-----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, Qs+kxhhyKQEV00MZXoeqdyr9NmcGANkaCrIDTaUqgerIHoAI1Cun+yTqcO6p2gGT Aa9mjOY+Ne6ck8zGSCsEtA== /in/edgar/work/0000762129-00-000017/0000762129-00-000017.txt : 20001110 0000762129-00-000017.hdr.sgml : 20001110 ACCESSION NUMBER: 0000762129-00-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001109 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-Q SEC ACT: SEC FILE NUMBER: 002-95569 FILM NUMBER: 757453 BUSINESS ADDRESS: STREET 1: 300 LIBERTY ST STREET 2: 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-Q SEC ACT: SEC FILE NUMBER: 001-02732 FILM NUMBER: 757454 BUSINESS ADDRESS: STREET 1: 300 LIBERTY ST CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096758810 MAIL ADDRESS: STREET 1: 300 LIBERTY ST CITY: PEORIA STATE: IL ZIP: 61602 10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from ........ to ........ Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. 1-8946 CILCORP Inc. 37-1169387 (An Illinois Corporation) 300 Liberty Street Peoria, Illinois 61602 (309) 677-5230 1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050 (An Illinois Corporation) 300 Liberty Street Peoria, Illinois 61602 (309) 677-5230 Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: CILCORP Inc. Common stock, no par value, shares outstanding and privately held by The AES Corporation at September 30, 2000 1,000 CENTRAL ILLINOIS LIGHT COMPANY Common stock, no par value, shares outstanding and privately held by CILCORP Inc. at September 30, 2000 13,563,871 1 CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 INDEX Page No. PART I. FINANCIAL INFORMATION Item 1: Financial Statements CILCORP INC. Consolidated Balance Sheets 3-5 Consolidated Statements of Operations 6 Consolidated Statements of Cash Flows 7-8 Statements of Segments of Business 9-12 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets 13-14 Consolidated Statements of Income 15 Consolidated Statements of Cash Flows 16-17 Notes to Consolidated Financial Statements CILCORP Inc. and Central Illinois Light Company 18-20 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations CILCORP Inc. and Central Illinois Light Company 21-35 PART II. OTHER INFORMATION Item 1: Legal Proceedings 36 Item 5: Other Information 36 Item 6: Exhibits and Reports on Form 8-K 36 Signatures 2 CILCORP INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
September 30, December 31, 2000 1999 ASSETS (Unaudited) Current assets: Cash and temporary cash investments $ 15,948 $ 11,220 Receivables, less reserves of $1,090 and $1,296 73,417 60,072 Accrued unbilled revenue 21,917 35,526 Fuel, at average cost 15,123 14,392 Materials and supplies, at average cost 16,943 16,165 Gas in underground storage, at average cost 31,580 21,196 FAC underrecoveries 1,865 12,024 Prepayments and other 10,501 8,946 ---------- ---------- Total current assets 187,294 179,541 ---------- ---------- Investments and other property: Investment in leveraged leases 140,796 143,697 Cash surrender value of company-owned life insurance, net of related policy loans of $58,454 and $53,558 2,589 3,106 Other investments 23,462 24,113 ---------- ---------- Total investments and other property 166,847 170,916 ---------- ---------- Property, plant and equipment: Utility plant, at original cost Electric 670,958 624,889 Gas 214,808 208,520 ---------- ---------- 885,766 833,409 Less - accumulated provision for depreciation 56,414 8,898 ---------- ---------- 829,352 824,511 Construction work in progress 54,110 38,068 Other, net of depreciation 182 298 ---------- ---------- Total property, plant and equipment 883,644 862,877 ---------- ---------- Other assets Goodwill, net of accumulated amortization of $13,598 and $2,881 599,228 569,983 Other 74,515 47,636 ---------- ---------- Total other assets 673,743 617,619 ---------- ---------- Total assets $1,911,528 $1,830,953 ========== ========== 3 The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
4 CILCORP INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
September 30, December 31, 2000 1999 LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) Current liabilities: Current portion of long-term debt $ 8,500 $ 30,000 Notes payable 121,200 91,900 Accounts payable 81,294 41,429 Accrued taxes 11,028 14,670 Accrued interest 24,280 18,296 PGA overrecoveries 117 127 Other 4,527 5,742 ---------- ---------- Total current liabilities 250,946 202,164 ---------- ---------- Long-term debt 729,969 730,434 ---------- ---------- Deferred credits and other liabilities: Accumulated deferred income taxes 204,999 237,557 Regulatory liability of regulated subsidiary 17,996 31,367 Deferred investment tax credits 16,567 17,791 Freeman contract liability 110,107 -- Other 73,482 77,432 ---------- ---------- Total deferred credits and other liabilities 423,151 364,147 ---------- ---------- Preferred stock of subsidiary 41,120 66,120 ---------- ---------- Stockholders' equity: Common stock, no par value; authorized 10,000 shares - outstanding 1,000 shares -- -- Additional Paid-in Capital 468,833 468,833 Retained deficit (2,491) (745) ---------- ---------- Total stockholders' equity 466,342 468,088 ---------- ---------- Commitments and contingencies Total liabilities and stockholders' equity $1,911,528 $1,830,953 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
5 CILCORP INC AND SUBSIDIARIES Consolidated Statements of Operations (In thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 Revenue: CILCO Electric $128,420 |$130,034 $309,666 |$299,040 CILCO Gas 26,201 | 21,511 129,155 | 123,877 CILCO Other 17,725 | 1,059 36,578 | 2,901 Other businesses 7,549 | 2,927 19,252 | 18,218 -------- |-------- -------- |-------- Total 179,895 | 155,531 494,651 | 444,036 -------- |-------- -------- |-------- Operating expenses: | | Fuel for generation and | | purchased power 74,309 | 53,822 162,981 | 112,165 Gas purchased for resale 18,689 | 10,252 82,251 | 75,257 Other operations and maintenance 28,152 | 61,552 84,757 | 134,116 Depreciation and amortization 21,398 | 16,686 63,700 | 51,167 Taxes, other than income taxes 9,895 | 9,868 30,473 | 30,784 -------- |-------- -------- |-------- Total 152,443 | 152,180 424,162 | 403,489 -------- |-------- -------- |-------- Fixed charges and other: | | Interest expense 18,092 | 6,999 52,678 | 21,339 Preferred stock dividends of | | subsidiary 539 | 802 2,437 | 2,372 Allowance for funds used | | during construction (136) | (48) (338) | (74) Other 246 | 202 767 | 708 -------- |-------- -------- |-------- Total 18,741 | 7,955 55,544 | 24,345 -------- |-------- -------- |-------- Income (loss) from continuing | | operations before income taxes 8,711 | (4,604) 14,945 | 16,202 Income taxes 3,937 | (2,247) 7,391 | 4,868 -------- |-------- -------- |-------- Net income (loss) from | | continuing operations 4,774 | (2,357) 7,554 | 11,334 Loss from operations of | | discontinued business, net of | | tax of $(221) -- | -- -- | (407) -------- |-------- -------- |-------- Net income (loss) $ 4,774 |$ (2,357)$ 7,554 |$ 10,927 ======== |======== ======== |======== The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.
