-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ZrwA29n3NrnOHkN7sAFa5KrP+SlGKwaSdGJ9MIjCIKM2NKBp4WA1zAl06ZSlN7fQ quMHfN58B/WpqFtnO5Prvw== 0000762129-94-000034.txt : 19941116 0000762129-94-000034.hdr.sgml : 19941116 ACCESSION NUMBER: 0000762129-94-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: MSE SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-08946 FILM NUMBER: 94559049 BUSINESS ADDRESS: STREET 1: 300 HAMILTON BLVD STE 300 CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096758850 MAIL ADDRESS: STREET 1: 300 HAMILTON BLVD 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: 1934 Act SEC FILE NUMBER: 001-02732 FILM NUMBER: 94559050 BUSINESS ADDRESS: STREET 1: 300 LIBERTY ST CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096725271 MAIL ADDRESS: STREET 1: 300 LIBERTY STREET CITY: PEORIA STATE: IL ZIP: 61602 10-Q 1 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, 1994 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 Hamilton Blvd, Suite 300 Peoria, Illinois 61602 (309) 675-8810 1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050 (An Illinois Corporation) 300 Liberty Street Peoria, Illinois 61602 (309) 675-8810 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, 13,035,756 shares outstanding at October 31, 1994 CENTRAL ILLINOIS LIGHT COMPANY Common stock, no par value, 13,563,871 shares outstanding and privately held by CILCORP Inc. at October 31, 1994 CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994 INDEX PART I. FINANCIAL INFORMATION Page No. Item 1: Financial Statements CILCORP INC. Consolidated Balance Sheets 3-5 Consolidated Statements of Income 6-7 Consolidated Statements of Cash Flows 8-9 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets 10-11 Consolidated Statements of Income 12 Consolidated Statements of Cash Flows 13-14 Notes to Consolidated Financial Statements CILCORP Inc. and Central Illinois Light Company 15-17 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations CILCORP Inc. and Central Illinois Light Company 17-29 PART II. OTHER INFORMATION Item 1: Legal Proceedings 29-30 Item 5: Other Information 31-32 Item 6: Exhibits and Reports on Form 8-K 33 Signatures 34-35 Exhibit 12: Central Illinois Light Company, Computation of Ratio of Earnings to Fixed Charges 36 Exhibit 27a: CILCORP Financial Data Schedule 37 Exhibit 27b: CILCO Financial Data Schedule 38 CILCORP INC. AND SUBSIDIARY COMPANIES Consolidated Balance Sheets (In thousands)
September 30, December 31, 1994 1993 (Unaudited) ASSETS Current Assets: Cash and Temporary Cash Investments $ 2,966 $ 1,440 Receivables, Less Reserves of $2,553 and $2,255 58,023 58,350 Accrued Unbilled Revenue 31,819 38,179 Fuel, at Average Cost 13,991 8,323 Materials and Supplies, at Average Cost 16,968 16,674 Gas in Underground Storage, at Average Cost 22,063 24,548 Prepayments and Other 10,643 9,441 ---------- --------- Total Current Assets 156,473 156,955 ---------- --------- Investments and Other Property: Investment in Leveraged Leases 119,328 114,803 Cash Surrender Value of Company-Owned Life Insurance, net of related policy loans of $28,355 and $24,923 1,784 1,263 Other 3,673 6,190 ---------- ---------- Total Investments and Other Property 124,785 122,256 ---------- ---------- Property, Plant and Equipment: Utility Plant, at Original Cost Electric 1,089,731 1,068,818 Gas 353,745 348,541 ---------- ---------- 1,443,476 1,417,359 Less - Accumulated Provision for Depreciation 652,237 618,912 ---------- ---------- 791,239 798,447 Construction Work in Progress 55,983 31,896 Plant Acquisition Adjustments, being Amortized to 1999 3,533 4,068 Other, Net of Depreciation 23,512 24,173 ---------- ---------- Total Property, Plant and Equipment 874,267 858,584 ---------- ---------- Other Assets: Prepaid Pension Cost 14,185 13,953 Cost in Excess of Net Assets of Acquired Businesses, Net of Accumulated Amortization of $4,006 and $3,479 24,724 25,251 Other 19,427 21,441 ---------- ---------- Total Other Assets 58,336 60,645 ---------- ---------- Total Assets $1,213,861 $1,198,440 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these balance sheets.
CILCORP INC. AND SUBSIDIARY COMPANIES Consolidated Balance Sheets (In thousands)
September 30, December 31, 1994 1993 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current Portion of Long-Term Borrowings $ 18,043 $ 193 Notes Payable 39,300 31,200 Accounts Payable 47,131 47,668 Accrued Taxes 7,038 5,666 Accrued Interest 4,004 9,632 Purchased Gas Adjustment Over-Recoveries and Refunds Due Customers 4,212 3,268 Other 13,577 12,080 ---------- ---------- Total Current Liabilities 133,305 109,707 ---------- ---------- Long-Term Borrowings 307,704 325,711 ---------- ---------- Deferred Credits: Deferred Income Taxes 234,968 229,897 Net Regulatory Liability of Regulated Subsidiary 69,070 69,477 Deferred Investment Tax Credit 26,601 27,871 Customers' Advances for Construction and Other 29,733 27,781 ---------- ---------- Total Deferred Credits 360,372 355,026 ---------- ---------- Preferred Stock of Subsidiary 66,120 66,120 ---------- ---------- Stockholders' Equity: Common Stock, no par value; Authorized 50,000,000 shares - Outstanding 13,035,756 and 12,971,501 167,987 165,662 Retained Earnings 178,373 176,214 ---------- ---------- Total Stockholders' Equity 346,360 341,876 ---------- ---------- Total Liabilities and Stockholders' Equity $1,213,861 $1,198,440 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these balance sheets.
CILCORP INC. AND SUBSIDIARY COMPANIES Consolidated Statements Of Income (Unaudited) (In thousands)*
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Revenues: Electric $92,749 $ 94,424 $244,490 $233,660 Gas 15,393 15,376 110,543 103,558 Environmental and Engineering Services 35,204 30,631 98,420 89,929 Other 2,508 1,309 6,983 5,213 ------- -------- -------- -------- Total 145,854 141,740 460,436 432,360 Operating Expenses: Fuel for Generation and Purchased Power 27,565 27,588 81,839 74,922 Gas Purchased for Resale 5,712 5,462 60,071 53,375 Other Operation and Maintenance 60,619 55,591 174,685 164,054 Disallowed plant cost of regulated subsidiary 4,636 0 4,636 0 Depreciation and Amortization 15,558 15,091 46,614 45,017 Taxes, Other than Income Taxes 8,890 8,530 28,388 27,286 ------- -------- -------- -------- Total 122,980 112,262 396,233 364,654 ------- -------- -------- -------- Operating Income 22,874 29,478 64,203 67,706 ------- -------- -------- -------- Fixed Charges and Other: Interest Expense 6,889 6,924 19,639 20,602 Preferred Stock Dividends of Subsidiary 761 1,121 2,190 3,342 Allowance for Funds Used During Construction (154) (73) (323) (177) Other 220 236 492 303 ------- -------- -------- -------- Total 7,716 8,208 21,998 24,070 ------- -------- -------- -------- Income Before Income Taxes 15,158 21,270 42,205 43,636 Income Taxes 5,588 8,565 15,993 17,486 ------- -------- -------- -------- Net Income Including Minority Interest 9,570 12,705 26,212 26,150 Minority Interest 0 60 0 163 ------- -------- -------- -------- Net Income Available for Common Shareholders $ 9,570 $ 12,645 $ 26,212 $ 25,987 ======= ======== ======== ======== Average Common Shares Outstanding (000) 13,036 12,909 13,023 12,909 Earnings Per Average Common Share $ .73 $ .98 $ 2.01 $ 2.01 Dividends Per Common Share $ .615 $ .615 $ 1.845 $ 1.845 *Except Per Share Amounts The accompanying Notes to Financial Statements are an integral part of these statements.
