 AMENDMENT 9 12.3 TERMINATION 10 ARTICLE 13 - MISCELLANEOUS 10 13.1 UNSECURED GENERAL CREDITOR 10 13.2 NONASSIGNABILITY 10 13.3 NOT A CONTRACT OF EMPLOYMENT 10 13.4 PROTECTIVE PROVISIONS 10 13.5 TERMS 11 13.6 CAPTIONS 11 13.7 GOVERNING LAW 11 13.8 VALIDITY 11 13.9 NOTICE 11 13.10 SUCCESSORS 11 13.11 ATTORNEY FEES 11 13.12 LATE PAYMENT PENALTY 12 13.13 INCOMPETENT 12 ARTICLE 14 - ADMINISTRATION 12 14.1 COMMITTEE DUTIES 12 14.2 AGENTS 12 14.3 BINDING EFFECT OF DECISION 12 14.4 INDEMNITY OF COMMITTEE 12 14.5 EMPLOYER INFORMATION 13 EXECUTIVE DEFERRAL PLAN II OF CENTRAL ILLINOIS LIGHT COMPANY Purpose The primary purpose of the Executive Deferral Plan II of Central Illinois Light Company is to help attract and maintain high caliber employees in high-level management positions. Directors, executive officers of the Company and certain other key employees on the Company's management staff (i.e., elected officers, department heads, and other key employees reporting to executive officers) will be allowed to participate in the Executive Deferral Plan II. Members of the management staff allowed to participate will be those key employees who, in the opinion of the administrative committee of the Executive Deferral Plan II, contribute significantly to the health and wellbeing of the Company through their leadership and managerial talents and who occupy management positions of importance in the Company. Article 1 - Definitions For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Base Annual Salary" shall mean the yearly compensation excluding bonuses or other fees paid to a Participant for employment services rendered to the Employer, before reduction for compensation deferred pursuant to this plan. 1.2 "Beneficiary" shall mean the person, persons, or the entity designated by the Participant to receive any benefits payable under this Plan upon the death of a Participant. Any Participant's Beneficiary designation shall be made by written instrument filed with the Committee and shall become effective only when received, accepted and acknowledged in writing by the Committee. 1.3 "Committee" shall mean the administrative committee appointed to manage and administer the Plan in accordance with its provisions pursuant to Article 14. 1.4 "Company" shall mean CENTRAL ILLINOIS LIGHT COMPANY, any corporation which is, along with the Company, a member of a controlled group of corporations as described in Section 414(b) of the Internal Revenue Code of 1986, as amended, and all successor companies thereto. 1.4(a) "Continuing Director" means any member of the Board of the Company or of its majority shareholder (hereinafter the "Board"), while such person is a member of the Board, who was a member of the Board prior to January 29, 1996. A "Continuing Director" also means any person who subsequently becomes a member of the Board, while such person is a member of the Board, if such person's nomination for election or election to the Board is recommended or approved by resolution of a majority of the Continuing Directors. 1.5 "Covered Salary" shall mean a Participant's Base Annual Salary and bonuses. 1.6 "Deferral Amount" shall mean the amount of Covered Salary deferred by a Participant pursuant to his election in the form of a Plan Agreement, or as changed pursuant to Article 3.4 hereof. 1.7 "Deferral Period" shall mean the period during which amounts of Covered Salary are being deferred pursuant to the deferral election of the Participant as set forth in the Participant's Plan Agreement. 1.8 "Disability". A Participant shall be considered totally disabled by bodily injuries, sickness or disease for purposes of the Plan for the period, excluding any period for which he receives benefits under the Company's Sick Pay Plan, if the Participant is unable to perform the duties of his occupation. 1.9 "EDP II Account" shall mean an individual account comprised of a Participant's Deferral Amounts and interest credited thereon. An EDP II Account shall be maintained for each Participant. A Participant's EDP II Account shall be utilized solely as a device for the measurement and determination of the amounts to be paid to the Participant pursuant to this Plan. A Participant's EDP II Account shall not constitute or be treated as a trust fund. 1.10 "Employer" shall mean the Company having one or more eligible Employees who have been selected by the Committee to participate. Where the context dictates, the term "Employer" as used herein refers to the particular Employer which has entered into a Plan Agreement with a specific Participant. 1.11 "Executive" shall mean directors and those persons in the regular full-time employment of the Company who are key employees and members of the management staff who are selected for participation in the Plan by the Committee. 1.11(a) "Hostile Takeover" shall mean the acquisition of beneficial ownership (determined in accordance with Rule 13(d)-3 of the Exchange Act) directly or indirectly, of more than 30% of the voting power of the outstanding stock of the Company or its majority shareholder by any person coupled with or followed by the failure of Continuing Directors to constitute a majority of the Board. 1.12 "Moody's Seasoned Corporate Bond Rate" (Moody's) is the rate published in Moody's Bond Record under the heading of "Moody's Corporate Bond Yield Averages - Av Corp." and is equal to the average corporate yield calculated for the month of November that immediately precedes the Plan Year for which the rate is to be used. 1.13 "Participant" shall mean any Executive who elects to participate in the Plan by executing a Plan Agreement. 1.14 "Plan" shall mean the Executive Deferral Plan II of the Employer which shall be evidenced by this instrument and by each Plan Agreement, as amended from time to time. 1.15 "Plan Agreement" shall mean the form of written agreement, as amended from time to time, which is entered into by and between and Employer and a Participant. 1.16 "Plan Anniversary Date" shall be the last day of the Plan Year. 1.17 "Plan Year" shall mean the 12 consecutive month period commencing on January I and ending on the next following December 31. 1.18 "Retirement" and 'Retire' shall mean severance from employment with the Employer at or after the attainment of age fifty-five (55). 1.19 "Retirement Benefit Date" shall mean the date that the Retired Participant first receives Retirement benefits under the Plan. 1.20 "Termination of Employment" shall mean the ceasing of employment with the Company, voluntarily or involuntarily, for any reason other than Retirement, Disability or death. Article 2 - Eligibility 2.1 Selection By Committee The Committee shall have the sole discretion to determine the employees of the Company who are key employees and members of the management staff who are eligible to become Participants in accordance with the purpose of the Plan. The Committee shall also have the sole discretion to determine the directors of the Company who are eligible to become Participants. 2.2 Plan Agreement of Executive As a condition of participation, each Executive shall complete, execute and return to the Committee prior to the beginning of the applicable Deferral Period a Plan Agreement. Article 3 - Deferral Commitments 3.1 Minimum Deferral The Participant may defer no less than $1.00 per Plan Year. 3.2 Maximum Deferral The Participant may defer no more than 100% of Covered Salary or board fees, as applicable. 3.3 Deferral Election The Participant may elect to participate in the Plan by executing a Plan Agreement. If the Participant executes a Plan Agreement on or before December 15, the Participant's Deferral Period shall begin on January 1 of the following Plan Year. However, if a Participant was participating in the Company's Executive Deferral Plan dated December 1, 1985, the Participant may begin his initial Deferral Period for this Plan on the December 1 immediately following the completion of his Deferral Period in that Plan by executing a Plan Agreement hereunder by December 1 of that year. 3.4 Changing Deferral Election A Participant may change his Deferral Amount for any following Plan Year by providing the Employer with written notice of such change by December 15. 3.5 Withholding of Deferral Amounts The Moody's rate for any Plan Year shall be fixed prior to the beginning of the Plan Year. Subject to the provisions and limitations of the Plan, the EDP II Account will accrue annual interest at a crediting rate of Moody's. Interest shall accrue monthly on a Participant's EDP II Account balance. 3.6 Annual Rate The Moody's rate for any Plan Year shall be fixed 90 days prior to the beginning of the Plan Year. Subject to the provisions and limitations of the Plan, the EDP II Account will accrue annual interest at a crediting rate of Moody's. Interest shall accrue monthly on a Participant's EDP II Account balance. 3.7 Deferral Period The Deferral Period for each Participant shall be that individual's full time employment term, or directorship, with the Company. 3.8 Default Default occurs when the Participant does not defer the amount of Covered Salary previously committed to the Plan under that Participant's Plan Agreement. 3.9 Deferral Penalty In the Event of Default In the event of default by a Participant on a deferral commitment during the Deferral Period, the Participant may not defer any portion of his Covered Salary for the balance of the Plan Year in which the default occurs or for the next following Plan Year. 3.10 No Waiver of Default The Committee may not waive any default penalty set forth in Section 3.9. 3.11 Crediting of Deferral Amounts The amount or percentage of Covered Salary that a Participant elects to defer in the Plan Agreement executed by the Participant with respect to each Plan Year shall be credited by the Employer to the Participant's EDP II Account throughout each Plan Year as the Participant is paid the nondeferred portion of Covered Salary for such Plan Year. The amount or percentage of Covered Salary so credited to a Participant's EDP II Account shall equal the amount deferred. The Participant shall designate in the Plan Agreement the percentage of Covered Salary to be deferred. Article 4 - 5th Year Distributions 4.1 5th-Year Distribution A Participant may elect in writing, at the time of the execution of his Plan Agreement, to receive a distribution of all, or any percentage, of his EDP II Account, as it exists as of the distribution date, on January 15, 1995, January 15, 2000,January 15, 2005 and January 15, 2010. All other funds in the EDP II Account will remain in the Plan until the Participant dies, incurs a Disability, Retires or incurs a Termination of Employment. Article 5 - Retirement Benefit 5.1 Retirement Benefit A Participant who Retires shall become eligible to receive, in accordance with this Article 5, an amount per month based on his EDP II Account as of the Participant's Retirement Benefit Date. The Retirement Benefit Date of a Participant who Retires shall be the first day of the month following his Retirement. 5.2 Rate of Interest for Retirement Benefits The interest on the EDP II Account, for purposes of calculating the retirement benefit, will be based on a fixed rate which is an average of the annual Moody's Seasoned Corporate Bond Rate for a five (5) year period consisting of the Plan Year in which the Participant's Retirement Benefit Date occurs and the four (4) immediately preceding Plan Years. 5.3 Commencement of Retirement Benefits Unless otherwise provided pursuant to a Pre-Retirement Plan Agreement as provided in Section 5.4, Retirement benefit payments of a Participant shall commence on the first day of the month following the Retirement of the Participant and shall be paid at the Participant's election in a lump sum or in equal monthly payments, not to exceed 240 months, pursuant to the election made by the Participant at the time of the execution of his Plan Agreement. Not less than thirty (30) days before his Retirement, the Participant must inform the Committee in writing of any desired change in the benefit payment period over which his benefits are to be paid. If no change in the election is timely made, the Plan will pay benefits pursuant to the Participant's Plan Agreement election. 