6 CILCORP INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Nine Months Ended September 30, 2000 1999 Cash flows from operating activities: Net income before preferred dividends $ 9,991 |$ 13,299 -------- |-------- Adjustments to reconcile net income to net | cash provided by operating activities: | Non-cash lease income and investment income (6,490) | (4,589) Cash receipts in excess of debt service | on leases 9,719 | 8,679 Depreciation and amortization 63,700 | 51,167 Deferred income taxes, investment tax credit | and regulatory liability of subsidiary, net (10,734) | (20,383) Changes in operating assets and liabilities: | (Increase) decrease in accounts receivable and | accrued unbilled revenue 7,842 | (3,198) (Increase) in inventories (11,893) | (209) Increase (decrease) in accounts payable 31,997 | (18,586) (Decrease) increase in accrued taxes (297) | 10,227 (Increase) in other assets (15,821) | (22,051) Increase in other liabilities 808 | 32,074 -------- |-------- Total adjustments 68,831 | 33,131 -------- |-------- Net cash provided by operating activities | from continuing operations 78,822 | 46,430 -------- |-------- Net cash provided (used) by operating | activities of discontinued operations (188) | 9,877 -------- |-------- Cash flow from operations 78,634 | 56,307 -------- |-------- Cash flows from investing activities: | Additions to plant (43,211) | (39,957) Proceeds from sale of discontinued operations -- | 17,376 Other (1,258) | (4,160) -------- |-------- Net cash used by investing activities | from continuing operations (44,469) | (26,741) -------- |-------- Net cash used by investing activities | from discontinued operations -- | (5,083) -------- |-------- Cash flow from investing activities (44,469) | (31,824) -------- |-------- 7 Cash flow from financing activities: Net increase in short-term debt 37,800 | 6,400 Net decrease in long-term debt (30,500) | (981) Net decrease in preferred stock (25,000) | -- Common dividends paid (9,300) | (25,112) Preferred dividends paid (2,437) | (2,372) -------- |-------- Cash flow from financing activities (29,437) | (22,065) -------- |-------- Net increase (decrease) in cash and | temporary cash investments: 4,728 | 2,418 Cash and temporary cash investments | at beginning of year: 11,220 | 1,669 -------- |-------- Cash and temporary cash investments at | September 30 $ 15,948 |$ 4,087 ======== |======== Supplemental disclosures of cash flow | information: | | Cash paid during the period for: | | Interest $ 46,643 |$ 23,706 | Income taxes $ 21,058 |$ 10,828 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
8 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Three Months Ended September 30, 2000 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $128,420 $ 26,201 $17,615 $ 7,516 $ -- $ 179,752 Interest income -- -- 110 33 -- 143 -------- -------- ------- --------- -------- ---------- Total 128,420 26,201 17,725 7,549 -- 179,895 -------- -------- ------- --------- -------- ---------- Operating expenses 83,607 22,614 20,933 3,891 -- 131,045 Depreciation and amortization 12,449 5,337 -- 3,612 -- 21,398 -------- -------- ------- --------- -------- ---------- Total 96,056 27,951 20,933 7,503 -- 152,443 -------- -------- ------- --------- -------- ---------- Interest expense 4,433 1,727 -- 11,932 -- 18,092 Preferred stock dividends -- -- 539 -- -- 539 Fixed charges and other expenses (136) -- 246 -- -- 110 -------- -------- ------- --------- -------- ---------- Total 4,297 1,727 785 11,932 -- 18,741 -------- -------- ------- --------- -------- ---------- Income from continuing oper. before income taxes 28,067 (3,477) (3,993) (11,886) -- 8,711 Income taxes 10,535 (1,376) (1,711) (3,511) -- 3,937 -------- -------- ------- --------- -------- ---------- Segment net income $ 17,532 $ (2,101)$(2,282) $ (8,375)$ -- $ 4,774 ======== ======== ======= ========= ======== ==========
9 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Three Months Ended September 30, 1999 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $130,034 $ 21,511 $ 1,025 $ 2,885 $ -- $ 155,455 Interest income -- -- 34 42 -- 76 -------- -------- ------- --------- ------- ----------- Total 130,034 21,511 1,059 2,927 -- 155,531 -------- -------- ------- --------- ------- ----------- Operating expenses 100,227 28,782 2,266 4,219 -- 135,494 Depreciation and amortization 11,799 4,772 72 43 -- 16,686 -------- -------- ------- --------- ------- ----------- Total 112,026 33,554 2,338 4,262 -- 152,180 -------- -------- ------- --------- ------- ----------- Interest expense 4,228 1,678 -- 1,093 -- 6,999 Preferred stock dividends -- -- 802 -- -- 802 Fixed charges and other expenses (47) (1) 202 -- -- 154 -------- -------- ------- --------- ------- ----------- Total 4,181 1,677 1,004 1,093 -- 7,955 -------- -------- ------- --------- ------- ----------- Income from continuing oper. before income taxes 13,827 (13,720) (2,283) (2,428) -- (4,604) Income taxes 5,285 (5,383) (937) (1,212) -- (2,247) -------- -------- ------- --------- ------- ----------- Segment net income $ 8,542 $ (8,337)$(1,346) $ (1,216)$ -- $ (2,357) ======== ======== ======= ========= ======= ===========
10 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Nine Months Ended September 30, 2000 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $309,666 $129,155 $36,399 $ 19,126 $ -- $ 494,346 Interest income -- -- 179 126 -- 305 -------- -------- ------- --------- -------- ---------- Total 309,666 129,155 36,578 19,252 -- 494,651 -------- -------- ------- --------- -------- ---------- Operating expenses 206,238 102,147 41,084 10,993 -- 360,462 Depreciation and amortization 37,022 15,841 -- 10,837 -- 63,700 -------- -------- ------- --------- -------- ---------- Total 243,260 117,988 41,084 21,830 -- 424,162 -------- -------- ------- --------- -------- ---------- Interest expense 12,186 4,833 -- 35,659 -- 52,678 Preferred stock dividends -- -- 2,437 -- -- 2,437 Fixed charges and other expenses (338) -- 767 -- -- 429 -------- -------- ------- --------- -------- ---------- Total 11,848 4,833 3,204 35,659 -- 55,544 -------- -------- ------- --------- -------- ---------- Income from continuing oper. before income taxes 54,558 6,334 (7,710) (38,237) -- 14,945 Income taxes 19,856 2,543 (3,076) (11,932) -- 7,391 -------- -------- ------- --------- -------- ---------- Segment net income $ 34,702 $ 3,791 $(4,634) $ (26,305)$ -- $ 7,554 ======== ======== ======= ========= ======== ==========
11 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Nine Months Ended September 30, 1999 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $299,040 $123,877 $ 2,754 $ 18,120 $ -- $ 443,791 Interest income -- -- 147 98 -- 245 -------- -------- ------- --------- -------- ---------- Total 299,040 123,877 2,901 18,218 -- 444,036 -------- -------- ------- --------- -------- ---------- Operating expenses 220,714 107,795 5,427 18,386 -- 352,322 Depreciation and amortization 35,585 14,947 504 131 -- 51,167 -------- -------- ------- --------- -------- ---------- Total 256,299 122,742 5,931 18,517 -- 403,489 -------- -------- ------- --------- -------- ---------- Interest expense 12,461 4,943 -- 3,935 -- 21,339 Preferred stock dividends -- -- 2,372 -- -- 2,372 Fixed charges and other expenses (73) (1) 708 -- -- 634 -------- -------- ------- --------- -------- ---------- Total 12,388 4,942 3,080 3,935 -- 24,345 -------- -------- ------- --------- -------- ---------- Income from continuing oper. before income taxes 30,353 (3,807) (6,110) (4,234) -- 16,202 Income taxes 10,600 (1,339) (2,304) (2,089) -- 4,868 -------- -------- ------- --------- -------- ---------- Net income from continuing operations 19,753 (2,468) (3,806) (2,145) -- 11,334 Effect of discontinued operations -- -- -- -- (407) (407) -------- -------- ------- --------- -------- ---------- Segment net income $ 19,753 $ (2,468)$(3,806) $ (2,145)$ (407)$ 10,927 ======== ======== ======= ========= ======== ==========
12 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (In thousands)
September 30, December 31, ASSETS 2000 1999 (Unaudited) Utility plant, at original cost: Electric $1,280,853 $1,263,190 Gas 438,174 431,887 ---------- ---------- 1,719,027 1,695,077 Less - accumulated provision for depreciation 918,081 870,566 ---------- ---------- 800,946 824,511 Construction work in progress 54,110 38,068 ---------- ---------- Total utility plant 855,056 862,579 ---------- ---------- Other property and investments: Cash surrender value of company-owned life insurance (net of related policy loans of $58,454 and $53,558) 2,589 3,106 Other 1,200 1,179 ---------- ---------- Total other property and investments 3,789 4,285 ---------- ---------- Current assets: Cash and temporary cash investments 14,000 8,548 Receivables, less reserves of $1,090 and $1,296 51,461 42,410 Accrued unbilled revenue 20,104 35,071 Fuel, at average cost 15,123 14,392 Materials and supplies, at average cost 16,020 15,967 Gas in underground storage, at average cost 31,580 21,196 Prepaid taxes 6,865 6,165 FAC underrecoveries 1,865 12,024 Other 10,433 8,854 ---------- ---------- Total current assets 167,451 164,627 ---------- ---------- Deferred debits: Unamortized loss on reacquired debt 2,752 2,941 Unamortized debt expense 1,458 1,552 Prepaid pension cost 308 259 Other 18,169 20,037 ---------- ---------- Total deferred debits 22,687 24,789 ---------- ---------- Total assets $1,048,983 $1,056,280 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