CILCORP INC. AND SUBSIDIARY COMPANIES Consolidated Statements Of Cash Flows (Unaudited) (In thousands)
For Nine Months Ended September 30, 1994 1993 Cash Flows from Operating Activities: Net Income before dividends on subsidiary preferred stock $28,403 $29,329 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Non-Cash Lease Income & Investment Income (4,911) (4,655) Disallowed Plant Cost of Regulated Subsidiary 4,636 0 Depreciation and Amortization 46,614 45,017 Deferred Income Tax, Investment Tax Credit and Regulatory Liability of Regulated Subsidiary, Net 3,394 2,939 Changes in Operating Assets and Liabilities: Decrease in Accounts Receivable and Accrued Unbilled Revenue 6,687 254 Increase in Inventories (3,477) (4,104) Decrease in Accounts Payable (537) (337) Increase (Decrease) in Accrued Taxes 1,372 (2,771) Increase (Decrease) in Purchased Gas Adjustment Over-Recoveries and Refunds Due Customers 944 (6,054) Changes in Other Assets and Liabilities, Net (5,844) (8,118) ------- ------- Total Adjustments 48,878 22,171 ------- ------- Net Cash Provided by Operating Activities 77,281 51,500 ------- ------- Cash Flows from Investing Activities: Additions to Property, Plant and Equipment (63,557) (58,961) Purchase of Long-Term Investments 0 (3,805) Proceeds from Sale of Long-Term Investments 575 2,823 Other 3,202 (3,354) ------- ------- Net Cash Used in Investing Activities (59,780) (63,297) ------- ------- Cash Flows from Financing Activities: Increase in Short-Term Debt 8,100 9,749 Proceeds from Issuance of Long-Term Debt 0 107,805 Repayment of Long-Term Debt (157) (88,925) Change in Minority Interest & Other 0 163 Issuance of Preferred Stock by Wholly-Owned Subsidiary 0 46,134 Preferred Stock Retired 0 (46,051) Common Dividends Paid (24,053) (23,818) Preferred Dividends Paid (2,190) (3,339) Proceeds from Issuance of Stock 2,325 0 ------- ------- Net Cash Used in Financing Activities (15,975) 1,718 ------- ------- Net Increase (Decrease) in Cash and Temporary Cash Investments 1,526 (10,079) Cash and Temporary Cash Investments at Beginning of Year 1,440 24,401 ------- ------- Cash and Temporary Cash Investments at September 30, $ 2,966 $14,322 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $24,852 $23,623 Income Taxes 12,172 13,749 The accompanying Notes to Financial Statements are an integral part of these statements.
CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (Unaudited) (In thousands)
September 30, December 31, 1994 1993 ASSETS Utility plant, at original cost: Electric $1,089,731 $1,068,818 Gas 353,745 348,541 ---------- ---------- 1,443,476 1,417,359 Less - accumulated provision for depreciation 652,237 618,912 ---------- ---------- 791,239 798,447 Construction work in progress 55,983 31,896 Plant acquisition adjustments, net of amortization 3,533 4,068 ---------- ---------- Total Utility Plant 850,755 834,411 ---------- ---------- Other Property and Investments Cash surrender value of Company-owned life insurance (net of related policy loans of $28,355 and $24,923) 1,784 1,263 Other 1,055 1,056 ---------- ---------- Total Other Property and Investments 2,839 2,319 ---------- ---------- Current Assets: Cash and temporary cash investments 814 594 Receivables, less reserves of $506 and $585 32,960 34,197 Accrued unbilled revenue 14,133 25,111 Fuel, at average cost 13,991 8,323 Materials and supplies, at average cost 16,968 16,674 Gas in underground storage, at average cost 22,063 24,548 Prepaid taxes 2,390 856 Other 8,198 6,945 ---------- ---------- Total Current Assets 111,517 117,248 ---------- ---------- Deferred Debits: Unamortized loss on reacquired debt 6,600 6,950 Unamortized debt expense 2,092 2,185 Prepaid pension cost 14,185 13,953 Other 9,465 11,259 ---------- ---------- Total Deferred Debits 32,342 34,347 ---------- ---------- Total Assets $ 997,453 $ 988,325 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these balance sheets.
CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (Unaudited) (In thousands)
September 30, December 31, 1994 1993 CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity Common stock, no par value, authorized 20,000,000 shares, outstanding 13,563,871 shares $ 185,661 $ 185,661 Retained earnings 125,103 108,645 ---------- ---------- Total common shareholder's equity 310,764 294,306 Preferred stock without mandatory redemption 44,120 44,120 Preferred stock with mandatory redemption 22,000 22,000 Long-term debt, net 278,350 278,321 ---------- ---------- Total Capitalization 655,234 638,747 ---------- ---------- Current Liabilities: Notes payable 11,200 12,400 Accounts payable 41,978 40,971 Accrued taxes 6,074 6,083 Accrued interest 4,232 8,616 PGA over-recoveries and refunds due customers 4,212 3,268 Level payment plan 1,712 2,944 Other 4,614 5,106 ---------- ---------- Total Current Liabilities 74,022 79,388 ---------- ---------- Deferred Liabilities and Credits: Accumulated deferred income taxes 142,653 144,969 Net regulatory liability 69,070 69,477 Investment tax credits 26,601 27,871 Capital lease obligation 2,739 2,954 Other 27,134 24,919 ---------- ---------- Total Deferred Liabilities and Credits 268,197 270,190 ---------- ---------- Total Capitalization and Liabilities $ 997,453 $ 988,325 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these balance sheets.
CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Income (Unaudited) (In thousands)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Operating Revenues: Electric $ 92,749 $ 94,424 $244,490 $233,660 Gas 15,393 15,376 110,543 103,558 -------- -------- -------- -------- Total Operating Revenue 108,142 109,800 355,033 337,218 -------- -------- -------- -------- Operating Expenses: Cost of fuel 25,071 25,184 75,640 68,198 Cost of gas 5,712 5,462 60,071 53,375 Purchased power 2,494 2,404 6,199 6,724 Other operation and maintenance 27,270 27,279 82,266 79,333 Depreciation and amortization 13,852 13,257 41,506 39,810 Income taxes 7,709 9,044 18,129 18,079 Other taxes 7,807 7,315 24,784 23,508 -------- -------- -------- -------- Total Operating Expense 89,915 89,945 308,595 289,027 -------- -------- -------- -------- Operating Income 18,227 19,855 46,438 48,191 Other Income and Deductions: Cost of equity funds capitalized - - 23 - Company-owned life insurance, net (220) (236) (492) (303) Disallowed plant cost (4,636) - (4,636) - Income tax reduction for disallowed plant cost 1,840 - 1,840 - Other, net (981) 197 (1,023) 351 -------- -------- -------- -------- Total Other Income (Deductions) (3,997) (39) (4,288) 48 -------- -------- -------- -------- Interest Expenses: Interest on long-term debt 4,809 5,149 14,413 14,935 Cost of borrowed funds capitalized (154) (73) (300) (177) Other 589 688 1,379 2,264 -------- -------- -------- -------- Total Interest Expense 5,244 5,764 15,492 17,022 -------- -------- -------- -------- Net Income 8,986 14,052 26,658 31,217 -------- -------- -------- -------- Dividends on Preferred Stock 761 1,121 2,190 3,342 -------- -------- -------- -------- Net Income Available for Common Stock $ 8,225 $ 12,931 $ 24,468 $ 27,875 ======== ======== ======== ======== The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Nine Months Ended September 30, 1994 1993 Cash flows from operating activities: Net income before preferred dividends $ 26,658 $ 31,217 Adjustments to reconcile net income to net cash provided by operating activities: Disallowed plant costs 4,636 - Income tax reduction for disallowed plant costs (1,840) - Depreciation and amortization 42,040 40,344 Deferred taxes, investment tax credits and regulatory liability, net (2,796) (2,768) Decrease (increase) in accounts receivable 1,237 (17,238) Increase in fuel, materials and supplies, and gas in underground storage (3,477) (4,104) Decrease in unbilled revenue 10,978 10,933 Increase (decrease) in accounts payable 1,007 (416) Decrease in accrued taxes and interest (3,750) (1,026) Decrease (increase) in other assets and liabilities, net 1,967 (7,076) --------- -------- Net cash provided by operating activities 76,660 49,866 --------- -------- Cash flows from investing activities: Capital expenditures (60,468) (55,884) Cost of equity funds capitalized (23) - Other (4,190) (3,934) --------- -------- Net cash used in investing activities (64,681) (59,818) --------- -------- Cash flows from financing activities: Common dividends paid (8,010) (15,878) Preferred dividends paid (2,190) (3,339) Long-term debt issued - 107,355 Preferred stock issued - 46,134 Long-term debt retired - (77,756) Preferred stock retired - (46,051) Payments on capital lease obligation (359) - (Decrease) increase in short-term borrowing (1,200) 1,600 --------- --------- Net cash provided (used) in financing activities (11,759) 12,065 --------- --------- Net increase in cash and temporary cash investments 220 2,113 Cash and temporary cash investments at beginning of year 594 1,776 --------- --------- Cash and temporary cash investments at September 30 $ 814 $ 3,889 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of cost of borrowed funds capitalized) $ 20,354 $ 19,162 Income taxes 21,261 11,891 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
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 Company), Central Illinois Light Company (CILCO), Environmental Science & Engineering, Inc. (ESE) and CILCORP's other subsidiaries after elimination of significant intercompany transactions. The consolidated financial statements of CILCO, a wholly-owned CILCORP subsidiary, include the accounts of CILCO and its subsidiaries, CILCO Exploration and Development Company and CILCO Energy Corporation. The accompanying unaudited financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Although CILCORP believes the disclosures are adequate to make the information presented not misleading, these financial statements should be read with the financial statements and related notes presented in the Company's 1993 Annual Report on Form 10-K. In the Company's opinion, the financial statements furnished reflect all normal and recurring adjustments necessary for a fair presentation of the results of operations for the periods presented. Operating results for interim periods are not necessarily indicative of operating results to be expected for the year or of the Company's future financial condition. NOTE 2. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE In January 1994, CILCO adopted Financial Accounting Standards Board (FASB) Statement No. 112, "Employer's Accounting for Postemployment Benefits" (SFAS 112). This standard requires accrual of benefits other than pensions or health care provided to former or inactive employees. In January 1994, CILCO recorded a pre-tax expense of approximately $750,000, which represented the cumulative effect of applying SFAS 112. During the third quarter of 1994, CILCO received revised actuarial assumptions related to its SFAS 112 benefits which will increase the total December 31, 1994, pre-tax expense approximately $300,000. The additional expense is being recorded in the third and fourth quarters of 1994. The financial effect of benefits ESE provides to former or inactive employees is not material. NOTE 3. FEDERAL ENERGY REGULATORY COMMISSION ORDER 636 In 1992, the Federal Energy Regulatory Commission (FERC) issued Orders 636, 636A, and 636B (collectively Order 636). The orders have been appealed to the United States Court of Appeals by various parties. As a result of Order 636 and subsequent regulatory filings by interstate pipelines, the pipelines serving CILCO have generally ceased sales of gas and have become transporters only. CILCO currently arranges for the purchase of gas from a variety of suppliers and has contracted for additional gas storage capacity to meet customer demand for gas. CILCO believes it is well-positioned to ensure the continued acquisition of adequate and reliable gas supplies despite the regulatory changes. Order 636 also permits pipelines to file new tariffs to provide for the recovery from their customers, including CILCO, of prudently incurred costs resulting from the transition to services under Order 636 ("transition costs"). CILCO's pipeline suppliers have filed with the FERC and directly billed CILCO, subject to refund, for approximately $1.4 million of transition costs, including interest, as of September 30, 1994. Transition costs are being recovered from CILCO's customers through the Purchased Gas Adjustment Clause (PGA). The PGA allows CILCO to immediately reflect increases or decreases in the cost of natural gas, including transition costs, in its charges to customers. All directly-billed transition costs have been collected from customers and remitted to suppliers. Pipeline suppliers have also incorporated indirect charges in their base service rates. CILCO estimates that it could ultimately be billed up to $3 million of direct and indirect transition costs, excluding interest. In orders entered on March 9, 1994, and September 21, 1994, the Illinois Commerce Commission (ICC) confirmed the right of Illinois gas utilities to recover 100% of pipeline transition costs. NOTE 4. CONTINGENCIES CILCO continues to investigate former gas manufacturing plant sites to determine if it is responsible for the remediation of any remaining waste materials (coal tar) at those sites. The sites of five former gas manufacturing plants are located within CILCO's present gas service territory. CILCO previously operated three of the five plants, and of the three sites, it currently owns two. CILCO completed remedial action in 1993, at a cost of $3.3 million, at one of the two owned sites at which it operated a plant. CILCO completed an investigation plan in 1992 to define the extent of contamination for the other owned site at which it formerly operated a plant. The plan has been approved by the Illinois Environmental Protection Agency and CILCO is formulating a risk assessment which will be used to define a remediation plan for the second owned site. Until more detailed site specific testing has been completed, CILCO cannot determine the ultimate extent or cost of any remediation for the third site where it operated a plant. CILCO does not currently own the two sites at which it did not operate a plant. (See Part II., Item 1: Legal Proceedings.) Of these two sites, CILCO has no responsibility for remediation at one and has not yet determined if it has responsibility for the other. CILCO expects to spend approximately $200,000 for site monitoring and feasibility studies in 1994. CILCO has recorded a $4.4 million liability and a corresponding regulatory asset on its balance sheet for coal tar investigation and remediation costs. The $4.4 million represents the minimum amount of the estimated range of such future costs which CILCO expects to incur. CILCO is presently allowed to recover prudently incurred coal tar remediation costs paid to outside parties pursuant to a rate rider