5.4 Pre-Retirement Plan Agreements A Participant may enter into a Pre-Retirement Plan Agreement whereby the Participant and the Employer agree to a change of the time period over which such benefits are to be paid. The Pre-Retirement Plan Agreement must be executed by the Participant in writing in a form acceptable to the Company not less than 30 days prior to the Participant's Retirement. Retirement benefit payments which are changed by reason of a Pre-Retirement Agreement shall be paid to the Participant commencing on the first day of the month following the Retirement of the Participant pursuant to the terms of the Pre-Retirement Plan Agreement (the Retirement Benefit Date) in a lump sum or in equal monthly payments, not to exceed 240 months, as selected by the Participant. 5.5 Amount of Retirement Benefit A Participant's Retirement benefits shall be equal to the balance of his EDP II Account as of his Retirement Benefit Date plus interest thereon at the rate set forth in Article 5.2 hereof on any undistributed balance. 5.6 Death Prior to Completion of Retirement Benefits If a Retired Participant dies after the commencement of Retirement benefit payments, but before the applicable Retirement benefit is paid in full, the Participant's unpaid Retirement benefit payments shall continue and shall be paid to the Participant's Beneficiary in the same manner as selected by the Participant. Article 6 - Survivor Benefits 6.1 Survivor Benefit If a Participant dies before the commencement of Retirement benefit payments, the Employer will pay a Survivor's Benefit to the designated Beneficiary of the Participant. 6.2 Amount of Survivor Benefits The Beneficiary eligible for a Survivor Benefit will receive in a lump sum as soon as practicable the existing EDP II Account balance. Article 7 - Termination Benefit 7.1 Termination Benefits If the Participant incurs a Termination of Employment, by means other than Retirement, Disability or death, such Participant shall receive in a lump sum his EDP II Account. Such amount shall be paid to the Participant within 90 days of the date of his Termination of Employment 7.2 Involuntary Termination Without Cause Following A Change in Control of CILCORP Inc. a. A Participant who incurs a Termination of Employment involuntarily and other than for Cause within two years after a Change in Control of CILCORP Inc. will be eligible to make an irrevocable election to receive either a termination benefit as set forth in this Article 7 or retirement benefits as provided at Article 5, as if the Participant retired from the Company. b. If, at the time of a Termination of Employment, a Participant elects to receive a termination benefit in the form of a lump sum payment, such payment shall be made to the Participant no earlier than 60 days from the date the Participant made an irrevocable election provided for under this Section 7.2 (a). c. The following definitions shall be applicable to the terms used in this Section 7.2: i. "Change in Control" shall be deemed to have occurred: (a) if CILCORP Inc. ("CILCORP") merges or consolidates with or into another corporation in a transaction in which neither CILCORP nor any member of a controlled group of corporations as defined in Article I, Section 1.4 is the surviving corporation; or upon a sale or other disposition of all or substantially all of CILCORP's assets to any corporation, person, other entity or group (other than to an entity whose stock is owned or controlled by CILCORP or any qualified or non-qualified plan maintained by CILCORP or an affiliate); or (b) if any corporation, person, other entity or group (other than CILCORP or any affiliate) becomes the Beneficial Owner (as defined in CILCORP's Articles of Incorporation) of 30% or more of the voting stock of CILCORP; or (c) if, during any period of two consecutive years, Continuing Directors, as hereinafter defined, cease to comprise a majority of CILCORP's Board of Directors. Continuing Directors are: (i) Members of the Board of Directors of CILCORP at the beginning of such period of two consecutive years; and (ii) Any person who subsequently becomes a member of the Board of Directors if such person's nomination for election or election to the Board of Directors of CILCORP is recommended or approved by resolution of a majority of the Continuing Directors or such person is included as a nominee in a proxy statement of CILCORP distributed when a majority of the Board of Directors of CILCORP consists of Continuing Directors. ii. "Cause" shall mean: (a) the Participant has willfully and continually failed to perform substantially his/her duties with the Company other than such failure resulting from disability (as herein defined), after a written demand for substantial performance is delivered to the Participant by his/her supervisor which specifically identifies the manner in which the supervisor believes that the Participant has not substantially performed his/her duties; or (b) the Participant's willfully engaging in illegal conduct or gross misconduct which his/her supervisor believes is materially and demonstrably injurious to the Company. For purposes of this definition, no act or failure to act on the Participant's part shall be considered "willful" unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that his/her action or omission was in the best interests of the Company. Any act or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or on the instructions of the CEO or a senior officer of the Company or based on the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Company. Article 8 - Disability Benefit 8.1 Amount of Disability Benefit If the Committee determines that a Participant has a Disability, the Participant shall receive in a lump sum his EDP II Account. Such amount shall be paid to the participant within 90 days of the date that the Committee determines that the Participant is disabled. Article 9 - Beneficiary Designation 9.1 Beneficiary Designation Each Participant shall have the right, at any time, to designate any person or persons as his Beneficiary or Beneficiaries (both principal as well as contingent). 9.2 Change of Beneficiary Designation Any Beneficiary designation may be changed by a Participant at any time by the filing in writing of such change on a form prescribed by the Committee. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. The Committee shall be entitled to rely on the last designation filed by the Participant prior to his death. 9.3 No Participant Designation If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be the surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan shall be payable to the Participant's personal representative (executor or administrator of the Participant's estate). 9.4 Effect of Payment The payment of benefits under the Plan to the deemed Beneficiary shall completely discharge the Employer's obligations under this Plan. Article 10 - Leave of Absence 10.1 Paid Leave of Absence If a Participant is authorized by the Company for any reason to take a paid leave of absence from the employment of the Company, the Deferral Amount for the Deferral Period shall remain in full force and effect during such leave of absence. 10.2 Unpaid Leave of Absence If a Participant is authorized by the Company for any reason to take an unpaid leave of absence from the employment of the Company, the Deferral Amount shall be suspended and shall be considered a Default pursuant to Section 3.8. Article 11 - Other Benefits and Agreements 11.1 Coordination With Other Benefits The benefits provided for a Participant or for the Beneficiary of a Participant under the Plan are in addition to any other benefits to which the Participant or Beneficiary may be entitled under any other plan or program of the Employer. This Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. 11.2 Restoration of Pension Benefits The Company recognizes that amounts deferred under the Plan may not be considered as earnings for purposes of the computation of benefits under qualified plans under the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended. Therefore, any loss of retirement benefits incurred by a Participant under the Pension Plan for Management, Office & Technical Employees of Central Illinois Light Company, as may be amended and restated from time to time (the "Pension Plan"), which result from deferrals made under the Plan by the Participant, shall be restored by the Company upon the Retirement of a Participant or upon the Termination of Employment of a Participant prior to Retirement. Such pension restoration benefit payments may be paid from this Plan or, in the sole discretion of the Committee, may be paid through an alternate vehicle. Such pension restoration benefits shall be in an amount designed to restore the benefits, if any, that were lost under the Pension Plan due to the deferral under this Plan, and the timing and other characteristics of the pension restoration benefit payments shall coincide as closely as practicable to benefit payments which would otherwise have been made under the Pension Plan. The amount of pension restoration benefit payments provided for herein shall be calculated by professional, independent actuaries selected by the Company. Article 12 - Discontinuance, Amendment or Termination 12.1 Discontinuance The Company reserves the right to discontinue the Plan at any time. Upon discontinuance of the Plan, the Participants' EDP II Accounts shall be paid out according to the Plan. The discontinuance of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan. 12.2 Amendment The Company may, at any time, amend or modify the Plan in whole or in part, provided, however, that no amendment or modification shall adversely affect any EDP II Account in existence at the time the amendment or modification is made. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification. 12.3 Termination The Company reserves the right, in the event of a hostile or nonnegotiated takeover or acquisition of the Company, or upon a final decision of any court or administrative agency pertaining to the income tax treatment of Plan benefits or deductions to the Company or a Participant which is deemed adverse by the Company, to terminate the Plan and to distribute the Participants' EDP II Accounts to them as soon as practicable thereafter. Article 13 - Miscellaneous 13.1 Unsecured General Creditor Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of Employer, nor shall they be Beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by the Employer ("Policies"). Such Policies or other assets of the Employer shall not be held under any trust for the benefit of Participants, their Beneficiaries, heirs, successors or assigns, or held in any way as collateral security for the fulfilling of the obligations of the Employer under this Plan. Any and all of the Employer's assets and Policies shall be, and remain, the general assets of the Employer. The Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Employer to pay money in the future. 13.2 Nonassignability Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 13.3 Not a Contract of Employment The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Employer and the Participant, and the Participant (or his Beneficiary) shall have no rights against the Employer except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Employer or to interfere with the right of the Employer to discipline or discharge him at any time. 13.4 Protective Provisions A Participant will cooperate with the Employer by furnishing any and all information requested by the Employer in order to facilitate the payment of benefits hereunder and by taking such physical examinations as the Employer may deem necessary and taking such other action as may be requested by the Employer. 13.5 Terms Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 13.6 Captions The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 13.7 Governing Law The provisions of this Plan shall be construed and interpreted according to the laws of the State of Illinois. 