13 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (In thousands)
September 30, December 31, CAPITALIZATION AND LIABILITIES 2000 1999 (Unaudited) Capitalization: Common stockholder's equity: Common stock, no par value; authorized 20,000,000 shares; outstanding 13,563,871 shares $ 185,661 $ 185,661 Additional Paid-in Capital 27,000 27,000 Retained earnings 139,424 121,564 Accumulated other comprehensive income (60) (60) ---------- ---------- Total common stockholder's equity 352,025 334,165 Preferred stock without mandatory redemption 19,120 44,120 Preferred stock with mandatory redemption 22,000 22,000 Long-term debt 245,969 237,934 ---------- ---------- Total capitalization 639,114 638,219 ---------- ---------- Current liabilities: Current maturities of long-term debt -- 30,000 Notes payable 75,200 46,900 Accounts payable 49,954 35,859 Accrued taxes 23,715 25,520 Accrued interest 4,742 9,485 PGA overrecoveries 117 127 Level payment plan -- 956 Other 4,454 4,714 ---------- ---------- Total current liabilities 158,182 153,561 ---------- ---------- Deferred credits and other liabilities: Accumulated deferred income taxes 141,655 136,077 Regulatory liability 17,996 31,367 Deferred investment tax credit 16,567 17,792 Capital lease obligation 763 1,183 Other 74,706 78,081 ---------- ---------- Total deferred credits and other liabilities 251,687 264,500 ---------- ---------- Total capitalization and liabilities $1,048,983 $1,056,280 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
14 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Income (In thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 Operating revenue: Electric $128,420 $130,034 $309,666 $299,040 Gas 26,201 21,511 129,155 123,877 -------- -------- -------- -------- Total operating revenues 154,621 151,545 438,821 422,917 -------- -------- -------- -------- Operating expenses: Cost of fuel 32,039 8,594 84,186 53,855 Cost of gas 13,887 9,305 72,293 65,123 Purchased power 24,312 44,105 42,211 56,027 Other operations and maintenance 26,099 57,149 79,355 122,749 Depreciation and amortization 17,786 16,571 52,863 50,532 Income taxes 9,159 (98) 22,399 9,261 Other taxes 9,884 9,856 30,340 30,755 -------- -------- -------- -------- Total operating expenses 133,166 145,482 383,647 388,302 -------- -------- -------- -------- Operating income 21,455 6,063 55,174 34,615 -------- -------- -------- -------- Other income and deductions: Company-owned life insurance, net (246) (202) (767) (708) Other, net (1,497) (342) (1,430) (726) -------- -------- -------- -------- Total other income and (deductions) (1,743) (544) (2,197) (1,434) -------- -------- -------- -------- Income before interest expense 19,712 5,519 52,977 33,181 -------- -------- -------- -------- Interest expenses: Interest on long-term debt 4,328 4,808 13,188 14,425 Cost of borrowed funds capitalized (136) (48) (338) (74) Other 1,832 1,098 3,831 2,979 -------- -------- -------- -------- Total interest expense 6,024 5,858 16,681 17,330 -------- -------- -------- -------- Net income before preferred dividends 13,688 (339) 36,296 15,851 -------- -------- -------- -------- Dividends on preferred stock 539 802 2,437 2,372 -------- -------- -------- -------- Net income available for common stock $ 13,149 $ (1,141) $ 33,859 $ 13,479 ======== ======== ======== ======== The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
15 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Nine Months Ended September 30, 2000 1999 (In thousands) (Unaudited) Cash flows from operating activities: Net income before preferred dividends $ 36,296 $ 15,851 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 52,863 51,037 Deferred income taxes, investment tax credit and regulatory liability, net (9,018) (20,888) Changes in operating assets and liabilities: (Increase) in accounts receivable (9,051) (2,165) (Increase) in fuel, materials and supplies, and gas in underground storage (11,167) (143) Decrease in unbilled revenue 14,967 2,653 Increase (decrease) in accounts payable 14,094 (14,474) (Decrease) increase in accrued taxes and interest (6,549) 4,799 Capital lease payments 484 484 Decrease (increase) in other current assets 7,879 (17,429) (Decrease) in other current liabilities (1,225) (2,690) Increase (decrease) in other non-current assets 3,167 (2,541) (Decrease) increase in other non-current liab. (3,236) 39,809 -------- -------- Net cash provided by operating activities 89,504 54,303 -------- -------- Cash flows from investing activities: Capital expenditures (43,211) (39,275) Cost of equity funds capitalized -- -- Other (3,220) (2,423) -------- -------- Net cash used in investing activities (46,431) (41,698) -------- -------- Cash flow from financing activities: Common dividends paid (16,000) (25,112) Preferred dividends paid (2,437) (2,372) Payments on capital lease obligation (484) (484) Increase (decrease) in short-term borrowing 28,300 17,000 Long-term debt retired (30,000) -- Long-term debt issued 8,000 -- Preferred stock retired (25,000) -- -------- -------- Net cash used in financing activities (37,621) (10,968) -------- -------- Net increase in cash and temporary cash investments 5,452 1,637 Cash and temporary cash investments at beginning of year 8,548 1,362 -------- -------- Cash and temporary cash investments at September 30 $ 14,000 $ 2,999 ======== ======== 16 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of cost of borrowed funds capitalized) $ 22,150 $ 21,802 Income taxes $ 30,391 $ 19,308 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
17 CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. Introduction The consolidated financial statements include the accounts of CILCORP Inc. (CILCORP or the Holding Company), Central Illinois Light Company (CILCO), QST Enterprises Inc. (QST) and its subsidiaries, QST Environmental Inc. (QST Environmental), QST Energy Inc. (QST Energy), and CILCORP Infraservices Inc. (CILCORP Infraservices), and CILCORP's other subsidiaries (collectively, the Company), after elimination of significant intercompany transactions. The consolidated financial statements of CILCO include the accounts of CILCO and its subsidiaries, CILCO Exploration and Development Company and CILCO Energy Corporation. CILCORP owns 100% of the common stock of its first-tier subsidiaries. In the fourth quarter of 1998, the operations of QST and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices Inc. - see Management's Discussion and Analysis) were discontinued and, therefore, are being reported as discontinued operations in the financial statements. QST completed the sale of subsidiary QST Environmental in the second quarter of 1999. Prior year amounts have been reclassified on a basis consistent with the 2000 presentation. On November 23, 1998, the Company announced that The AES Corporation (AES) had offered to buy 100% of the Company's outstanding common stock for $65 per share, subject to CILCORP shareholder approval and various regulatory approvals. AES completed the acquisition of the Company on October 18, 1999. Approximately $886 million was required to complete the merger, which involved the purchase of 13,625,680 shares of CILCORP's common stock. Currently, there are 10,000 authorized shares of CILCORP common stock, 1,000 of which are issued. AES owns 100% of the 1,000 issued shares. The merger was accounted for using the purchase method of accounting. Under this method, the purchase price was allocated to the fair market value of the assets acquired and the liabilities assumed. The excess of the purchase price over the fair value of the net assets acquired of approximately $573 million was recorded as goodwill at CILCORP and is being amortized over 40 years. This initial allocation of the purchase price at October 18, 1999, was based on preliminary estimates made by the Company. During 2000, adjustments were made to the purchase price allocation as additional information became available to finalize the allocation previously based upon preliminary estimates. The primary effect of these adjustments was to increase goodwill by approximately $40 million and to record a liability of approximately $110 million for an out-of-market long- term coal contract (offset by deferred taxes of approximately $44 million and net customer contract intangibles of approximately $17 million). Changes to the Company's estimates after October 2000, if any, will be recorded in results of operations. Following the acquisition, results of operations for CILCORP Inc. are presented for the periods before and after the acquisition, separated by a heavy black line. The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC). Although CILCORP believes the disclosures are adequate to make the information presented not misleading, these consolidated financial statements should be read along with the Company's 1999 Annual Report on Form 10-K. In the Company's opinion, the consolidated financial statements furnished reflect all normal and recurring adjustments necessary for a fair presentation of the results of operations for the periods presented. Operating results for interim periods are not necessarily indicative of operating results to be expected for the year or of the Company's future financial condition. 