which authorizes recovery over a five-year period. The rate rider does not allow recovery of carrying costs on the unrecovered balance. Coal tar remediation costs incurred through September 1994 have been deferred on the balance sheets, net of amounts recovered from customers. CILCO began recovering remediation costs under its coal tar rider on October 1, 1991, and through September 30, 1994, had recovered approximately $3.9 million. The recoverability of coal tar remediation costs and the method of recovery are presently issues in a case pending before the Illinois Supreme Court in which CILCO and other utilities are parties. Although CILCO cannot predict the outcome of that case, it believes that under existing law and regulatory practices most, or all, of its future coal tar remediation costs will continue to be recoverable from customers and no refunds of previously collected amounts in respect to remediation costs should be required. Therefore, although the total cost to CILCO of any action with respect to the unremediated sites and the possibility of recovering that cost from insurance carriers or any potentially responsible parties cannot now be determined, management believes that such cost will not have a material adverse effect on CILCO's financial position or results of operations. NOTE 5. ACCOUNTING FOR CERTAIN INVESTMENTS IN MARKETABLE SECURITIES On January 1, 1994, the Company and CILCO adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115). SFAS 115 requires an enterprise to classify debt and equity securities into one of three categories based on its intended use for those securities. It also requires the enterprise to adjust the carrying value of certain owned securities to market value. The statement has not had a material effect on the Company's, or CILCO's, financial position or results of operations. NOTE 6. RATE MATTERS Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations CILCO - Other Income and Deductions for a discussion of disallowed plant costs, a civil fine and other costs related to CILCO's Springfield, Illinois, gas operations. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CILCORP Inc. (the Company) is the parent of two core operating businesses, Central Illinois Light Company (CILCO) and Environmental Science & Engineering, Inc. (ESE). The Company also has three other first-tier subsidiaries, CILCORP Investment Management Inc. (CIM), CILCORP Development Services Inc. (CDS) and CILCORP Ventures Inc. (CVI), whose operations, combined with those of the holding company (Holding Company) itself, are collectively referred to herein as Other Businesses. CILCO, the primary subsidiary, is an electric and gas utility serving customers in central and east central Illinois. ESE is a national environmental consulting and engineering firm serving governmental, industrial, and commercial customers. CIM invests in a diversified portfolio of long-term financial investments which currently include leveraged leases and energy related interests. CDS is presently inactive. CVI is a venture capital company which pursues investment opportunities in new ventures and the expansion of existing ventures in energy services, biotechnology and health care. CILCO's financial condition and results of operations are currently the principal factors affecting the Company's financial condition and results of operations. Overview -------- The Company's earnings per share were $.73 for the quarter ended September 30, 1994, compared to $.98 per share earned during the same period in 1993. This decrease was primarily caused by one-time charges at CILCO to reflect the settlement of legal and regulatory actions related to CILCO's Springfield, Illinois, gas operations (See Part II. Item 1: Legal Proceedings) partially offset by higher net income at ESE & CIM. The Company's earnings per share were $2.01 for the nine months ended September 30, 1994, and 1993. Higher earnings by ESE and Other Businesses, lower interest expense and lower preferred dividends helped offset the one-time charges at CILCO during the nine months ended September 30, 1994. The following table summarizes the components of net income for the three months and nine months ended September 30, 1994 and 1993 (see Results of Operations for further discussion):
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) CILCO Electric Operating Income $20,131 $20,677 $ 41,561 $40,682 Gas Operating Income (Loss) (1,904) (822) 4,877 7,509 ------- ------- -------- ------- Utility Operating Income 18,227 19,855 46,438 48,191 Other Deductions and Interest Expense (9,241) (5,803) (19,780) (16,974) CILCO Preferred Stock Dividends (761) (1,121) (2,190) (3,342) ------- ------- -------- ------- Total Utility Net Income $ 8,225 $12,931 $ 24,468 $27,875 ESE Net Income (Loss) 967 (184) 1,444 (1,190) ------- ------- -------- ------- Core Businesses' Income 9,192 12,747 25,912 26,685 Other Businesses' Net Income (Loss) 378 (102) 300 (698) ------- ------- -------- ------- Consolidated Net Income Available to Common Shareholders$ 9,570 $12,645 $26,212 $25,987 ======= ======= ======= =======
Capital Resources & Liquidity Declaration of dividends is at the discretion of the Board of Directors. The Company's ability to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries, business conditions, earnings, and the financial condition of the Company. 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 meet the Company's capital expenditures program, pay interest and dividends, meet working capital needs and retire debt as it matures. The Company Short-term borrowing capability is available to the Company for additional cash requirements. On September 30, 1994, CILCORP had committed bank lines of credit of $40 million, of which $28.1 million was outstanding. During October 1994, CILCORP's Board of Directors authorized an increase in CILCORP's short-term borrowing limit from $40 million to $50 million. CILCORP is in the process of increasing its committed bank lines of credit to $50 million. Depending on market conditions, the Company may choose to issue new shares of common stock through the CILCO Employees' Savings Plan (ESP) and the CILCORP Automatic Reinvestment and Stock purchase Plan (DRIP) or to have the plans purchase CILCORP stock on the open market. However, the Company may not change its strategy more frequently than every three months. From December 1993 through March 1994, CILCORP issued to the plans 126,475 shares of common stock for $4.7 million. In March, the Company suspended issuance of common stock to the ESP and DRIP. The requirements of the plans are now being met through open market purchases. The proceeds from newly issued stock were used to retire CILCORP short-term debt, to meet working capital and capital expenditure requirements at CILCO, and for other corporate purposes. To date, the Company has issued $26 million of unsecured medium-term notes under its $75 million private medium-term note program. The Company may issue additional notes during 1994-1997 under this program to retire maturing debt of CILCORP Lease Management Inc. (CLM), a wholly-owned subsidiary of CIM, and to provide funds for other corporate purposes. Moody's Investors Service lowered its rating on CILCORP's medium-term notes to A1 from Aa3 on September 19, 1994. CILCO Capital expenditures totaled $60 million for the nine-month period ended September 30, 1994. Capital expenditures are anticipated to be approximately $27 million for the remainder of 1994, including $870,000 to retire and replace portions of CILCO's gas cast iron main system and $6 million to replace CILCO's Customer Information System (CIS). CILCO expects to replace the remaining cast iron main in its gas system by 2001 at an estimated total cost of $48 million. CILCO expects to complete the CIS project in 1995 at a total cost of $13 million. CILCO will finance its 1994 capital requirements with funds provided by operating activities and issuance of secured debt. Capital expenditures for the years 1995 and 1996 are estimated to be $70 million and $78 million, respectively. On December 17, 1993, CILCORP announced an agreement with Midwest Grain Products, Inc. (MWG), one of CILCO's largest customers, to develop a gas-fired cogeneration plant. The plant will provide steam heat service to MWG's Pekin, Illinois, facility and also will generate electricity. In May 1994, after the Illinois Commerce Commission (ICC) approved the facility as a least-cost generation alternative, CILCO paid CILCORP Development Services Inc. (CDS) $2.8 million for all expenditures incurred for the project plus a return on CDS's investment. CILCO will complete construction of the steam boilers and other equipment in 1994. In early 1995, a 20 megawatt turbine generator and related equipment will be installed; the plant will begin generating electricity by mid-1995. The project is on schedule, but its cost has increased by approximately $900,000 due to the relocation of the building site, higher turbine/generator costs, and the inability to reuse components of the existing MWG water treatment system. The revised $17.8 million cost of the facility is included in CILCO's capital expenditures discussed above. As of September 30, 1994, approximately $9.6 million had been spent on the project. On October 5, 1994, CILCO obtained ICC approval to issue not more than $65 million of secured medium-term notes and not more than $25 million of pollution control bonds. CILCO filed a shelf registration statement with the Securities and Exchange Commission for the $65 million of secured medium-term notes