13.8 Validity In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 13.9 Notice Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to Central Illinois Light Company Executive Deferral Plan II Administrative Committee 300 Liberty Street Peoria, Illinois 61602 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 13.10Successors The provisions of this Plan shall bind and inure to the benefit and detriment of the Employer and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Employer, and successors of any such corporation or other business entity. 13.11Attorney Fees In the event that the Company breaches any of the terms of the Plan and it is necessary for a Participant to institute court proceedings to enforce the Plan provisions, the Participant, upon prevailing, shall also recover reasonable attorney's fees and costs as damages from the Company. 13.12Late Payment Penalty In the event that the Company fails or refuses to make any of the payments to a Participant or a Beneficiary required by the Plan, after the Participant or Beneficiary has advised the Company in writing of such failure or refusal and has given the Company thirty (30) days to make such payment, the Company shall pay interest to the Participant or Beneficiary on the amount of the late payment at the rate of two times Moody's from the date such payment was due until the date such payment is made by the Company. 13.13Incompetent In the event that it shall be found upon evidence satisfactory to the Committee that any Participant or Beneficiary to whom a benefit is payable under this Plan is unable to care for his affairs because of illness or accident, any payment due (unless prior claim therefor shall have been made by a duly authorized guardian or other legal representative) may be paid, upon appropriate indemnification of the Committee, to the spouse of such person or other person deemed by the Committee to have incurred expense for such Participant. Any such payment shall be a payment for the account of the Participant and shall be a complete discharge of any liability of the Plan for such payment amount. Article 14 - Administration 14.1 Committee Duties This Plan shall be administered by a Committee which shall consist of persons appointed by the Board of Directors of the Company. Members of the Committee may be Participants under this Plan. The Committee shall also have the authority and discretion to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions including interpretations of this Plan and the calculation of benefits, as may arise in connection with the Plan. 14.2 Agents In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit and may from time to time consult with counsel who may be counsel to the Employer. 14.3 Binding Effect of Decision The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 14.4 Indemnity of Committee The Employer shall indemnify and hold harmless the members of the Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members. 14.5 Employer Information To enable the Committee to perform its functions, the Employer shall supply full and timely information to the Committee on all matters relating to the Covered Salary of all Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of all Participants, and such other pertinent information as the Committee may reasonable require. EX-10 6 CENTRAL ILLINOIS LIGHT COMPANY BENEFIT REPLACEMENT PLAN (Effective January 1, 1991) Amended Effective November 12, 1998 August 15, 1999 CENTRAL ILLINOIS LIGHT COMPANY BENEFIT REPLACEMENT PLAN (Amended Effective August 15, 1999) TABLE OF CONTENTS Article I. Establishment and Construction 1.1 The Plan and its Effective Date 1 1.2 Purpose 1 1.3 Application of the Plan 1 Article II. Definitions and Construction 2.1 Definitions 1 2.2 Gender and Number 5 2.3 Severability 5 2.4 Applicable Law 5 Article III. Participation 3.1 Eligibility 5 3.2 Participation in the Plan 5 Article IV. Benefits 4.1 Benefits 6 4.2 Vesting 7 4.3 Timing and Form of Retirement Benefits 7 4.4 Death Benefits 8 Article V. Financing 5.1 Unfunded Plan 9 5.2 Grantor Trust 9 5.3 Unsecured Interest 9 5.4 Nonalienation 9 Article VI. Administration 6.1 Administration 9 6.2 No Enlargement of Employee Rights 10 6.3 Appeals from Denial of Claim 10 6.4 Notice of Address and Missing Persons 11 6.5 Data and Information for Benefits 11 6.6 Indemnity for Liability 11 6.7 Tax Liability 12 CENTRAL ILLINOIS LIGHT COMPANY BENEFIT REPLACEMENT PLAN TABLE OF CONTENTS (Continued) Article VII. Amendment and Termination 7.1 Amendment 12 7.2 Termination 12 7.3 Change in Control 12 Article VIII. Participation in and Withdrawal from the Plan by an Employer 8.1 Participation in the Plan Withdrawal from the Plan 12 8.2 Withdrawal from the Plan 13 CENTRAL ILLINOIS LIGHT COMPANY BENEFIT REPLACEMENT PLAN (Amended Effective August 15, 1999) Article I. Establishment and Construction 1.1 The Plan and its Effective Date. The CENTRAL ILLINOIS LIGHT COMPANY BENEFIT REPLACEMENT PLAN (the "Plan") is hereby established by Central Illinois Light Company (the "Company") effective January 1, 1991. 1.2 Purpose. The purpose of the Plan is to provide each Eligible Employee of the Employer with additional retirement income that, when combined with retirement benefits payable from the Pension Plan For Management, Office and Technical Employees of Central Illinois Light Company ("MOT Plan"), will equal the retirement benefit such Eligible Employee would have received if he continued to accrue benefits under the MOT Plan through the date of his actual retirement, but without regard to(a)the limitations imposed under Code sections 415 and 401(a)(17), or (b) the exclusion of amounts deferred under the Central Illinois Light Company Executive Deferral Plan and the Central Illinois Light Company Executive Deferral Plan II (collectively "EDP Plans"), and the Central Illinois Light Company Deferred Compensation Stock Plan from the definition of "Earnings" under the MOT Plan. 1.3 Application of the Plan. The provisions of this Plan are applicable only to those Eligible Employees who, on or after January 1, 1991, are either (a) in the active employ of the Employer or (b) retired key management and executive staff who are receiving or who are eligible to receive benefit payments under the EDP Plans. Any other Eligible Employee who retired or whose active employment relationship with the Employer was terminated prior to January 1, 1991 shall not be covered under this Plan. Article II. Definitions and Construction 2.1 Definitions. The terms used in this Plan shall have the same meaning set forth below, except as otherwise indicated herein. The definition of any term in the singular shall also include the plural. (a) "Actuarial Equivalent" means a benefit having the same value as the benefit which it replaces, computed on the basis of the factors specified in the definition of "Actuarial Equivalent" in the MOT Plan. (b) "Affiliate" means any subsidiary or affiliated or associated corporation of the Company that is an "Affiliate" within the meaning of that term in the MOT Plan. (c) "Average Monthly Earnings" means "Average Monthly Earnings" as defined under the MOT Plan. (d) "Change in Control" means the occurrence of any of the following: (1) the sale or transfer of the business of the Company or a Unit of the company to a person or entity not controlled, directly or indirectly, by CILCORP, whether such sale of the business of the Company or a Unit of the company, as the case may be, is effected through the (A) sale, directly or indirectly, of the voting stock of the Company, (B)merger or consolidation of the company, (C)sale, lease, exchange, or transfer of all or substantially all of the assets of the company or of a Unit of the Company, or (D) a combination of the foregoing; (2) a merger or consolidation of CILCORP with one or more corporations, as a result of which CILCORP is not the surviving corporation or pursuant to which substantially all shares of CILCORP's common stock are converted into cash, securities, or other property; (3) the acquisition of beneficial ownership, directly or indirectly, of more than 30 percent of the voting power of the outstanding stock of CILCORP by any "Person" (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended, and as in effect on the date of adoption of the Plan) coupled with or followed by the failure of Continuing Directors to constitute a majority of the board of directors of CILCORP; or (4) the sale, lease, exchange, or transfer of all or substantially all the assets of CILCORP; provided, however, that the term "Change in Control" shall not apply to any merger, consolidation, internal reorganization, or recapitalization of CILCORP initiated voluntarily by CILCORP in which Continuing Directors constitute a majority of the members of the board of directors of CILCORP or any successor thereto and the holders of CILCORP's common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation after the merger. (e) "CILCORP" means CILCORP Inc., an Illinois corporation, and any successor thereto. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Company" means the Central Illinois Light Company, an Illinois corporation, and any successor thereto. (h) "Continuing Director" means any member of the board of directors of CILCORP, while such person is a member of such board of directors, who was a member of such board of directors prior to the date of adoption of this Plan. A "Continuing Director" also means any person who subsequently becomes a member of the board of directors of CILCORP, while such person is a member of such board of directors, if such person's nomination for election or election to such board of directors is recommended or approved by resolution of a majority of the Continuing Directors. (i) "Deferred Compensation Stock Plan" means the Central Illinois Light Company Deferred Compensation Stock Plan. (j) "EDP Plans" means, individually or collectively (as the context requires), the Central Illinois Light Company Executive Deferral Plan and the Central Illinois Light Company Executive Deferral Plan II. (k) "Effective Date" means January 1, 1991. (l) "Eligible Employee" means-- (1) an employee of the Employer who is in a select group of management or highly compensated employees, participates in the MOT Plan, and has his benefits limited under the MOT Plan by: (A) the limits under Code section 415 or 401(a)(17); or (B) the "Earnings" definition which excludes deferrals under the EDP Plans or the Deferred Compensation Stock Plan; and is designated as an Eligible Employee by the Employer's board of directors; (2) any retired key management and executive employee of the Employer who, as of the Effective Date, is receiving or is eligible to receive benefit payments under the EDP Plans; and (3) any other highly compensated, key employee of the Employer's management staff who may be designated, from time to time, by the Employer's board of directors. (m) "Employer" means the Company and any Affiliate that, with the consent of the Company, has adopted the MOT Plan and this Plan for the benefit of its Eligible Employees. (n) "Grantor Trust Agreement" means an agreement establishing a grantor trust referred to in section 5.2. (o) "MOT Plan" means the Pension Plan for Management, Office and Technical Employees of Central Illinois Light Company. Unless otherwise specified, any reference in the Plan to benefits provided under the MOT Plan shall mean the aggregate of benefits provided under the MOT Plan and the Retirement Plan. (p) "Participant" means an Eligible Employee of the Employer who meets the participation requirements set forth in section 3.1. (q) "Plan" means the Central Illinois Light Company Benefit Replacement Plan. (r) "Plan Year" means the calendar year. (s) "Service" means "Service" as defined under the MOT Plan. (t) "Trustee" means the trustee or trustees of a Grantor Trust. (u) "Unit of the Company" means an organizational department of the Company as may be so designated from time to time on the official organizational chart of the Company. (v) "Article XVIII Benefits" means the Cash Balance Benefits provided pursuant to Article XVIII of the MOT Plan. Notwithstanding Plan Section 2.1(o), "Article XVIII Benefits" shall not be deemed to include any Retirement Plan benefits. (w) "Retirement Plan" means the Retirement Plan for Management, Office and Technical Employees of Central Illinois Light Company. 