18 NOTE 2. Contingencies Union Contracts On August 3, 2000, CILCO and the International Brotherhood of Electrical Workers Local 51 (IBEW) agreed to extend the existing contract through July 1, 2002. The contract provides for 3% wage increases in each of the two years of the extension, retroactive to July 1, 2000. The IBEW represents 379 CILCO gas and electric department people. The National Conference of Firemen and Oilers Local 8 (NCF&O) ratified its current contract with the Company on October 23, 1998. The current contract expires on July 1, 2001. The NCF&O represents 176 CILCO power plant people. NOTE 3. Accounting for Price Risk Management Activities CILCORP utilizes commodity futures contracts, options and swaps in the normal course of its natural gas and electric business activities to reduce market risk associated with fluctuations in the price of natural gas and electricity. Gains and losses arising from derivative financial instrument transactions which hedge the impact of fluctuations in energy prices are recognized in income concurrent with the related purchases and sales of the commodity. If a derivative financial instrument contract is terminated because it is probable that a transaction or forecasted transaction will not occur, any gain or loss as of such date is immediately recognized. If a derivative financial instrument contract is terminated early for other economic reasons, any gain or loss as of the termination date is deferred and recorded concurrently with the related purchase and sale of natural gas and electricity. CILCORP is subject to commodity price risk for deregulated sales to the extent that energy is sold under firm price commitments. Due to market conditions, at times CILCORP may have unmatched commitments to purchase and sell energy on a price and quantity basis. Physical and derivative financial instruments give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular commitment. The net gain/loss reflected in operating results from derivative financial instruments for the quarter ended September 30, 2000, was a $235,058 gain for natural gas and a $569,701 gain for electricity. The gain for electricity reflects a correction of a purchase accounting adjustment for the mark-to-market loss on open electricity futures positions as of October 18, 1999, the date of acquisition of CILCORP by AES. The purchase accounting adjustment was a $1.8 million credit related to electricity futures that settled in the second and third quarters of 2000. As of September 30, 2000, CILCORP had fixed-price derivative financial instruments representing hedges of natural gas purchases of .22 Bcf and natural gas sales of .88 Bcf for commitments through June 2001. The net deferred gain and carrying amount on these fixed-price derivatives at September 30, 2000, was approximately $447,000. As of September 30, 2000, CILCORP had no fixed-price derivative financial instruments representing hedges of electricity. NOTE 4. Impact of Accounting Standards In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133" (SFAS 137). SFAS 137 amends SFAS 133 to require implementation of SFAS 133 for all fiscal quarters of fiscal years beginning after June 15, 2000. The statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives 19 (including certain derivative instruments embedded in other contracts) as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the derivative's fair value are to be recognized currently in earnings, unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains or losses to offset related results of the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133" (SFAS 138). This amendment to SFAS 133 includes expansion of the normal purchases and sales exception to most contracts for which physical delivery of the assets being sold or purchased is probable. This amendment has substantially reduced the scope of SFAS 133 implementation efforts by the Company. Based on the Company's understanding of the amended normal purchases and sales exception, it has not expected SFAS 133 to have a significant impact on its financial position or results of operations. Recently, however, a number of issues have arisen in the industry with regard to whether or not certain power contracts fall within the scope of SFAS 133. These issues are expected to be addressed by the SFAS 133 task force of the FASB during the fourth quarter of 2000. The Company will continue SFAS 133 implementation efforts during the last quarter of 2000, including monitoring developments regarding the recent SFAS 133 scope issues discussed above. The Company has no interest rate or foreign currency derivative positions as of September 30, 2000. The Company uses derivatives such as commodity futures, options, and swaps in the normal course of its natural gas and electric business activities to reduce market risk. Final adoption of SFAS 133 and the corresponding amendment under SFAS 138 could increase volatility in earnings and other comprehensive income. As a result of preliminary assessment, the Company expects the majority of its derivatives as of September 30, 2000, to qualify for hedge accounting. The ineffective portion of hedges for future purchases of natural gas is immaterial as of September 30, 2000, and is expected to remain immaterial at the date of adoption, January 1, 2001. See Note 3 for the mark-to-market gain or loss that would appear in current operating income if the SFAS 133 requirements for hedge accounting are not met. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CILCORP Inc. (CILCORP) is a wholly-owned subsidiary of The AES Corporation (AES). The financial condition and operating results of CILCORP Inc. and its subsidiaries (the Company) primarily reflect the operations of subsidiary Central Illinois Light Company (CILCO). On November 23, 1998, the Company announced that AES had offered to buy 100% of the Company's outstanding common stock for $65 per share, subject to CILCORP shareholder approval and various regulatory approvals. AES completed the acquisition of the Company on October 18, 1999. To complete the merger, approximately $886 million was raised through a combination of additional paid-in capital contributed by AES and the offering of senior notes and bonds assumed by CILCORP. The approximately $886 million was used to purchase 13,625,680 shares of CILCORP's common stock. AES has 100% ownership of the 1,000 CILCORP common shares currently issued and outstanding. Financial results reflect application of the purchase method of accounting to the merger. Under this method, the purchase price is allocated to the fair market value of the assets acquired and the liabilities assumed. Any excess of the purchase price over the fair value of the net assets acquired is allocated to goodwill. As a result, CILCORP recorded purchase accounting fair value adjustments to plant in service, pension and other post-retirement liabilities, an out-of-market long-term coal contract, and other balance sheet items. After reflecting these adjustments, the Company also recorded goodwill. See Note 1 to the Consolidated Financial Statements for further discussion related to purchase accounting. The adjustments are reflected on CILCORP's financial statements. Accordingly, CILCORP's post-merger financial statements reflect a new basis of accounting, and separate financial statements are presented for pre-merger and post-merger periods, separated by a heavy black line. For discussion throughout this document, pre- merger and post-merger activity unaffected by the merger is compared. See "Overview" for a discussion of operating effects of the merger. In late 1998, in light of the pending acquisition and after reviewing its business plans, the Company decided to sell its 100% ownership interest in QST Environmental Inc. (QST Environmental), a first-tier subsidiary of QST Enterprises Inc. (QST) that provided environmental consulting and engineering services. On May 7, 1999, QST agreed to sell all the outstanding common stock of QST Environmental to MACTEC, Inc. for approximately $18 million in cash. The sale was completed on June 24, 1999. Due to uncertainties related to electric deregulation across the country, the illiquidity of certain energy markets, and the Company's acquisition by AES, the Company intends to focus on the opportunities in the Illinois energy market resulting from the deregulation of electricity under the Electric Service Customer Choice and Rate Relief Law of 1997 (see