on November 3, 1994. CILCO plans to sell approximately $29 million of medium-term notes to finance its construction activities, including the MWG project, CIS project, gas cast iron main replacement program, and for other corporate needs. CILCO intends to issue the remaining $36 million of secured medium-term notes to retire outstanding long-term debt as it matures in 1996 and 1997. CILCO expects to issue $18 million of pollution control bonds in 1996 to finance the construction of new solid waste disposal facilities at CILCO's Duck Creek generating station. The timing and use of the remaining $7 million of pollution control bonds has not yet been determined. CILCO currently has outstanding $25 million of Flexible Auction Rate Class A preferred stock, without par value. The current annualized dividend rate is 4.00%. Quarterly dividend rates will vary based upon the results of auctions held each quarter. At September 30, 1994, CILCO had bank lines of credit, aggregating $30.4 million, which are used to support CILCO's issuance of commercial paper. CILCO had $11.2 million of commercial paper outstanding at September 30, 1994, and expects to issue commercial paper periodically throughout the remainder of 1994. ESE For the nine months ended September 30, 1994, ESE's expenditures for capital additions and improvements were approximately $3.1 million. Capital expenditures for the remainder of 1994 are expected to be approximately $1.9 million. ESE's working capital increased approximately $2.8 million during the nine months ended September 30, 1994. At September 30, 1994, ESE had borrowed $24.6 million from the Holding Company, an increase of $3.7 million from December 31, 1993. On September 7, 1994, ESE added $2 million to its line of credit used to collateralize its performance bonds, increasing this line of credit to $7 million. At September 30, 1994, $4.1 million of this line had been used. In addition, ESE eliminated a $1 million working capital line of credit. ESE expects to finance its capital expenditures and working capital needs during the remainder of 1994 with a combination of funds generated internally and periodic short-term borrowings from the Holding Company. Results of Operations The results of operations of CILCO, ESE, and Other Businesses for the three months and nine months ended September 30, 1994, compared to the three months and nine months ended September 30, 1993, are discussed below. CILCO Electric Operations The following table summarizes the components of CILCO electric operating income for the three months and nine months ended September 30, 1994 and 1993:
Components of CILCO Electric Three Months Ended Nine Months Ended Operating Income September 30, September 30, 1994 1993 1994 1993 (In thousands) Revenue: Electric retail $91,704 $93,108 $236,799 $231,017 Sales for resale 1,045 1,316 7,691 2,643 ------- ------- -------- -------- Total revenue 92,749 94,424 244,490 233,660 ------- ------- -------- -------- Cost of Sales: Cost of fuel 25,071 25,184 75,640 68,198 Purchased power 2,494 2,404 6,199 6,724 Revenue taxes 4,109 3,889 10,083 9,612 ------- ------- -------- -------- Total cost of sales 31,674 31,477 91,922 84,534 ------- ------- -------- -------- Gross margin 61,075 62,947 152,568 149,126 ------- ------- -------- -------- Operating Expenses: Other operation and maintenance 18,825 19,616 56,759 56,023 Depreciation and amortization 9,888 9,603 29,663 28,851 Income and other taxes 12,231 13,051 24,585 23,570 ------- ------- -------- -------- Total operating expenses 40,944 42,270 111,007 108,444 ------- ------- -------- -------- Electric operating income $20,131 $20,677 $ 41,561 $ 40,682 ======= ======= ======== ========
Electric gross margin decreased 3% for the quarter ended September 30, 1994, compared to the same period in 1993. The decrease for the quarter was primarily due to a 7% decrease in residential kilowatt hour (Kwh) sales. The decrease in higher margin residential sales for the quarter was primarily due to cooler weather. Cooling degree days for the quarter were 9% lower than 1993 and 5% lower than normal. A 4% increase in commercial and industrial sales due to an increased number of commercial customers and higher demand by several large industrial customers partially offset the decrease in residential sales. Overall retail sales were unchanged for the quarter ended September 30, 1994, compared to the corresponding 1993 period. CILCO set a new all-time system peak demand of 1,137,000 Kwh on July 5, 1994. Electric gross margin increased 2% for the nine months ended September 30, 1994, compared to the same period in 1993. The increase was primarily due to an increase in retail sales of 3% for the nine months ended September 30, 1994, compared to the same period in 1993. Residential sales increased slightly, while commercial and industrial sales increased 5% and 4%, respectively, for the nine months ended September 30, 1994, compared to 1993. The increase in residential sales was primarily due to warmer weather. The increase in commercial sales resulted from an increased number of commercial customers and warmer weather. Cooling degree days were 3% higher for the nine months ended September 30, 1994, compared to the same period in 1993 and 4% higher than normal. Industrial sales increased due to higher demand from several large industrial customers. CILCO's largest customer is Caterpillar. On June 20, 1994, Caterpillar employees represented by the United Auto Workers began a strike at Caterpillar facilities in CILCO's service territory. Caterpillar management has publicly stated that it will continue to operate its plants to meet the demand for its products. To date, the strike has not had an adverse effect on CILCO's sales to Caterpillar. CILCO management cannot predict what, if any, impact a prolonged strike at Caterpillar will have on CILCO's future revenues or earnings. 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 may ultimately be affected by increased competition in the electric utility industry (see Part II. Item 5: Electric Competition). Energy sales to other utilities decreased for the quarter and increased for the nine months ended September 30, 1994, respectively. Sales decreased for the quarter due to insufficient capacity to sell power and lower demand from neighboring utilities. The increase in energy sales for the nine months ended September 30, 1994 resulted from greater demand for electricity from neighboring utilities. Sales for resale vary based on energy requirements of neighboring utilities, CILCO's available capacity for bulk power sales and the price of power available for sale. CILCO expects competition to continue to increase in the sales for resale and purchased power market due to certain provisions of the Energy Policy Act of 1992. Substantially all of CILCO's electric generating capacity is coal-fired. The cost of fuel remained relatively constant for the quarter and increased 11% for the nine months ended September 30, 1994, compared to the same periods in 1993. The increase for the nine months ended September 30, 1994, was primarily due to increased electric generation to meet greater demand for electricity from other utilities (sales for resale) and from CILCO's retail customers. Purchased power increased for the quarter and decreased for the nine months ended September 30, 1994, compared to the same periods in 1993. Purchased power expense varies based on CILCO's need for energy and the price of power available for purchase. CILCO makes use of purchased power when it is economical to do so or when required to meet CILCO power requirements, such as during maintenance outages at CILCO plants. Costs and savings realized from the purchase of power are passed on to CILCO's customers via the fuel adjustment clause (FAC). The FAC allows CILCO to pass increases and decreases in the cost of fuel through to customers. Other operation and maintenance expenses decreased 4% for the quarter ended September 30, 1994, compared to the same period in 1993. The decrease for the third quarter was primarily due to decreases in power plant operating and maintenance expenses, overhead line expenses, injury and damage claims, and decreased other post employment benefit (OPEB) costs resulting from revised actuarial assumptions. The decrease for the quarter was offset by increased employee benefit costs, including costs resulting from the implementation of SFAS 112 (see Part I. Item 1: Note 2 Postemployment Benefits Other Than Pensions and Health Care Costs) and expenses related to the development of the new CIS system (see Capital Resources and Liquidity). Other operation and maintenance expenses increased slightly for the nine months ended September 30, 1994, compared to 1993. The increases were primarily due to increased employee benefit costs, including costs resulting from the implementation of SFAS 112 (see Part I. Item 1: Note 2 Postemployment Benefits Other than Pensions and Health Care Costs), development costs of the CIS system, and power plant operating expenses. These increases were partially offset by reduced OPEB costs resulting from revised actuarial assumptions, decreased expenses for overhead lines, and lower injury and damage claims. Depreciation and amortization expense increased slightly in 1994 compared to 1993, reflecting additions and replacements of utility plant at costs in excess of the original cost of the property retired. Income and other taxes expense changed for the quarter and nine months ended September 30, 1994, due to changes in pre-tax operating income compared to 1993. CILCO Gas Operations The following table summarizes the components of CILCO gas operating income for the three months and nine months ended September 30, 1994 and 1993:
Components of Gas Three Months Ended Nine Months Ended Operating Income September 30, September 30, 1994 1993 1994 1993 (In thousands) Revenue: Sale of gas $13,345 $13,467 $103,193 $ 96,677 Transportation services 2,048 1,909 7,350 6,881 ------- ------- -------- -------- Total revenue 15,393 15,376 110,543 103,558 ------- ------- -------- -------- Cost of Sales: Cost of gas 5,712 5,462 60,071 53,375 Revenue taxes 699 547 5,697 5,268 ------- ------- -------- -------- Total cost of sales 6,411 6,009 65,768 58,643 ------- ------- -------- -------- Gross margin 8,982 9,367 44,775 44,915 ------- ------- -------- -------- Operating Expenses: Other operation and maintenance 8,445 7,663 25,507 23,310 Depreciation and amortization 3,964 3,654 11,843 10,959 Income and other taxes (1,523) (1,128) 2,548 3,137 ------- ------- -------- -------- Total operating expenses 10,886 10,189 39,898 37,406 ------- ------- -------- -------- Gas operating (loss) income $(1,904) $ (822) $ 4,877 $ 7,509 ======= ======= ======== ========
Gas gross margin decreased 4% for the quarter and decreased slightly for the nine months ended September 30, 1994, compared to the same periods in 1993. These changes in gross margin were primarily due to changes in residential sales for these periods compared to the same periods in 1993. Residential sales decreased 4% for the quarter and increased slightly for the nine months ended September 30, 1994, compared to 1993. Heating degree days decreased 43% for the quarter and remained relatively constant for the nine months ended September 30, 1994, compared to the same periods in 1993. Commercial sales increased 6% for both the quarter and nine months ended September 30, 1994, compared to 1993 mainly due to an increase in the number of commercial customers. Revenue from retail sales decreased 2% while sales volumes increased 1% for the third quarter of 1994 compared to 1993. The increased sales volumes were mainly from classes of customers that have lower profit margins. As a result, the change in gross margin was not proportional to the change in sales volume. Retail sales revenue increased 6% and sales volumes increased 2% for the nine months ended September 30, 1994, compared to the same period in 1993. The change in revenue was not proportional to the change in volume due to higher purchased gas adjustment (PGA) factors in 1994. The PGA is the mechanism used to pass increases or decreases in the cost of natural gas through to customers. 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. Revenue from gas transportation services increased 7% for the quarter and nine months ended September 30, 1994, while transportation volumes increased 26% and 13% for the quarter and nine months ended September 30, 1994, respectively, when compared to the same periods in 1993. Revenue increased primarily due to increased purchases of gas by industrial transportation customers from suppliers other than CILCO. The increase in revenue was not proportional to the increase in volume because certain large volume transportation customers who can negotiate lower unit charges for service accounted for most of the increase in transportation volumes. The cost of gas increased 5% and 13% for the quarter and nine months ended September 30, 1994, respectively. The increase for the quarter was primarily due to higher PGA factors, partially offset by lower natural gas prices. The increase for the nine months ended September 30, 1994, was due to increased sales and higher PGA factors, partially offset by lower natural gas prices. Other operation and maintenance expenses increased 10% for the quarter and nine months ended September 30, 1994, compared to the same periods in 1993. The increases were primarily due to increased regulatory costs associated with CILCO's pending rate case and higher employee benefit costs. Implementation of SFAS 112 (see Part I. Item 1: Note 2. Postemployment Benefits Other Than Pensions and Health Care Costs) contributed to the increase in employee benefit costs. Decreased gas maintenance expenses resulting from the completion of repairs to the Springfield gas distribution system in 1993 (See Part II. Item 1: Legal Proceedings) and decreased OPEB costs resulting from revised actuarial assumptions partially offset the increases. Depreciation and amortization expense increased, reflecting additions and replacements of utility plant at costs in excess of the original cost of the property retired. Income and other taxes expense decreased for the quarter and nine months ended September 30, 1994, due to lower pre-tax operating income. CILCO Other Income and Deductions and Interest Expense The following table summarizes other income and deductions for the three months and nine months ended September 30, 1994 and 1993:
Components of Other Income and Three Months Ended Nine Months Ended Deductions and Interest Expense September 30, September 30, 1994 1993 1994 1993 (In thousands) Net interest expense $(5,362) $(5,786) $(15,442) $(16,910) Income taxes 496 680 1,166 1,780 Disallowed plant cost (4,636) - (4,636) - Income tax reduction for disallowed plant cost 1,840 - 1,840 - Other (1,579) (697) (2,708) (1,844) ------- -------- -------- --------- Other income (deductions) $(9,241) $(5,803) $(19,780) $(16,974) ======= ======== ======== =========
Interest expense decreased for the quarter and nine months ended September 30, 1994, compared to the same periods in 1993 due to lower interest rates resulting from bonds refinanced in 1993. Disallowed plant costs and related income taxes resulting from CILCO's acceptance of the ICC staff adjustments in CILCO's pending rate case significantly reduced CILCO's income. (See Part II. Item 5. Gas Rate Increase Request.) The civil fine and other costs CILCO agreed to pay as a result of the U. S. Department of Justice and U. S. Department of Transportation investigations also contributed to the increase in other deductions for the quarter and nine months ended September 30, 1994, compared to the same periods in 1993. (See Part II. Item 1. Legal Proceedings.) ESE Operations The following table summarizes the components of the environmental and engineering services results for the three months and nine months ended September 30, 1994 and 1993:
Three Months Ended Nine Months Ended Components of ESE Income September 30, September 30, 1994 1993 1994 1993 (In thousands) Environmental and engineering services revenue $35,204 $30,631 $98,420 $89,928 Direct non-labor costs 14,496 10,601 38,214 30,203 ------- ------- ------- ------- Net Revenues 20,708 20,030 60,206 59,725 ------- ------- ------- ------- Expenses: Direct salaries and other operating costs 10,121 9,734 29,513 29,895 General & administrative 7,036 8,166 22,371 25,234 Depreciation & Amortization 1,472 1,613 4,421 4,541 ------- ------- ------- ------- 18,629 19,513 56,305 59,670 ------- ------- ------- ------- Interest expense 594 441 1,396 1,282 ------- ------- ------- ------- Income (loss) before income taxes 1,485 76 2,505 (1,227) Income taxes 518 260 1,061 (37) ------- ------- ------- ------- ESE net income (loss) $ 967 $ (184) $ 1,444 $(1,190) ======= ======= ======= =======
ESE's results have fluctuated from quarter to quarter since its acquisition in 1990. Factors influencing such variations include project delays, which may be due to a variety of factors including delays in projects caused by regulatory agency approvals or client considerations; the level of subcontractor services; weather, which may limit the amount of time ESE professionals have in the field; and the initial training of new professionals. Accordingly, results for any one quarter are not necessarily indicative of results for any other quarter or for the year. Net revenues increased for the quarter and nine months ended September 30, 1994, when compared to the same periods in 1993. The net revenue increase in the third quarter of 1994 resulted from higher demand for both laboratory and consulting services. The net revenue increase for the nine months ended September 30, 1994, was primarily due to increased demand for laboratory services. ESE incurs substantial direct project costs from the use of subcontractors on projects. These costs are passed directly through to ESE's clients. As a result, ESE measures its operating performance on the basis of net revenues, which are determined by deducting such direct project costs from gross revenues. General and administrative expenses decreased by 14%, and 12%, for the quarter and nine months ended September 30, 1994, respectively, when compared to the same periods in 1993. The decrease was primarily due to lower salary expense and lower medical costs. Depreciation and amortization decreased by 9%, and 3%, respectively, for the quarter and nine months ended September 30, 1994, when compared to the same periods in 1993. This decrease principally resulted from the termination of several capital leases in the third quarter of 1994. Interest expense increased during the third quarter and the nine months ended September 30, 1994, compared to the same periods in 1993. This was primarily due to higher interest rates and increased short-term borrowing during 1994. The increase in income tax expense is a result of higher taxable income. Other Businesses' Operations The following table summarizes the components of Other Businesses' income (loss) for the three months and nine months ended September 30, 1994 and 1993.