2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender shall include the feminine and neuter genders; the plural shall include the singular and the singular shall include the plural. 2.3 Severability. In the event any provision of the Plan shall be held invalid or illegal for any reason, any illegality or invalidity shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if the illegal or invalid provision had never been inserted, and the Company shall have the privilege and opportunity to correct and remedy such questions of illegality or invalidity by amendment as provided in the Plan. 2.4 Applicable Law. The Plan shall be governed and construed in accordance with the laws of the State of Illinois to the extent not superseded by the laws of the United States. Article III. Participation 3.1 Eligibility. An Eligible Employee of the Employer shall become a Participant if benefits under the MOT Plan are limited, on or after the Effective Date, due to any of the following limitations: (a) Limit on Compensation under Code Section 401(a)(17). The Eligible Employee's benefits under the MOT Plan are limited to ensure compliance with Code section 401(a)(17). (b) Limit on Accruals under Code Section 415. The Eligible Employee's benefits under the MOT Plan (disregarding Article XVIII Benefits) are limited to ensure compliance with Code section 415. (c) Limit on "Earnings" Considered under the MOT Plan. The Eligible Employee's Average Monthly Earnings under the MOT Plan are limited because (1) the Eligible Employee participates in the MOT Plan and in the EDP Plans or the Deferred Compensation Stock Plan, and (2) "Earnings" under the MOT Plan formula is defined to exclude deferrals made under the EDP Plans or the Deferred Compensation Stock Plan, thus reducing Average Monthly Earnings. 3.2 Participation in the Plan. An Eligible Employee shall become a Participant as of the later of-- (a) the first day as of which it is determined that his benefit under the MOT Plan, which would be payable at or after the earliest date on which he could receive a retirement benefit under the MOT Plan, is limited by the limitations described in section 3.1; or (b) the Effective Date. Article IV. Benefits 4.1 Benefits. When a Participant's benefits under the MOT Plan are limited in accordance with the limits described in section 3.1(a),(b), or (c) for Plan Years beginning on or after January 1, 1991, this Plan shall provide a benefit determined as follows: (a) General Rule. This Plan shall provide a benefit equal to the excess of (1) over (2) below: (1) The benefit which, but for the limitations described in section 3.1(a), (b), or (c) of this Plan, would have been provided under the MOT Plan, calculated as of the determination date and payable at the time and in the form payable pursuant to section 4.3. (2) The benefit which has actually been provided under the MOT Plan, calculated as of the determination date, and expressed as a benefit payable at the time and in the form payable pursuant to section 4.3. In calculating the benefit described in (1) and (2) above, all Article XVIII Benefits shall be disregarded. (b) Exception. Notwithstanding the foregoing, if payment of the Participant's benefit under the MOT Plan commences prior to the date his benefit under this Plan is made or commences, this Plan shall provide a benefit equal to the sum of (1) and (2) below: (1) The amount determined as described in (a) above as if the Participant had elected, pursuant to section 4.3 of this Plan, the same benefit commencement date as he elected under the MOT Plan (the MOT Plan benefit commencement date). (2) An annuity which is payable at the time actually elected pursuant to section 4.3 (this Plan's benefit commencement date) and in the form elected pursuant to section 4.3 and which is the Actuarial Equivalent of the benefits which would have been paid under this Plan between the MOT Plan benefit commencement date and this Plan's benefit commencement date, had the Participant elected, pursuant to section 4.3 of this Plan, to commence receiving benefits under this Plan on the MOT Plan benefit commencement date. If payments of the Participant's benefit under the MOT Plan begin at a different time than his or her benefit under the Retirement Plan and benefit payments under one or both Plans begin before benefit payments under this Plan begin, the application of this section 4.1(b) shall be appropriately adjusted to take into account that the early commencement date or dates apply only to a portion of the general Plan benefit described in 4.1(a). 4.2 Vesting. A Participant who completes at least five years of Service for purposes of vesting under the MOT Plan shall be fully vested in his benefit under this Plan. In addition, a Participant who attains age 65 while employed by an Employer shall be fully vested in his benefit under this Plan. Subject to the special Service rules for rehired Participants, any other Participant shall forfeit his benefit upon termination of employment with the Employer. 4.3 Timing and Form of Retirement Benefits. No payments shall be made to a Participant under this Plan prior to the Participant's termination of employment with the Company and all Affiliates. After such termination of employment, benefits under section 4.1 shall become payable, at the Participant's election, in one of the forms available to the Participant under the MOT Plan, equal to the Actuarial Equivalent of his benefit under this Plan; provided, however, that upon becoming a Participant (or as soon as practicable after it is ascertained that he is a Participant) he shall elect- (a) the form in which his benefits under this Plan will be paid if he is married on the date as of which such benefits become payable; and (b) the form in which his benefits under this Plan will be paid if he is unmarried on the date as of which such benefits become payable. For purposes of the preceding sentence- (1) If the Participant is married at the time he elects the form of payment under this Plan, the normal form of payment if he is married when his benefits under this Plan become payable shall be a joint and 100 percent spouse's annuity determined on the same basis as the annuity described in section 4.7(b) of the MOT Plan, and his spouse's consent, as described in section 4.9(a) of the MOT Plan, shall be required for the Participant to reject such joint and 100 percent spouse's annuity; (2) At the time he elects the form of payment under this Plan, the Participant shall elect the date as of which such payment will be made or commence, provided that (A) such date shall not be before the earliest date as of which the Participant can begin receiving benefit payments under the MOT Plan and (B) such payment will not commence before the Participant's employment with the Employer is terminated; (3) Once the Participant has elected the timing of his benefit payments as described in this section 4.3, he shall not be permitted to change such election; (4) Once the Participant has elected the form of his benefit payments as described in this section 4.3, he shall not be permitted to change such election, provided that if his final election on form of payment made pursuant to sections 4.7, 4.8, and 4.9 of the MOT Plan differs from his election on form of payment made pursuant to the preceding provisions of this section 4.3, his election pursuant to this section 4.3 shall automatically be changed to match said final election under the MOT Plan; and (5) Notwithstanding the preceding provisions of this section 4.3, no election will be available to any Participant who is a retired employee described in section 2.1(1)(2); instead, such Participant's benefits under this Plan shall be payable in the same form and at the same times as the benefits the Participant was receiving under the MOT Plan immediately prior to the Effective Date. 4.4 Death Benefits. Upon the death of a Participant (including a Participant who has suffered a Disability) before payment of his benefits under this Plan has commenced, if the Participant leaves a surviving spouse to whom he had been continuously married for the one-year period ending on the date of his death, this Plan shall provide a benefit to such spouse equal to the excess of (a) over (b), where-- (a) is the monthly benefit which would have been payable for the life of the surviving spouse under section 4.6 of the MOT Plan, but for the limitations described in section 3.1(a), (b), and (c) of this Plan; and (b) is the monthly benefit actually payable for the life of the surviving spouse under section 4.6 of the MOT Plan. Benefit payments under this section 4.4 shall commence as of the earliest date on which the surviving spouse is entitled to receive benefit payments under section 4.6 of the MOT Plan, regardless of the date on which the spouse actually begins to receive payments under said section 4.6. The amount of such payments shall be adjusted for the timing of the payments, in accordance with Article IV of the MOT Plan. In calculating the benefit described in 4.4(a) and 4.4(b) above, all Article XVIII Benefits shall be disregarded. Article V. Financing 5.1 Unfunded Plan. Except as otherwise provided pursuant to section 5.2, the benefits under this Plan shall be paid in cash out of the general assets of the Company. 5.2 Grantor Trust. Notwithstanding section 5.1, the Company and each other Employer may establish a trust for the purpose of accumulating assets to assist it in fulfilling its obligations under the Plan, provided that-- (a) such trust shall be a "grantor trust" with the result that the corpus and income of the trust be treated as assets and income of the Employer pursuant to sections 671 through 679 of the Code; and (b) the Plan shall be an "unfunded plan" within the meaning of that term under the Code and the Employee Retirement Income Security Act of 1974 as amended. 5.3 Unsecured Interest. No Participant hereunder shall have any interest whatsoever in any specific asset of the Employer. To the extent that any person acquires a right to receive payments under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Employer. 5.4 Nonalienation. Except as otherwise provided by law, no Participant entitled to receive benefits in accordance with the provisions hereof shall have power to sell, assign, transfer, pledge, or mortgage the benefits so payable to the Participant, nor shall benefits be subject to levy, sale, seizure, attachment, garnishment, or any other judicial process issued by or on behalf of any creditor of a Participant. Article VI. Administration 6.1 Administration. The Company shall be responsible for the administration of the Plan. The Company shall have all such powers as may be necessary to carry out the provisions hereof and may, from time to time, establish rules for the administration of the Plan and the transaction of the Plan's business. The Company shall have the exclusive right to make any finding of fact necessary or appropriate for any purpose under the Plan including, but not limited to, the determination of the eligi bility for and the amount of any benefit payable under the Plan. The Company shall have the exclusive right to interpret the terms and provisions of the Plan and to determine any and all questions arising under the Plan or in connection with the administration thereof, including, without limitation, the right to remedy or resolve possible ambiguities, inconsistencies, or omissions, by general rule or particular decision. The Company shall make, or cause to be made, all reports or other filings, if any, necessary to meet the reporting and disclosure requirement of ERISA. To the extent permitted by law, all findings of fact, determin ations, interpretations, and decisions of the Company shall be conclusive and binding upon all persons having or claiming to have any interest or right under the Plan. 6.2 No Enlargement of Employee Rights. Nothing contained in the Plan shall be deemed to give any employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge or retire any employee at any time. 6.3 Appeals from Denial of Claim. If any claim for benefits under the Plan is wholly or partially denied, the claimant shall be given notice in writing within a reasonable period of time after receipt of the claim by the Plan (not to exceed 90 days after receipt of the claim or, if special circumstances require an extension of time, written notice of the extension shall be furnished to the claimant and an additional 90 days will be considered reasonable) by registered or certified mail of such denial, written in a manner calculated to be understood by the claimant, setting forth the following information: (a) the specific reasonings for such denial; (b) specific reference to pertinent Plan provisions on which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) an explanation of the Plan's claim review procedure. The claimant also shall be advised that he or his duly authorized representative may request a review by the Company of the deci sion denying the claim by filing with the Company, within 60 days after such notice has been received by the claimant, a written request for such review, and that he may review pertinent docu ments, and submit issues and comments in writing within the same 60-day period. If such request is so filed, such review shall be made by the Company within 60 days after receipt for such request, unless special circumstances require an extension of time for processing, in which case the claimant shall be so notified and a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. The Participant or beneficiary shall be given written notice of the decision resulting from such review, which notice shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Plan provisions on which the decision is based. 