Competition). This law will enable CILCO, the Company's regulated public utility that generates and distributes electricity and purchases, transports and distributes natural gas, to serve Illinois customers outside its traditional Central Illinois service territory. As a result of these events, the Company reported the results of QST and its subsidiaries (excluding CILCORP Infraservices Inc. and residual interests in ESE Land Corporation) as discontinued operations (see Results of Operations - QST Enterprises Discontinued Operations). The Other Businesses segment includes the operations of the Holding Company itself (Holding Company), its investment subsidiary, CILCORP Investment Management Inc. (CIM), CILCORP Ventures Inc. (CVI), and CILCORP Infraservices Inc., which provides utility infrastructure operation and maintenance services. Overview The Company's earnings decreased by approximately 33% for the nine months ended September 30, 2000, compared to the same period in 1999. This decrease was due 21 primarily to approximately $10.7 million in goodwill amortization and $32.3 million in increased interest expense due to debt issued to fund the AES acquisition of CILCORP. These increased costs were partially offset by decreased payroll and related expenses following the Voluntary Early Retirement Programs. (For further discussion, refer to "Results of Operations".) Forward-Looking Information Forward-looking information is included in Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Certain material contingencies are also described in Note 2 to the Consolidated Financial Statements. Some important factors could cause actual results or outcomes to differ materially from those expressed or implied in MD&A. The business and profitability of CILCORP and its subsidiaries are influenced by economic and geographic factors; weather conditions; the extent and pace of development of competition for retail and wholesale energy customers; changes in technology; changes in company- wide operation and plant availability compared to our historical performance and changes in our historical operating cost structure, including changes in various costs and expenses; pricing and transportation of commodities; market supply and demand for energy and energy derivative financial instruments; inflation; capital market conditions; and environmental laws and compliance costs. Prevailing governmental policies, statutory changes, and regulatory actions with respect to rates, tariffs, industry structure and recovery of various costs incurred by CILCO in the course of its business and increasing wholesale and retail competition in the electric and gas business affect its earnings. All such factors are difficult to predict, contain uncertainties that may materially affect actual results and, to a significant degree, are beyond the control of CILCORP and its subsidiaries. CILCORP and its subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of changes in actual results, assumptions or other factors. Capital Resources & Liquidity The Company believes that internal and external sources of capital which are or are expected to be available to the Holding Company and its subsidiaries will be adequate to fund its capital expenditures, pay its financial obligations, meet working capital needs and retire or refinance debt as it matures. CILCORP CILCORP is currently authorized by its Board of Directors to borrow up to $60 million on a short-term basis. On September 30, 2000, CILCORP had committed bank lines of credit of $60 million, of which $46 million was used. In October 1999, CILCORP issued $225 million of 8.7% senior notes (due 2009) and $250 million of 9.375% senior notes (due 2029). Along with equity funds provided by AES, the proceeds of the notes were used by AES to acquire all outstanding shares of CILCORP common stock for approximately $886 million, to pay transaction costs related to the acquisition, and to retire short-term debt. CILCORP had $17.5 million of medium-term notes outstanding at September 30, 2000. With the issuance of the senior notes in October 1999, CILCORP can no longer issue debt under its medium-term note program. CILCO Capital expenditures totaled $43.2 million for the nine months ended September 30, 2000. Capital expenditures are anticipated to be approximately $10.4 million for the remainder of 2000 and are currently estimated to be $50.1 million in 2001. 22 CILCO retired $30 million of medium-term notes in February 2000. In April 2000, CILCO incurred a total of $8 million in bank debt to finance two power module projects. CILCO redeemed $25 million of auction rate preferred stock in July 2000. CILCO expects to issue commercial paper periodically during 2000, and is currently authorized by its Board of Directors to issue up to $100 million of short-term debt. At September 30, 2000, committed bank lines of credit totaled $100 million, all of which were unused except in support of commercial paper issuance. CILCO had $75.2 million of commercial paper outstanding at September 30, 2000. During 2000, CILCO expects to continue to support commercial paper issuance with its bank lines of credit. CILCO plans to finance its 2000 and 2001 capital expenditures primarily with funds provided by operations. CILCO is currently considering various options to refinance the matured medium-term notes and auction rate preferred stock. Future funds provided by operations may be affected by the deregulation of the electric and natural gas utility industries (see Competition). CIM At September 30, 2000, CIM had $23.3 million of outstanding debt owing to CILCORP. CIM committed to invest $16.6 million in affordable housing projects. Through September 30, 2000, CIM has paid $15.8 million to fund these commitments, $.5 million of which was paid during 2000. CIM expects to pay the approximately $.8 million remaining commitment in lesser amounts in each year through 2006. CIM does not plan to make additional investments beyond its current affordable housing commitments. CIM funds its commitments with cash borrowed from the Holding Company. CVI At September 30, 2000, CVI had outstanding debt of $1.3 million, borrowed from CILCORP. 23 COMPETITION CILCO, as a regulated public utility, has an obligation to provide service to retail customers within its defined service territory; thus, CILCO had not generally been in competition with other public utilities for retail electric or gas customers in these areas. However, the passage of the Electric Service Customer Choice and Rate Relief Law of 1997 (Customer Choice Law) began a transition process to a fully competitive market for electricity in Illinois. In addition, electricity and natural gas compete with other forms of energy available to customers. Primarily as a result of the Customer Choice Law, the electric industry in Illinois will change significantly during the coming years at both the wholesale and retail levels. Large industrial customers and customers representing one-third of remaining non-residential kWh sales had the ability to choose their electric supplier beginning October 1, 1999, and all other non-residential customers will have choice no later than December 31, 2000. Residential electric customers will be able to choose their electric supplier on May 1, 2002. If a customer chooses to leave its present electricity supplier, that utility will collect a fee for delivering power and may assess an additional transition charge on the customer. This collection methodology must be filed and approved by the Illinois Commerce Commission (ICC) and is designed to help utilities recover a portion of the costs of past investments made under a regulated system. The transition charge will reduce a customer's economic incentive to switch suppliers. Transition charges may be collected through 2006 (2008 upon the ICC's finding that a utility's financial condition is impaired and the utility meets other requirements specified in the Customer Choice Law). On March 9, 2000, CILCO filed with the ICC revised tariff sheets eliminating the potential collection of the customer transition charge effective March 17, 2000. At a March 15, 2000, hearing, the ICC approved CILCO's revised tariffs, thereby eliminating the potential for CILCO to collect a customer transition charge. CILCO cannot re-establish the collection of a transition charge until it files and the ICC approves revised tariff sheets that reinstate a transition charge. On July 31, 2000, CILCO filed a proposal with the ICC seeking approval to eliminate its fuel adjustment clause (FAC) and recover the cost of fuel and purchased energy through a fixed charge included in base rates. CILCO's proposal is based on forecasted coal and energy costs. If approved, CILCO's customers will not experience energy price volatility created by market prices. The ICC must rule on this proposal within 240 days of the July 31, 2000, filing date. This filing is possible as a result of the Customer Choice Law. If the FAC is eliminated, CILCO may not seek reinstatement of its fuel adjustment clause for five