Three Months Ended Nine Months Ended Components of Other Businesses' September 30, September 30, Net Income 1994 1993 1994 1993 (In thousands) Revenue: Other revenue $2,508 $1,258 $6,983 $4,924 Expenses: Operating expenses 1,131 543 3,792 1,843 Depreciation and amortization 58 43 154 132 Interest expense 1,198 646 2,751 2,121 Income and other taxes (257) 68 (14) 1,363 Minority interest 0 60 0 163 ------ ------ ------ ------ Total expenses 2,130 1,360 6,683 5,622 ------ ------ ------ ------ Other Businesses' net income (loss) $ 378 $ (102) $ 300 $ (698) ====== ====== ====== ======
Other revenue increased during the quarter and nine months ended September 30, 1994, as compared to the same periods in 1993 due primarily to the sale of Tucson Electric Power Company (TEP) stock, additional revenues from new leveraged lease investments made by CIM subsidiaries in late 1993, and revenues generated by a new CVI subsidiary. (See Part II, Item 5, Other Events). In addition, year-to-date revenue includes a fee paid by CILCO to CDS related to the construction of the Midwest Grain cogeneration plant (See Capital Resources and Liquidity, CILCO). CILCO will capitalize the fee as part of its utility plant in service when the project is completed. Operating expenses increased at the Holding Company due to several one-time charges, including termination of a lease at an ESE facility that ESE no longer plans to use. The lease was entered into during negotiations which led to CILCORP's 1990 acquisition of ESE. Interest expense increased for the quarter and nine months ended September 30, 1994, as compared to the same periods in 1993 due to higher short-term borrowings at the Holding Company and increased interest rates. Income and other taxes declined in 1994 because 1993 taxes included amounts related to a reserve for potential income taxes if the Company's position regarding the depreciable life of the Springerville Unit No. 1 generating station had not been ultimately upheld by the Internal Revenue Service. The Springerville tax dispute was favorably settled during the fourth quarter of 1993. Income tax expense also declined in the third quarter of 1994 due to the settlement of several issues unrelated to Springerville Unit No. 1. Minority interest in net income declined due to CILCORP's 1993 purchase of the 19% minority interest in CILCORP Lease Management Inc., a second-tier subsidiary of CILCORP. PART II. OTHER INFORMATION Item 1: Legal Proceedings Reference is made to "Environmental Matters" under "Item 1. Business" in the Company's 1993 Form 10-K, and "Note 4. Contingencies," herein, for certain pending legal proceedings and proceedings known to be contemplated by governmental authorities. The Company and its subsidiaries are subject to certain claims and lawsuits in connection with work performed in the ordinary course of their businesses. Except as otherwise disclosed in this section, in the opinion of management, all such claims currently pending either will not result in a material adverse effect on the financial position of the Company or are adequately covered by (i) insurance, (ii) contractual or statutory indemnification, or (iii) reserves for potential losses. CILCO After a significant number of leaks was detected in the Springfield, Illinois, cast iron gas distribution system in mid-1992, CILCO began a detailed examination of its Springfield gas distribution system and related operating practices and procedures. The objective of this examination was to detect and repair gas main leaks and to identify and correct any operating deficiencies. This project was substantially completed by September 30, 1993. (See Part I. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations). In September 1992, the ICC staff began an informal review of CILCO's Springfield gas operations and recordkeeping practices. Subsequently, at the request of the ICC, the U.S. Department of Transportation (DOT) and the U.S. Department of Justice (DOJ) conducted investigations focused principally on CILCO's Springfield gas operations. On September 16, 1994, CILCO entered into a federal court civil consent decree with the DOJ which concluded the investigation of CILCO's Springfield gas operations by the DOJ and the DOT. In the consent decree, CILCO agreed to pay an $844,000 civil fine to the United States and agreed to reimburse the ICC, DOT and DOJ, $156,000 for the cost of their investigations. CILCO also agreed to underwrite the reasonable expense of an outside expert selected by the ICC to examine its gas operations manuals and systems to ensure that they are in compliance with all applicable statutes and regulations. CILCO will continue to cooperate with the DOJ in its investigation and prosecution of any individuals who may be responsible for willful violations of any applicable statutes or regulations. In early August 1994, CILCO accepted adjustments recommended by the ICC staff in CILCO's pending gas rate proceeding which resulted in a net disallowance from CILCO's gas rate base of approximately $4.6 million of investment in CILCO's Springfield cast iron renewal project. (See Part II. Item 5. Gas Rate Increase Request.) CILCO's acceptance of the recommended disallowance was part of the settlement with the DOJ. The disallowance, civil fine, and reimbursement of investigation costs discussed above resulted in a $3.7 million after-tax charge against CILCO's third quarter net income. As a result of this settlement, the DOJ has agreed not to seek any additional civil or criminal penalties from CILCO or CILCORP. The ICC staff has also agreed not to seek any additional enforcement penalties from CILCO or CILCORP arising from this investigation. On July 6, 1994, a lawsuit was filed against CILCO in a United States District Court by a subsequent owner, Vector-Springfield Properties, Ltd., seeking damages related to a gas manufacturing plant which was never operated by CILCO. (See Note 4. Contingencies.) The lawsuit seeks cost recovery of more than $3 million related to coal tar investigation expenses, operating losses, and diminution of market value. CILCO intends to vigorously defend these claims. Management cannot currently determine the outcome of this litigation, but does not believe it will have a material adverse impact on CILCO's financial position or results of operations. ESE At the request of the South Carolina Department of Health and Environmental Control ("DHEC"), the DOJ initiated an investigation into an alleged record-keeping violation at an office operated by ESE in Greenville, South Carolina. DHEC is also continuing its investigation. The office was closed in May 1993. Although the investigation could potentially lead to civil penalties and certain sanctions, some of which could include disqualification from certain contracts, ESE has been informed that the DOJ intends to transfer this matter to the Attorney General of South Carolina for disposition as a civil matter. Management cannot currently determine the outcome of this disposition but does not believe it will have a material adverse impact on the Company's financial position or results of operations. Item 5: Other Information CILCO ELECTRIC COMPETITION On April 20, 1994, the ICC adopted a "resolution recognizing the need for an examination of changes in the structure of the electric energy industry." The ICC has indicated a broad-based and open examination of the purposes behind current utility laws and regulations in Illinois will be undertaken to determine whether or not these laws and regulations should be modified in light of the expanding presence of competitive market components within the electric energy industry. CILCO is participating in these proceedings. The work product resulting from these activities will be provided to the ICC and the Illinois legislature for educational and planning purposes. The potential outcome of these activities is unknown and highly speculative at this time. With growing competition in the electric utility industry, CILCO's largest customers may have increased opportunities to select their electric supplier. CILCO has entered into contracts, ranging from five to eight years, with various