6.4 Notice of Address and Missing Persons. Each person entitled to benefits under the Plan must file with the Company, in writing, his post office address and each change of post office address. Any communication, statement, or notice addressed to such a person at his latest reported post office address will be binding upon him for all purposes of the Plan and neither the Company nor any Trustee shall be obliged to search for or ascertain his whereabouts. In the event that such person cannot be located, the Company may direct that such benefit and all further benefits with respect to such person shall be discontinued and all liability for the payment thereof shall terminate; provided, however, that in the event of the subsequent reappearance of the Participant or beneficiary prior to the termination of the Plan, the benefits which were due and payable and which such person missed shall be paid in a single sum, and the future benefits due such person shall be reinstated in full. 6.5 Data and Information for Benefits. All persons claiming benefits under the Plan must furnish to the Company or its designated agent such documents, evidence, or information as the Company or its designated agent consider necessary or desirable for the purpose of administering the Plan, and such person must furnish such information promptly and sign such documents as the Company or its designated agent may require before any benefits become payable under the Plan. 6.6 Indemnity for Liability. The Company shall indemnify any individual who is directed by the Company to carry out responsibilities and duties imposed by this Plan against any and all claims, losses, damages, and expenses, including counsel fees, approved by the Company, and any liability, including any amounts paid in settlement with the Company's approval, arising from the individual's action or failure to act, in connection with such person's responsibilities and duties under the Plan, except when the same is judicially determined to be attributable to the gross negligence or willful misconduct of such person. 6.7 Tax Liability. The Company may withhold from any payment of benefits hereunder any taxes required to be withheld and such sum as the Company may reasonably estimate to be neces sary to cover any taxes for which the Employer may be liable and Which may be assessed with regard to such payment. Article VII. Amendment and Termination 7.1 Amendment. The Company reserves the right to amend the Plan at any time by action of its board of directors, provided that retroactive Plan amendments may not decrease the accrued benefits of any Participant determined as of the time the amendment is adopted. 7.2 Termination. The Company reserves the right to terminate the Plan at any time by action of its Board of Directors. 7.3 Change in Control. Notwithstanding the preceding provisions of this Article VII, no termination, amendment, or change to this Plan which would have the effect of reducing benefits or benefit accruals hereunder, which would rescind an alternative procedure for accelerated payment previously adopted, or which would otherwise have an adverse effect on the determination of benefits hereunder shall be made after a Change in Control occurs, and this Plan shall be, and the Company shall require this Plan to be, a continuing obligation of the surviving entity resulting from any Change in Control. Participants shall be given written notice of any such termination, amendment, or change within a reasonable time after any such action is taken. Article VIII. Participation in and Withdrawal from the Plan by an Employer 8.1 Participation in the Plan. Any Affiliate which desires to become an Employer hereunder may elect, with the consent of the Company's board of directors, to become a party to the Plan and any Grantor Trust Agreement by adopting the Plan for the benefit of its eligible employees, effective as of the date specified in such adoption-- (a) by filing with the Company a certified copy of a resolution of its board of directors to that effect, and such other instruments as the Company may require; and (b) by the Company's filing with the then Trustee (if any) a copy of such resolution, together with a certified copy of resolutions of the Company's board of directors approving such adoption. The adoption resolution or decision may contain such specific changes and variations in Plan or Grantor Trust Agreement terms and provisions applicable to such adopting Employer and its employees as may be acceptable to the Company and the Trustee. However, the sole, exclusive right of any other amendment of whatever kind or extent to the Plan or any Grantor Trust Agreement is reserved by the Company. The Company may not amend specific changes and variations in the Plan or any Grantor Trust Agreement terms and provisions as adopted by the Employer in its adoption resolution without the consent of such Employer. The adoption resolution or decision shall become, as to such adopting organization and its employees, a part of this Plan as then amended or thereafter amended and any related Grantor Trust Agreement. It shall not be necessary for the adopting organization to sign or execute the original or then amended Plan or any Grantor Trust Agreement documents. The coverage date of the Plan for any such adopting organization shall be that stated in the resolution or decision of adoption, and from and after such effective date, such adopting organization shall assume all the rights, obligations, and liabilities of an individual employer entity hereunder and under any Grantor Trust Agreement. The administrative powers and control of the Company, as provided in the Plan and any Grantor Trust Agreement, including the sole right to amendment, and of appointment and removal of the Trustee and successor Trustees, shall not be diminished by reason of the participation of any such adopting organization in the Plan and any Grantor Trust Agreement. 8.2 Withdrawal from the Plan. Any Employer, by action of its board of directors or other governing authority, may withdraw from the Plan and any Grantor Trust Agreement after giving 90 days' notice to the Company's board of directors, provided the Company's board of directors consents to such withdrawal. Distribution of vested benefits (if any) to Participants affected by such a withdrawal may be implemented through any method determined by the Company and agreed to by the withdrawing Employer. EX-10 7 CENTRAL ILLINOIS LIGHT COMPANY RESTRUCTURED EXECUTIVE DEFERRAL PLAN August 15, 1999 ARTICLE 1 - DEFINITIONS 1 ARTICLE 2 - ELIGIBILITY 3 ARTICLE 3 - BASIC ACCOUNTS 3 ARTICLE 4 - WRAP-AROUND ACCOUNTS 3 ARTICLE 5 - TIMING AND FORM OF PAYMENT 4 ARTICLE 6 - BENEFICIARY DESIGNATION 5 ARTICLE 7 - DISCONTINUANCE, AMENDMENT OR TERMINATION 6 ARTICLE 8 - MISCELLANEOUS 7 ARTICLE 9 - ADMINISTRATION 9 RESTRUCTURED EXECUTIVE DEFERRAL PLAN OF CENTRAL ILLINOIS LIGHT COMPANY History Pursuant to the Executive Deferral Plan of Central Illinois Light Company as established December 1, 1985 (the "EDP"), executive officers of the Company and certain other key employees on the Company's management staff (i.e., elected officers, department heads, and other key employees reporting to executive officers) were allowed to defer receipt of a portion of their salary. Effective June 15, 1994, participation in the EDP was frozen and salary deferrals ceased. However, the EDP accounts of participants continue to be maintained under the EDP, growing with interest credits, to be paid to participants as they terminate employment, retire or otherwise become entitled to a distribution under the EDP's provisions. Effective August 2, 1999, EDP participants have been given an opportunity to elect to have their EDP benefits transferred to this plan, the Restructured Executive Deferral Plan of Central Illinois Light Company (the "Plan"). The names and social security numbers of those EDP participants who have elected to transfer to the Plan (the "Participants") are listed in Schedule I attached hereto. Effective August 15, 1999, Participants' EDP accounts shall cease to be governed by the provisions of the EDP and shall instead be governed, for all purposes, by the provisions of this Plan. Article 1 - Definitions For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Account" shall mean a Participant's entire interest under the Plan which shall consist of the Participant's Basic Account and, if applicable, the Participant's Wrap-Around Account. 1.2 "Applicable Interest Rate" means (a) effective January 1, 2000, with respect to a Plan Year, the average annual yield on 30- year Treasury securities for the month immediately preceding the first month of such Plan Year, and (b) prior to January 1, 2000, with respect to each Plan Year, the interest rate that would be used by the Pension Benefit Guaranty Corporation for determining lump-sum distributions for plan terminations as of the first day of the Plan Year. 1.3 "Basic Account" shall mean a Participant's Initial Basic Account as specified in Schedule I increased by interest credits and otherwise adjusted as provided in Article 3. A Basic Account shall be maintained for each Participant. A Participant's Basic Account shall be utilized solely as a device for the measurement and deter mination of the amounts to be paid to the Participant pursuant to this Plan. A Participant's Basic Account shall not constitute or be treated as a trust fund. 1.4 "Beneficiary" shall mean the person or persons, or the entity designated by the Participant to receive any benefits payable under this Plan upon the death of a Participant. Any Participant's Beneficiary designation shall be made by written instrument filed with the Committee and shall become effective only when received, accepted and acknowledged in writing by the Committee. 1.5 "Committee" shall mean the administrative committee appointed to manage and administer the Plan in accordance with its provisions pursuant to Article 9. 1.6 "Company" shall mean CENTRAL ILLINOIS LIGHT COMPANY, any corporation which is, along with the Company, a member of a controlled group of corporations as described in Section 414(b) of the Internal Revenue Code, as amended, and all successor companies thereto. 1.7 "Employer" shall mean the Company. 1.8 "Moody's Rate" shall mean the Moody's Seasoned Corporate Bond Rate, which is an arithmetic average of yields of representative bonds: industrials, public utilities, Aaa, Aa, A, and Baa, increased by five percentage points. The Moody's Rate for the Plan Year beginning August 15, 1999 shall be the Moody's Seasoned Corporate Bond Rate as published in September 1998 increased by five percentage points. The Moody's Rate for the Plan Year beginning January 1, 2000 and each subsequent Plan Year shall be the Moody's Seasoned Corporate Bond Rate published in the November preceding the beginning of such Plan Year increased by five percentage points. 