years. CILCO is currently considering actions it may take, such as various hedging programs, to protect itself from volatility in its electricity supply costs which could result absent the fuel adjustment clause. The Customer Choice Law also requires electric base rate reductions that vary by utility. CILCO reduced its residential base rates by 2% in August 1998 and an additional 2% in October 2000. CILCO must reduce base rates by an additional 1% in October 2002. Also, CILCO's return on common equity will, in general, be capped (the Equity Cap) at an index (a 12-month average yield for 30-year U.S. Treasury bonds plus 8% for calendar years 1998 and 1999, and a 12-month average yield for U.S. Treasury bonds plus 9% for calendar years 2000 through 2004) plus 1.5 percentage points. If CILCO's two-year average return on common equity exceeds the two-year average of the Equity Cap, fifty percent of the earnings in excess of the average Equity Cap must be refunded to customers in the following year. On June 30, 1999, Senate Bill 24 (a clarification and technical correction of the Customer Choice Law) was signed into law. This law allows certain utilities, including CILCO, to increase the Equity Cap by an additional 2% over the Equity Cap provided under the Customer Choice Law, for the period 2000 through 2004. The increase in the Equity Cap is allowed in exchange for these utilities offering choice of electricity suppliers to selected manufacturing customers on June 1, 24 2000, and to the remaining manufacturing customers on October 1, 2000, earlier than previously allowed under the Customer Choice Law. Utilities selecting this option also waive the right to seek a two-year extension on the collection of transition charges. On April 13, 2000, CILCO filed revised tariff sheets with the ICC to make these selected customers eligible for choice on June 1, 2000, in order to increase the equity cap by 2%, as outlined in Senate Bill 24. With the enactment of the Customer Choice Law, electric generation in Illinois is now deregulated and competitive. As a result, the accounting principles applicable to rate-regulated enterprises will no longer apply to the electric generation portion of CILCO's business. With electric choice beginning on October 1, 1999, for its industrial customers and some of its commercial customers, CILCO has entered into multi-year contracts with customers representing approximately 45% of total 1999 electric kWh sales to non-residential customers. These contracts, which expire from 2001 to 2002, were designed to capture a significant portion of the margin that the customers paid to CILCO in the most recent twelve months. The ultimate market price for electricity, the cost for a utility to produce or buy electricity, and the number of customers that may be gained or lost due to customer choice of supplier in Illinois cannot be predicted. As a result, management cannot predict the ultimate impact that the Customer Choice Law will have on CILCORP's financial position or results of operation, but the effect could be significant. However, CILCO is currently a low-cost provider of electricity, and management will continue to position CILCO for competition by controlling costs, maintaining good customer relations, and developing flexibility to meet individual customer requirements. As of September 30, 2000, all eligible electric customers continue to purchase their electricity supply from CILCO other than those who self-generate. CILCO has acquired approximately 750,000 megawatt hours of new retail load to be served outside its service territory in 2000. CILCO will supply these new customers by using its owned generation and electricity purchases from other suppliers. CILCO has made the necessary supply and transmission arrangements to meet customer requirements. 25 Market Risk Sensitive Instruments CILCORP is exposed to non-trading risks through its daily business activities. These non-trading activities may include the market or commodity price risk related to CILCO's retail tariff activity and CILCORP's non-regulated commodity marketing activities. The market risk inherent in the activities of CILCORP (exclusive of tariffed natural gas customers, and exclusive of tariffed electric customers while the FAC is in effect) is the potential loss arising from adverse changes in natural gas and electric commodity prices relative to the physical and financial positions that the Company maintains. The prices of natural gas and electricity are subject to fluctuations resulting from changes in supply and demand. At September 30, 2000, CILCORP engaged in non-regulated electric retail and natural gas sales in Illinois, including wholesale power purchases and sales to supplement the Company's ability to generate electricity. As of September 30, 2000, CILCORP has contracted to sell approximately 1.4 million MWh of electricity through July 2004 at various fixed prices to non-regulated customers. These commitments have a notional value of approximately $47.7 million and a mark-to- market gain of approximately $6.7 million. CILCORP has also contracted to purchase power at various fixed prices through December 2005. The total of fixed-price purchased power subject to market risk is approximately 1.7 million MW, with a notional cost of approximately $56.9 million and a mark-to-market gain of approximately $38.4 million resulting in a fair value of approximately $95.3 million as of September 30, 2000. Since the majority of this power was purchased with the intent to supply non- regulated retail customers, the sales price may not be at market and the Company may potentially have realized gains significantly less than the $38.4 million. Additionally, CILCORP holds net open market price risk positions of approximately .03 Bcf of natural gas with a mark-to-market loss of approximately $217,000. See Note 3 for a discussion of CILCORP's use of financial derivatives for hedging purposes. Due to the high correlation between the changes in the value of the financial instrument positions held by CILCORP to the change in price of the underlying commodity, the net effect on CILCORP's net income resulting from the change in value of these financial instruments is not expected to be material. Voluntary Early Retirement Programs CILCO offered Voluntary Early Retirement Programs in 1999 that resulted in the retirement of 227 people and after-tax charges to earnings of $6.1 million and $16.6 million in the second and third quarters of 1999, respectively. In November 2000, the Company offered a similar Voluntary Early Retirement Program to AES CILCO people represented by International Brotherhood of Electrical Workers Local 51 and Office and Professional Employees' International Union Local 167. A total of 98 people are eligible to retire, and may elect, between November 6, 2000, and December 14, 2000, to accept the offer and retire as of January 1, 2001. The Company expects to incur an after-tax charge to earnings of up to $8 million during the fourth quarter related to this program. 26 Results of Operations CILCO Electric Operations The following table summarizes the components of CILCO electric operating income for the three months and nine months ended September 30, 2000 and 1999.
Three Months Ended Nine Months Ended September 30, September 30, Components of Electric 2000 1999 2000 1999 Operating Income (In thousands) (Unaudited) Revenue: Electric retail $115,577 | $119,285 $286,161 | $280,070 Sales for resale 12,843 | 10,749 23,505 | 18,970 -------- | -------- -------- | -------- Total revenue 128,420 | 130,034 309,666 | 299,040 -------- | -------- -------- | -------- Cost of sales: | | Cost of fuel 32,039 | 8,594 84,186 | 53,855 Purchased power 24,312 | 44,105 42,211 | 56,027 Revenue taxes 5,730 | 5,745 14,892 | 14,616 -------- | -------- -------- | -------- Total cost of sales 62,081 | 58,444 141,289 | 124,498 -------- | -------- -------- | -------- Gross margin 66,339 | 71,590 168,377 | 174,542 -------- | -------- -------- | -------- Operating expenses | | Other operations and maintenance 19,117 | 39,364 57,961 | 88,684 Depreciation and amortization 12,449 | 11,799 37,022 | 35,585 Other taxes 2,409 | 2,419 6,988 | 7,532 -------- | -------- -------- | -------- Total operating expenses 33,975 | 53,582 101,971 | 131,801 -------- | -------- -------- | -------- Total 32,364 | 18,008 66,406 | 42,741 -------- | -------- -------- | -------- Fixed charges and other | | Interest on long-term debt 3,117 | 3,442 9,443 | 10,328 Cost of borrowed funds capital. (136)| (47) (338)| (73) Other interest 1,316 | 786 2,743 | 2,133 -------- | -------- -------- | -------- Total 4,297 | 4,181 11,848 | 12,388 | | Income before income taxes 28,067 | 13,827 54,558 | 30,353 Income taxes 10,535 | 5,285 19,856 | 10,600 -------- | -------- -------- | -------- Electric income $ 17,532 | $ 8,542 $ 34,702 | $ 19,753 ======== | ======== ======== | ========