industrial customers to exclusively supply them with their electric power requirements at prices consistent with current rates. Based on CILCO's 1993 total retail Kwh sales, these contracts are projected to account for approximately 16% of CILCO's 1994 total retail Kwh sales. CILCO GAS RATE INCREASE REQUEST On January 14, 1994, CILCO filed a request with the ICC to increase gas base rates to reflect both the current costs of providing gas service and its additional investment in the gas system, including the replacement of certain portions of the Springfield gas distribution system (see Part II. Item 1: Legal Proceedings). The proposed rates are designed to increase annual base rate gas revenues by approximately $14.2 million net of tax, or 8.9%, based upon an adjusted test year ended December 31, 1995. The filing requested a 9.4% return on original cost rate base and a 12.0% return on common equity. CILCO has filed additional testimony which supports a 9.6% return on original cost rate base and a 12.5% return on common equity due to subsequent increases in interest rates which result in an increase in capital costs. The ICC staff submitted testimony which, among other things, recommended adjustments resulting in a net disallowance from CILCO's gas rate base of approximately $4.6 million of investment in the Springfield cast iron renewal project. In early August 1994, CILCO accepted these adjustments. Statement of Financial Accounting Standards No. 90, "Regulated Enterprises - Accounting for Abandonments and Disallowances of Plant Costs," requires CILCO to recognize an expense equal to the amount excluded from rate base in the year the disallowance becomes probable, less applicable income taxes. CILCO recorded a one-time, after-tax charge against third quarter 1994 net income of approximately $2.8 million to reflect the accepted portion of the rate base disallowance. (See Part II. Item 1. Legal Proceedings.) On October 13, 1994, the ICC hearing examiners issued a proposed order in the gas rate case which recommended an $11.2 million increase in base rate revenues. The proposal reflected an 11.9% return on common equity and a 9.3% return on rate base. The ICC staff and certain intervenors, including the Citizens Utility Board and the City of Springfield, have requested adjustments and disallowances in addition to those included in the proposed order. The ICC has scheduled oral arguments for November 21, 1994, in Springfield. Management cannot predict the ultimate outcome of CILCO's rate filing. A decision from the ICC is expected in early December 1994. CILCO ELECTRIC PRODUCTION On April 26, 1994, the United States Environmental Protection Agency (USEPA) issued a Notice of Violation (NOV) to CILCO. The NOV states that opacity emission limit violations occurred throughout 1993 at E. D. Edwards Station for two coal-fired boilers. The NOV was issued pursuant to Section 113(a)(1) of the Clean Air Act. On May 24, 1994, a conference was held with USEPA representatives to discuss the NOV. CILCO has provided additional information in support of its position that the emissions did not exceed acceptable opacity limits. CILCO received a draft consent order from the USEPA on November 3, 1994, and is currently reviewing that draft. Management cannot currently determine the outcome of any actions related to the alleged violations, but does not believe they will have a material adverse impact on CILCO's financial position or results of operations. CILCO SALE OF R. S. WALLACE STATION On September 9, 1994, RDC Development Corporation entered into a contract to purchase the R. S. Wallace Station, a retired electric generating plant, and approximately 95 acres of adjoining land for $7 million. Various significant terms and conditions, including ICC approval of the sale and the regulatory treatment of the proceeds, must be satisfied in order for the sale to be completed. ESE NEW SUBSIDIARY ESE formed a 100% wholly-owned subsidiary on September 26, 1994, to acquire environmentally-impaired real estate, perform cleanup work and then sell the real estate. ESE's initial equity investment in the subsidiary is $2.1 million. CVI NEW SUBSIDIARY On April 11, 1994, CVI formed a 100% wholly-owned subsidiary, CILCORP Energy Services Inc. (CESI). Total equity invested as of September 30, 1994, was $500,000. The entity was formed to provide energy related services and consumer products. The revenues and expenses incurred are included in Other Businesses' Results of Operations. CIM TEP STOCK DISPOSITION As part of the 1992 restructuring of the Springerville Unit No. 1 lease, CLM received approximately 1.2 million shares of TEP common stock and warrants to purchase approximately 895,000 additional shares. During 1993, CLM sold one million shares. By September 30, 1994, CLM had sold all of its remaining TEP stock. In October 1994, CLM sold all of its TEP warrants. Item 6: Exhibits and Reports on Form 8-K (a) Exhibits (12) Central Illinois Light Company Computation of Ratios of Earnings to Fixed Charges In accordance with Item 601(c)(1) of Regulation S-K, the following exhibits are included only in electronically filed copies of Form 10-Q CILCO and CILCORP Inc. (27a)CILCORP Financial Data Schedule (27b)Central Illinois Light Company Financial Data Schedule (b) Reports on Form 8-K A combined form 8-K was filed on September 16, 1994, to disclose a settlement with the DOJ that concluded the investigation of CILCO's Springfield, Illinois, gas operations by the DOJ and the DOT. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the regis trant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CILCORP Inc. (Registrant) Date November 2, 1994 R. O. Viets R. O. Viets President and Chief Executive Officer Date November 2, 1994 T. D. Hutchinson T. D. Hutchinson Controller - 34 - SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the regis trant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTRAL ILLINOIS LIGHT COMPANY (Registrant) Date November 10, 1994 T. S. Romanowski T. S. Romanowski Vice President and Chief Financial Officer Date November 10, 1994 R. L. Beetschen R. L. Beetschen Controller and Manager of Accounting - 35 - CENTRAL ILLINOIS LIGHT COMPANY Computation of Ratio of Earnings to Fixed Charges
Twelve Months Ended September 30, December 31, 1994 1993 1992 1991 1990 1989 (Thousands of Dollars) Earnings, as defined: Net Income $33,118 $37,678 $35,636 $44,231 $40,966 $44,430 Income Taxes 19,193 20,368 17,723 22,329 20,500 22,179 Fixed Charges, as below 24,911 26,335 25,130 24,295 24,095 24,540 ------- ------- ------- ------- ------- ------- Total Earnings, as defined $77,222 $84,381 $78,489 $90,855 $85,561 $91,149 ------- ------- ------- ------- ------- ------- Fixed Charges, as defined: Interest on COLI $ 1,861 $ 1,434 $ 930 $ 870 $ 868 $ 798 Interest on Short-Term Debt 269 592 180 0 0 0 Interest on Long-Term Debt 19,231 19,753 20,747 21,285 21,399 21,968 Amortization of Debt Discount & Expense and Premium 682 624 410 96 97 107 Miscellaneous Interest Expense 865 1,485 2,448 1,591 1,320 1,205 Interest Portion of Rentals 2,003 2,447 415 453 411 462 ------- ------- ------- ------- ------- ------- Total Fixed Charges, as defined $24,911 $26,335 $25,130 $24,295 $24,095 $24,540 ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 3.10 3.20 3.12 3.74 3.55 3.71 ==== ==== ==== ==== ==== ====
- 36 - EX-27 2
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000762129 CILCORP INC. 1,000 9-MOS DEC-31-1993 JAN-01-1994 SEP-30-1994 PER-BOOK 850,755 148,297 156,473 58,336 0 1,213,861 167,987 0 178,373 346,360 22,000 44,120 307,704 39,300 0 0 18,043 0 2,739 283 433,312 1,213,861 460,436 15,993 396,233 396,233 64,203 (491) 63,712 19,316 28,403 2,190 26,213 24,053 0 77,281 2.01 2.01
EX-27 3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000018651 CENTRAL ILLINOIS LIGHT COMPANY 1,000 9-MOS DEC-31-1993 JAN-01-1994 SEP-30-1994 PER-BOOK 850,755 2,839 111,517 32,342 0 997,453 185,661 0 125,103 310,764 22,000 44,120 278,350 0 0 11,200 0 0 2,739 283 327,997 997,453 355,033 15,123 290,466 308,595 46,438 (7,294) 42,127 15,469 26,658 2,190 24,468 8,010 0 76,660 0 0
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