1.9 "MOT Plan" shall mean the Pension Plan for Management, Office and Technical Employees of Central Illinois Light Company. 1.10 "Participant" shall mean each individual listed in Schedule I. 1.11 "Plan" shall mean the Restructured Executive Deferral Plan as evidenced by this instrument. 1.12 "Plan Anniversary Date" shall mean the last day of the Plan Year. 1.13 "Plan Year" shall mean (a) the period beginning August 15, 1999 and ending December 31, 1999, (b) calendar year 2000 and (c) each calendar year thereafter until all Plan obligations have been satisfied. 1.14 "Termination Date" shall mean the date a Participant ceases employment with the Company, voluntarily or involuntarily, for any reason including retirement, disability, death, resignation or discharge. 1.15 "Trustee" shall mean the trustee of a grantor ("rabbi") trust established by the Company to whom the Company has delegated the responsibility for Plan administration in accordance with Article 9. 1.16 "Wrap-Around Account" shall mean a Participant's Initial Wrap-Around Account, if any, as specified in Schedule II increased by interest credits as provided in Article 4. A Participant's Wrap-Around Account shall be utilized solely as a device for the measurement and determination of the amounts to be paid to the Participant pursuant to this Plan. A Participant's Wrap-Around Account shall not constitute or be treated as a trust fund. Article 2 - Eligibility As a condition of participation, each Participant shall complete, execute and return to the Committee, prior to August 15, 1999, an affirmative election (in the form attached hereto) to have his EDP Account transferred to the Plan. Article 3 - Basic Account A Participant's Basic Account shall equal the Participant's Initial Basic Account as stated in Schedule I increased each Plan Anniversary Date on which the Participant remains employed by the Company and on the Participant's Termination Date to reflect simple interest based on the Applicable Interest Rate for the Plan Year (or portion of the Plan Year preceding the Participant's Termination Date). Notwithstanding the foregoing, prior to determining any interest accrual for the Plan Year that includes the Participant's Termination Date, a Participant's Basic Account shall be reduced (but not below zero) by the Participant's Account Balance, if any, under Article XVIII of the MOT Plan. For this purpose, the Participant's Basic Account and MOT Plan Account Balance shall be determined as of the first day of the Plan Year that includes the Participant's Termination Date. If the Participant's Account Balance under the MOT Plan equals or exceeds the Participant's Basic Account, the Participant shall cease to have a Basic Account as of the Participant's Termination Date and shall receive no further interest credits thereafter. If the Participant's Basic Account exceeds the Participant's MOT Plan Account Balance, the difference shall be credited with interest (at the Applicable Interest Rate) for the period beginning on the first day of the Plan Year that includes the Participant's Termination Date and ending on the Participant's Termination Date. Under such circumstances, post-Termination Date interest credits shall be determined as provided in Article 5. Article 4 - Wrap-Around Account A Participant's Wrap-Around Account shall equal the Participant's Initial Wrap-Around Account as stated in Schedule II increased each Plan Anniversary Date on which the Participant remains employed by the Company and on the Participant's Termination Date to reflect simple interest based on the Moody's Rate for the Plan Year or portion of the Plan Year preceding the Participant's Termination Date. Article 5 - Timing and Form of Benefit 5.1 Termination Benefit Subject to the provisions of Section 5.3 below, a Participant may elect to receive or begin receiving payment of his Account as of the first day of any month following the month in which the Participant's Termination Date occurs. 5.2 Rate of Interest During Payment Period For the period beginning on the Participant's Termination Date and ending on either the date the Participant is to receive a lump sum payment of his Account or the date the last scheduled installment payment is to be made with respect to the Participant's Account (the "Payment Period"), the interest rate used for determining the amount of any distribution from the Participant's Wrap-Around Account shall be based on a fixed rate which is an average of the annual Moody's Seasoned Corporate Bond Rate for a five (5) year period consisting of the Plan Year in which the Participant's termination of employment occurs and the four (4) immediately preceding Plan Years with an additional five percentage points credited to such fixed rate. For the Payment Period, the interest rate used for determining the amount of any distribution from the Participant's Basic Account shall be based on the Applicable Interest Rate for the Plan Year in which the Participant's Termination Date occurs. 5.3 Form and Commencement of Benefits At least thirty (30) days before his Termination Date, the Participant must inform the Committee in writing of the form in which his Account is to be paid, either in a lump sum or in equal monthly installments over a specified period, and the date as of which such lump sum payment is to be made or as of which such monthly installments are to begin. If no election is timely made, the Plan will pay benefits in 240 equal monthly installments beginning on the first day of the month following the month in which the Participant's Termination Date occurs. In lieu of the 240 installment form, the Participant may elect 180 equal monthly payments or may elect any number of equal monthly payments to be made over a period of up to 120 months, provided such election is filed with the Committee at least thirty days before the Participant's Termination Date. A Participant may elect to defer benefit commencement beyond his Termination Date to a date certain selected by the Participant. The deferral election must be executed by the Participant in writing in a form acceptable to the Committee and delivered to the Committee at least thirty (30) days prior to the Participant's Termination Date. Plan benefits which are deferred by reason of a Participant's timely-filed deferral election shall be paid to the Participant in the form and on the date certain as selected by the Participant. No Participant may defer the payment of his Plan benefits to a date beyond the latest of (1) ten years following the Participant's commencement of participation in the EDP, (2) the first day of the month following the month in which the Participant's Termination Date occurs, or (3) age 65. 5.4 Death Prior to Completion of Benefits If a Participant who has elected the monthly installment form of payment dies after the commencement of Plan benefit payments but before the applicable Plan benefit is paid in full, the Participant's unpaid Plan benefit payments shall continue and be paid to that Participant's Beneficiary in the same manner as selected by the Participant. If a Participant dies prior to the commencement of Plan benefits, his Beneficiary shall be paid benefits in a lump sum on the first day of the month following the death of the Participant. The aggregate benefits to be paid to the Participant's Beneficiary will be in an amount equal to the balance of the Participant's Account as of the date of the Participant's death. Article 6 - Beneficiary Designation 6.1 Beneficiary Designation Each Participant shall have the right, at any time, to designate any person or persons as his Beneficiary or Beneficiaries (both principal as well as contingent). 6.2 Change of Beneficiary Designation Any Beneficiary designation may be changed by a Participant at any time by the filing in writing of such change on a form prescribed by the Committee. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. The Committee shall be entitled to rely on the last designation filed by the Participant prior to his death. 6.3 No Participant Designation If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be the surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan shall be payable to the Participant's personal representative (executor or administrator of the Participant's estate). 6.4 Effect of Payment The payment of benefits under the Plan to the deemed Beneficiary shall completely discharge the Employer's obligations under this Plan. Article 7 - Discontinuance, Amendment or Termination 7.1 Discontinuance The Company reserves the right to discontinue the Plan at any time. Upon discontinuance of the Plan, the Partici pants' Accounts shall be paid out according to the provisions of Article 5. The discontinuance of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan. 7.2 Amendment The Company may, at any time, amend or modify the Plan in whole or in part, provided, however, that no amendment or modification shall adversely affect any Account in existence at the time the amendment or modification is made. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification. 7.3 Termination The Company reserves the right to terminate the Plan and to distribute Participants' Accounts to them as soon as practicable thereafter. Notwithstanding the foregoing, upon Plan termination, each Participant who has a Wrap- Around Account balance shall receive an additional amount equal to the difference between the present value of the stream of future payments the Participant would have received if the Plan had not been terminated (calculated as described below) and the amount credited to the Participant's Wrap-Around Account on the Plan's termination date. For each such Participant who, as of the Plan's termination date, is no longer employed by the Company (i.e., has incurred a Termination Date), the present value calculation shall be based on the stream of future payments the Participant would have received pursuant to the Participant's distribution election (or default election) in effect on the Participant's Termination Date. For any Participant with a Wrap-Around Account balance who is an active employee on the Plan's termination date, the present value calculation shall be based on the stream of future payments the Participant would have received if the Participant had terminated employment on the Plan's termination date with a valid distribution election in place providing for 240 installment payments to begin as of the latest of (1) ten years following the Participant's commencement of participation in the EDP, (2) the first day of the month following the Participant's deemed Termination Date, or (3) age 65. Article 8 - Miscellaneous 8.1 Unsecured General Creditor Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of Employer, nor shall they be Beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by the Employer. The Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Employer to pay money in the future. 8.2 Nonassignability Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, antici pate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 8.3 Not a Contract of Employment The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Employer and the Participant, and the Participant (or his Beneficiary) shall have no rights against the Employer except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Employer or to interfere with the right of the Employer to discipline or discharge him at any time. 8.4 Protective Provisions A Participant will cooperate with the Employer by furnishing any and all information requested by the Employer in order to facilitate the payment of benefits hereunder and by taking such physical examinations as the Employer may deem necessary and taking such other action as may be requested by the Employer. 8.5 Terms Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 8.6 Captions The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 8.7 Governing Law The provisions of this Plan shall be construed and interpreted according to the laws of the State of Illinois. 