Electric gross margin decreased 7% for the quarter and 4% for the nine months ended September 30, 2000, compared to the same periods in 1999, due primarily to decreased margin on sales for resale. Industrial sales remained relatively constant for the quarter and decreased 4% for the nine months ended September 30, 2000, compared to the same periods in 1999. Residential sales decreased 7% for the quarter and 3% for the nine months ended September 30, 2000, compared to the same periods in 1999. Commercial sales increased 4% for the quarter, and 2% for the nine months ended September 30, 2000, compared to the same periods in 1999. Retail kilowatt hour (kWh) sales decreased 1% for the quarter and 2% for the nine months ended September 30, 2000, compared to the same periods in 1999. Cooling 27 degree days were 9% higher for the quarter and 1% higher for the nine months ended September 30, 2000, compared to the same periods in 1999. Sales for resale increased 19% for the quarter and 24% for the nine months ended September 30, 2000, compared to the same periods in 1999. Sales for resale vary based on the energy requirements of native load customers, neighboring utilities and power marketers, CILCO's available capacity for bulk power sales and the price of power available for sale. CILCO's activity in the sales for resale and purchased power markets will continue to increase as a result of retail deregulation in the Illinois market. The overall level of business activity in CILCO's service territory and weather conditions are expected to continue to be the primary factors affecting electric sales in the near term. CILCO's electric sales will also be affected in the long term by deregulation and increased competition in the electric utility industry. Purchased power decreased 45% and 25% for the quarter and nine months ended September 30, 2000, respectively, compared to the same periods in 1999. As a result of abnormally warm weather during July 1999, CILCO incurred $33 million of generation and purchased power costs which are subject to recovery from customers through the fuel adjustment clause (FAC). Of this amount, $10 million was recovered in July 1999 and $23 million remained unrecovered at the end of July 1999. CILCO's FAC allows it to pass on to customers the cost of unrecovered fuel and purchased power costs in the next calculated month's FAC factor. In this instance, on September 1, 1999, the ICC approved a request by CILCO to charge certain customers over a 12- month period (without interest), beginning in September 1999. In addition, to avoid the potential loss of purchased power cost recovery from customers eligible to choose their electricity supplier on October 1, 1999, CILCO requested and received ICC permission to charge the larger industrial and commercial customers their share of this underrecovery in a single month. These customers may elect to pay over a period of up to 12 months after making appropriate arrangements with CILCO. Also, under the FAC, the underrecovered costs of fuel and purchased power for a particular month are both treated as adjustments to cost of fuel expense; thus, the cost of fuel increased for the quarter and for the nine months ended September 30, 2000 compared to the same periods in 1999. The ICC is in the process of reviewing the FAC costs incurred during 1999 and will determine the prudency and recoverability of CILCO's energy costs. Any amount of the 1999 FAC costs ultimately determined to be imprudent, or otherwise not recoverable through the FAC, would be refunded to CILCO's customers. The ICC Staff and intervenors have variously recommended in the pending proceeding that up to $22.4 million be refunded to CILCO's customers. CILCO disagrees with the theories of Staff and the intervenors. On November 6, 2000, the Hearing Examiner's Proposed Order waw issued and recommended $3.4 million be refunded to CILCO's customers. A final order in this matter will be issued by December 31, 2000. A significant disallowance of these costs by the ICC would be material to CILCO's results of operation as an operating expense on CILCO's income statement. Electric operations and maintenance expense decreased 51% for the quarter and 35% for the nine months ended September 30, 2000, compared to the same periods in 1999. The decrease was mainly due to decreased pension, medical and payroll expenses due to the 1999 early retirement programs. In 1999, there was a $10.1 million second quarter charge and an $18.4 million third quarter charge to pension and benefits expense as a result of the Voluntary Early Retirement Programs offered to Management, Office and Technical employees and to employees in CILCO's electric power generation area. The decrease for the nine months ended was partially offset by increased power plant maintenance and operations expenses, and increased tree trimming expenses. Income taxes expense increased 99% for the quarter and 87% for the nine months ended September 30, 2000, due to increases in pre-tax operating income. 28 Fixed charges and other expenses increased 3% for the quarter and decreased 4% for the nine months ended September 30, 2000, compared to the same periods in 1999. 29 CILCO Gas Operations The following table summarizes the components of CILCO gas operating income for the three months and nine months ended September 30, 2000 and 1999.
Three Months Ended Nine Months Ended September 30, September 30, Components of Gas 2000 1999 2000 1999 Operating Income (In thousands) (Unaudited) Revenue: Sale of gas $ 24,811 | $ 20,347 $125,251 | $120,180 Transportation services 1,390 | 1,164 3,904 | 3,697 -------- | -------- -------- | -------- Total revenue 26,201 | 21,511 129,155 | 123,877 -------- | -------- -------- | -------- Cost of sales: | | Cost of gas 13,887 | 9,305 72,293 | 65,123 Revenue taxes 1,022 | 1,002 6,282 | 6,330 -------- | -------- -------- | -------- Total cost of sales 14,909 | 10,307 78,575 | 71,453 -------- | -------- -------- | -------- Gross margin 11,292 | 11,204 50,580 | 52,424 -------- | -------- -------- | -------- Operating expenses | | Other operations and maintenance 6,982 | 17,785 21,394 | 34,065 Depreciation and amortization 5,337 | 4,772 15,841 | 14,947 Other taxes 723 | 690 2,178 | 2,277 -------- | -------- -------- | -------- Total operating expenses 13,042 | 23,247 39,413 | 51,289 -------- | -------- -------- | -------- Total (1,750)| (12,043) 11,167 | 1,135 -------- | -------- -------- | -------- Fixed charges and other | | Interest on long-term debt 1,211 | 1,366 3,745 | 4,097 Cost of borrowed funds capital. -- | (1) -- | (1) Other interest expense 516 | 312 1,088 | 846 -------- | -------- -------- | -------- Total 1,727 | 1,677 4,833 | 4,942 -------- | -------- -------- | -------- Income (loss) before income taxes (3,477)| (13,720) 6,334 | (3,807) Income taxes (1,376)| (5,383) 2,543 | (1,339) -------- | -------- -------- | -------- Gas income (loss) $ (2,101)| $ (8,337)$ 3,791 | $ (2,468) ======== | ======== ======== | ========
Gas gross margin increased 1% for the quarter and decreased 4% for the nine months ended September 30, 2000, compared to the same periods in 1999. Residential sales volumes decreased 7% for the quarter and 11% for the nine months ended September 30, 2000. Commercial sales volumes increased 19% for the quarter and decreased 2% for the nine months ended September 30, 2000. Heating degree days were 10% lower for the quarter and 8% lower for the nine months ended September 30, 2000, compared to the same periods in 1999. The overall level of business activity in CILCO's service territory and weather conditions are expected to continue to be the primary factors affecting gas sales in the near term. CILCO's gas sales may also be affected by further deregulation at the retail level in the natural gas industry. Revenue from gas transportation services increased 19% and 6% for the quarter and nine months ended September 30, 2000, respectively, while gas transportation sales 30 volumes increased 25% for the first quarter, and 10% for the nine months ended September 30, 2000, compared to the same periods in 1999. The cost of gas increased 49% for the quarter and 11% for the nine months ended September 30, 2000, compared to the same periods in 1999, mainly due to higher natural gas prices during the quarter and nine months ended September 30, 2000. These changes were passed through to customers via the PGA. Gas operation and maintenance expense decreased 61% and 37%, respectively, for the quarter and nine months ended September 30, 2000, compared to the same periods in 1999. The decreases were primarily due to decreased pension, medical and payroll expenses due to the 1999 early retirement programs. In 1999, there was a $9.1 million third quarter charge to pension and benefits expense as a result of a Voluntary Early Retirement Program offered to Management and Office and Technical employees. Fixed charges and other expenses increased 3% for the quarter and decreased 2% for the nine months ended September 30, 2000, compared to the same periods in 1999. 31 CILCO Other The following table summarizes other income and deductions for the three months and nine months ended September 30, 2000 and 1999.