8.8 Validity In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 8.9 Notice Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to Central Illinois Light Company Restructured Executive Deferral Plan Administrative Committee 300 Liberty Street Peoria, Illinois 61602 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 8.10 Successors The provisions of this Plan shall bind and inure to the benefit of the Employer and its successors and assigns. The term successors as used herein shall include any corpo rate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Employer, and successors of any such corporation or other business entity. 8.11 Attorney Fees In the event that the Company breaches any of the terms of the Plan and it is necessary for a Participant to institute court proceedings to enforce the Plan provisions, the Participant, upon prevailing, shall also recover reasonable attorney's fees and costs as damages from the Company. 8.12 Late Payment Penalty In the event that the Company fails or refuses to make any of the payments to a Participant or a Beneficiary required by the Plan, after the Participant or Beneficiary has advised the Company in writing of such failure or refusal and has given the Company thirty (30) days to make such payment, the Company shall pay interest to the Participant or Beneficiary on the amount of the late payment at the rate of two times the Moody's Rate from the date such payment was due until the date such payment is made by the Company. 8.13 Incompetent In the event that it shall be found upon evidence satisfactory to the Committee that any Participant or Beneficiary to whom a benefit is payable under this Plan is unable to care for his affairs because of illness or accident, any payment due (unless prior claim therefor shall have been made by a duly authorized guardian or other legal representative) may be paid, upon appropriate indemnification of the Committee, to the spouse of such person or other person deemed by the Committee to have incurred expense for such Participant. Any such payment shall be a payment for the account of the Participant and shall be a complete discharge of any liability of the Plan for such payment amount. Article 9 - Administration 9.1 Administrator Duties This Plan shall be administered by either (1) a Committee which shall consist of persons appointed by the Board of Directors of the Company or (2) an Independent Agent appointed by the Board of Directors of the Company. The Independent Agent shall be a bank, not an affiliate of the Company, having a market capitalization exceeding $100,000,000. The appointment of an Independent Agent shall be irrevocable and shall preclude further administration by a Committee provided, however, that upon resignation or removal of an Independent Agent, the Company shall appoint a successor Independent Agent who shall satisfy the foregoing qualifications. Members of the Committee may be Participants under this Plan. The Committee or the Independent Agent, as appropriate, (the "Administrator") shall also have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. 9.2 Agents In the administration of this Plan, the Administrator may, from time to time, employ agents and delegate to them such administrative duties as it sees fit and may from time to time consult with counsel who may also be counsel to the Employer. The relationship between the Company and the Trustee shall be set forth in the trust agreement by and between the parties. 9.3 Binding Effect of Decision The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 9.4 Indemnity of Administrator The Employer shall indemnify and hold harmless the members of the Committee or the Independent Agent, as appropriate, against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members or the Independent Agent. 9.5 Employer Information To enable the Administrator to perform its functions, the Employer shall supply full and timely information to the Administrator on all matters relevant to Participants' Plan benefits and participation, including the date and circumstances of the retirement, disability, death or termination of employment of each Participant, and such other pertinent information as the Administrator may reasonably require. 9.6 Change in Payments The Administrator shall have the power, in its sole discretion, to change the manner and time of payments to be made to a Participant or Beneficiary from that which would be otherwise payable to such person. EX-3 8 BYLAWS of CENTRAL ILLINOIS LIGHT COMPANY As Amended Effective April 1, 1999 ARTICLE I: LOCATION OF OFFICES Section 1 - Principal Office: The principal office of the Company shall be in the City of Peoria, Illinois, at such place as the Board of Directors may designate. Section 2 - Other Offices: The Company may have and maintain such other offices as the Board of Directors may deem expedient. ARTICLE II: CORPORATE SEAL Section 1 - The Company shall have a corporate seal with the name of the Company described about a circle and the words "Incorporated 1913 Illinois" within such circle. ARTICLE III: FISCAL YEAR Section 1 - The fiscal year of the Company shall begin with the first day of January and end with the thirty-first day of December of each year. ARTICLE IV: SHAREHOLDERS' MEETINGS Section 1 - Annual Meeting: An annual meeting of the shareholders for the purpose of electing directors and for the transaction of such other business as may come before the meeting shall be held as determined by the Board of Directors in accordance with the applicable provisions of the Illinois Business Corporation Act. Section 2 - Special Meetings: Unless otherwise provided by law, special meetings of the shareholders may be called by the Board of Directors, by the Chairman of the Board, by the President, by the Secretary under the written direction of a majority of the Directors, or by shareholders holding not less than one-fifth of the total capital stock. Such meetings shall be held at the principal office of the Company, or if the Board of Directors or the Chairman of the Board or the President shall designate another place, then at such other place as may be so designated. Section 3 - Notices: Written notice of either annual or special meetings shall be mailed at least ten days prior to the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets at least twenty days prior to the meeting, to each shareholder at his last known address as the same appears on the stock books of the Company. Such notice shall specify the time and place of holding the meeting and shall further specify the dates for closing and opening the stock transfer books of the Company, provided the Board of Directors shall have ordered them closed. Notices of special meetings shall further specify the purpose for which the meeting is called and no other business shall be transacted at such special meeting. No notice of a special meeting shall be necessary provided every shareholder shall have signed a written waiver of such notice or shall be present or represented by proxy at the meeting. No notice of the holding of an adjourned meeting shall be necessary. Section 4 - Quorum: The holders of a majority of the stock of the Company issued and outstanding shall constitute a quorum for the transaction of business at any meeting but a less number may convene and adjourn. Section 5 - Voting: Shareholders may vote at all meetings in person or by proxy. At all meetings, each share of stock shall be entitled to one vote on all questions and a majority of the votes cast at any such meeting shall be sufficient for the adoption or rejection of any question presented, unless otherwise provided by law. In the election of Directors, each shareholder shall have the right to cast as many votes in the aggregate as shall equal the number of shares of stock held by such shareholder, multiplied by the number of Directors to be then elected, and each shareholder may cast the whole number of votes for one candidate or distribute them among two or more candidates. ARTICLE V: DIRECTORS Section 1 - Number: The Board of Directors of this Company shall consist of between three and seven members. "Section 2 - Election: Directors shall be elected annually at the annual meeting of the shareholders, provided that in the event of failure to hold such meeting or to hold said election thereat, it may be held at any special meeting of shareholders called for that purpose. Unless sooner terminated by any other provision hereof, the term of any Director shall automatically expire at the first annual meeting of the shareholders following his or her attainment of the age of 67. Provided, however, that the term of any Director serving in such capacity and over the age of 60 on August 20, 1993 shall automatically expire at the first annual meeting of the shareholders following his or her attainment of the age of 70. Notwithstanding any other provision hereof, the term of any Director who is an officer or other full-time employee of the Corporation shall automatically expire immediately upon his or her retirement or other termination of employment by the Company. Section 3 - Term of Office: The Directors shall hold office from the date of their election until the next succeeding annual meeting or until their successors are elected and shall qualify. Section 4 - Vacancies: Any vacancy occurring in the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors shall be filled in the manner provided by the laws of Illinois then in effect. Section 5 - Fees: Directors shall be reimbursed for expenses, if any, incurred in attending meetings of the Board of Directors and in otherwise performing duties of such Directors. Directors' fees shall be fixed by the Board of Directors, provided that any Director who receives compensation from the Company as an officer or full-time employee shall not receive Director's fees. Section 6 - Executive or Other Committees: The Board of Directors may authorize appointment of an Executive Committee or other committees of the Board as the Board of Directors determines to be desirable, and may fix the number of members and designate the chairman of each such committee. The powers, terms of office, and method of filing vacancies shall be as defined in the resolution or resolutions of the Board of Directors relating to the authorization of such committees. Each such committee shall make a written report or recommendation following its meetings or keep minutes of all of its meetings. ARTICLE VI: DIRECTORS' MEETINGS Section 1 - Regular Meetings: Regular meetings of the Board of Directors shall be held at the principal office of the Company or at such other place or places, within or without the State of Illinois, at such time and day as the Board of Directors may designate. Section 2 - Special Meetings: Unless otherwise provided by law, special meetings of the Board of Directors may be held at any time, at the principal office of the Company or elsewhere, within or without the state. The Secretary or Assistant Secretary shall call a special meeting whenever so requested by the Chairman of the Board, the President, a Vice President, or by three Directors. Section 3 - Organization Meeting: As soon as possible after their election, the Board of Directors shall meet and organize and they may also transact such other business as may be presented, provided the same shall receive the affirmative votes of a majority of the constituent membership of the Board. Section 4 - Notice: No notice shall be required for a regular meeting. No notice shall be required for an "Organization Meeting," if held on the same day as the shareholders' meeting at which the Directors were elected. No notice of the holding of an adjourned meeting shall be necessary. A reasonable notice of special meetings, in writing or otherwise, shall be given to each Director or sent to his residence or place of business. Notice of special meeting shall specify the time and place of holding the meeting and, unless otherwise stated, any and all business may be transacted at such special meeting. Notice of any meeting may be waived in writing. Section 5 - Quorum: At all meetings of the Board of Directors, a majority shall constitute a quorum, but a less number may convene and adjourn. Section 6 - Voting: All questions coming before any meeting of the Board of Directors for action shall be decided by a majority vote of the Directors present at said meeting, unless otherwise provided by law or by these Bylaws. ARTICLE VII: OFFICERS Section 1 - General: The principal officers of the Company shall be elected by the Board of Directors. They shall include a President, one or more Vice Presidents, one or more of whom may be designated as Executive or Senior Vice President, one or more Assistant Vice Presidents, a Secretary and a Treasurer, and may include a Chairman of the Board. The Board of Directors may appoint or remove such other officers and agents of the Company as it may deem proper or may delegate such authority to the Chief Executive Officer. The Chief Executive Officer of the Company shall be the President or Chairman of the Board, as designated by the Board of Directors. In the event that a Chairman of the Board has not been elected, the President shall be the Chief Executive Officer. Section 2 - Qualifications: The Chairman of the Board, if one is elected, and the President shall be chosen from among the Board of Directors. Section 3 - Election: The principal officers shall be elected annually at the organization meeting of the Directors, provided that any such officers not elected at such meeting may be elected at any succeeding meeting of the Directors. Section 4 - Term of Office: The principal officers shall hold office from the date of their election until the next succeeding organization meeting of Directors or until their successors are elected and shall qualify, provided that the Directors shall at all times have the power to remove any officer, when in their judgment such removal may be to the best interests of the Company. Section 5 - Vacancies: Any vacancy or vacancies among the officers, arising from any cause, shall be filled by the Directors as provided above. Section 6 - Compensation: The compensation of the principal officers shall be fixed by the Board of Directors. The compensation of other officers shall, in the absence of any action by the Board of Directors, be fixed by the Chief Executive Officer. Section 7 - Combining Offices: Except to the extent otherwise provided by law, any two or more of such offices may be held by the same person but no officer shall execute, acknowledge, or verify any instrument in more than one capacity if such instrument is required by law or by the Bylaws to be executed, acknowledged, or verified by any two or more officers. ARTICLE VIII: AGENTS Section 1 - Depositories: The funds of the Company, from any source, shall be deposited in the name of the Company with such depositories as may be designated by the Board of Directors. ARTICLE IX: POWERS AND DUTIES Section 1 - Directors: The Board of Directors shall have and exercise all power and authority in the government of the affairs of the Company except where specifically excepted by law or by these Bylaws. Section 2 - Chairman of the Board: The Chairman of the Board, if one is elected, shall preside at all meetings of the shareholders and the Board of Directors. He shall do and perform all acts and things incident to the position of Chairman of the Board and such other duties as may be assigned to him by the Board of Directors. Section 3 - President: The President shall have the general control and management of the business and affairs of the Company, subject, however, to the supervision of the Board of Directors. He shall perform and do all acts and things incident to the position of President and such other duties as may be assigned to him by the Board of Directors. In the absence or disability of the Chairman of the Board, or if a Chairman of the Board has not been elected, he shall have and exercise all of the powers and duties of that office. He shall appoint such agents and employees as he may deem necessary for the proper conduct of the business of the Company and shall prescribe their duties and fix their compensation, provided that the Board of Directors shall at all times have the power to remove any agent or employee, when, in their judgment, such removal may be to the best interest of the Company. Section 4 - Vice Presidents: The Vice Presidents shall perform such of the duties of the President and such other duties on behalf of the Company as may be respectively assigned to them by the Board of Directors, or the Chief Executive Officer. In the absence or disability of the President or in the case of his death, resignation, or removal from office, the powers and duties of the President shall temporarily pass to such one of the Vice Presidents as the Board of Directors shall have designated or shall designate, and the Vice President so designated shall have and exercise all the powers and duties of the President during such absence or disability or until the vacancy in the office of President shall be filled. Section 5 - Assistant Vice Presidents: The Assistant Vice Presidents shall perform such of the duties of the Vice Presidents and such other duties on behalf of the Company as may be respectively assigned to them by the Board of Directors, the Chief Executive Officer or a Vice President who would otherwise perform such duties. Section 6 - Secretary: Subject to the supervision of the Board of Directors and the Chief Executive Officer, the Secretary shall have the custody of the corporate seal and records of the Company and shall prepare and file all reports required by law to be made to any and all public authorities and officials. He shall act as Secretary at meetings of the shareholders and Directors and shall be responsible for keeping and recording the minutes of all meetings in a suitable minute book and shall attend to publishing, giving, and serving all official notices of the Company. He shall be responsible for keeping the capital stock records. He shall perform such other duties as may be assigned to him by the Board of Directors and the Chief Executive Officer. Section 7 - Treasurer: Subject to the supervision of the Board of Directors and Chief Executive Officer, the Treasurer shall have the custody of all funds and securities of the Company and charge of the collection of amounts due the Company. He shall disburse the funds of the Company only upon receipt of properly authorized vouchers and shall keep a record of all receipts and disbursements of funds by him. He shall have authority to give receipts for moneys paid to the Company and to endorse checks, drafts, and warrants in the name of the Company. He shall perform such other duties as may be assigned to him by the Board of Directors and Chief Executive Officer. Section 8 - Other Officers and Agents: The powers and duties of such other officers and agents shall be prescribed by the Board of Directors or the Chief Executive Officer. ARTICLE X: STOCK Section 1 - Stock Certificates: The shares of stock of the Company shall be represented by certificates signed by the President or a Vice President and the Secretary or an Assistant Secretary and sealed with the seal of the Company. Such seal may be a facsimile. Where such certificate is countersigned by a Transfer Agent other than the Company itself or an employee of the Company, or by a Transfer Clerk and registered by a Registrar, the signatures of the President or Vice President and the Secretary or Assistant Secretary upon such certificate may be facsimiles engraved or printed. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Company with the same effect as if such officer had not ceased to be such at the date of its issue. Section 2 - Stock Transfer Books: The stock shall be transferable on the stock transfer books of the Company in person or by proxy duly authorized, and upon surrender and cancellation of the old certificates therefor. Section 3 - Replacing Certificates: In case of the loss or destruction of any certificate of stock and the submission of proper proof thereof by the owner, a new certificate may be issued in lieu thereof under such regulations and restrictions as the Board of Directors may prescribe. ARTICLE XI: DIVIDENDS Section 1 - The Directors may declare, from the net profits or surplus of the Company, dividends upon its capital stock, payable at such times and for such amounts as they may determine in conformity with the Articles of Incorporation of the Company, as amended, and the laws of the State of Illinois. ARTICLE XII: AUTHORIZED SIGNATURES Section 1 - All checks, drafts, and other negotiable instruments issued by the Company shall be made in the name of the Company and shall be signed by such officer or officers of the Company, or by such other person or persons as the Board of Directors may designate. To the extent authorized by the Board of Directors, facsimile signatures may be used. ARTICLE XIII: FIDELITY BONDS Section 1 - The officers and employees of the Company shall, in the discretion of the President, give bonds for the faithful discharge of their respective duties, in such form and for such amounts as may be directed by the President. ARTICLE XIV: AMENDMENTS Section 1 - The Bylaws of the Company may be altered, amended, or repealed by either the shareholders or the Board of Directors. ARTICLE XV: INDEMNIFICATION Section 1 - The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he or she is or was a director, officer, employee or agent of the Company, or who is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. Section 2 - The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Company, unless, and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. Section 3 - To the extent that a director, officer, employee or agent of the Company has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in Sections l and 2 of this Article, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Section 4 - Any indemnification under Sections l and 2 of this Article (unless ordered by a court) shall be made by the Company only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section l or 2 of this Article. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the shareholders. Section 5 - Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding, as authorized by the Board of Directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he or she is entitled to be indemnified by the Company as authorized in this Article. Section 6 - The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by- law, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7 - The Company shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of this Article. Section 8 - If the Company has paid indemnity or has advanced expenses to a director, officer, employee or agent, the Company shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting. Section 9 - For purposes of this Article, references to "the Company" shall include, in addition to the surviving Company, any merging Company (including any Company having merged with a merging Company) absorbed in a merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers and employees or agents, so that any person who was a director, officer, employee or agent of such merging Company, or was serving at the request of such merging Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the surviving Company as such person would have with respect to such merging Company if its separate existence had continued. Section 10 - For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he or she reasonably believed to be in the best interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Article. EX-27 9
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000762129 CILCORP INC. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 PER-BOOK 862,579 171,214 179,541 47,636 569,983 1,830,953 0 468,833 (745) 468,088 22,000 44,120 730,434 45,000 0 46,900 30,000 0 1,183 520 442,708 1,830,953 605,093 (199) 564,461 564,262 40,831 (1,037) 39,794 37,051 2,743 3,208 (465) 29,813 30,530 44,122 0 0
EX-27 10
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000018651 CENTRAL ILLINOIS LIGHT COMPANY 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 PER-BOOK 862,579 4,285 164,627 24,789 0 1,056,280 185,661 27,000 121,504 334,165 22,000 44,120 237,934 0 0 46,900 30,000 0 1,183 520 339,458 1,056,280 553,474 11,276 498,128 509,404 44,070 (1,595) 42,475 23,226 19,249 3,208 16,041 29,813 19,234 65,768 0 0
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