Components of CILCO Other Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (In thousands) (Unaudited) Revenue $ 17,615 | $ 1,025 $ 36,399 | $ 2,754 Expense (20,412)| (2,018) (39,901)| (4,530) -------- | ------- -------- | ------- Gross margin (2,797)| (993) (3,502)| (1,776) -------- | ------- -------- | ------- | | Other income and deductions: | | Interest income 110 | 34 179 | 147 Amortization -- | (72) -- | (504) Operating expenses (520)| (247) (1,180)| (894) Other taxes (1)| (1) (3)| (3) Preferred stock dividends (539)| (802) (2,437)| (2,372) Other (246)| (202) (767)| (708) -------- | ------- -------- | ------- Total other income and deductions (1,196)| (1,290) (4,208)| (4,334) | | Loss before income taxes (3,993)| (2,283) (7,710)| (6,110) Income taxes (benefit) (1,711)| (937) (3,076)| (2,304) -------- | ------- -------- | ------- Other income (loss) $ (2,282)| $(1,346) $ (4,634)| $(3,806) ======== | ======= ======== | =======
The changes in gross margin for the quarter and nine months ended September 30, 2000, compared to the same periods in 1999, are primarily due to higher purchased power and fuel costs relative to revenues from increased nonregulated electricity sales in Illinois outside of CILCO's service territory. These sales of electricity are to eligible customers of other utilities' pilot programs formerly served by CILCO affiliate QST and to other customers eligible to choose their energy supplier under the Customer Choice Law. 32 Other Businesses Operations The following table summarizes the components of Other Businesses net loss for the three months and nine months ended September 30, 2000 and 1999.
Components of Other Businesses Three Months Ended Nine Months Ended Net Loss September 30, September 30, 2000 1999 2000 1999 (In thousands) (Unaudited) Revenue: Leveraged lease revenue $ 2,068 |$ 1,566 $ 6,818 |$ 5,200 Interest income 33 | 42 126 | 98 Gas marketing revenue 4,890 | 833 10,283 | 11,186 Other revenue 558 | 486 2,025 | 1,734 ------- |------- -------- |------- Total revenue 7,549 | 2,927 19,252 | 18,218 ------- |------- -------- |------- Expenses: | | Gas purchased for resale 4,802 | 947 9,958 | 10,134 Operating expenses (921)| 3,261 905 | 8,226 Depreciation and amortization 3,612 | 43 10,837 | 131 Interest expense 11,932 | 1,093 35,659 | 3,935 Other taxes 9 | 11 129 | 26 ------- |------- -------- |------- Total expenses 19,434 | 5,355 57,488 | 22,452 ------- |------- -------- |------- Loss before income taxes (11,885)| (2,428) (38,236)| (4,234) ------- |------- -------- |------- Income tax benefit (3,511)| (1,212) (11,932)| (2,089) ------- |------- -------- |------- Other Businesses net loss $(8,374)|$(1,216)$(26,304)|$(2,145) ======= |======= ======== |=======
Leveraged lease revenues increased 31% for the nine months ended September 30, 2000, primarily due to the renegotiation of the Company's dragline lease and one of its building leases. Gas marketing revenues and gas purchased for resale expense increased for the three months ended September 30, 2000, due to increased gas marketing sales and higher natural gas prices. Revenue and purchased gas expense for the nine months ended September 30, 2000, were slightly lower than the previous year due to decreased sales in the first quarter. Interest expense increased for the three months and nine months ended September 30, 2000, due to interest on the senior notes issued in October 1999 to acquire CILCORP. Depreciation and amortization is higher due primarily to the amortization of goodwill resulting from AES' acquisition price in excess of the fair value of CILCORP's assets and liabilities. Operating expenses decreased for the nine months ended September 30, 2000, compared to the corresponding period in 1999, primarily due to 1999 expenses of $2.3 million for merger transaction costs and $1.4 million for incentive compensation. In addition, operating expenses were impacted by the effect of a purchase accounting adjustment of $1.8 million related to a forward sale contract for electricity entered into prior to the AES acquisition of CILCORP. See related discussion in Note 3 to the financial statements. 33 The income tax benefit increased for the three months and nine months ended September 30, 2000, compared to the corresponding periods in 1999, primarily due to lower net income resulting from the acquisition debt interest expense. 34 QST Enterprises Discontinued Operations QST Enterprises and QST Energy ceased operations during the fourth quarter of 1998, except for fulfillment of contractual commitments for 1999 and beyond, and recorded loss provisions in 1998 for the discontinued energy operations. The results of QST Enterprises and its past and present subsidiaries - - QST Environmental and QST Energy - are reported in 2000 and prior periods as discontinued operations. The table below shows the components of the discontinued operations. Income (loss) from operations of discontinued businesses, net of tax:
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (In thousands) (Unaudited) QST Enterprises (excluding QST Environmental) $ -- |$ -- $ -- |$ -- QST Environmental, net of tax of | | $(221) -- | -- -- | (407) ------- |------- ------- |-------- $ -- |$ -- $ -- |$ (407) ======= |======= ======= |========
QST Enterprises' (excluding QST Environmental) financial results for the periods shown were reflected in the discontinued operations liability which was accrued at the end of 1998, resulting in no net income or loss. In February 1999, QST Energy notified two of its California commercial customers that they were in default of their contracts with QST Energy as a result of not paying QST Energy for energy delivered. QST Energy filed two suits in the U.S. District Court, Central District of Illinois, seeking payment. In March, the customers filed a suit in California Superior Court, Alameda County, California, alleging that QST Energy was in breach of the contract. This suit was subsequently removed to U.S. District Court, Northern District of California. The two suits filed by QST Energy in the U.S. District Court, Central District of Illinois, have now been consolidated with the suit in the U.S. District Court, Northern District of California. The discovery process in the suits is ongoing. QST Energy cannot predict the ultimate outcome of this matter, but intends to vigorously pursue its claims to collect all amounts due from the customers. The accounts receivable reflected in CILCORP's consolidated balance sheet at September 30, 2000, for these two customers totaled $12.8 million, excluding interest of approximately $2.5 million. The receivable was reduced by $2.5 million in July 2000 for payments received from these customers. Under the terms of the contracts, QST Energy has terminated delivery of electricity to the two customers. 35 PART II. OTHER INFORMATION Item 1: Legal Proceedings Reference is made to "Environmental Matters" under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1999 Annual Report on Form 10- K for certain pending proceedings known to be contemplated by governmental authorities. The Company and its subsidiaries are subject to certain claims and lawsuits in connection with work performed in the ordinary course of their businesses. Except as otherwise referred to above, in the opinion of management, all such claims currently pending either will not result in a material adverse effect on the financial position and results of operations of the Company or are adequately covered by: (i) insurance; (ii) contractual or statutory indemnification; and/or (iii) reserves for potential losses. Item 5: Other Information None Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits 27 - Financial data schedules (b) Reports on Form 8-K None 36 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CILCORP Inc. (Registrant) Date November 9, 2000 R. J. Sprowls R. J. Sprowls Vice President Date November 9, 2000 T. D. Hutchinson T. D. Hutchinson Controller and Chief Financial Officer 37 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTRAL ILLINOIS LIGHT COMPANY (Registrant) Date November 9, 2000 R. J. Sprowls R. J. Sprowls Vice President Date November 9, 2000 T. D. Hutchinson T. D. Hutchinson Controller and Chief Financial Officer 38 EX-27 2 0002.txt
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 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 PER-BOOK 855,056 195,435 187,294 74,515 599,228 1,911,528 0 468,833 (2,491) 466,342 22,000 19,120 729,969 46,000 0 75,200 8,500 0 763 555 543,079 1,911,528 494,651 7,391 424,162 431,553 63,098 (767) 62,331 52,340 9,991 2,437 7,554 9,300 46,598 78,634 0 0
EX-27 3 0003.txt
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 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 PER-BOOK 855,056 3,789 167,451 22,687 0 1,048,983 185,661 27,000 139,364 352,025 22,000 19,120 245,969 0 0 75,200 0 0 763 555 333,351 1,048,983 438,821 22,399 361,248 383,647 55,174 (2,197) 52,977 16,681 36,296 2,437 33,859 16,000 13,188 89,504 0 0
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